Chicago Business Litigation Lawyer Blog

A business sued two individuals in a New Jersey federal district court in Inventory Recovery Corp. v. Gabriel, alleging that the defendants materially misrepresented the details of a sale of several hundred internet domain names. The plaintiff asserted multiple causes of action, including fraud, breach of fiduciary duty, and breach of contract. The court dismissed all but two of the causes of action on the defendants’ motion.

The plaintiff, Illinois-based Inventory Recovery Corporation (IRC), sought to purchase 324 internet domain names from the defendants, Richard Gabriel and Ashley Gabriel. The defendants used the domain names in the business of selling nutraceutical food, which the court describes as food with health benefits. IRC’s president met with the defendants in January 2010 to discuss the purchase of the domain names and the associated business, and negotiations continued into February. Richard Gabriel provided IRC with financial documents related to business income and expenses. This included expenses for Google advertising, the business’ main marketing activity. He allegedly described robust sales and a positive relationships with the merchant banks that serviced customer payments for the business.

The parties entered into a series of contracts on February 26, 2010 for the sale of the domain names. They closed the same day, and the plaintiff paid the $5.6 million purchase price with a real estate parcel in the Bahamas, an airplane, and a sum of cash. According to testimony presented in the case, the plaintiff allegedly later discovered that the business did not have good relationships with its merchant banks, its Google advertising account was suspended, and the defendants had allegedly artificially inflated the business’ revenues.

Continue reading "Sale of Domain Names Used for Online Health Food Retail Leads to Lawsuit for Fraud, Breach of Contract - Inventory Recovery Corp. v. Gabriel" »

The age of emails has made it more difficult to get away with certain things. One might find it more difficult for example, to insist on one belief or attitude if he has been found to have said the opposite in an email. Such is the case for Ron Johnson, the former head of retail at Apple and now the chief executive of J.C. Penney. He has said that, because he believes in "perfect integrity" he would never ask a person to breach a contract.

However, he engaged in discussion with Martha Stewart to sell some of her items in J.C. Penny stores, despite Ms. Stewart having an exclusive contract with Macy's. Mr. Johnson has reportedly tried to get around the contract by claiming that there would be independent Martha Stewart stores within J.C. Penney stores.

While independent stores are allowed under the Macy's contract, J.C. Penney has not moved to lease space to Martha Stewart Living Omnimedia (MSLO). Instead, Mr. Johnson testified in court that J.C. Penney, and not MSLO, would set prices for the merchandise, decide when it would be promoted, employ the people who sold the goods, own the goods, source the goods, book the sales, bear the risk and own the shop, J.C. Penney nonetheless insists that any space displaying the Martha Stewart mark and containing Martha Stewart merchandise qualifies as an MSLO store.

Despite his insistence that he is not inducing Ms. Stewart to breach her contract with Macy's, Mr. Johnson admitted in an email to Ms. Stewart that her contract with Macy's was "a major impediment" to their deal to sell her goods in J.C. Penney stores. In another email, he said, in reference to Ms. Stewart, "the ball is in her court now to talk to Macy's about a break in a tight, exclusive agreement they have with her." He also reportedly said that the "Macy's deal is key. We need to find a way to break the renewal right in spring 2013."

One person was apparently key to bringing about the J.C. Penny deal. That person was William Ackman, the activist investor whose hedge fund is J.C. Penney's largest shareholder. After the deal was announced, Mr. Johnson wrote to Mr. Ackman, "We put Terry in a corner. Normally when that happens and you get someone on the defensive, they make bad decisions. This is good."

The emails emerged in a New York courtroom where Macy's has accused J.C. Penney of inducing Martha Stewart to breach her contract with Macy's. Macy's is also attempting to block its competitor from opening Martha Stewart stores in J.C. Penney locations.
Legal experts have been surprised that this case has made it to trial at all, since the contract itself seems fairly straightforward. Martha Stewart herself told the judge, Justice Jeffrey K. Oing of New York State Supreme Court, "I keep looking at this entire episode of this lawsuit wondering why it isn't - it's a contract dispute. an understanding of what is written on the page, and it just boggles my mind that we're sitting in front of you."

The judge agreed and ordered the parties to pursue mediation to resolve the matter.
Macy's continues to promote Martha Stewart products with the tag line "Only at Macy's."

