Directors Are Not Liable for the Torts of Employees Unless Personally Involved, but Should Still Keep a Close Watch Over What Corporate Officers are Doing

484010_business_man_modified.jpgThere are hundreds of new cases filed in Illinois courts every day, and many of those cases involve business disputes. At DiTommaso-Lubin, we pride ourselves on staying on top of new court filings so that we know of changes in the law as they happen. Our Waukegan business attorneys just found a decision rendered by the Appellate Court of Illinois that provides some useful information for our business clients.

Zahl v. Krupa is a dispute between investors in a fund allegedly run by a company and the directors of that company. Plaintiffs alleged that they were approached by Defendant Krupa, President of Jones & Brown Company, Inc., who solicited money to be invested in a fund only available to the officers and directors (and their family members) of the company. There were two agreements allegedly written on company letterhead that set out the terms of the investments, whereupon Plaintiffs would invest between $100,000 and $160,000 each and receive an 11.1% return guaranteed by Jones & Brown. Plaintiffs each allegedly signed an agreement with Defendant Krupa and gave him the funds requested. There was no other written documentation regarding the investments or the agreements. Plaintiffs allegedly never got the return on their investment nor did they get their money back.

Plaintiffs then filed suit against Krupa, the other officers of Jones & Brown, and the directors of the business. Plaintiffs sued for breach of contract, fraud, and negligent hiring, supervision, and retention. The breach of contract and fraud causes of action were reliant upon the alleged assertion that Defendant Krupa, in soliciting Plaintiffs, was acting as an agent or apparent agent of Jones & Brown. The remaining causes of action sought to hold Defendants liable for Defendant Krupa's deception because they knew or should have known that he was untrustworthy.

Through discovery, the depositions of several parties allegedly showed that Defendant Krupa never had actual authority to enter into the investment agreements because the directors neither signed nor authorize the agreements. Testimony also revealed that the investment agreements were allegedly outside the scope of Jones & Brown's normal business as a construction company, which showed that Krupa did not have apparent authority. As a result of these facts, Defendants successfully moved for summary judgment on the breach of contract claim based upon lack of actual and apparent authority. In moving for summary judgment on the fraud claim, Defendants cited Illinois case law holding that directors cannot be held personally liable for fraud unless they personally participated in perpetrating the fraud. As the directors did not sign the agreements or participate in their creation, the court granted summary judgment. Finally, Defendants successfully moved for summary judgment on the negligence claims because they did not know that Krupa had the potential for fraud.

Plaintiffs then appealed the trial court's ruling against them, and the Appellate Court conducted a de novo review of Defendants' motion for summary judgment. The Court agreed with the trial court's findings and held that Defendants were not negligent with respect to Krupa and did not know about his dealings with Plaintiffs. The Court went on to say that there was no reason for Defendants to suspect Krupa of wrongdoing.

In reviewing Zahl v. Krupa, the case serves as a reminder for business investors to carefully examine any investment opportunities and accompanying paperwork to ensure the legitimacy of the investment. Additionally, business owners and directors should keep an eye on their officers and employees to ensure that they do not find themselves defending a lawsuit for their employees' allegedly objectionable actions.

Continue reading " Directors Are Not Liable for the Torts of Employees Unless Personally Involved, but Should Still Keep a Close Watch Over What Corporate Officers are Doing " »

Federal District Court Exercises Supplemental Jurisdiction Over Counterclaims Regarding Ownership of Employee-Created Farm Equipment Patents

210233_big_harvest_2.jpgMost companies encourage their employees to innovate and come up with ways to improve the processes, products, and service of the business. Such improvements may be patentable inventions, and it is important for business owners to establish who owns that intellectual property and protect any IP that accrues to the company. In the absence of an explicit employment agreement, the ownership of such inventions can come into dispute, and our Joliet business attorneys discovered one such case in the Central District of Illinois federal court.

Shoup v. Shoup Manufacturing is a dispute between a company and its former president over the ownership of several patents. Ken Shoup, Plaintiff, was the president of Defendant Shoup Manufacturing for over twenty years, and during his time as president he conceived of several inventions that were patented on behalf of Defendant. Defendant used those patents and sold products based upon them. However, Plaintiff did not have an express or written employment contract that required assignment of the inventions to Defendant. Eventually, Plaintiff terminated his relationship with Defendant, began a similar business to compete with Defendant, and filed suit alleging patent infringement for Defendant’s continued use of his inventions. Plaintiff sought an injunction to prevent that continued use and monetary damages under 35 USC §271.

