Chicago Business Litigation Lawyer Blog

Below is a video by a forensic accountant and certified fraud examiner discussing common forms of fraud that cause losses to businesses. The video provides solutions to protecting your business from fraud.

DiTommaso-Lubin's Chicago business trial lawyers have more than two and half decades of experience helping business clients on unraveling complex business fraud and breach of fiduciary duty cases. We work with skilled forensic accountants and certified fraud examiners to help recover monies missappropriated from our clients. Our Chicago business, commercial, and class-action 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 Wheaton, Naperville, Evanston, and Chicago, 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, Wheaton, Elmhurst, Geneva, Aurora, Elgin, Rockford or Naperville business trial attorneys and class action and consumer trial lawyers, please call us toll-free at 1-877-990-4990 or contact us through the Internet.

A trial court was correct to find a breach of fiduciary duty in a real estate partnership, the First District Court of Appeal ruled March 27. In 1515 North Wells LP v. 1513 North Wells LLC, No. 1-07-1881 (Ill. 1st. Dist. March 27, 2009), the appeals court also upheld the lower court’s rulings that one partner had breached his contract and that denied him a chance to amend his complaint to pierce the corporate veil.

The case grows out of a real estate development deal struck in 1997. Thomas Bracken, Mark Sutherland, Alex Pearsall and an uninvolved fourth partner formed 1515 North Wells LP, a limited partnership, to develop a condominium with retail space. Sutherland and Pearsall then created SP Development Corporation to serve as the general partner of 1515 North Wells LP. Bracken separately created 1513 North Wells LLC to own space in the building that was to be a health club. Bracken borrowed $250,000 to pay for his part of the property, and signed a note saying he agreed to pay it back no later than 15 days after receiving a financial statement from 1515 North Wells. He further agreed to pay it even if there was a dispute, then wait for a refund later.

To begin development, SP, the general partner, solicited bids for a general contractor. It hired yet another Sutherland and Pearsall company, Sutherland and Pearsall Development, even though its bid was the only one received that failed to state a maximum price for the project. The same general contractor, not 1515 North Wells, later received the profits from condominium upgrades.

In 2001, Bracken received his financial statement but did not pay back the loan, claiming the accounting was inadequate. The next year, 1515 North Wells sued him for breach of contract. Bracken countersued SP, and Sutherland and Pearsall as individuals, for breach of fiduciary duty, citing the choice of their own company as general contractor. SP was granted summary judgment on Bracken’s breach of contract issue, and the individuals were granted summary judgment on breach of fiduciary duty as to them personally. Bracken was unsuccessful in his own request for summary judgment, finding that there were genuine issues of material fact to address at trial.

The court also denied Bracken leave to amend his complaint to pierce the corporate veil and find Sutherland and Pearsall personally liable for the alleged breach of fiduciary duty. Bracken’s request came in 2005, seven weeks before trial and after the issue had been raised in previous filings. However, the judge in the case retired, delaying trial. At a bench trial in December of 2005, the court found for Bracken on the breach of fiduciary duty claim. Bracken then petitioned for reconsideration of the summary judgment against him and of the denial of leave to amend his petition, in light of the court’s finding. The new judge did not change the first judge’s rulings, and in fact, amended the judgment against Bracken to include more interest and attorney fees.

Everybody appealed to the First District. On appeal, Bracken argued that the trial court erred in finding him liable for breach of contract in repayment of the loan, and in not allowing him to amend his complaint to include a request to pierce the corporate veil. SP argued that the trial court should not have found a breach of fiduciary duty because of language in the partnership agreement for 1515 North Wells.

The First District started its analysis by quickly affirming the trial court’s rulings against Bracken. It was undisputed that Bracken was contractually obligated to pay the money back, the court said, and it was undisputed that he did not repay it. Thus, summary judgment on the breach of contract issue was entirely appropriate.

It next looked at Bracken’s claim for amending his case to include a count for piercing the corporate veil. Bracken argued that he had repeatedly made that request but had not been allowed, starting at least 16 months before trial. However, the court found no evidence in the record that Bracken had done so. It further concluded that the motion he did make, seven weeks before trial, was not timely. Bracken did not make his request until nearly three years after the case was filed, the court reasoned, and had no way of knowing that the late-September trial would be postponed further. In fact, allowing an amended complaint at that late date would have been prejudicial, the First District wrote.

Finally, the appeals court dismissed SP’s argument that the trial court erred in finding it breached its fiduciary duty. SP relied on language in the partnership agreement providing that partners may engage in whichever activities they choose without financial obligation to the partnership. However, the appeals court said, the Illinois Uniform Partnership Act specifies that a partnership agreement may never eliminate or reduce a partner’s fiduciary duties. Furthermore, there was ample evidence at trial that SP breached its fiduciary duty, including the “cost plus” contract with the contractor and the fact that it did not route condo sales profits back to the partnership. Thus, the First District upheld the trial court’s decisions on all counts.

Based in Chicago and near Naperville, Ill., DiTommaso-Lubin handles partnership and shareholder, and family business disputes including such disputes involving real-esate partnerships, and other business ventures for businesses, partnerships and corporations of all sizes, from closely held family businesses to larger enterprises. Our Chicago and Oak Brook commercial litigation attorneys represent businesses in state and federal courts, and alternative dispute resolution, throughout Illinois, Indiana and Wisconsin. DiTommaso-Lubin's goal is to minimize our clients’ financial risk and avoid disruptions to their business as much as possible while still protecting their legal rights. If your business, corporation or partnership is involved in an Illinois business lawsuit and you would like to learn more about how we can help, contact DiTommaso-Lubin today for a free consultation.

A client list and information on clients’ computer networks do not qualify as trade secrets under the Illinois Trade Secrets Act, the Fifth District Court of Appeal decided April 13 in a business trade secrets lawsuit. In System Development Services v. Haarman, No. 04-CH-30 (Ill. 5th 2009), System Development Services (SDS) sued four former employees who left to start a competing business offering networking services to businesses in Effingham County. A trial court found that the defendants had misappropriated a list of clients and potential clients, as well as information on SDS clients’ networks, but the Fifth District Court of Appeal overturned that decision.