Continue reading "Emails Becoming Smoking Gun Evidence in J.C Penney" »

A Texas federal court, after initially dismissing a motion for preliminary injunction as moot, granted the plaintiff’s motion for reconsideration in Travelhost, Inc. v. Modglin. The court ruled that, although the two-year time period of the non-compete agreement had already expired, the plaintiff was entitled to a preliminary injunction and an equitable extension of the non-compete agreement for an additional two years. The court based its reversal of its prior ruling on evidence subsequently obtained from the defendant through discovery, which suggested that the defendant had engaged in an ongoing pattern of behavior in violation of the non-compete agreement.

The plaintiff, Travelhost, publishes print and online materials related to travel. It entered into a contract with the defendants, The Real Chicago Publishing LLC (RCP) and Trent Modglin, in 2007, in which RCP would distribute Travelhost’s Chicago magazine and sell advertising in the downtown Chicago area. The contract included a two-year covenant not to compete with Travelhost within the Chicago area. Modglin is RCP’s sole member, and he reportedly agreed to be individually bound by the non-compete agreement.

RCP distributed eight issues of the magazine between 2007 and late 2009. According to Travelhost, RCP began distributing and selling advertising for a competing magazine, “The REAL Chicago,” sometime after November 2009. Travelhost sued RCP and Modglin in March 2011, requesting preliminary and permanent injunctions. RCP never filed an answer to the suit, so the court entered a default preliminary injunction and default judgment against it. The suit proceeded against Modglin alone.

Continue reading "Court Grants Preliminary Injunction in Non-Compete Case, Grants equitable Extension of Non-Compete Covenant's Duration - Travelhost v. Modglin" »

An Indiana federal district court ruled, in CDW, LLC, et al v. NETech Corporation, that neither a parent company nor one of its subsidiaries may sue to enforce the employment contracts of another of its subsidiaries, when one subsidiary is clearly the party to the agreement. The dispute involved covenants of noncompetition in a company’s employment contract and a claim for tortious interference with a business contract.

Berbee Information Networks Corporation employed several individuals as sales executives. These three individuals signed employment contracts that included a paragraph stating that they agreed, upon termination of their employment with Berbee, not to accept employment in direct competition with Berbee for up to twelve months. “Competition” included solicitation of Berbee employees or clients and use of Berbee’s proprietary business information. In September 2006, Berbee became a subsidiary of CDW, LLC when CDW purchased it and merged it with another subsidiary. Berbee, all parties to the eventual lawsuit agreed, was the surviving corporation of the merger.

CDW operated several subsidiaries that, like Berbee, engaged in the business of technology sales. Each subsidiary served a different market, such as commercial businesses, nonprofits, or government agencies. CDW transferred the three Berbee employees at the center of the dispute to another subsidiary, CDW Direct, between 2008 and 2009. These employees all left CDW Direct at different times to work for NETech Corporation. They each received letters after commencing work at NETech from an attorney for CDW alleging that they were in violation of their noncompetition agreement, demanding that they cease work for NETech and return all confidential materials obtained from Berbee or CDW.

Continue reading "Court Rules that Parent Company, After Acquiring a Subsidiary, May Not Sue to Enforce the Subsidiary's Employment Agreement - CDW, LLC, et al v. NETech Corporation" »

The United States District Court for the Central District of California dismissed a class action claim brought by a financial advisor employed by a major financial services company. In Park v. Morgan Stanley & Co., Inc., the plaintiff claimed breach of contract and violation of California’s Unfair Competition Law (UCL), based on allegations that the defendant failed to pay commissions owed to plaintiff and other employees. The court ruled that the plaintiff failed to plead sufficient facts to support his claim for breach of contract, and that the UCL claim lacked support as a result.

The plaintiff was employed by the defendant as a financial advisor by Morgan Stanley & Co., Inc. Part of his job involved the sale of financial products to investors. He received commission payments from the defendant as compensation for sales, in amounts based on an “applicable commission grid.” This grid was allegedly contained in a “written agreement” between the plaintiff and the defendant that the court described in its order as “unspecified.” According to the plaintiff, the defendant said that it would base commissions on the full amount of revenue received for the financial products sold. The plaintiff alleged that the defendant took a portion of the revenue received before applying the commission grid, thus reducing the total amount of the commissions paid to the plaintiff and other employees.

The plaintiff filed a federal class action lawsuit on November 15, 2011, claiming breach of contract and violations of the UCL. The lawsuit alleged that the defendant’s policies knowingly denied earned compensation to certain employees, resulting in breach of contract and unjust enrichment to the defendant. The defendant filed a motion to dismiss the claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure, asserting that the plaintiff had not stated a cause of action on which the court could grant relief. The court cited precedents from the U.S. Supreme Court and the Ninth Circuit Court of Appeals to establish that, in order to defeat the defendant’s motion, the plaintiff needed to demonstrate enough allegations of fact to make his claims facially plausible. The court found that the plaintiff did not meet this standard, and it granted the defendant’s motion to dismiss.