Defendant responded to Plaintiffs lawsuit by denying that Plaintiff owned the patents in question, and alleged that Plaintiff was obligated to assign the patents to Defendant, and that it had a valid license to the inventions. Defendant also filed a counterclaim alleging that Plaintiff developed the patents using company resources while he was an employee and officer of Defendant, and that Defendant was the rightful owner of the patents. Defendant sought a compulsory written assignment of the patents and an accounting of Plaintiff’s unauthorized exploitation of them. Plaintiff then filed a motion for Judgment on the Pleadings to dismiss Defendant's counterclaims.

Plaintiff argued that the Court had no jurisdiction over the claims because ownership of the patent was determined by Illinois State law. The Court agreed that it did not have original jurisdiction over the dispute, but because the counterclaims for ownership of the patents arose out of a common nucleus of operative facts regarding Plaintiff's original patent infringement suit (which was a federal claim), supplemental jurisdiction was proper. The Court therefore denied Plaintiffs motion, finding Defendant had satisfied the requirements for supplemental jurisdiction under 28 USC §1367(a), and allowed the counterclaim to proceed.

Continue reading " Federal District Court Exercises Supplemental Jurisdiction Over Counterclaims Regarding Ownership of Employee-Created Farm Equipment Patents " »

Northern District of Illinois Federal Court Grants Motion to Strike Putative Overtime Class-Action

673264_hammer_to_fall.jpgClass-action lawsuits are common in unpaid overtime cases because the misclassification of employees or miscalculation of overtime usually happens on a large scale because major companies have such sizable work forces. Because such lawsuits can prove to be quite costly, defendant employers will do whatever they can to dispose of those claims in any way possible. DiTommaso-Lubin knows the 'tricks of the trade' that defendants use, and our Skokie overtime attorneys found a federal case the illustrates one of the tools that wage claim defendants utilize.

Wright v. Family Dollar Inc. is a putative class-action filed by former associates who worked for Defendant Family Dollar and were allegedly not paid regular and overtime wages that they earned in the course of their employment. The named plaintiff, a store manager, alleged that Defendant “withheld compensation from associates by giving its store managers unfeasibly low payroll budgets” that forced those managers to require associates to work without being paid. The case, which alleged violations of the Illinois Wage Payment and Collection Act, and the Illinois Minimum Wage Law, was initially filed in the Cook County Circuit Court, but was removed to the federal court by Defendant.

Defendant then filed a motion to strike class allegations pursuant to FRCP23(c)(1)(A) and (d)(1)(D), claiming that Plaintiffs could not establish typicality and adequacy of representation. The Court granted Defendant's motion, holding that the named plaintiff, as a manager, participated in the wrongful conduct at issue and her counsel therefore had a conflict of interest with the class members who were associates. The Court also held that the typicality requirement was not met because there were defenses unique to the named plaintiff and other managers in the putative class that did not apply to associate class members.

Continue reading " Northern District of Illinois Federal Court Grants Motion to Strike Putative Overtime Class-Action " »

This American Life Reports: "When Patents Attack"

chicago%27s%20top%20business%20litigation%20and%20super%20lawyersl.jpg

This American Life reports in an excellent piece on how a billioinaire inventor who founded a company to aggregate patents and to sue for infringement. This practice may in fact be hindering innovation and the economy the story reports:

Nathan Myhrvold is a genius and a polymath. He made hundreds of millions of dollars as Microsoft's chief technology officer, he's discovered dinosaur fossils, and he recently co-authored a six-volume cookbook that "reveals science-inspired tech­niques for prepar­ing food."

Myhrvold has more than 100 patents to his name, and he's cast himself as a man determined to give his fellow inventors their due. In 2000, he founded a company called Intellectual Ventures, which he calls "a company that invests in invention."

But Myhrvold's company has a different image among many Silicon Valley insiders.

The influential blog Techdirt regularly refers to Intellectual Ventures as a patent troll. IPWatchdog, an intellectual property site, called IV "patent troll public enemy #1." These blogs write about how Intellectual Ventures has amassed one of the largest patent portfolios in existence and is going around to technology companies demanding money to license these patents.

Patents are a big deal in the software industry right now. Lawsuits are proliferating. Big technology companies are spending billions of dollars to buy up huge patent portfolios in order to defend themselves. Computer programmers say patents are hindering innovation.