SDS sets up and maintains computer networks for local businesses. It maintains a database of clients and potential clients, and stressed to employees that both the list and the clients’ network information should be kept private. Defendants Timothy Haarman, Jason Repking, Rick Hoene and Terry Oldham left SDS after a bad financial year and started a competing business, Technical Partners. None had signed a restrictive covenant limiting their right to compete with SDS. However, when starting out, they sent out a mailing to potential clients that SDS thought was suspiciously similar to addresses in its client database. They also relied on former SDS customers during their first month inbusiness. SDS sued them for violations of the Illinois Trade Secrets Act and breach of fiduciary duty.

At a bench trial, the plaintiff testified that some of the addresses at issue contained information not found in the telephone book, and that work orders and emails were deleted from their system shortly before defendants left. However, the company’s owners told the court that they had no personal knowledge that a client list was stolen. The defendants testified that they made their mailing list using the phone book, the Internet and a chamber of commerce listing. They also relied on client relationships formed at SDS and personal connections. One defendant testified that no special knowledge other than the ordinary knowledge of a network technician was necessary to serve SDS and Technical Partners clients.

The trial court found for the plaintiff on the Trade Secrets Act claims as to misappropriation of the SDS client list and information about clients’ networks. It granted damages and an injunction stopping them from competing with SDS. The defendants appealed.

On appeal, the Fifth District Court of Appeal reversed that decision, saying that the client list and information about customers’ networks did not qualify as protectable trade secrets under the Trade Secrets Act. To qualify as a trade secret, the court said, information must give its owner a competitive advantage in business, and the owner must make an effort to keep it secret. Illinois common law also requires judges to evaluate how well known the information is, the effort it took to develop it and the difficulty others would face in acquiring it.

Under these standards, the court wrote, neither the SDS client list nor its customers’ network information were “sufficiently secret” to merit protection as trade secrets. The businesses’ contact information is readily available from multiple sources, and many businesses on the client list were only potential clients, the justices pointed out. It cited no fewer than six Illinois and federal cases holding that client lists were not trade secrets, including the First District Court of Appeal’s decision in Office Mates 5, North Shore, Inc. v. Hazen, 234 Ill. App. 3d 557 (1992). As to the network information, no evidence at trial showed that SDS installed proprietary networks, and the information the defendants did have was no more than the general skills and knowledge inevitably gained from employment. Thus, the Fifth District wrote, there was no trade secret to steal, and the judgment of the trial court was reversed.

The business litigation law firm of DiTommaso-Lubin handles all types of business disputes, including lawsuits over theft of trade secrets, violations of restrictive covenants and breach of fiduciary duty. With offices in Oakbrook Terrace, near Naperville, Ill., and Chicago, our business litigation and business trial attorneys handle many different types of business disputes, including shareholder and partnership lawsuits, breach of contract claims and real-estate disputes from around the state of Illinois, as well as in Indiana and Wisconsin. For more information about the types of cases we handle and a summary of our litigation and trial experience click here, If you have a business litigation matter in state or federal courts and you would like to learn more, please contact DiTommaso-Lubin via email or call 1-877-990-4990 to set up a confidential consultation.

In a breach of contract and Illinois Wage Payment Act case, the First District Court of Appeal has ruled that a company and its former executive must have a trial to determine whether it breached the executive’s employment contract. Covinsky v. Hannah Marine Corporation, No. 1-08-0695 (Ill. 1st. Feb. 17, 2009). At issue in the case is a severance clause in Jeffrey Covinsky’s employment contract with Hannah Marine Corp., for which he served as president, CEO and CFO from 1998 to 2006.

Covinsky’s contract specified that he was entitled to a “golden parachute” of 18 months’ salary if there is “...a change in the present ownership which results in the termination of the Employee's employment...” This agreement was executed in 2004, when Hannah Marine was jointly owned by three people, including Donald Hannah. Hannah sued the other shareholders in 2005 for financial mismanagement, and ended up buying out the other two shareholders. Covinsky told Hannah in 2005 that he assumed Hannah would want to let him go after the change; in 2006, Covinsky told Hannah he did not intend to resign and wanted to finish the contract, which was set to expire in 2006.

A month later, when the takeover was final, Hannah told Covinsky that he was terminated and that Hannah “accepted” Covinsky’s resignation. Covinsky protested that he never resigned, but was not paid the severance. He sued Hannah Marine and Donald Hannah for breach of the employment contract and violating the Illinois Wage Payment Act. Hannah countersued Covinsky for breach of fiduciary duty. The trial court granted summary judgment to Covinsky on both counts as to Hannah Marine, but dismissed the Wage Act claim against Hannah personally. It also dismissed the company’s counterclaim. Both sides appealed, resulting in the consolidated instant appeal.

On appeal, the First District narrowed the issue to the meaning of the word “termination” in the golden parachute clause, which says in part that Covinsky would be entitled to the severance pay if “a change in the present ownership... results in the termination of the Employee’s employment.” Hannah Marine argued that this means just a firing; Covinsky argued that it means either a firing or a resignation. The appeals court found that the dictionary definition could mean either kind of termination, but context makes it clear that the clause refers to an involuntary termination. In fact, the court wrote, to interpret the clause otherwise would “make[] no sense”:

If a paragraph 7(g) "termination" encompasses a voluntary resignation, the employee has no incentive to continue in his position and to make the transition to the new owner/management because he knows, if he resigns upon the transition, he will receive a substantial payout. He will be rewarded for not doing his job.

For that reason, the court said, the issue of whether Covinsky was fired or quit -- an issue the trial court had declined to address, believing the clause applied either way -- was dispositive of the case. This is a genuine issue of material fact that is inappropriate for summary judgment, the court wrote. Thus, the trial court’s breach of contract decision was reversed and remanded for further proceedings on the subject. For the same reasons, the appeals court also send the Wage Payment Act claims against both Hannah Marine and Donald Hannah back to trial -- the law would apply, it said, but only if Covinsky was fired. The judges noted that the trial court found that Hannah didn’t meet the definition of an employer, but nonetheless, it was free to revisit the issue on remand.

Finally, the court addressed Hannah’s appeal of the trial court’s decision to dismiss its breach of fiduciary duty claim against Covinsky. Like the trial court, the appeals court said Hannah failed to state a sufficient claim because the deal that formed the basis of its claim wasn’t necessarily a bad one.