Continue reading "California Federal Court Dismisses Class Action Lawsuit Claiming Unpaid Commissions - Park v. Morgan Stanley & Co., Inc." »

Equity compensation, such as stock options, restricted stock units, and performance shares, are often used to retain high level employees. Equity compensation can be an incredibly useful tool for retaining quality employees, but if the equity compensation is not awarded properly, litigation can result. Employers and boards of directors should be aware of the risks associated with equity compensation in order to avoid litigation and to protect themselves in the event that litigation results.

What is Equity Compensation?

Equity compensation consists of granting certain employees stock options with the right to exercise those rights at a predetermined price. The right to exercise stock options vests over time so the employee gains control over the stock option once he or she has been employed by the company for a specific period of time or has fulfilled a certain performance milestone.

Equity compensation is frequently used by startup companies to attract employees since the business may lack the capital to compensate employees through a traditional salary. But equity compensation is also used to retain high-level employees in established companies.

Common Sources of Business Disputes and Litigation

Business disputes regarding equity compensation often arise following termination of the employee who has received the equity compensation. Some common disputes that result in business litigation include:
• Vesting and exercise. Disputes regarding when the stock options vest and when the employee can exercise their rights to the equity compensation units often arise.
• Stock plan administration, including control and exercise rights over stock units.
• Bankruptcy. Disputes regarding the inclusion of equity compensation in the bankruptcy estate may arise in the event that the company faces financial difficulties prior to the vesting or exercise of the rights.
• Allegations of corporate waste. Equity compensation awarded to directors could be viewed as a corporate waste of assets that survives the “business judgment rule” if the directors have a financial interest in the equity compensation awards. For instance, a Delaware Chancery Court recently held that an allegation of corporate waste could survive a motion to dismiss because the directors granted restricted stock units to themselves.
• Divorce. Because equity compensation is a common tool for closely-held businesses, including business partnerships, disputes can arise when a partner or equity employee divorces regarding whether the equity compensation is included in the marital estate.

What to Do in the Event of an Equity Compensation Business Dispute

The terms and requirements of equity compensation can be incredibly complex with far-reaching financial and legal implications. If your company is involved a business dispute regarding equity compensation, you may wish to consult with a knowledgeable business litigation lawyer like the Chicago business litigators at DiTommaso-Lubin.

Our Chicago business law attorneys focus on representing clients who are facing complex business disputes, including disputes regarding equity compensation. Our strong knowledge of the law and our vast litigation experience enables our Chicago business litigation attorneys to quickly analyze the strengths and weaknesses of your case. Contact our office at (877) 990-4990 or (630) 333-0000 to learn more about equity compensation business disputes.

A company that leased photocopier machines to a printing company prevailed on a motion for summary judgment in a breach of contract claim brought by the business leasing the copy machines. In M&B Graphics, Inc. v. Toshiba Business Solutions (USA), Inc., the U.S. District Court for the Eastern District of Michigan ruled that the defendant was justified in terminating service agreements for its machines due to the plaintiff’s noncompliance with the terms of the agreements.

M&B Graphics (M&B), a Michigan printing company, began leasing three photocopiers from Toshiba Business Solutions on August 10, 2009. The lease had a term of sixty-three months, with monthly payments of $2,520. The parties also executed service agreements for each of the three copiers. Toshiba would perform routine repairs and maintenance on the copiers, and M&B would pay a flat monthly fee and a per-copy fee. Toshiba had the right to terminate the service agreements if M&B failed to make timely payment of the monthly service fees or failed to use the copiers in strict accordance with Toshiba’s specifications. Either party could terminate the agreements by giving written notice thirty (30) days prior to the anniversary date.

Continue reading "Service Agreements Require Timely Payment, Compliance with Contractual Terms to Be Enforceable by Consumers - M&B Graphics v. Toshiba Business Solutions" »

The law firm of DiTommaso-Lubin on behalf of a class of Abercrombie & Fitch customers recently obtained certification of a class-action against Abercrombie regarding $25 promotional cards with no expiration date on the face of the cards. Abercrombie will not honor the cards any longer. Customers obtained the cards in a promotion which required a $100 purchase to receive the $25 cards. The cards came in a paper sleeve which stated a short use period of just a few months. However, the card itself stated that it had no expiration date.