But people at companies that have been approached by Intellectual Ventures don't want to talk publicly.

"There is a lot of fear about Intellectual Ventures," says Chris Sacca, a venture capitalist who was an early investor in Twitter, among other companies. "You don't want to make yourself a target."

You can read a print version of the entire story by clicking here or download the audio version at This American Life's website by clicking here.

Continue reading " This American Life Reports: "When Patents Attack" " »

Video on Internet Fraud

Continue reading " Video on Internet Fraud " »

Fraud Magazine Reports: "In the Wake of Significant Legislative Changes, the Civil False Claims Act Hauls in $3 Billion in Fiscal Year 2010"

chicago%20whistle%20blower%20and%20qui%20tam%20lawyers.png

Fraud Magazine reports on the new changes in federal false claims act. The article states:

A 123-year-old law now has new teeth to better fight today’s tricky fraudsters. Enacted in 1863, the U.S. federal False Claims Act, 31 U.S.C. §§ 3729-3733 (FCA), was designed to fight unscrupulous contractors during the Civil War. The FCA created liability for persons that knowingly submit, or cause another person or entity to submit, false claims for payment of government funds. Today, violators are liable for three times the amount of government damages as well as civil penalties of $5,500 to $11,000 per false claim. ...

The U.S. Congress reinvigorated the FCA in 1986 when it changed the law in a number of ways. Among other things, the amendments bolstered the act’s qui tam provisions, provided for treble damages — allowing courts to triple the amount of the actual damages to be awarded — and added an anti-retaliation provision that imposes liability on any employer who takes retaliatory actions against an employee because of the employee’s lawful acts in furtherance of a qui tam action. This ushered in a new era for the FCA because the amendments triggered an increase in the number of qui tam suits: now relators initiate the bulk of cases under the FCA. Also, the amendments shifted the FCA’s focus from fraud involving defense contractors to a wide array of industries — most notably health care. This has led to the federal government’s significant and increasing recoveries under the FCA.

In May 2009, Congress further revamped the FCA by passing the Fraud Enforcement and Recovery Act of 2009 (FERA), which included amendments to the FCA. The amendments made key procedural changes to the FCA and expanded the scope of liability (particularly as it relates to health-care providers). The FERA also set aside $165 million to aid fraud detection and enforcement efforts.

These amendments, coupled with a handful of other legislative changes and administrative actions, are already having a material effect on how the government and private sector are combating fraud.

BY THE NUMBERS: 2010 WAS A GOOD YEAR FOR FRAUD

According to a Nov. 22, 2010, U.S. Department of Justice (DOJ) press release, the DOJ "secured $3 billion in civil settlements and judgments in cases involving fraud against the government in the fiscal year ending Sept. 30, 2010." Of that sum, $2.3 billion is attributable to cases initiated by whistle-blowers under the FCA relator provisions. This brings the total amount of civil recoveries since the previous major overhaul of the FCA in 1986 to more than $27 billion. This total does not take into account settlements after Sept. 30, 2010, including but not limited to $600 million in civil penalties that were part of a larger $750 settlement with GlaxoSmithKline involving the manufacture and sale of adulterated drug products and three settlements announced in December 2010: 1) $102 million in civil penalties that were part of a $203.5 million global settlement with Elan Corporation resolving off-label marketing allegations, 2) a $421 million settlement stemming from Average Wholesale Price violations by Abbott Laboratories Inc. and Roxanne Laboratories Inc. and 3) a $280 million settlement with Dey, Inc. to resolve marketing spread allegations.

Not all of this money goes back to the government. Successful relators are entitled to collect a percentage of any recovery from the defendant. The range of the relator’s potential recovery, however, depends on whether the government intervened in the qui tam action.

The article goes on to describe what lead the government to beef up the qui tam and whistle blower laws. You can read the full article by clicking here.

Continue reading " Fraud Magazine Reports: "In the Wake of Significant Legislative Changes, the Civil False Claims Act Hauls in $3 Billion in Fiscal Year 2010" " »

DiTommaso-Lubin's Oak Brook and Chicago Attorneys Peter Lubin and Vincent DiTommaso Named 2011 Illinois Super Lawyers as Class-Action, Business Litigation and Consumer Rights Attorneys

Super Lawyers named Chicago and Oak Brook business trial attorneys Peter Lubin and Vincent DiTommaso Super Lawyers in the Categories of Class Action, Business Litigation and Consumer Rights Litigation. DiTommaso-Lubin's Oak Brook and Chicago business trial lawyers have over a quarter of century of experience in litigating complex class action, consumer rights and business and commercial litigation disputes. We handle emergency business law suits involving injunctions, and TROS, covenant not to compete, franchise, distributor and dealer wrongful termination and trade secret lawsuits and many different kinds of business disputes involving shareholders, partnerships, closely held businesses and employee breaches of fiduciary duty. We also assist businesses and business owners who are victims of fraud.







