Chicago Business Litigation Lawyer Blog

As mediation and arbitration attorneys in Chicago, we were interested to see an Illinois Supreme Court decision from this year that clarifies state law’s relationship with the Federal Arbitration Act. Carter v. SCC Operating Company, No. 106511 (Ill. April 15, 2010) (PDF). The plaintiff, Sue Carter, is administering the estate of Joyce Gott, who was a resident of Odin Healthcare Center, a nursing home, for two months in 2005 19 more days in January of 2006. She died in the home that month. Carter, acting as Gott’s legal representative, signed an agreement on Gott’s original admission to the home agreeing to binding arbitration; Gott signed the same agreement herself on her second admission. The agreement also specifically mentioned that it is governed by the Federal Arbitration Act.

After Gott’s death, Carter filed a lawsuit in Marion County alleging Odin violated the state Nursing Home Care Act and the Wrongful Death Act by failing to provide proper care and supervise caregivers, resulting in juries that led to Gott’s death. Odin answered the complaint and then moved to compel arbitration under the arbitration agreement and then FAA. Carter answered that the arbitration agreement is null because it is against Illinois public policy under the Nursing Home Care Act, and the FAA allows arbitration agreements to be voided for “grounds that exist at law or in equity to void any contract.” At an evidentiary hearing, the trial court accepted that argument and others made by Carter and voided the arbitration agreement. Odin appealed, and the Fifth District Court of Appeal upheld the trial court’s decision, but only as to the FAA argument. In essence, the appeals court said the Nursing Home Care Act is an ordinary defense available for all contracts under state law, putting it outside the FAA.

Odin appealed to the Illinois Supreme Court, which initially denied the appeal but changed its mind after the Second District split with the Fifth on this issue and the U.S. Supreme Court denied certiorari to Odin. Attorney General Lisa Madigan was also permitted to intervene.

In its analysis, the state Supreme Court had only to consider the idea that the Nursing Home Care Act’s anti-waiver provision is a defense to any contract dispute in Illinois. It did not accept that argument. While the court noted that there was no express or implied preemption in the FAA, it said preemption can also be found where state law specifically conflicts with federal law. After examining how the FAA and the Nursing Home Care Act have been interpreted, it concluded that this is such a case. It cited Southland Corp. v. Keating, 465 U.S. 1, 79 L. Ed. 2d 1, 104 S. Ct. 852 (1984), in which the Supreme Court found that the FAA applies in state court and preempts conflicting state laws. The majority opinion specifically addressed the issue at hand, saying a state law governing investment contracts was not a “ground... for revocation of any contract,” but only for contracts that fall under that law. Similarly, in Preston v. Ferrer, 552 U.S. 346, 169 L.Ed. 2d 917, 128 S. Ct. 978 (2008), the Supreme Court found that an arbitration contract was enforceable even though state law referred the underlying dispute to an administrative agency.

Thus, the Supreme Court said, the lower courts were wrong to believe that the Nursing Home Care Act (or other state laws) could only be preempted by the FAA if it singled out arbitration. It also rejected an argument from the Attorney General that the right to a jury trial is too fundamental to be waived, noting that “it is axiomatic” that parties may make arbitration agreements. However, the court noted that there are numerous other issues in this case, including whether the nursing home contract constituted interstate commerce under the FAA. Thus, it reversed and remanded the case to the Fifth District for consideration of those issues.

Continue reading "State Supreme Court Finds Federal Law Preempts Illinois Nursing Home Care Act" »

Our Chicago trade secrets litigation attorneys were interested to see that a trade secrets and breach of restrictive covenant case was responsible for clarifying a point of procedure at the trial level. In Vision Point of Sale v. Haas et al., No. 103140 (Ill. Sup. Co. Sept. 20, 2007), the Cook County trial court certified a question of law having to do with unintentional noncompliance with a procedural requirement. In such a case, the court asked, may courts consider information of record that goes beyond the reasons for the noncompliance? The First District Court of Appeal said yes, but the Illinois Supreme Court reverse that decision.