The Federal District Court for the Northern District of Illinois certified a nationwide breach of contract class action based on the Class's position that the card is a contract. It is the Class's position that contractual term of no expiration date on the card itself trumps the sleeve either because the sleeve is mere advertising or because when two terms in a contract conflict the contract should be construed against the entity that drafted it -- in this case Abercrombie & Fitch. The Court has not yet made a decision on the merits of the case. You can read the Court's decision by clicking here. The 7th Circuit Federal Court of Appeals rejected Abercrombie's request to hear an immediate appeal on the class-certification decision.

DiTommaso-Lubin is also representing a consumer of Abercrombie's sister company Hollister in an identical putative class action lawsuit involving the same promotion. The Court has not yet certified a class in that case.

If you are a member of the class alleged in Hollister case, you can contact DiTommaso-Lubin for additional information about participating as a class representative.

Continue reading "Chicago Class Action Attorneys at DiTommaso-Lubin Obtain Certification of a Class Action Against Abercrombie & Fitch For Refusing to Honor Promotional Cards Which Say on Their Face They Have No Expiration Date" »

Continue reading "Non-Competition Agreements -- We represent employees and businesses in the Chicago Area Including in DuPage, Cook and Kane Counties in Non-Compete Agreement Lawsuits" »

Most businesses are of the brick and mortar variety, meaning that they have a physical location where they conduct operations, and as a result these business have to either buy or rent properties to acquire the space they need. At DiTommaso-Lubin, our Elgin business attorneys have handled many commercial and industrial building sale disputes, and are always researching the law in that area to better serve our clients. Napcor Corporation v. JP Morgan Chase Bank, NA is one such case about material misrepresentations made in the sale of a commercial property.

In Napcor Corporation v. JP Morgan Chase Bank, NA, Plaintiff purchased a large commercial building from Defendants. Prior to the sale, the building's roof allegedly began to leak significantly, and the building's broker performed an inspection to determine the extent of the damage. The broker allegedly concluded that the existing roof needed to be removed and replaced to fix the problems. Instead of replacing the damaged roof, Defendant constructed a second roof over the first because it was a cheaper option. This second roof was constructed in spite of the fact that Defendant was allegedly warned that the new roof would be susceptible to being torn off by winds. Additionally, the original leakage problem allegedly remained after the new roof's construction.

The building was then listed for sale, and the pertinent part of the listing stated that the building had a “new roof in 1994 (tear off).” In 1996, Plaintiff purchased the building for $1.309 million through a contract where Plaintiff agreed to accept the building “as is”, and had a 30-day due diligence period. Plaintiff was allegedly not made aware of the leaks, and relied upon Defendant's alleged representation that the old roof had been torn off. Upon moving into the building, Plaintiff allegedly found the leakage problem and over several years three sections of the roof blew off on three different occasions. Plaintiff then filed suit for fraudulent misrepresentation, and was awarded a $1.2 million judgment after a trial by jury.

Defendant appealed the decision and asked for a judgment notwithstanding the verdict and a new trial based upon faulty jury instructions and the exclusion of evidence that Plaintiff agreed to accept the building in its “as is” condition. Defendant contended that the jury instruction failed to state that Plaintiff had the burden of proof to show all the elements of fraud by clear and convincing evidence. The trial court denied Defendant's motion.

The Appellate Court affirmed the judgment and held that the trial court did not abuse its discretion by denying Defendant's motion for a new trial. The Court made its decision because the 'as is' language in the purchase agreement did not preclude Plaintiff from claiming it relied on the alleged misrepresentations, and the clause also did not serve as a defense to fraud. As such, the Court decided, the verdict was not against the manifest weight of the evidence. Finally, the Court denied the request for a new trial because the lower court used an IPI civil jury instruction that accurately stated the law, and in doing so, the trial court did not abuse its discretion.

Continue reading "Illinois Appellate Court Denies Request for a New Trial After $1.2 million Verdict for Fraudulent Misrepresentation in Commercial Property Transaction" »

Every business has employees, and as business litigators, the attorneys at DiTommaso-Lubin pride ourselves on being knowledgeable about all the areas of law that affect our clients, including employment laws. Our Orland Park business attorneys recently discovered a case that has an impact on companies who utilize employment non-competition agreements with their employees.

Reliable Fire Equipment Company v. Arredondo pits an employer against two former employees, Defendants Arredondo and Garcia, who worked as fire alarm system salesmen for Plaintiff. Each Defendant signed an employment agreement where Defendant's would allegedly earn commissions of varying percentages of the gross profits on items or systems sold. After working for Plaintiff for several years, Defendants created Defendant High Rise Security Systems, LLC., which was allegedly a competitor to Plaintiff's business. Plaintiff eventually became aware that Defendants were starting an alleged competitor company, and asked Defendants if in fact they had created a fire alarm business. Defendant Arredondo allegedly denied that he was starting such a business, and resigned shortly afterward, with Defendant Garcia tendering his resignation two weeks after Arredondo.

