Chicago Business Litigation Lawyer Blog

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" »

The District Court for the Northern District of Illinois’ recent opinion in Nortek Products Ltd v. FNA Group, Inc. provides a basic overview of how courts consider whether to enforce the terms of a noncompete agreement.

Plaintiffs began manufacturing pressure water products for Defendants in 2003. Five years later, the parties entered into a “License Contract” under which Plaintiffs would manufacture pressure washers that included specific hoses that Defendants held a patent on and/or involved specific technology for which Defendants had applied for a patent.

They also entered into a “Nondisclosure, Noncompetition and Non-solicitation Agreement” (NDA) prohibiting Plaintiffs from the "manufacture, assembly, use, sale, marketing, after-sale service or other disposition of any Licensed Product, any related ancillary activities and any other business [Defendants] may license (or co-operate with) [Plaintiffs] or consider licensing (or co-operating with) [Plaintiffs],” for three years after the expiration of the License Contract. The NDA also included a non-solicitation provision, barring Plaintiffs from soliciting Defendants' customers for 10 years after the Licensing Contract’s expiration. Finally, the NDA’s nondisclosure provision stated that Plaintiffs would not disclose Defendants' trade secrets or confidential information. The NDA did not include a geographic limitation.

Plaintiffs filed suit against Defendants for breach of contract. Defendants, in turn, filed a counterclaim alleging that Plaintiffs breached the NDA by soliciting business from Defendants' customers and engaging in unauthorized business activities using Defendants’ confidential and proprietary business information.

In denying Plaintiffs' motion to dismiss the counter claim, the court first determined that the NDA should be considered under an employee-employer framework, rather than in the context of a sale of business. “[B]ecause the covenants in the License Contract serve to protect confidential customer information and customer relationships, they are more akin to covenants ancillary to an employment contract than to a sale of a business,” the court ruled.

Continue reading "Illinois Noncompete Agreements 101 - Nortek Products Ltd v. FNA Group, Inc. " »

As a Chicago law firm that focuses on business litigation, DiTommaso-Lubin pays close attention to shareholder lawsuits filed in Illinois' courts. Our Elmhurst business attorneys discovered a case filed in the Appellate Court of Illinois, First District, Fourth Division that answers questions regarding the appropriate statute of limitations to apply in a shareholder action for common law damages.

Carpenter v. Exelon Enterprises Co. is a case filed by multiple minority shareholders against the majority shareholder, Exelon, for breach of fiduciary duty and civil conspiracy. Defendant Exelon owned 97% of InfraSource, and Plaintiffs owned a portion of the remaining 3% of the company. Defendant then allegedly decided to divest its interest in the company through a series of complex merger transactions. The alleged end result of these transactions was to grant all shareholders in InfraSource would receive a pro rata share of the net proceeds. Using its majority stake in InfraSource, Defendant allegedly voted its shares in favor of the merger transactions, which was subsequently executed according to Defendant's plan. After the merger, Plaintiffs filed suit against Exelon alleging breach of fiduciary duty and civil conspiracy that caused the minority shareholders to be inadequately compensated for their shares in InfraSource. Defendant then moved to dismiss the action because Plaintiffs' claims were barred under the three year statute of limitations in the Illinois Securities Law of 1953. The trial court denied Defendant's motion, stated that the applicable statute of limitations was the five year period contained in section 13-205 of the Illinois Code of Civil Procedure. The trial court then stayed the matter and certified the statute of limitations issue for an interlocutory appeal to the Appellate Court.

On appeal, the Court examined Defendant's argument that, despite the fact that Plaintiffs did not allege specific statutory violations, Plaintiffs' claims fell within the scope of the Illinois Securities Law and its three year statute of limitations. Plaintiffs argued that, because of the similarities between Illinois and federal securities law, federal case law should be utilized by the Court. Plaintiffs' cited federal cases holding that securities fraud does not include the oppression of minority shareholders nor does it include oppressive corporate reorganizations, and thus the case did not fall within the purview of the Illinois statute. The Court performed a statutory analysis and determined that subsection 13(A) of the Law did not apply to Plaintiffs because their claims did not arise out of Plaintiffs' role as purchasers of securities. The Court went on to explain that Defendant's argument based upon subsection 13(G), which provides a remedy to any party in interest in the unlawful sale of securities, was unpersuasive. Instead, the Court held that subsection 13 of the Illinois Securities Law of 1953 does not “concern retroactive common law damages claims for breach of fiduciary duty brought by sellers of securities in general, or minority shareholders in particular.” By so holding, the Court declared that the three year statute of limitations did not apply and remanded the case back to the trial court.

Carpenter v. Exelon Enterprises Co. provides potential shareholder litigants with a ruling that gives them an additional two years to bring their claims. Conversely, those facing liability in a common law action surrounding a securities transaction should be aware that such claims are viable for a longer period of time than they may have previously thought.