DiTommaso-Lubin’s Chicago breach of contract litigation lawyers and business trial attorneys handle cases of alleged breach of employment contracts and all other types of business contracts, including franchise agreements, purchase and sale contracts, restrictive covenants and non-compete agreements. Our firm serves businesses and individuals acting as both plaintiffs and defendants. With offices in Oakbrook Terrace, near Oak Brook, Naperville, Wheaton, Ill., and Chicago, we help clients throughout Illinois, Wisconsin and Indiana. Our law firm and its Chicago commercial trial attorneys have handled a wide variety of business trials and litigation. To learn more about how we can help you, you can contact us online or call us at 1-877-990-4990.

In a breach of implied contract lawsuit, a Wisconsin auto dealership must have a new trial because the original trial judge misconstrued Wisconsin law on quantum meruit and unjust enrichment, the Seventh U.S. Circuit Court of Appeals ruled. Lindquist Ford, Inc. v. Middleton Motors, Inc., Nos. 08-1067 & 08-1689 (7th Cir. February 25, 2009).

Middleton Motors, a Ford dealership near Madison, Wis., was a struggling business when it asked the more successful Lindquist Ford of Iowa for financial and management help. In their initial negotiations in 2003, they agreed that Lindquist’s manager, Craig Miller, would manage both dealerships and be compensated by Middleton with a percentage of the profits once he made the dealership profitable again. No deal was struck at that time, but nonetheless, Miller started managing Middleton.

In subsequent months, negotiations ran aground when Lindquist repeatedly did not offer a cash infusion, proposed as an investment in the business, that Middleton wanted. During this time, Middleton repeated several times that Miller’s compensation would be a percentage of Middleton’s profits when the dealership was profitable again. About a year into this situation, Middleton fired Miller, frustrated that the dealership was still unprofitable and no deal had been reached on a cash infusion. Two months after the firing, Miller sent Middleton a letter demanding a salary for 2003, and half of profits for the next two years. Middleton disagreed that it owed Miller anything.

Lindquist and Miller sued for breach of contract, promissory estoppel, quantum meruit and unjust enrichment. The trial court granted summary judgment on the first two counts, but held a bench trial on the latter two. At trial, it excluded a large amount of evidence about the dealerships’ negotiations, the percentage-based compensation to Miller and the risk to Middleton, because it believed that the only important issues were damages and whether Lindquist could prove that there was a quasi-contract by showing a mutual agreement through words and actions. It found for Lindquist and Miller. Middleton appealed.

On appeal, the Seventh Circuit found that the trial judge had profoundly misinterpreted Wisconsin law on quantum meruit and unjust enrichment, possibly because the laws are confusingly phrased. Both concepts are quasi-contractural theories, the judges wrote, but quantum meruit is a contract implied by law and unjust enrichment requires no finding of any features of a contract. This contradicted the trial judge’s heavy reliance on Theuerkauf v. Sutton, 306 N.W.2d 651, 658 (Wis. 1981), which was a contract implied by fact case that mentioned quantum meruit only in passing. Applying a test from Theuerkauf, they wrote, was inappropriate to decide quantum meruit claims and excluded large amounts of evidence that was necessary to determine whether there was a contract implied by law. Thus, a new trial was necessary.

The Seventh also ordered a new trial on the unjust enrichment claim, but not because the trial court had misconstrued that principle. Rather, they wrote, it’s not clear that this case meets the third element of an unjust enrichment test in Wisconsin: that it would be inequitable for Middleton to retain the benefits of Miller’s work without paying him. Again, the judges wrote, a substantial amount of evidence on this question was excluded by the trial court, making it necessary to retry the claim. If the trial court determines on remand that Miller did not reasonably expect to be paid unless he made Middleton profitable, and that he could not after a fair attempt, the Seventh ordered the trial court to enter judgment for Middleton.

Based in Chicago and Oakbrook Terrace, Ill., near Wheaton and Naperville DiTommaso-Lubin represents clients in Illinois and throughout the Midwest in complex business litigation matters, including federal and Illinois breach of contract lawsuits. Our Chicago breach of contract lawyers represent parties to all kinds of contracts, including contracts implied by law or by fact. If you need help from an experienced business litigation attorney and you’d like to learn more about how we can help, please contact us by email or call 1-877-990-4990 to set up a confidential consultation.

Changes to a contract invalidated a business owner's agreement to sell his auto dealership, the Illinois Third District Court of Appeal has ruled. In Finnin et al v. Bob Lindsay Honda-Toyota, 3-05-0428 (June 29, 2006), the court ruled that a trial court properly granted summary judgment to the defendant, because the plaintiffs made material changes to the contract that was allegedly breached.

The dispute dates to March of 2002, when the three plaintiffs, including Michael Finnin, approached defendant Robert Lindsay about selling his Toyota-Honda dealership in Knox County. The parties, and their lawyers, worked out the details of the sale over several months and eventually signed an agreement incorporating those details. In August, an assistant to Lindsay's attorney sent a copy of the agreement, with all of the agreed-on conditions that were then current, and with Lindsay's signature. On receipt, the plaintiffs' attorney noticed two mistakes, including a substantially lower purchase price than the parties had agreed on. The attorneys discussed the problem at the time, and Lindsay's attorney suggested that the draft be returned so that he could send out a corrected version. The plaintiffs' attorney took no action.

Eight or nine days later, Lindsay himself phoned Finnin to tell him that he was selling the dealership to another buyer. Finnin and his fellow plaintiffs decided they still wanted to buy the dealership, and their attorney made the necessary changes to the draft that day. Lindsay still sold the dealership to the third party, and the plaintiffs sued for breach of contract. The trial court granted Lindsay summary judgment, saying that even though the changes plaintiffs made to the contract were consistent with the parties' intent, they consisted of a counteroffer to his offer, and thus there was no contract to breach.

The Third District Court of Appeal agreed. In its analysis, the appeals court noted that Illinois law has long required that an acceptance must conform exactly to an offer in order to create a contract. If any changes at all are made in the acceptance, the court said, it is a nonbinding counteroffer. That's true even in this case, where the court agrees that the changes merely reflected the parties' intent. It also rejected the plaintiffs' argument that the Uniform Commercial Code should apply, noting that the UCC applies to merchants rather than investors. Thus, it upheld the trial court's decision to grant summary judgment to the defendant.