Plaintiff then filed suit alleging breach of the duty of fidelity and loyalty, conspiracy to compete against Plaintiff and misappropriation of confidential information, tortious interference of prospective economic advantage, breach of the employment agreements, and unjust enrichment. The trial court held that the employment agreements were unenforceable because of unreasonable geographic and solicitation restrictions and the fact that language of the agreements was unclear. A trial on the issues unrelated to the employment agreement ensued, and Defendants successfully moved for a directed verdict because there was insufficient evidence that Defendants competed with Plaintiffs prior to Arredondo's resignation.

Plaintiff then appealed the trial court's ruling that the employment agreements in question were unenforceable and the directed jury verdict. The Appellate Court affirmed the trial court's directed verdict, stating that the lower court had properly weighed the evidence in finding a total lack of competent evidence. The Court then analyzed the restrictive covenants under the legitimate business interest test and found that the geographic restrictions were not reasonable and therefore the trial court did not err in ruling that the restrictive covenants were unenforceable.

Reliable Fire Equipment Company v. Arredondo illustrates why it is so important for business owners to keep an eye on their employees, and serves as a warning for companies wanting to sue former employees based upon non-competition agreements. Furthermore, the case shows that courts frown upon the use of vague language in such agreements, and it is always in your best interests to keep the terms of employment agreements reasonable.

Continue reading "Business Owners Beware, Make Sure Your Employment Agreements are Clearly Written and Reasonable" »

DiTommaso-Lubin represents clients all over the Chicago-land area, and because Chicago is a growing metropolis, land comes at a premium. This means that there is constant property development going on all over our fair city, and with that development comes unique legal problems. Water Tower Realty Company v. Fordham is a case that was decided in the Appellate Court of Illinois, First District, Third Division that addresses some of the problems that arise when companies perform construction in close proximity to neighboring businesses.

In Water Tower Realty Company v. Fordham, Defendant Fordham constructed a building on a parcel of land in Chicago, and prior to its construction, Defendant agreed to indemnify Plaintiff Water Tower for losses suffered due to the erection of the edifice. Five years after the building was finished, Plaintiff filed suit alleging that during construction Defendant had “so used its property as to make it impossible to lease” an adjacent property. Plaintiff claimed that it had lost over $75,000 in rental business as a result and that Defendant had refused to indemnify Plaintiff for this loss. Plaintiff filed for a dismissal of the action, and the trial court dismissed the claims because they were barred by the applicable statute of limitations as set forth in 735 ILCS 2-619(a)(5). Defendant then appealed the trial court's dismissal.

The Appellate Court analyzed whether the trial court was correct in applying the four year statutory period or whether a ten year period was appropriate. The Court found that the nature of the injury was determinative in making such a decision, with the four year term applying if the injury was due to a construction-related activity, and the ten year term applying if the harm was caused by a breach of contract. In reversing the lower court's dismissal, the Appellate Court concluded that the appropriate statute of limitations was the ten year term because the Plaintiff's injury was caused by Defendant's failure to honor the indemnity agreement. The Court went on to hold that the agreement's indemnity provisions applied to both first party and third party claims, and that it contained no language that could hold Defendant's agents personally liable for Plaintiff's damages.

Continue reading "Appellate Court Applies 10 Year Statute of Limitations in Construction Indemnity Case" »

DiTommaso-Lubin represents clients from many industries who operate all kinds of businesses, including both franchisors and franchisees. Our Aurora business attorneys came across an appellate decision from the Fourth District here in Illinois that involves a dispute that arose out of a franchise agreement between a heavy-duty truck manufacturer and a truck dealer.

Crossroads Ford Truck Sales, Inc. v. Sterling Truck Corp. is a disagreement that came about after the two parties entered into a sales and service agreement where Plaintiff Crossroads had the right to purchase Sterling Trucks and vehicle parts from Defendants and Defendants “reserved the right to discontinue at any time the manufacture or sale” of their parts or change the design or specs of any products without prior notice to Plaintiff. Several years after entering the agreement, Defendants allegedly announced that they were discontinuing the production of Sterling trucks and that Detroit Diesel Corporation (the truck's engine manufacturer) would cease accepting orders as well. Defendant sent written notice of these decisions to Plaintiffs. Defendants decided to discontinue manufacture of the Sterling vehicles allegedly because they were duplicative of other vehicles manufactured by Sterling's parent company.