DiTommaso-Lubin's Wheaton, Naperville, and Hinsdale litigation attorneys have more than two and half decades of experience helping business clients unravel the complexities of Illinois and out-of-state business laws. Our Chicago business, commercial, class-action and consumer litigation lawyers represent individuals, family businesses and enterprises of all sizes in a variety of legal disputes, including disputes among partners and shareholders as well as lawsuits between businesses and and consumer rights, auto fraud, and wage claim individual and class action cases. In every case, our goal is to resolve disputes as quickly and sucessfully as possible, helping business clients protect their investements and get back to business as usual. From offices in Oak Brook, near Aurora and Elgin, we serve clients throughout Illinois and the Midwest.

If you’re facing a business or class-action lawsuit, or the possibility of one, and you’d like to discuss how the experienced Illinois business dispute attorneys at DiTommaso-Lubin can help, we would like to hear from you. To set up a consultation with one of our Chicago class action attorneys and Chicago business trial lawyers, please call us toll-free at 1-877-990-4990 or contact us through the Internet.

Consumer Law and Policy Blog Reports: "Grand Theft Auto, or Preemption Run Amok"

chicago%20consumer%20attorneys%20and%20consumer%20rights%20lawyers.jpg

Consumer Law and Policy Blog Reports:

In a case now before the 4th Circuit Court of Appeals, Chase Bank asserts that it may repossess an auto loan borrower’s car without complying with consumer protections in state commercial law. The Maryland District Court found for Chase Bank, concluding that 1) the National Bank Act preempts state repossession notice law and 2) Chase was not bound by the mandatory loan contract term specifically incorporating Maryland repossession law, because as an assignee of the contract, Chase had not voluntarily agreed (!) to the choice of law provision.

The opening brief of the appellants is here and the lower court opinion is here. The logic of the lower court opinion is remarkable. It seems to suggest that even the repossession rules of Article 9 of the Uniform Commercial Code could be preempted by the National Bank Act and OCC regulations. What is truly extraordinary, however, is the idea that a national bank could on the one hand invoke the privilege, created by the UCC and other state law, to repossess collateral without judicial process, while on the other hand disregarding the restrictions and consumer protections that accompany that privilege. If the entirety of state commercial and debt collection law conflicts with the National Bank Act, then there was no state law basis for Chase to seize Ms. Epps' car, and the purported repossession was nothing more than grand theft.

Continue reading " Consumer Law and Policy Blog Reports: "Grand Theft Auto, or Preemption Run Amok" " »

Video -- The Federal Goverment Loses Hundreds of Billions of Dollars Each Year to Fraud -- Our Chicago Business Trial and Fraud Lawyers Bring Qui Tam and Whistle Blower Claims to Assist in Recovering Some of Those Monies

Continue reading " Video -- The Federal Goverment Loses Hundreds of Billions of Dollars Each Year to Fraud -- Our Chicago Business Trial and Fraud Lawyers Bring Qui Tam and Whistle Blower Claims to Assist in Recovering Some of Those Monies " »

Workers Defense Project Documentary

Continue reading " Workers Defense Project Documentary " »

Construction Workers File Class Action to Obtain Unpaid Overtime

Continue reading " Construction Workers File Class Action to Obtain Unpaid Overtime " »

Video -- Fraudster Barry Minkow Describes How He Conceals Fraud From Auditors -- Our Chicago Litigation Attorneys Combat Business Fraud and Breaches of Fiduciary Duty

Barry Minkow, who, while still in high school, founded ZZZZ Best, a carpet cleaning and restoration company that turned out to be a massive Ponzi scheme, talks about one of the many ways he manipulated auditors.