The case arises from a Trade Secrets Act, breach of fiduciary duty, tortious interference and unjust enrichment claim filed by Vision Point of Sale, Inc. against Ginger Haas and Legacy Inc. Haas was an executive assistant at Vision before resigning and immediately taking a job at Legacy. Vision contended that Haas, at Legacy’s direction, stole confidential and proprietary information as she left, with the goal of soliciting Vision’s customers. Both companies refurbish and sell used point-of-sale equipment. Vision requested and received a preliminary injunction as well as a permanent injunction. Discovery on the permanent injunction included a request for admissions from defendants. When Vision returned its responses, the final page was signed by its attorney, but the final page of the document was signed by Vision CEO Frank Muscarello. This violated the Illinois Code of Civil Procedure, which required Muscarello’s signature on the final page of responses as well.

The defendants immediately moved to strike the document as defective and deem all of its facts admitted because of the missing signature. The trial court granted that motion. Vision moved for more time to file a set of amended responses. That motion argued that a good-faith reading of the rules was enough “good cause” to allow the amendment. It was denied, but after the case proceeded and the court became frustrated with the defendants’ noncompliance with the preliminary injunction, it vacated that denial and allowed Vision to amend its responses. Not surprisingly, the defendants objected and asked the court to certify the question in the instant appeal. The appellate court found that courts may consider information in the record beyond the reasons for the noncompliance, writing that in this situation, the circuit court may consider any facts that “strike a balance between diligence in litigation and the interests of justice.” The defendants appealed to the Illinois Supreme Court.

In considering this appeal, the high court said it was considering Supreme Court Rule 183, and to a lesser extent, Rule 216. Rule 183 says that courts may extend deadlines if one party makes a motion requesting the extension and shows good cause. The relevant parts of Rule 216, which deals with requests for admissions, say that recipients must respond within 28 days with a sworn statement denying the objections or a written statement saying they are improper in some way. Otherwise, every fact in the document is deemed admitted. The court started with a detailed discussion of Bright v. Dicke, 166 Ill. 2d 204 (1995), the last Illinois Supreme Court case interpreting the good-cause requirement. In that case, the high court found that circuit courts have the discretion to extend the 28-day deadline for responses to requests to admit.

However, the Bright court upheld the trial court’s decision to deny an extension in that particular case, because the movant had failed to show good cause. That court said the “mere absence of inconvenience or prejudice to the opposing party is not sufficient to establish good cause under Rule 183,” and that the burden of establishing good cause should be on the movant. Thus, the rule established by Bright says that trial courts may extend deadlines for responses to requests for admissions if the movant can show good cause. The defendants argue that this is inconsistent with the appellate court’s ruling in the instant case -- and the Supreme Court agreed. The appellate court’s analysis focused on issues other than why the plaintiffs failed to meet their deadline, the high court wrote, making it at odds with Bright. Allowing courts to consider the totality of the circumstances, the court wrote, would allow too many irrelevant issues to enter into the analysis.

However, the court did agree with plaintiffs that the cases subsequently arising from Bright created an unduly harsh discovery rule. Cases like Hammond v. SBC Communications, Inc. (SBC), 365 Ill. App. 3d 879, 893 (2006) expanded the rule in Bright to create “a second, broader, harsher, and apparently inflexible standard that ‘mistake, inadvertence, or attorney neglect’ on the part of the moving party can never serve as the sole basis for establishing good cause[.]” This can be fatal to cases and is unnecessarily severe, the high court said, but the appellate court’s decision is not the answer. Rather, the Supreme Court clarified that it never intended such a result in Bright and overruled cases creating that result. This analysis was enough for the Supreme Court to overrule the trial court’s ruling on the discovery motion in this case. However, the high court also found that the plaintiffs’ response was not deficient because the appellate ruling on which it is based, Moy v. Ng, 341 Ill. App. 3d 984 (2003), has no basis in Rule 216 or the Code of Civil Procedure. Thus, the appellate court was reversed and the case was remanded.

Continue reading "Illinois Supreme Court Resolves Question on Unintentional Missed Deadlines in Trade Secrets Case" »

Promissory estoppel is an affirmative cause of action in Illinois, the Illinois Supreme Court decided April 2. Newton Tractor Sales v. Kubota Tractor Corporation, Ill. Sup. Co. No. 106798, (April 2, 2009). In this Illinois business lawsuit, the court allowed plaintiff Newton Tractor Sales to continue its lawsuit against defendants Kubota Tractor Corporation and Michael Jacobson for allegedly reneging on a promise to make Newton an authorized dealer of Kubota farm equipment.