In response to this notice, Plaintiff filed suit alleging violations of the Motor Vehicle Franchise Act, fraud, and tortious interference with contract. Defendants filed a motion to dismiss on all counts, which was granted in part by the trial court because Defendants' discontinuance and re-branding of the Sterling brand constituted good cause for terminating the contract. Plaintiff then filed an interlocutory appeal for the trial court's partial dismissal.

The Appellate Court affirmed the trial court's dismissal of the violations of sections 4(d)(1) of the Franchise Act because Plaintiffs failed to allege specific facts supporting each element of violation under the Act and instead merely made conclusory allegations for each violation. The Court also found that the allegations under section 9 of the Act were improperly plead, as Plaintiff's allegations contained only conclusions without the specific facts required by the Act. The Court then upheld the lower court's ruling as to the allegations under section 9.5 of the Act because the sales and service agreement remained in effect and had not been terminated. Next the Court found the dismissal of the fraud claims to be proper because Plaintiff failed to allege a misrepresentation of a present fact and dismissed the claims under section 4(b) of the act because Defendant's conduct was neither arbitrary nor in bad faith. Finally, the Court did not address the alleged 4(d)(6) violations due to a lack of subject-matter jurisdiction, as such violations are within the purview of the Review Board under section 12(d) of the Act.

Continue reading "Illinois Appellate Court Dismisses Lawsuit Between Truck Manufacturer and Franchisee" »

Workers' compensation insurance is a necessary part of doing business for many companies, so the attorneys at DiTommaso-Lubin are always on the lookout for emerging legal issues in that area. Our Naperville business attorneys recently discovered a decision rendered by the Appellate Court of Illinois that is significant for current and potential clients who have workers' compensation insurance agreements that contain an arbitration clause.

All-American Roofing, Inc. v. Zurich American Insurance Company pits Plaintiff All-American Roofing against its Defendant insurer, Zurich American in a lawsuit that arose from alleged unpaid deductibles and retrospective insurance premiums. The five-year insurance agreement was based upon retrospectively rated premiums that required Plaintiff to reimburse Defendant after the end of a policy year for claims that arose during that year. After the fourth year, the policy exchanged the retrospectively rated premiums for a larger deductible. The dispute began when Defendant summoned Plaintiff to arbitration regarding the aforementioned unpaid sums pursuant to a mandatory arbitration clause contained within the parties' agreement. In response to the arbitration summons, All-American Roofing filed for declaratory judgment along with claims for breach of contract, fraud, and related causes of action. Plaintiff requested that the trial court declare that the mandatory arbitration clause was unenforceable and sought damages for their other claims. The trial court stayed the arbitration, dismissed most of Plaintiffs claims through summary judgment and ordered the parties to arbitrate the remaining issues. Plaintiff then appealed the trial court's rulings regarding the arbitration clause, contract, and fraud claims.

On appeal, Plaintiff argued that the arbitration clause was added to their policy after the first year of coverage and that the clause constituted a material alteration to the policy's coverage. Furthermore, Plaintiff argued that the Illinois Insurance Code required Defendant to give notice that it was not renewing the original coverage. Because Defendant failed to give such notice, the arbitration clause did not legally take effect. The Appellate Court disagreed, stating that the addition of an arbitration clause did not constitute a change in coverage, and cited the plain language of the statute for their reasoning. The Court went on to hold that the agreements and subsequent addenda to it for the first two years were valid because the parties lawfully entered into the agreements and there was sufficient consideration on both sides. The Court also upheld the trial courts granting of Defendant's motion for summary judgment on Plaintiff's fraud claim because there was not sufficient evidence in the record of fraud nor had Plaintiffs identified any material issue regarding Defendant's alleged violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. The Court held that the arbitration clause was not operative for the final two year of the agreement because Plaintiffs never signed the amended policy documents for those years. The Appellate Court reversed the trial court on this issue because they disagreed with the trial court's ruling that Plaintiff's payment and acceptance of coverage signified acceptance of the new terms.

All-American Roofing, Inc. v. Zurich American Insurance Company provides a valuable lesson to business owners who utilize arbitration clauses in their contracts. Namely, this case tells us to read the fine print in any contract before signing it, as you may be getting more (or less, depending on your point of view) than you originally bargained for.

Continue reading "Appellate Court Rules that Adding an Arbitration Clause to an Insurance Agreement Does Not Constitute a Change in Coverage under Illinois Law" »

Earlier this year, the Appellate Court of Illinois handed down an opinion that has implications for businesses with leased premises. Our Aurora business attorneys found Bright Horizons Children's Centers LLC v. Riverway Midwest LLC, which is a dispute regarding a commercial lease that was initially filed in Cook County.