Continue reading " Video -- Fraudster Barry Minkow Describes How He Conceals Fraud From Auditors -- Our Chicago Litigation Attorneys Combat Business Fraud and Breaches of Fiduciary Duty " »

Dirty Car Salesmen Come Clean

Continue reading " Dirty Car Salesmen Come Clean " »

Video -- New Complaints Against Car Dealership

Continue reading " Video -- New Complaints Against Car Dealership " »

Video On Used Car Dealer Sued For Fraud BY AG -- Our Chicago Auto Dealer Fraud Lawyers File Suit On Behalf of Consumers

Continue reading " Video On Used Car Dealer Sued For Fraud BY AG -- Our Chicago Auto Dealer Fraud Lawyers File Suit On Behalf of Consumers " »

Wall Street Journal Reports: "Judge Rules Against Lightstone And Enforces Bad Boy Clause in Real-Estate Loan Penalizing Borrower For Declaring Bankruptcy"

Chicago%20litigation%20attorneys.png

Many real-estate loans for large transactions include a so called "bad boy" clause which penalizes borrowers for declaring bankruptcy. Many borrowers didn't take these clauses seriously in the past believing that they could declare bankruptcy and argue that the clauses were uneforcable as violating public policy encourcaging business business reorganizations as permitted by federal bankruptcy laws.

The Wall Street Journal however reports that a federal court following a trial has enforced a "bad boy" clause and penalized Lightstone Holdings LLC $100 million for putting the Extended Stay LLC hotel chain into bankrupcy. The article states:

A New York state judge has ruled that investor David Lichtenstein's Lightstone Holdings LLC owes lenders $100 million because he violated a clause in his loan documents prohibiting him from seeking bankruptcy protection for the Extended Stay Inc. hotel chain.

The ruling Thursday by New York Supreme Court Judge Melvin L. Schweitzer stands to focus more attention on so-called bad-boy clauses in real-estate loans. Those clauses require the borrower to pay lenders a set penalty for putting the property pledged as collateral on a loan into bankruptcy or otherwise wasting its value. ...

The ruling marks a victory for lenders, including Bank of America Corp., Wells Fargo & Co.'s Wachovia Corp. and the Federal Reserve's Maiden Lane fund as successor to Bear, Stearns & Co. Those lenders collectively provided Lightstone roughly $2 billion of mezzanine loans, but their claims were wiped out after Extended Stay filed for bankruptcy protection in 2009. ...

Mr. Lichtenstein had agreed to the "bad boy" clause while arranging for nearly $8 billion of financing for his 2007 purchase of the 660-hotel chain from Blackstone Group LP. The deal was one of the last big, debt-financed real-estate buyouts before the lending markets, and subsequently the global economy, went into one of its worst downturns ...

Throughout the bankruptcy, Lightstone's attorneys argued that the bad-boy clause wasn't enforceable.

The full article provides additional insights. You can read the full article by clicking here.

Continue reading " Wall Street Journal Reports: "Judge Rules Against Lightstone And Enforces Bad Boy Clause in Real-Estate Loan Penalizing Borrower For Declaring Bankruptcy" " »

Appellate Court Overturns Dismissal of Chicago Paramedics Unpaid Overtime Class-Action

677685_ambulances_in_ottawa.jpgEvery day there are hard working people who are denied the overtime wages that they have rightfully earned. At DiTommaso-Lubin, we have much experience representing those with unpaid overtime claims in class-action litigation. As such, we track the changes in the wage laws and are always looking out for new court decisions in the field.

Alvarez v. City of Chicago is a recent class-action case brought by paramedics in the city of Chicago for the systematic miscalculation of their overtime wages. In so doing, Plaintiffs alleged that Defendant willfully violated the Fair Labor Standards Act (FLSA) when it failed to properly compensate the Plaintiffs. The parties each filed motions for summary judgment, and the trial court ruled in favor of Defendant. In making the ruling, the trial court found that the Plaintiffs were not similarly situated and they could not be “readily divided into homogenous subgroups.” The lower court then dismissed the claims and directed the parties to arbitrate the dispute.

On appeal, the Appellate Court disagreed with the trial court's decision, and held that the case could proceed by using sub-claims if the Plaintiffs were similarly situated and common questions predominated. The Court also held that the case should not have been dismissed; instead the Plaintiffs should be allowed to proceed individually if class certification is inappropriate. The Court then remanded the case with instructions for the district court to consider which form of judicial resolution would be most efficient.

Continue reading " Appellate Court Overturns Dismissal of Chicago Paramedics Unpaid Overtime Class-Action " »

Appellate Court of Illinois Upholds Circuit Court's Rescission of Oral Agreement to Jointly Purchase a Gas Station due to Fraudulent Misrepresentation

88377_gasoline_pump.jpgWhen starting a new business venture, choosing the right partners is one of the most important decisions any company owner will make. Unfortunately, not all partnerships work out, and in some instances that is due to the dishonest machinations of fellow owners. Our Elgin business attorneys recently discovered one such case where one business partner was allegedly defrauded by two other owners in a transaction to jointly purchase and operate a gas station in Tinley Park.