Continue reading "The Illinois Securities Act of 1953 Does not Apply to Common Law Damages Claims for Breach of Fiduciary Duty by Sellers of Securities" »

The Chicago Tribune has recently reported on two lawsuits arising out of the bankruptcy of the franchisor for the Giordano's pizza chain.

In one suit the bankruptcy trustee has sued franchisee for failing to use the the required pizza dough thus allegedly harming the quality and uniformity of Giordano's pizzas. This type of lawsuit often arises in the franchise setting the article explains. The article states:

It's common, especially in the restaurant business, for a franchisor to dictate suppliers in their franchise agreements.

"If a customer does not receive essentially the same product, same quality and same experience, the brand image is tarnished and the customer less likely to patronize the franchise in the future," said Christian Burden, a Quarles & Brady LLP partner focusing on disputes involving distributors and franchises. "To use the quintessential example of the Big Mac, from the franchisor's perspective, a Big Mac in Chicago must taste and appear generally the same as a Big Mac in Los Angeles, Toronto, Brazil, and so on."

But it's also not unheard of for franchisees such as those at Giordano's to look for alternative sourcing. ...

You can read the full article by clicking here.

The other Tribune article details a lawsuit filed by the former Giordano's franchisor claiming that the franchisor's lender-banks, former lawyers and other franchisees conspired to rob them of the business. You can view a copy of the complaint in this lawsuit by clicking here. The article describes the lawsuit's claims as follows:

The lawsuit said that the men enlisted Fifth Third Bank, Giordano's chief lender, as well as Chicago lawyer Michael Gesas and several Giordano's franchisees "to participate in the scheme" in which they'd push the Apostolous out and take over the company. Secret meetings were held from September 2010 to February 2011, the lawsuit said. Gesas didn't respond to a request for comment.

First, they intended to weaken the Chicago-based deep dish pizza chain financially, the suit said. Then, the Apostolous "were fraudulently induced" into signing agreements in August 2010 and October 2010 that worsened their lending terms with Fifth Third, which is owed more than $40 million in the bankruptcy.

Fifth Third threatened to "throw the family in the street" if they didn't go along with the new terms, the lawsuit said. Aynessazian, who also owns eight Giordano's franchises, Roche and Gesas made "material omissions" to the Apostolous and failed to represent the interests of the Glenview family, the suit said.

Before the execution of the October 2010 deal with Fifth Third, Apostolou had a heart attack, leaving him even more dependent on his lawyers and Aynessazian. The stress also prompted him to see a psychiatrist, the lawsuit said.

"The final step of the scheme involved seizing control of (Giordano's) by pressuring the Apostolous into filing a Chapter 11 bankruptcy by which the assets and value of (Giordano's) could be usurped for the benefit of Fifth Third, and the Apostolous' ownership interests could be purchased at a materially deflated price for the benefit of the franchisee takeover group," the lawsuit said.

You can read the full article by clicking here.

Continue reading "Chicago Tribune Reports on Litigation Arising Out of Bankruptcy of Giordano's Pizza Franchisor" »

CNN reports that French Shoe Designer Christian Louboutin lost the first round of a trademark lawsuit seeking to protect his iconic red soled high heels. Louboutin's lawyer blasted the Court's decision and vowed he would fight on in an appeal. The story explains that many designers want to use red soled shoes and don't think they should be excluded from doing so with one designer receiving a monopoly on that color. The story states:

"Everyone sees the flash of red and associates the red with Louboutin," attorney Harley Lewin said Thursday about his client. In fact, Louboutin's red soles have graced many a red carpets, adorning the feet of celebrities Oprah Winfrey, Heidi Klum and Sarah Jessica Parker. ... In his decision Wednesday, U.S. District Judge Victor Marrero acknowleded that in choosing a red sole for his shoes, Louboutin had "departed from longstanding conventions and norms of his industry," to create a product, "so eccentric and striking that it is easily perceived and remembered." However, Marrero went on to say that, "Louboutin's claim to the 'the color red' is, without some limitation, overly broad and inconsistent with the scene of trademark registration." "This was a trademark that never should've been issued," David Bernstein, attorney for the defendant, Yves Saint Laurent said. ... Judge Marrero's decision drew parallels between painters and fashion designers, calling them both members of a creative industry where no one should be barred from using color to achieve their aesthetic. Doing so could, "interfere with creativity and stifle competition." Bernstein agrees. "No designer should be able to monopolize a color." ... Lewin says his client "separated his shoes from everyone else's by using a red sole." Lewin said he's never had such an outpouring from his fellow attorneys, law professors and members of the fashion industry, telling him, "This [verdict] is an abomination. Tell your client to appeal."

You can read the full story by clicking here.

Continue reading "CNN reports: Designer Loses First Round of Trademark Lawsuit on Red Soled High Heels -- Lawyer Vows to Continue the Fight on Appeal and Lambasts Judge's Decision" »

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" »

Most 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" »

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"" »

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.

Vincent L. DiTommaso

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Peter S. Lubin

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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.

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" »

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.

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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"" »

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" »

DiTommaso-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" »

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