Bright Horizons is a company that operates day care facilities across the state of Illinois. The company entered into a ten year commercial lease agreement with Riverway for a property in Rosemont, Illinois. The lease agreement contained restrictive language allowed for the building to only be used for a child-care center. The agreement also contained a relocation provision which gave Riverway the right to relocate Bright Horizons, upon 180 day written notice, to a different property of equal quantity and quality to the original premises. The dispute between these two parties arose when Riverway sought to invoke the relocation clause less than one year into the lease.

Riverway attempted to exercise the relocation provision on three occasions. The first attempt was unsuccessful because the alternative premises allegedly presented to Bright Horizons did not meet the requirements of the lease agreement. Bright Horizons accepted the second space offered by Riverway, but Riverway withdrew their notice before renovating the new facilities to meet the requirements of the lease. Riverway then proposed a third relocation premises, and allegedly informed Bright Horizons that if they were unable to agree on an alternative space, Riverway would terminate the lease in 180 days from the date of the notice. This third property allegedly ran afoul of state licensing standards for child care facilities and the Illinois Administrative Code. Bright Horizons informed Riverway that the third property did not meet Illinois' licensing standards and could not be legally used as a child care facility. In response, Riverway informed Bright Horizons that they were in default of the lease and that Bright Horizons could cure their default by relocating to the third alternative premises.

Bright Horizons then filed for declaratory judgment requesting that the trial court find: 1) that they were not in breach of the lease, 2) that Riverway could not terminate the lease, and 3) that Riverway had failed to properly exercise the relocation clause of the lease agreement. Bright Horizons then filed for summary judgment on these issues, which was granted by the trial court. Riverway then appealed the trial court's ruling. On appeal the Appellate Court agreed with the trial court's grant of summary judgment in favor of Bright Horizons. In so ruling, the Court held that the lease allowed for one permitted use of the premises and required that Bright Horizons comply with all laws and regulations, including the state child-care licensing standards. The Court held that Bright Horizons' relocation to the proffered space would violate state regulations and cause Bright Horizons to be in breach of the lease due to their inability to operate a child-care. As such, the Court affirmed the ruling of the trial court granting summary judgment in favor of Bright Horizons.

Continue reading "llinois Appellate Court Rules that a Relocation Provision in a Commercial Lease Must Abide by State Regulations" »

For many business owners, they operate their companies with the hopes that they will continue to be successful ventures long after they are gone. However, both low level and senior personnel eventually move on, and businesses may have obligations to their surviving family members. DiTommaso-Lubin is familiar with such agreements, and often times companies may not wish to honor those obligations after employees are no longer working for the company. Pielet v. Pielet is one case discovered by our Crystal Lake business litigation lawyers that addresses that very issue.

In Pielet v. Pielet, Arthur Pielet allegedly entered into a consulting agreement with Defendants that provided him lifelong monthly payments in exchange for his consulting services for Defendants scrap metal business, and should he pass on, those payments were to continue and be paid to his wife until her death. Arthur Pielet eventually died, and Defendants then allegedly ceased making payments to his widow, who filed suit alleging a breach of contract and successor liability among other causes of action. Plaintiff successfully filed a motion for summary judgment, and Defendants appealed the trial court's decision.

On appeal, Plaintiff argued that Defendant PBS One, a successor in interest to Pielet Corp. (the company who was originally obligated under the consulting agreement), was liable under the agreement because they had entered into a purchase and assignment agreement with Pielet Corp. In response, PBS One argued that a novation had occurred whereby Pielet LP had substituted for Pielet Corp. in the consulting agreement, which absolved PBS One of liability. PBS One supported their claims with deposition testimony that, in the absence of providing a defense, at least raised an issue of material fact as to the existence of the novation. Additionally, PBS One argued that because the company had dissolved four years prior to the cessation of payments (and the accrual of Plaintiff's claims), the applicable Illinois Survival Statute prevented Plaintiff's claim.

The Appellate Court began with its analysis of the Survival Statute, and found that the statute applies to “rights”, “liabilities”, and “causes of action.” Because the case at bar concerned Plaintiff's “right” to payment and Defendants' “liability” to pay, and Plaintiff raised her claim to payment within the five-year period allowed under the statute, her claim was allowed under the law. The Court went on to discuss Defendant's second argument regarding the existence of a novation that would place liability elsewhere. The Court did not make a finding of a novation, but the facts indicated that a novation could be inferred at two different points in time. Thus, the Court concluded that a triable fact question existed as to whether a novation occurred, and if there was a novation, at what point in time did it occur. In so holding, the Court reversed the trial court's grant of summary judgment on all of the appealed causes of action, and remanded the case.