From offices in or near Oak Brook, Naperville, Wheaton and Chicago, DiTommaso-Lubin handles breach of contract cases and other business litigation in Chicago and throughout Illinois. Please visit our Web site to learn more about our case results and speak with our Chicago business trial and commercial litigation lawyers confidentially about you case.

A small business may not sue a bank for allowing a minority shareholder to embezzle, the Illinois Second District Court of Appeal has ruled. In Time Savers, Inc. v. LaSalle Bank, N.A., 02-06-0198 (Feb. 28, 2007), the company had sued its bank for breach of contract, common-law fraud, conspiracy to defraud, aiding and abetting and violating the Illinois Fiduciary Obligations Act.

The case stems from bad loans taken out by the minority shareholder in construction and maintenance equipment supplier Time Savers (TSI), Stephen Harrison. He owned 20% of the company and shareholder Lawrence Kozlicki owned the remaining 80%. Harrison also owned another business, RDSJH Equipment Venture, that does the same kind of equipment supply business. Kozlicki has no ownership interest in RDSJH, but the two companies did business together. Between 1997 and 2001, Harrison, through TSI, refinanced existing loans and took out new ones with LaSalle Bank seven times. With these loans, Harrison financed new equipment purchases for RDSJH; the equipment was then rented to TSI, allowing RDSJH to enrich itself at TSI's expense.

Kozlicki and TSI contended that LaSalle suspected or knew that the loans were for Harrison's personal benefit, but failed to alert Kozlicki or investigate further. TSI pointed to various documents and communications, as well as the fact that some funds were deposited into an RDSJH account. The complaint at issue in this appeal is the third amended complaint by TSI; the company voluntarily dismissed the original complaint and the DuPage County trial court dismissed the first, second and third amended complaints at LaSalle's request. (The bank also moved for sanctions after the third amended complaint was dismissed.) The final dismissal is the subject of this appeal.

In its analysis, the Second District sided with the trial court. Most importantly, it found that TSI had failed to show that LaSalle or its employees had actual knowledge of Harrison's embezzlement. Documents cited did not demonstrate Harrison's wrongdoing, and because the bank knew Harrison was a shareholder in both TSI and RDSJH and the two companies did business together, there was no reason that the bank should have suspected anything unusual from the entanglement of the companies' finances. For the same reasons, the court said, the bank knew nothing that would have obligated it to investigate the situation further, and the plaintiff could not show that it deliberately failed to investigate.

Thus, the charges of conspiracy, aiding and abetting and violation of the Fiduciary Obligations Act failed. The common-law fraud count failed, wrote the court, because TSI failed to cite specific examples of false representations made by LaSalle. Thus, the appeals court upheld the trial court's dismissal of TSI's complaint with prejudice.

The Chicago business trial attorneys and commercial litigation lawyers at DiTommaso-Lubin represent businesses and individuals in Chicago and throughout the Midwest who are seeking to recoup the costs of fraud, embezzlement and other financial crimes. To learn more about our firm and see our favorable results in past cases, please visit our Web site.

As Naperville, Oak Brook, Wheaton, and Chicago business trial lawyers with substantial experience in shopping center claims, we were interested to see a recent decision by the First District Court of Appeal on the obligations of people who guarantee a lease. A change in the lease and a directed verdict at trial do not relieve a couple of their liability as guarantors of a commercial lease, the court has ruled. In Chicago Exhibitors Corporation v. Jeepers! Of Illinois and Swento, 1-06-3313 (Aug. 30, 2007), the court ruled that a guaranty agreement written to survive changes to the lease is enforceable even if the lease is assigned to a new tenant who changes it without the guarantor's approval.

Harvey and Cherry Swento owned a business that leased space from a predecessor landlord to Chicago Exhibitors Corporation (CEC). To sweeten that lease, the Swentos in 1991 personally guaranteed their lease payments and all of their other obligations as tenants, with a clause specifying that the guaranty would survive changes to or assignment of the lease. In 1997, they sold their business to Jeepers! of Illinois, Inc. and executed an agreement in which Jeepers! indemnified them from losses stemming from their personal guaranty. Jeepers! then failed to pay its rent, causing CEC to demand an amendment to the lease that reaffirmed the Swentos' personal guaranty. CEC declined to recognize the transfer of lease obligations from the Swentos' company to Jeepers! until rent was paid in full and Jeepers! executed its own guaranty.

Jeepers! never did take on the guaranty, but it failed to pay its rent again several times. In an effort to avoid eviction, it agreed to several changes to the lease in January of 2001. The Swentos did not sign this amendment, even though it called for the ratification of all guarantors. When CEC eventually sued Jeepers! for unpaid rent and repairs, it included the Swentos as guarantors. In the trial, the Swentos asserted that the January 2001 amendment was a material change that discharged them from their obligations as guarantors; CEC successfully moved in limine for a ruling that it was not. The parties then agreed to move straight to the damages phase of the trial, so the judge granted a directed verdict on liability. The Swentos were eventually found liable for unpaid rent and damages as well as attorney fees. They appealed the in limine motion, the directed verdict and the award of attorney fees.

In its decision, the appeals court found that the January amendment to the lease was not material enough to release the Swentos from their obligations. In Illinois, changes to a contract must make the guarantor's obligations materially different from what they originally signed, including a substantial increase in risk. None of the changes in the amendment changed the Swentos' financial obligations, the court said, so it was not a material enough change to release them from their guaranty. Nor was the Swentos' lack of control over Jeepers! enough to constitute an increase in risk, especially since their original guaranty was written to endure despite changes in the lease.

The Swentos also argued that a directed verdict denying them a chance to defend themselves was inappropriate because they never signed the January 2001 amendment, which they argued superseded the lease and thus waived CEC's rights against them. The court found those arguments unconvincing, but more importantly, pointed out that they are waived on appeal because the Swentos failed to raise them at trial. Finally, the appeals court rejected the Swentos' argument that they shouldn't be held responsible for an agreement they didn't sign, again saying that the January 2001 changes to the lease were not material enough to release them from their obligations. Thus, the trial court's decision was unanimously affirmed.