Hassan v. Yusuf pits Plaintiff, a man who thought he was investing in the purchase of a gas station, against his two business partners who were also involved in the deal. Defendants solicited an investment of $120,000 from Plaintiff, equal to their own contributions, to purchase the gas station in question, but allegedly failed to inform Plaintiff that he was only purchasing one-third of the business, and had no claim to the real-estate upon which the station was built. After Plaintiff entered into an oral agreement to purchase the station with Defendants and run the day-to-day operations of the business, Defendants acquired title to the property and conveyed that title to a corporation solely owned by Defendants. The business was profitable at first, but eventually began operating at a loss. Defendants then demanded Plaintiff invest more money in the venture to cover these losses, but Plaintiff had no additional funds to invest, and requested an accounting of the business's financial records and documentation showing his ownership and portion of the losses. Defendants failed to provide said documentation, and Plaintiff ceased working at the station and eventually filed suit.

The Circuit Court of Cook County found that Defendants had defrauded Plaintiff through their misrepresentations regarding the purchase of the business and accompanying real estate. In its judgment, the trial court granted Plaintiff rescission of the contract and damages for the total amount of money he invested in the business. After the trial verdict, Defendants appealed the finding of fraud on the basis that there was not clear and convincing evidence of a misrepresentation that Plaintiff would be an owner of the real estate under their agreement.

The Appellate Court upheld the Circuit Court's decision, finding the record sufficient to support a finding that Defendants misrepresented to the Plaintiff that he was purchasing a one-third interest in the station and accompanying real estate, even though they had no intention of actually doing so. Furthermore, there was clear evidence of a fiduciary relationship between the parties, which gave rise to a claim for fraud by omission when Defendants failed to make explicit to Plaintiff that he was not acquiring an interest in the land. The Court went on to state Plaintiff's reliance upon Defendants' misrepresentations were justifiable, and upheld the trial court's decision to rescind the contract, but reduced the damages award in an amount equal to Plaintiff's share of the profits from the station. The Court did so because giving Plaintiff his share of the profits would be inconsistent with the remedy of rescission, which is supposed to place a party in the same position they would be in had the contract never occurred.

Continue reading " Appellate Court of Illinois Upholds Circuit Court's Rescission of Oral Agreement to Jointly Purchase a Gas Station due to Fraudulent Misrepresentation " »

Northern District of Illinois Federal Court Grants Motion to Send Notice to Expanded Class in Unpaid Overtime Class-Action Litigation

Large corporations are often built upon the labor of many hard-working hourly employees. Unfortunately, such companies do not always pay their employees the wages that they have earned, and when such mistakes are made, those employees must do what they can to get what they are owed. When enough employees have been denied their earned wages, a class-action lawsuit may be the most efficient means to get everyone their unpaid wages, and our Naperville overtime class-action attorneys recently discovered another such lawsuit in the Northern District of Illinois federal court.

1114152_inside_warehouse.jpgIn Hundt v. DirectSat USA, Plaintiffs were employed by Defendant as warehouse managers who regularly worked more than forty hours per week, but were not paid any overtime because Defendant classified them as exempt employees. Plaintiffs believed that they were misclassified because their job duties did not meet the overtime exemption requirements under the Fair Labor Standards Act (FLSA) and the Illinois Minimum Wage Act (IMWA), and filed a class action lawsuit for the unpaid overtime. After sending out opt-in notices to the potential class members, Plaintiffs discovered that the class should not be limited to just those employees with the title of warehouse manager. Plaintiffs therefore amended the complaint to broaden the class to include warehouse supervisors and other workers in similar positions, and filed a motion to send notice to these additional putative class members.

Defendants opposed the motion, stating that there were significant differences between warehouse managers and supervisors and claimed that Plaintiffs failed to sufficiently allege the existence of a common decision, policy, or plan to deprive them of overtime wages. The Court disagreed with Defendants, holding that all of the putative plaintiffs were similarly situated despite their varied job titles. In making its decision, the Court cited several internal communication emails that indicated the titles were interchangeable, and that was enough to meet the minimal burden required. Thus, the Court granted the motion to send notice to the additional class members.