Newton, a farm equipment dealership in Fayette County, purchased competitor Vandalia Tractor & Equipment (VTE) in July of 2003. As a condition of that sale, the contract specified that the deal could be canceled if Newton did not get permission to sell several makes of equipment, including Kubota. Kubota asked Newton to apply to their local representative, defendant Michael Jacobson. Jacobson required VTE to first cancel its relationship with Kubota, which it agreed to do only if it was assured that Newton would be authorized to sell Kubota products. Jacobson said it would, and both dealerships relied on that statement in signing those papers. Newton further relied on it when it began selling and servicing Kubota products.’

Unfortunately, Kubota’s corporate office denied Newton’s application, as well as a later appeal for reconsideration. Newton sued Kubota for promissory estoppel, common-law fraud and negligent misrepresentation. A Fayette County court granted Kubota summary judgment on all three counts, and after an appeal, the appellate court affirmed that judgment. On the promissory estoppel count, both courts found that Illinois appellate decisions said promissory estoppel is not a recognized cause of action in Illinois. Newton appealed as to the promissory estoppel claim to the Illinois Supreme Court.

In its analysis, the Supreme Court noted that Illinois law incorporates the common-law doctrine of promissory estoppel through the Second Restatement of Contracts. The relevant part of that law says that a promise that can reasonably expect to produce action on the part of the promisee, and does induce action, is binding -- as long as enforcing it is the only way to avoid injustice. Furthermore, the doctrine was expressly recognized in multiple decisions, the court wrote, notably in Bank of Marion v. Robert “Chick” Fritz, Inc., 57 Ill. 2d 120 (1974) and with less detail in Quake Construction, Inc. v. American Airlines, Inc., 141 Ill. 2d 281 (1990), which laid out a test for proving a promissory estoppel claim.

The court then went on to reject several arguments of Kubota’s, starting with its assertion that promissory estoppel is only appropriate as a defense. While it is most often used that way, the court wrote, caselaw and Kubota’s own citations show that it can also be an affirmative cause of action. It also rejected Kubota’s argument that using promissory estoppel as an affirmative cause of action would undermine contract law. The Supreme Court has already decided that the doctrine cannot create unilateral contracts, it wrote. As for the contention that it would create “contracts” from vague promises made in negotiations, the court wrote, it is perfectly possible for courts to avoid construing contracts and return only a judgment appropriate to the statements allegedly relied on.

Finally, the court considered whether Newton had established a genuine issue of material fact well enough to survive summary judgment. Because the trial court and the appellate court had both incorrectly decided there was no promissory estoppel in Illinois, the Supreme Court wrote, neither had considered whether there was such an issue -- requiring a remand for further consideration. For those reasons, the Supreme Court reversed the judgment of the appellate court and sent the case back to Fayette County trial court.

The Chicago and Wheaton, Ill. law firm of DiTommaso-Lubin specializes in Illinois business litigation and trials such as this for businesses of all sizes. DiTomasso-Lubin's practice includes representing plaintiffs and defendants in complex business litigation including breach of contract, real-estate, partnership and shareolder disputes in closely held corporations. Our Chicago, Naperville, Oak Brook and Wheaton trial attorneys have handled a number of breach of express warranty cases as well as implied-contract cases such as breach of implied warranty, promissory estoppel and quantum meruit. With offices in downtown Chicago and Oakbrook Terrace, we handle high-stakes business dispute lawsuits throughout Illinois and the Midwest. If you need experienced legal counsel to handle a high-stakes business case and you’d like to learn more about DiTommaso-Lubin, please contact us online or call 1-877-990-4990 for a consultation.

Statements in an advertisement for a men’s clothing retailer may have been in poor taste, but they are still protected by the First Amendment to the U.S. Constitution, the Illinois Supreme Court has ruled. In Imperial Apparel Ltd. v. Cosmo's Designer Direct Inc., Ill., No. 103331 (Feb. 7, 2008), retailer Imperial Apparel sued Cosmo’s after the latter retailer ran an advertisement insulting a competitor that was widely understood to be Imperial. Objecting to Imperial’s appropriation of Cosmo’s signature “3 for 1” sales policy, the Cosmo’s ad disparaged Imperial’s quality and business practices. The ad also used references to the Jewish heritage of the family that owned Imperial, the Rosengartens.