With offices in Chicago and Oak Brook, Ill., DiTommaso-Lubin handles commercial real estate litigation of all kinds, including a variety of contractual disputes and shopping center tenant matters. If you have a legal problem regarding a shopping center or another real estate matter, we would like to help. To set up a confidential consultation with our Chicago business and real-estate trial attorneys, please contact our Oak Brook business and real-estate trial attorneys today.

Our Chicago, Naperville, Wheaton and Oak Brook business trial lawyers won an important procedural victory in a business dispute involving a closely held business. In short, we were able to convince an Illinois trial court that an attorney's appearance should be stricken after being added to a case, we argued, because it appeared the new attorney could have been added to force the recusal of the judge, the attorney's former law partner.

The underlying case was a high-stakes financial dispute in a closely held business. It had been litigated for six years, but was delayed when the defendants added a new lawyer to their team. This lawyer was the former law partner of the judge assigned to the case, who had already put substantial time and effort into the matter. However, to avoid any appearance of impropriety, the judge immediately recused himself when the new lawyer, the former partner, was added. Our position was that it could appear that this was precisely what the defense had intended. In fact, the new lawyer was added two days after three rulings on motions that the new judge called "hotly contested," including rulings unfavorable to the defense.

Another attorney for the defense was a recognized expert in legal ethics, we argued, so the defense clearly must have known that the judge might recuse himself. Furthermore, the defense admitted that it had discussed the possibility of recusal with the client. And finally, the new lawyer had chosen what we alleged was a non-standard way to notify the court of his addition. Rather than asking for leave of court to move for the addition, which would have allowed the parties to discuss the addition in open court, he simply sent his appearance directly to the judge. The trial court held this was contrary to both the rules of court and the usual practice. All of this showed that it appeared that the attorney might have been added to force a change of judges, we argued. For those reasons, we moved to disqualify the new attorney.

In response to our motion, the Presiding Judge of the Cook County Chancery Division struck the new attorneys appearance in a detailed decision explaining that it was important to protect the Cook County Chancery Court from the stain of even the appearance of improriety. The Judge wrote:

The fact remains that [the new lawyer's] filing of his appearance for the defendants two days after rulings on three hotly contested motions (including significant rulings adverse to defendants), the filing of that appearance without leave of court and without prior notice to the plaintiffs, and the sending of the appearance by messenger directly to [the first judge] when the next court date was scheduled within a few weeks, with the result being the immediate recusal of the judge, just simply looks bad.

You can view the full opinion by clicking here.

As business trial attorneys in Naperville, Oak Brook, Wheaton and throughout the Chicago area, we have found that Illinois judges have a low tolerance for even the appearance of impropriety. If you are part of a business dispute where you feel "pushed around" by the other side's discovery violations or other behavior that appears intended to slow justice, DiTommaso * Lubin can help. Please contact us to learn more about your rights.

To see more about our firm and the cases we have handled click here.

A recent case of ours includes a motion to disqualify attorneys for the defense under Rule 3.7 of the Illinois Rules of Professional Conduct. Part (b) of that rule states that a lawyer may not represent a client in a case where he or she may be called as a witness to give testimony prejudicial to the client. We moved for an evidentiary hearing on this subject, because our underlying contentions included the contention that the lawyers for the defense witnessed the intentional torts that underlay the case.

Illinois law takes a motion to disqualify an attorney very seriously. Disqualifying a lawyer is considered drastic under state law, because it touches on basic rights by destroying the client's relationship with the lawyer of his or her choosing. Schwartz v. Cortelloni, 177 Ill.2d 166 (1997). For that reason, an evidentiary hearing to determine what evidence is relevant and admissible is generally either necessary or wise. City of Kalamazoo v. Michigan Disposal Service, 125 FSupp2d 219 (WD Mich 2000). In fact, some appeals courts have found that a lack of an evidentiary hearing is sufficient to allow them to question a trial court's decision.

However, Illinois and federal courts have held that an evidentiary hearing is unnecessary when the facts are not disputed, or when investigation is unlikely to provoke an admission that one side has ulterior motives. Robinson v. Boeing Co., 79 F3d 1053 (11th Cir 1996). The Eleventh Circuit's decision in In Re BellSouth Corp., 334 F3d 941, 962 (11th Cir 2003), supporting Robinson, laid down factors for judges to consider when considering disqualifying an attorney for alleged "judge shopping." These include "the fundamental right to counsel, the court’s docket, the injury to the plaintiff, the delay in reaching decision, the judicial time invested, the expense to the parties objecting and the potential for manipulation or impropriety."

The underlying case is related to a shareholder freeze-out lawsuit, in which we represented a 50% shareholder in a closely held corporation.

Our Chicago, Oak Brook and Naperville commercial trial attorneys, DiTommaso * Lubin, represent clients in greater Chicago and throughout Illinois involved in commercial disputes. In addition to shareholder freeze-out and squeeze-out litigation, we handle a variety of business, commercial and corporate litigation for both large corporations and closely held companies. If you have a similar dispute and you would like to discuss it with us confidentially, please contact us through our Web site or by phone.

Our Chicago business litigation firm recently handled a case in which one 50% shareholder allegedly tried to freeze out the other using lawyers hired by the companies owned equally by both. When our clients filed a shareholder freeze-out and breach of fiduciary duty claim and began discovery, the defendants balked, citing the attorney-client privilege to explain why they should not be required to turn over important and incriminating information.

As experienced business litigators know, this is no defense at all. Because our clients were equal shareholders in the business, we argued they were entitled to access to certain attorney communications. Furthermore, there is well-established law showing that the attorney-client privilege cannot be misused to deny discovery when the company or its officer is accused of breaching its fiduciary duty to stockholders. In other words, fiduciary duty trumps the privilege. Caselaw says a corporation may not use the privilege to shield relevant communications from discovery in an action by its own stockholders, unless there is good cause. The multipart test for good cause developed by the courts takes into account the nature of the communication, the seriousness of the allegations and other factors. Garner v. Wolfinbarger, 430 F2d 1093 (5th Cir. 1970).

The attorney-client privilege also cannot be raised when the disputed communications were made after the date the attorney and client began a fraudulent or criminal scheme that was part of the lawsuit. That is, communications about crime, fraud or torts are excepted from the attorney-client privilege. Cleveland Hair Clinic, Inc. v. Puig, 968 FSupp 1227, 1241 (ND Ill 1996). Unfortunately, we believed this to be the situation in our case.