Continue reading " Northern District of Illinois Federal Court Grants Motion to Send Notice to Expanded Class in Unpaid Overtime Class-Action Litigation " »

Illinois' Franchise Act Does Not Require Manufacturers to Extend Contractual Agreements that Grant Exclusive Sales Territory

410648_boardroom.jpgDiTommaso-Lubin has clients that operate a variety of businesses all across the state of Illinois. While there are common laws and legal principles that apply to all companies and corporations, there are other Illinois statutes that apply to specific types of businesses. Our Elgin business attorneys came across Clark Investments, Inc. v. Airstream , Inc., which is an Appellate Court of Illinois case involving laws that govern motor vehicle dealerships.

Clark Investments, Inc. v. Airstream , Inc. is a dispute between a Recreational Vehicle (RV) manufacturer and an RV dealer over a contractual agreement between the two companies. Initially, the Plaintiff car dealer contracted with Defendant manufacturer to have exclusive rights to sell Defendant's RV's in the state of Illinois. The initial contract was for a period of approximately two years, and shortly before the end of that contract Defendant proposed to renew the agreement with different terms. Defendant's new contract contained no expiration date and gave Plaintiff no exclusive sales territory. Plaintiff rejected this contract and proposed the same exclusivity terms as the first contract, but Defendant rejected Plaintiff's proposed changes. Shortly after these negotiations, the initial contract expired, but Defendant continued to supply Plaintiff with merchandise and service and Plaintiff continued to operate its business for almost nine months. The parties then entered into a new contract that contained no exclusive sales region for Plaintiff but allowed Plaintiff to sell more types of Defendant's RV's. After this new contract was signed, Defendant entered into an agreement with another RV dealership located ninety miles from Plaintiff's business. This agreement authorized that dealership to sell some, but not all of the same products contained in Plaintiff's agreement with Defendant.

Upon learning of this new agreement, Plaintiff filed suit against Defendant alleging violations of the Franchise Act and the Franchise Disclosure Act. Defendant then filed a motion for summary judgment on both causes of action, and the trial court granted the motion as to both claims. Plaintiff appealed the court's ruling as to the Franchise Act claim only, alleging that Defendant's had violated section 4(e)(8) of the Act by granting an additional franchise within Plaintiff's relevant market area and refusing to extend the first contract that granted Plaintiff all of Illinois as its exclusive sales territory. The Appellate Court rejected this argument by citing language from the Act that defines the relevant market area as the fifteen mile radius around Plaintiff's principle location. Because the other franchise was located further than fifteen miles away, there was no violation of the Act.

Plaintiff also argued that Defendant violated section 4(d)(6) of the Act by refusing to extend the first contract that granted Plaintiff an exclusive sales territory of the whole state. The pertinent part of the Act makes it unlawful for a manufacturer

"1) to cancel or terminate the franchise or selling agreement of a motor vehicle dealer,
2) to fail or refuse to extend the franchise or selling agreement of a motor vehicle dealer upon its expiration, or
3) to offer a renewal, replacement or succeeding franchise or selling agreement containing terms and provisions the effect of which is to substantially change or modify the sales and service obligations or capital requirements of the motor vehicle dealer."

The Court disagreed with Plaintiff's claim that Defendant's actions fell within the first category of conduct. The Court explained that Defendant's conduct fell under the third category because Defendant offered Plaintiff a new contract with different terms before the initial contract expired. They held that the changes in the new contract did not substantially change the sales and service obligations or capital requirements of the Plaintiff, and upheld the lower court's ruling.

Continue reading " Illinois' Franchise Act Does Not Require Manufacturers to Extend Contractual Agreements that Grant Exclusive Sales Territory " »

LLC Operating Agreement Arbitration Clauses are Only Enforceable Against Those Party to the Agreement

As a firm of Chicago and Orland Park business attorneys, DiTommaso-Lubin handles litigation for companies in a wide range of industries. Our Schaumburg business lawyers recently came across a case from St. Clair county that is of interest to LLC's and those businesses who include arbitration clauses in their business agreements.