The Rosengartens and Imperial sued Cosmo’s and the Chicago Sun-Times, the newspaper that ran the advertisement. They made claims against both defendants for defamation per se, defamation per quod, false light invasion of privacy, commercial disparagement and violations of the Illinois Consumer Fraud Act. The Cook County trial court in the case dismissed all of their complaints, with prejudice, on the grounds that the advertisement was protected free speech under the First Amendment to the U.S. Constitution. That court used a fact versus opinion test -- were the statements intended as opinion? It concluded yes.

The Rosengartens appealed and had better luck with the appellate court, which reversed the false light, consumer fraud and commercial disparagement claims as to all plaintiffs. It also reversed the defamation per quod claim as to the Rosengartens personally, but not Imperial, because the Rosengartens could not show that they personally were financially harmed. However, it upheld the dismissal of the defamation per se count. Citing a paragraph in which Cosmo’s accused Imperial and the Rosengartens of “inflat[ing] prices and compromis[ing] quality,” it found that a reasonable reader could interpret those statements as facts. Cosmo’s and the Sun-Times then made the instant appeal.

The Supreme Court started its analysis of the case by saying the trial court used the wrong test. Whether a statement deserves First Amendment protection is not a question of opinion versus fact, the court said, but the trial court was right that the type of speech at issue matters. Instead, the justices wrote, the test is whether the statements in the ad could reasonably be interpreted as fact. In addition, because the Sun-Times is a media defendant with special protections, Imperial would also have to prove that the statements were actually false.

In any case, the court found, the Cosmo’s ad could not be reasonably interpreted as stating facts:

The text is artless, ungrammatical, sophomoric and sometimes nonsensical. It is also a shameless appeal to ethnic prejudice, extolling, as it does, the supposed superiority of Italians over those of Jewish ancestry, at least “when it comes to fine clothing.” We do not believe, however, that an ordinary reader would perceive it as making objectively verifiable assertions about plaintiffs’ business.

Even racial and religious epithets qualify for First Amendment protection. This issue is fatal to all of Imperial’s claims, the Supreme Court said, and thus there is no need to address other legal issues at hand. Thus, the trial court was upheld and the case was dismissed with prejudice in its entirety.

DiTommaso-Lubin’s Chicago commercial and business trial attorneys have a growing practice in commercial disparagement and false defamation of businesses and their products. We handle Illinois commercial disparagement lawsuits for businesses of all sizes, both plaintiffs and defendants. Based in Oakbrook Terrace, near Wheaton, and Chicago, we represent clients throughout Illinois and the Midwest. To speak to our Chicago commercial defamation lawyers about your own case, please contact us through our Web site to set up a confidential consultation.

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.

Until recently, under the Illinois Vehicle code (625 ILCS 5/18c–7402(1)(b)), trains that blocked any road crossing for more than 10 minutes were subject to traffic tickets. That law was overturned in January when the state Supreme Court ruled that the blocked-crossing law violates the Commerce Clause of the U.S. Constitution and the Federal Railroad Safety Authorization Act (FRSA). The opinion in Eagle Marine Industries, Inc. v. Union Pacific Railroad Company, 102462 (January 2008), a business dispute, reversed a preliminary injunction against Union Pacific issued by a circuit court in Sauget, near St. Louis, and upheld by an appeals court. It relies on the same court’s decision earlier that month in The Village of Mundelein v. Wisconsin Central Railroad, 103543 (January 2008), which upheld an appellate court’s decision to vacate a large fine against the railroad.

In Mundelein, the village issued a $14,000 fine to Wisconsin Central under a local ordinance that prohibited a train blocking a highway-grade crossing for more than 10 minutes unless it had broken down or was continuously moving. The Wisconsin Central train blocked such a crossing for 157 minutes. At the ensuing trial, the court rejected the argument that the FRSA preempted the local law. However, that decision was reversed on appeal.

The Illinois Supreme Court agreed, saying that Mundelein’s ordinance, which is based on Illinois’ state law, interfered too much with the FRSA. Because Eagle Marine relied on the state law, the court said, it had to decide that case in the same way as Mundelein. Thus, the Illinois blocked-crossing provision and any local laws based on it were preempted by FRSA and therefore void.