Other exceptions to the privilege include:
• Communications to multiple clients who hired the same attorney, but who later have a legal dispute on the same matter
• Cases of legal malpractice
• Certain cases where a lawyer acts as a witness
• Cases where multiple parties make claims through the same deceased client

Of course, "piercing the veil" of corporate attorney-client privilege is not always easy; those attempting it will likely have to fight for their discovery rights. But in a freeze-out case, in which one shareholder or group of shareholders is unfairly trying to control another, this fight is essential to proving the case. DiTommaso * Lubin handles shareholder freeze-outs and squeeze-out lawsuits for both plaintiffs and defendants in Chicago, Naperville, Wheaton, Oak Brook and throughout Illinois. If you would like to discuss how we can help you, please contact us today.

In a business trademark dispute, the Seventh Circuit has ruled that large auto parts retailer AutoZone may proceed with its trademark infringement lawsuit against a two-store automotive services business in Naperville and Wheaton, Illinois, called Oil Zone and Wash Zone. AutoZone, Inc. v. Michael Strick, No. 07-2136 (7th. Cir. Sept. 11, 2008).

AutoZone sells auto parts and products, and has been well-known in the Chicago area since the early 1990s, according to the opinion. In that decade, defendant Michael Strick opened his Oil Zone stores outside Chicago, in Wheaton and Naperville. These stores sold automotive services such as oil changes, not parts or products; the Naperville location also offered car washes under the name "Wash Zone."

AutoZone learned of Strick's businesses in 1998, but did not contact him until sending a letter in February of 2003. It filed a lawsuit against Strick and his businesses near the end of that year, alleging service mark, trademark and trade name infringement and trademark dilution under the federal Lanham Act, federal unfair competition law, the Illinois Trademark Registration and Protection Act and Illinois common law. Both sides sought summary judgment, which was granted to Strick only, on his claim that there was no reasonable likelihood of confusion between his trademark and AutoZone's. Strick's defense of laches -- that AutoZone had waited too long to sue -- was not addressed. AutoZone appealed on the likelihood of confusion issue.

In its analysis, the Seventh Circuit noted that summary judgment in trademark cases is only appropriate when "the evidence is so one-sided that there can be no doubt about how the question should be answered." Packman v. Chicago Tribune Co., 267 F.3d 628, 642 (7th Cir. 2001). That case also laid down a series of seven factors courts must analyze to decide whether to grant summary judgment, which include questions of similarity, geography, consumer confusion and the intent of the parties. The court in this case concluded that six of those factors applied, including the similarity of the marks, the similarity of the products and their geographic proximity.

There was enough likelihood of confusion in this case for the case to survive summary judgment, the court concluded. It also left the issue of latches -- the time between AutoZone noticing Oil Zone and when it filed suit -- up to the district court. Thus, the district court's decision was reversed and remanded to the U.S. District Court for the Northern District of Illinois.

DiTommaso-Lubin's Chicago, Naperville and Oak Brook business litigation attorneys handle trademark disputes, franchise disputes and other Illinois business litigation from their Oak Brook and Chicago law offices. To speak one of our commercial litigation lawyers about representing your business, please contact us through our Web site or via telephone.

To learn more about our firm and the cases we have handled click here.

As Chicago business, shareholder rights and commercial law litigators, we frequently handle cases involving allegations of business fraud or financial mismanagement, often as part of complex business dispute, that require significant expertise in financial issues. When handling a divorce involving a family business or other closely held company, we also sometimes find we need an expert's help properly valuing the business, so we can help our clients get the most equitable possible distribution of marital property.

Our Chicago, Oak Brook, Wheaton and Naperville business trial attorneys have handled many complex business and commecial law litigation matters which have involved presenting or cross-examining accounting witnesses.

While we're confident in our legal skills, these situations call for specialized financial skills. To give our clients the best possible representation in business, shareholder and other commercial disputes, we sometimes retain a forensic accountant or fraud examiner. Both of these jobs are twofold: They help attorneys and their clients understand the complex financial aspects of their cases, and they may also be called to testify as expert witnesses. A forensic accountant's job is to examine a person or corporation's accounts "cold," from the outside; the subject isn’t generally expected to cooperate. Similarly, a fraud examiner delves deep into a company's finances, looking for the source of anything that seems inconsistent or suspicious. Both can serve as expert witnesses who help establish the value of a business or testify to the existence of fraud.

The goal for both forensic accountants and fraud examiners is to make sure the other side of the case is being completely truthful about its income and accounting practices. As you might imagine, this is a frequent concern in divorces involving a spouse who’s part of a small or closely held business, which may need to be properly valued for the divorce. The company may also need to be investigated when the owning spouse is believed to be hiding assets. However, this concern also comes up in business disputes, such as breach of fiduciary duty lawsuits. When minority shareholders believe the majority is withholding important financial information, using a forensic accountant or fraud examiner may be the most reliable way to discover and prove the truth.

This practice is relatively recent but growing; a simple Web search turns up many accountants and examiners who regularly serve as expert witnesses. Two legal journals serving our Midwestern neighbors, The Wisconsin Law Journal and Michigan Lawyers Weekly, offer online articles on the subject for lawyers who want to learn more.

In a shareholder and breach of fiduciary duty dispute arising from a probate case involving a closely held corporation with two shareholders, the Illinois Third District Court of Appeal has ruled that a shareholder agreement made by a decedent does not allow the remaining shareholder to execute the decedent's will in bad faith. In re Estate of Talty, No. 3–06–0669 (Oct. 29, 2007).

Thomas Talty owned 50% of a closely held corporation (an auto dealership in Morris, Illinois), with his brother William Talty. They each also owned half of the land the dealership was built on, and had an interest in half of an adjoining parcel of land owned by a land trust. Thomas wrote a will in 2000 naming William as executor and naming Thomas's wife, Helen Talty, as sole residual beneficiary of the estate.

The will gave William the right to purchase Thomas's shares of the dealership from his estate, but required that the purchase price be determined by an independent appraiser appointed by the probate court. Similarly, it gave William the right to purchase Thomas's half of the land, but at fair market value set by an independent appraiser approved by the probate court. Separately, in 2001, William and Thomas made a corporate agreement allowing their company to buy the shares of any deceased shareholder. It specified that the fair market value of the shares should be determined by an accountant agreed on by the company and the decedent's representative, or, if they couldn't agree, appointed by the probate court.