The Plaintiff in Trover v. 419 OCR, Inc. was a member of a limited liability company, Fair Oaks Development Group LLC (FODG) that planned to develop the land owned by FODG. Plaintiff was advised by counsel that the company would benefit from a tax perspective should the company transfer its interest in the land to Defendant 419 OCR, Inc. and allow that company to develop the land. Relying upon that alleged tax advice and the representations of Defendant, Plaintiff allegedly allowed FODG to sell and assign its interest in the land to Defendant 419 OCR, Inc., who later transferred parts of the land to Defendant O'Fallon Group. The sale was executed by a written agreement, but Plaintiff alleged that there was an additional oral agreement between the parties that was never put in writing. Under this oral agreement, Defendants were allegedly to pay Plaintiff a to-be-determined sum of money in addition to the price of the land. Defendants eventually developed the land and made a profit, but allegedly never paid any of the sums from the oral agreement.

444312_a%20pen.jpgPlaintiff then filed a shareholder derivative action on behalf of FODG alleging breach of contract, fraud, breach of fiduciary duty, and corporate waste. Defendants filed a motion to compel binding arbitration based upon the arbitration provisions contained within the operating agreement governing FODG. The trial court denied the Defendants' motion to compel arbitration, and in response, Defendants filed for an interlocutory appeal on the arbitration issue.

The Appellate Court performed a de novo review of the motion to compel arbitration because the trial court did not hold an evidentiary hearing or make any factual findings. The Court examined the operating agreements that contained the arbitration provisions and found that, while the land transaction in question fell within the scope of the provisions, Defendants 419 OCR and the O'Fallon Group were not parties to those agreements and therefore were not bound by them. Thus, the Court upheld the trial court's denial of arbitration for the breach of contract claims as to those two Defendants.

Next, the Court examined whether the claims for breach of fiduciary duty brought on behalf of FODG were bound by the arbitration clauses. The Court found that FODG was not a party to its own operating agreement because no signatories on the agreements indicated that they were signing on behalf of the LLC. As such, the claims brought on behalf of FODG were not bound by the arbitration clause and the Court denied the motion as to the breach of fiduciary duty claims. The Court then reversed the trial court's denial as to the fraud cause of action because the individual Defendants and Plaintiff both signed the operating agreement and were bound by the arbitration provision contained therein.

Trover v. 419 OCR, Inc. contains important information for limited liability companies and the members of those organizations. The holding in this case indicates that an arbitration clause in the operating agreement of an LLC can only be enforced against those who were party, or are successor in interest to a party to the agreement. Additionally, it is important to note that an LLC itself is not a party to its own operating agreement without express language indicating that it is.

Continue reading " LLC Operating Agreement Arbitration Clauses are Only Enforceable Against Those Party to the Agreement " »

Appellate Court Holds Mechanics Lien Pursuant to an Oral Contract Valid Under Home Repair and Remodeling Act

Many of us have had work done to our homes at some point, and sometimes difficulties arise during the course of such projects. DiTommaso-Lubin is familiar with the legal issues that arise in such cases, and our lawyers are always concerned about protecting the rights of consumers. Universal Structures LTD v. Buchman is a case about a home improvement construction deal gone bad.

1267108_man_made.jpgIn Universal Structures LTD v. Buchman, Defendants contracted with Plaintiff to perform a series of demolition and remodeling projects at their home in Northfield, Illinois. The work was eventually completed and Defendants paid most of the amount billed by Plaintiff, but the payment left an outstanding balance of over $100,000. Plaintiff then recorded a mechanic's lien for the unpaid amount and eventually filed a lawsuit to foreclose on the lien. Defendants successfully moved to dismiss the lawsuit because Plaintiff failed to present them with a written contract or work order to be signed and also did not present Defendants with a consumer rights brochure. The trial court dismissed Plaintiff's suit because each of those failures constituted a violation of the Home Repair and Remodeling Act.

On appeal, the Court reviewed whether Plaintiff was “precluded from asserting a mechanic's lien upon defendant's property . . . when there was no signed contract or work orders and no delivery by plaintiff of the consumer rights brochure” as required by the Act. The Court found that Plaintiff had entered into a valid oral contract with Defendants and had tendered written, itemized work orders for approval before performing any work, which created a right to a mechanic's lien. Furthermore, there is no language in the Act that that invalidates an oral agreement in the absence of a signed contract or failure to provide the consumer rights brochure. The Court pointed out that a contract is unenforceable under that Act only when the subject matter or purpose of the contract violated the law. As such, the Court reversed the lower court's ruling and remanded the case for further proceedings.

Continue reading " Appellate Court Holds Mechanics Lien Pursuant to an Oral Contract Valid Under Home Repair and Remodeling Act " »

Video Discussing Non-Compete Agreements


Continue reading " Video Discussing Non-Compete Agreements " »