Continue reading "Appellate Court Overturns Grant of Summary Judgment in Successor Liability Case" »

There 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" »

When 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" »

Most businesses require loans to normalize their income stream and ensure that they have the cash necessary to operate. Some business owners enter into guaranty contracts to get the capital that they need, and in the process become personally liable for the debt of their company. In such instances, disputes often arise when the other party attempts to enforce the guaranty contract to collect on the debt. DiTommaso-Lubin has been involved with contract disputes of all kinds, and our Elgin guaranty contract attorneys recently uncovered a case that illustrates why it is important to draft such contracts carefully and enforce them in a timely manner.

In Riley Acquisitions Inc. v. Drexler, Defendant and her husband initially entered into a guaranty contract and promissory note with a third party to get credit for the two companies owned by the couple. Eventually, the marriage dissolved, and each spouse took control of one of the companies. Defendant's company dissolved shortly thereafter, and Defendant then sent a letter to the third party revoking her personal guaranty. Her ex-husband eventually filed for bankruptcy – discharging his liability under the guaranty in the process, and leaving Defendant as the only guarantor on the loan. The third-party who owned the debt eventually sold and assigned its interest to Plaintiff, who filed suit to collect on the loan. Defendant asserted affirmative defenses that her obligation under the note terminated after her company (the principal on the note) dissolved and that Plaintiff’s claims were barred under the applicable ten-year statute of limitations. Defendant won a directed verdict on the basis of her discharge and statute of limitations defenses, and Plaintiff appealed.

The Appellate Court found that because Defendant’s company dissolved, its obligation on the note terminated five years later under the applicable portion of the Illinois Business Corporation Act of 1983. This effectively terminated Defendant’s liability as well because the guaranty contract did not expressly provide that liability would continue in such a situation. Thus, because Plaintiff filed suit nine years after the dissolution of Defendant's company, the Court upheld the trial court’s verdict on discharge grounds and did not address the statute of limitations issue.

Continue reading "Appellate Court of Illinois Upholds Discharge of Guaranty Contract on Discharge Grounds " »

After hiring someone, businesses expect not only that their new employee will perform his job adequately, but also that he will do no harm to the company or its ability to do business. Employers know that their expectations are not always met by those employees, which is why the use of employment contracts with non-compete clauses are quite common these days. Our Chicago restrictive covenant attorneys just discovered a recent court decision that details a dispute between an employer and an ex-employee regarding one such employment agreement.

In Zep Inc. v. First Aid Corp., Plaintiff Zep employed the individual Defendants as sales representatives for its industrial cleaning products business pursuant to an employment agreement that contained non-disclosure, non-solicitation, and non-compete provisions. During their employment, Defendants had access to Plaintiff's customer lists, supplier lists, pricing information, and other proprietary information. Eventually, a competitor, Defendant First Aid, hired the other named Defendants away from Plaintiff and subsequently solicited Plaintiffs clients and other employees.

As a result, Plaintiff filed suit for breach of contract, trade secret misappropriation under the Illinois Trade Secrets Act (ITSA), and tortious interference with contract. Plaintiff contends that First Aid induced the other Defendants to breach the employment agreements they signed with Plaintiff and that the other Defendants used and disclosed Plaintiffs trade secrets. In response, Defendants filed motions to dismiss the claims, which were granted as to three of the individual defendants due to a lack of personal jurisdiction. The Court found that because three of the individual Defendants were residents of Michigan and Ohio, Plaintiff is located in Georgia, and the employment agreements were signed outside of Illinois, they did not have the requisite minimum contacts to give an Illinois court jurisdiction over the matter. Furthermore, Plaintiff had not alleged that any of Defendants' actions were aimed at Illinois, and neither had their actions caused harm to Plaintiff in Illinois, so specific personal jurisdiction was also improper. The Court denied the remaining motions to dismiss – finding that the non-compete provisions were enforceable because the geographic limitations were reasonable and the non-solicitation clause was limited in scope to Plaintiff's competitors for a span of one year. Plaintiff's allegations were also found to be sufficient to support a claim under the ITSA because it had identified a list of confidential information and trade secrets in its pleadings.

Continue reading "Northern District of Illinois Grants Motion to Dismiss in Trade Secrets Case Due to Lack of Personal Jurisdiction" »