The Illinois Supreme Court handed a victory to plaintiffs throughout Illinois with its 2006 ruling in an insurance dispute over whether insurers must cover the costs of a junk fax class action lawsuit for an insured covered for an “advertising injury.” In Valley Forge Insurance Co. v. Swiderski Electronics, Inc., 2006 Ill. LEXIS 1655, the state Supreme Court ruled that business insurers have a duty to defend “junk fax” class action lawsuits.

The underlying dispute in the Illinois Supreme Court case started when private investigator Ernie Rizzo filed a proposed class action lawsuit against Swiderski Electronics for sending him “junk faxes.” Unsolicited advertisements sent via fax violate both the federal Telephone Consumer Protection Act and the Illinois Consumer Fraud and Deceptive Business Practices Act. Swiderski had an insurance policy from Valley Forge Insurance Company, which insured Swiderski against a personal or advertising injury that arises out of “Oral or written publication, in any manner, of material that violates a person’s right of privacy[.]” The insurer claimed that because the faxes had not revealed Rizzo’s own personal information, they did not invade his privacy and thus were not covered. They also claimed that sending information via fax does not constitute publication.

The insurer asked a trial court for a declaratory judgment stating it was not obligated to cover Swiderski; all parties filed cross-motions seeking summary judgment. The trial court ruled in favor of Swiderski, as did the appellate court and, eventually, the Illinois Supreme Court. That court rejected Valley Forge’s arguments, rejecting the claim that faxing is not “publication,” using the plain meaning of the word. It also ruled that privacy under the federal TCPA and caselaw includes the right to be left alone:

The receipt of an unsolicited fax advertisement implicates a person’s right of privacy insofar as it violates a person’s seclusion, and such a violation is one of the injuries that a TCPA faxad claim is intended to vindicate.

That contradicts the a 2004 decision by the Seventh U.S. Circuit Court of Appeals in American States Insurance Co. v. Capital Associates of Jackson County Inc., 392 F.3d 939, which found no duty to defend under very similar circumstances. The Seventh Circuit’s earlier ruling said privacy rights may include the right to seclusion in some cases, but “advertising injury” clauses do not, so insurers have no duty to defend in junk fax cases. Because the Seventh is bound by Illinois Supreme Court precedent in cases involving Illinois law, the more recent ruling overturns American States, handing a victory to plaintiffs and businesses who are plagued by unwanted junk faxes.

The Illinois Home Repair and Remodeling Act does not apply to subcontractors, the state Supreme Court ruled April 3. The court’s decision in MD Electrical Contractors, Inc. v. Abrams, (Il. Sup. Ct. 2008; Doc. No. 104000) resurrected an electrical subcontractor’s breach of implied contract lawsuit against a Napierville family.

The dispute started in 2004, when Abrams family contracted with Apex Builders, Inc. for improvements to their home. MD Electrical Contractors, Inc., did just under $15,000 worth of electrical work on the project as a subcontractor. It was not paid for that work, and in 2005, it sued the family for payment. In its complaint, MD stipulated that it had no contract with them. The Home Repair and Remodeling Act (HRRA) requires repair and remodeling contractors that work with individual homeowners to provide a written contract and a consumers’ rights brochure to customers. Because MD had not provided a contract or a brochure to the defendants, as required by the HRRA, defendants argued that there could be no implied contract, under the plaintiffs’ theory of quantum meruit. They successfully moved to dismiss at the trial court level, but were reversed by the appellate court, which ruled that the HRRA does not apply to subcontractors. The Illinois Supreme Court agreed.

In its review, the court noted that the common understanding in home repair work is that subcontractors work directly for contractors, who in turn work for homeowners. That understanding is critical for interpreting the HRRA, said the court. Relying on the plain language of the law and the accompanying brochure, definitions of terms, other laws and legislative intent, it found that the HRRA does not apply to subcontractors:

The statute’s plain language limits its application to only those who contract directly with the homeowner. To allow any other interpretation not only would be contrary to our principles of statutory interpretation, but would also do severe damage to industry practice and other statutes. The Home Repair and Remodeling Act is unambiguous and only applies to those who form direct contracts with the homeowner.

The court declined to take up the issue of quantum meruit, noting that defendant forfeited that argument by failing to property present it in their petition for appeal. It remanded the case to trial court. Justices Freeman and Burke, dissenting, argued that the majority made unwarranted assumptions about the nature of subcontractor-client relationships and that the HRRA could be an affirmative defense.