After Thomas's death in 2001, William, acting as executor, agreed with the company that Robert Gordon would be the accountant to value the stock. Gordon was already the corporation's accountant, Thomas and Helen Talty's personal accountant, and Thomas and William Talty's cousin. A non-relative recommended by William's lawyer appraised the land. In neither case was Helen or the probate court consulted. Both assessed their respective properties considerably less than what they were later revealed to be worth. The closing date for the sales was set for six days from the day Helen's attorney received a letter notifying him; he filed an emergency motion with the probate court to stop the closing as soon as he read the letter. The probate court denied Helen's motion and proceeded with the sales.

Four months later, Helen filed a petition to set those sales aside and remove William as executor. At that trial, the court found that Thomas had waived William's clear conflict of interests, but William acted in bad faith and abused his discretion. Thus, the trial court removed William as executor, set aside the sales, appointed independent appraisers and awarded Helen attorney fees and other costs. The total of the balance of the sales, rents from the land, and fees and costs due to Helen totaled nearly $2 million.

William appealed on a variety of grounds, but the appellate court affirmed. In its analysis, the court noted that the stock agreement may well have superseded Thomas's will, but it was irrelevant -- William breached his fiduciary duty as executor when he failed to make complete disclosures to Helen. Because William admitted to not disclosing important information and their attorneys had minimal contact, the appeals court declined to overturn the trial court's determination of bad faith.

A minority shareholder may withdraw his complaint under the Illinois Business Corporation Act of 1983, because the majority shareholder failed to meet requirements of that law, the Illinois Third District Court of Appeal ruled in an Illinois shareholder dispute lawsuit. Lohr v. Havens, 3-06-0930 (Nov. 11, 2007).

Charles Lohr owned a large minority of the stock in Phoenix Paper Products, Inc., a closely held private corporation in Illinois. He and another shareholder, James Durham, became concerned about possible financial mismanagement by the majority shareholder and president, Terry Havens, and their accountant, Samuel Morris. In months of correspondence, they accused Havens and Morris of taking unspecified inappropriate actions without shareholder approval.

This culminated in a 2003 lawsuit by Lohr alleging that Havens and Morris were misusing the company’s resources and acting illegally. Count I of the suit asked the court to either order a buyout of all Lohr’s stock or dissolve the company. Havens filed a timely election to buy Lohr’s shares, but Lohr accused Havens of illegally doing this without shareholder approval. After two years of discovery, Lohr asked to withdraw Count I and its associated demands, but Havens objected. The trial court found that because Havens hadn’t notified shareholders about the election, it was invalid, allowing Lohr to dismiss Count I of his complaint. Havens appealed.

The Illinois Third District Court of Appeal ruled that because Havens did not notify other shareholders of the election, the election was invalid, leaving Lohr free to drop his claim. In its analysis, the court noted that a proper election would stop a shareholder in Lohr’s position from dismissing a petition -- but the plain language and the intent of the law both require notice of an election to shareholders within ten days. For the same reasons, the court also disagreed with Havens’s contention that the trial court was required to hold a hearing to assess equities before allowing Lohr to dismiss his petition.

As Chicago, Oak Brook and Naperville business and shareholder rights litigators with a substantial practice in business and shareholder disputes we’re always pleased to see clarifications of Illinois business law from the courts.

The doctrine of laches bars a plaintiff from bringing a stolen corporate opportunities lawsuit, the Illinois First District Court of Appeal has ruled. Lozman v. Putnam, No. 1- 06-0861 (February 18, 2008).

Plaintiff Fane Lozman and defendant Gerald Putnam met in 1986 as employees of the same Chicago securities firm. Eight years later, Lozman came up with an idea for a new type of software for traders, and hired another defendant, Townsend Analytics Inc., to program it. To market the software, Lozman and Putnam formed Blue Water Partners, Inc., an Illinois corporation, in 1994. Each was a 50% shareholder and a director. The plan was to barter the software for a share of a brokerage firm’s commissions on trades. Townsend Analytics and its owners, Stuart and Marrgwen Townsend, were offered 15% equity in Blue Water but no director or officer positions.

Later that year, Putnam formed Terra Nova Trading, LLC, with himself as 100% shareholder, to route profits from Blue Water. Another company, Analytic Services, LLC, was formed to sell the software, with Samuel Long as president. In April of 1995, Putnam and Lozman signed an agreement to share commissions generated through or paid by Townsend and its software. For a variety of personal and professional reasons, the relationship between Lozman and Putnam went sour, and they voluntarily dissolved the agreement six months later. A later termination agreement, back-dated to the day of the dissolution, preserved any legal claims. Putnam went on to form three more companies that used the same office and brokerage license as Blue Water, subcontracted with the Townsends and/or competed with Blue Water.

In 1999, Lozman sued for usurpation of corporate opportunity, breach of joint venture, unjust enrichment and fraudulent conveyance of assets. In court, the two men disagreed on the meanings of a variety of their agreements. After a tortuous procedural history including two previous appeals and a dual bench and advisory-only jury trial in the instant action, the court found for the remaining defendants. Among its findings was that the usurpation of corporate opportunities claims by Lozman and Blue Water were barred by laches -- they had waited four years to file their claims. They appealed on that and other grounds, but the appeals court affirmed.

In its opinion, the court noted that plaintiffs claimed Putnam fraudulently breached a fiduciary duty to disclose certain facts, so the running of the laches claim should have started only after Lozman discovered the alleged breach. Prueter v. Bork, 105 Ill. App. 3d 1003, 1007 (1981). However, the court wrote, plaintiffs failed to explain what facts Putnam failed to disclose or when they learned of them, nor did they cite cases that supported their position. Furthermore, the change of circumstances during Illinois’ five-year statute of limitations for a breach of fiduciary duty precluded arguments that laches shouldn’t apply. Thus, the laches finding was upheld, as were the rest of the trial court’s findings.

A former shareholder, officer and director did not breach his fiduciary duty to a corporation when he started a competing company, and a former employee did not breach his duty of loyalty by joining, the First District Court of Appeal has ruled. Cooper Linse Hallman v. Hallman, No. 1-05-0597 (2006).

Plaintiff Cooper Linse Capital Management, a closely held financial services company, brought on Thomas Hallman in 1994 as a shareholder with 20% of stock shares. The remainder were divided evenly between Lori Cooper and Don Linse. Hallman served as vice president and CFO as well as an employee. Two years later, the company hired James McQuinn as an employee only. Neither man signed a written confidentiality agreement, and both disputed Cooper Linse's contention that they entered into an oral confidentiality agreement. All parties agreed that Linse and Cooper made all of the business decisions.

In 2000, the company that held Cooper Linse's clients' accounts in trust got into financial trouble and had its assets frozen, leaving clients unable to access their accounts and Cooper Linse unable to pay its employees. Linse began negotiations to take over that company's trust business; McQuinn and Hallman quietly began planning to start a business competing with Cooper Linse.

Five months after the assets were frozen, Hallman and McQuinn left for their new firm, taking client lists with them. They had used Cooper Linse computers to plan some aspects of the business, and negotiated to use a soliciting firm that Cooper Linse had previously used. Cooper Linse filed suit against Hallman and McQuinn for seven counts of corporate misconduct, including breach of fiduciary duty against Hallman and breach of duty of loyalty against McQuinn. The trial court found for Hallman and McQuinn on those two counts, and Cooper Linse appealed.

The appeals court affirmed, saying Hallman and McQuinn didn't breach even the strictest duties they had to Cooper Linse. Under Illinois caselaw, the court wrote, former employees like McQuinn may compete with their former employers and even plan their businesses while they're still employed, as long as they don't start competing until they have terminated their employment.

By contrast, the court pointed out that directors and officers like Hallman have a fiduciary duty not to exploit their positions for personal gain, including starting a competing business without telling other officers. But in this case, the justices found no evidence for the breaches alleged by Cooper Linse. One of its allegations was that the two men had asked the soliciting firm for business before leaving Cooper Linse, which indeed could have been a breach. But because Linse himself was involved in some of the meetings and the men testified that they never solicited the business, the trial court found there was no breach and the appeals court agreed. Other arguments fell similarly flat; in particular, the court noted that there was no written confidentiality agreement. Thus, "their conduct did not rise to the level of a breach of their fiduciary duties because they neither exploited their positions for their personal benefit and to the detriment of plaintiff nor impeded plaintiff’s ability to do business.... To hold that Hallman’s and McQuinn’s actions were a breach of their fiduciary duties would be to virtually prevent all officers and directors from seeking new employment prior to resigning from their current positions."

In an issue of first impression in Illinois, the Third District Court of Appeal ruled in a divorce business dispute that retained earnings from a closely held corporation are non-marital property. In re Marriage of Joynt, No. 3-06-0919 (Aug. 16, 2007).

Michael Joynt was president of Mississippi Valley Stihl, Inc. (MVS), a family-owned subchapter S corporation in Illinois, when his former wife, Theresa, filed for divorce. He also owned 33% of the stock; his father and sister were the remaining shareholders. During the divorce trial, both spouses stipulated that Michael's stock was non-marital property. However, the company's accountant testified that MVS had $3.75 million in retained earnings that year, which were set aside for future expenses and not paid as dividends to shareholders. If they had been paid during the trial, Michael would have had an additional $1.25 million in income. The trial court concluded that Michael's interest in the retained earnings were non-marital property. Theresa appealed, contending that the retained earnings were income available to her former husband.

The appeals court affirmed the trial court's decision, noting that the company, not the spouses, paid taxes on retained earnings. Noting that Illinois courts hadn’t addressed the issue before, the judges surveyed decisions from several other states ruling that retained earnings are non-marital property. However, they wrote, that's not always true when the shareholder spouse has full power to decide whether to pay dividends, or substantial influence over that decision. Furthermore, Michael was fairly compensated for his role as president of MVS, and there was no evidence showing that Michael was using MVS to hide marital assets.

Thus, because Michael did not have full control over the decision to distribute dividends, the justices wrote, retained earnings are not a marital asset. Theresa also claimed the trial court made an inequitable distribution of their marital assets; the justices rejected this as well, noting substantial evidence that the trial court had taken Michael's assets into account when making its orders.

If you're facing a similar business division dispute in a divorce, it's essential to get help from an experienced business attorney to protect your hard-earned business and sort out the legally and personally difficult questions you face. Contact the Chicago business litigation firm of DiTommaso-Lubin for assistance in resolving business related issues in a divorce.

In an Illinois business contract lawsuit, the Third District Court of Appeal has ruled that a company's president may not hold his financer and business partner liable for the company's debts as an alter ego. Semade v. Estes, 05--CH--31 (June 29, 2007).

Charles Semade and Nicholas Estes formed a private corporation, Heartland Pottery Company, in 1995. Estes provided financing; Semade served as president and CEO. Unfortunately, the company did not succeed. Semade filed a lawsuit against Heartland in 1998 for unpaid salary and expense reimbursements. In that case, he won a judgment of more than $294,000, only to discover that Heartland had no assets.

Semade then filed a complaint against Estes himself, contending that Estes should be liable for the judgment because he was the company's alter ego. Under the law, that means he alleged that Estes and Heartland were the same person for all practical purposes, allowing Semade to "pierce the corporate veil" of limited liability. Semade alleged that Estes controlled all parts of the company and put income and assets in his personal accounts. However, Estes moved for summary judgment, saying Semade lacked standing because he was a director and officer of the company. The trial court agreed, and on appeal, the Third District Court of Appeal agreed.

In its analysis, the court relied on the Illinois Supreme Court ruling in In re Rehabilitation of Centaur Insurance Co., 158 Ill. 2d (1994). That case does leave corporate officers liable, the court noted, but only to third parties who were defrauded by an officer conducting his or her personal business through the corporation. The court declined to create a new rule allowing directors to pierce the corporate veil, pointing out that such a rule would allow directors to abuse the doctrine, discarding and taking up the veil as it suits them. Furthermore, the majority argued, directors have broad rights (and a fiduciary duty) to inspect a corporation's books.

Justice Holdridge, dissenting, pointed out that the majority relied on corporate documents to determine Semade's status -- not the de facto arrangement to which both parties testified. For that reason, the justice wrote, the facts were not sufficient to support a dismissal.

As business dispute litigators in Illinois, we believe this issue is one to watch.