Articles Posted in Breach of Contract

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A Call from a Friend Led Him to a Multi-Million-Dollar Case

A lot of people tend to assume lawyers have enormous salaries, but a lot of lawyers, especially those working at small firms, make only a modest income. So, the millions of dollars that might be on their way to attorney David Wasinger as part of a settlement agreement he negotiated and a case he won is anything but business as usual for him.

Wasinger is the only partner of a small law firm in St. Louis, Missouri. He works with just four other lawyers and his firm handles mostly business disputes. He had never represented a whistleblower until he got a call from an old business acquaintance in early 2012.

A whistleblower is someone who works in an organization that is allegedly committing fraud against the government, and they decide to alert the authorities. Because whistleblowers are risking their jobs and their reputation, they usually receive 15-25% of the settlement or court-ordered award that comes out of the lawsuit as an incentive to alert the government to fraud.

A share of that money goes to the lawyers representing the whistleblower, which is why whistleblower cases are highly competitive. Wasinger’s position is unique in that he didn’t compete to represent this client – the client reached out to him because they already had a relationship. When you’re blowing the whistle on fraud worth billions of dollars, you need someone you can trust.

The first lawsuit Wasinger brought to court accused Bank of America’s Countrywide unit of engaging in widespread fraud. In January of 2023, the U.S. Attorney’s office in Manhattan announced it would be asking for as much as $2.1 billion in penalties from the bank after a jury found it to be guilty of fraud. Continue reading ›

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Labovitz v. Dolan, 189 Ill. App. 3d 403 (1st Dist. 1989) is a case that was heard by the Appellate Court of Illinois, First District, Second Division. The case involved a dispute between Joel Labovitz and a group of investors, who were referred to as the “Labovitz Group,” and Charles F. Dolan and a group of investors, who were referred to as the “Dolan Group.”
The dispute centered around a real estate development project in Chicago. The Labovitz Group had entered into a joint venture agreement with the Dolan Group to develop a commercial real estate property in Chicago. The agreement specified that the parties would share equally in the profits and losses of the project. However, after the project was completed, the Dolan Group refused to distribute any profits to the Labovitz Group, claiming that there were no profits to distribute.

The Labovitz Group then filed a lawsuit against the Dolan Group, alleging breach of contract and fraud. The trial court ruled in favor of the Dolan Group, finding that there were no profits to distribute and that the Labovitz Group had failed to prove their fraud claims.

The Labovitz Group appealed the trial court’s decision to the Appellate Court of Illinois. The appellate court overturned the trial court’s decision, finding that the Dolan Group had breached the joint venture agreement and that the Labovitz Group was entitled to an equal share of the profits. The appellate court also found that the Dolan Group had committed fraud by misrepresenting the financial condition of the project.

One of the key issues in this case was the interpretation of the joint venture agreement. The appellate court found that the agreement was clear and unambiguous in its terms and that the Dolan Group had breached the agreement by failing to distribute profits to the Labovitz Group.

Another important issue in this case was the question of fraud. The appellate court found that the Dolan Group had made misrepresentations about the financial condition of the project, which constituted fraud under Illinois law.

Labovitz highlights the importance of clear and unambiguous contracts in business transactions. It also underscores the importance of honesty and integrity in business dealings and the legal remedies that are available to parties who have been wronged.  The case also highlights that controlling partners or owners owe very high fiduciary duties to other limited partners. shareholders or LLC members. The decision relies upon what has become the most celebrated pronouncement characterizing the fiduciary relationship that exists among partners, Chief Judge Benjamin N. Cardozo stated for the court in the case of Meinhard v. Salmon (1928), 249 N.Y. 458, 463–64 that:

“… copartners, owe to one another … the duty of the finest loyalty. Many forms of conduct permissible in a workaday world for those acting at arm’s length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the ‘disintegrating erosion’ of particular exceptions. [Citation] Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd. It will not consciously be lowered by any judgment of this court.”
The case found that Dolan’s discretion to withhold cash was not absolute; it was limited by an implied covenant of good faith and fair dealing implicit in every Illinois contract and by his fiduciary duty to his partners. “Good faith between contracting parties requires that a party vested with contractual discretion must exercise his discretion reasonably and may not do so arbitrarily or capriciously.” The Court held:
It is also clear, however, that despite having such broad discretion, Dolan still owed his limited partners a fiduciary duty, which necessarily encompasses the duty of exercising good faith, honesty, and fairness in his dealings with them and the funds of the partnership. (See: Couri, 95 Ill.2d 91, 69 Ill.Dec. 117, 447 N.E.2d 334; Mandell, 86 Ill.App.3d 437, 41 Ill.Dec. 323, 407 N.E.2d 821; Dayan, 125 Ill.App.3d 972, 81 Ill.Dec. 156, 466 N.E.2d 958; Foster Enterprises, 97 Ill.App.3d 22, 52 Ill.Dec. 303, 421 N.E.2d 1375.) It is no answer to the claim that plaintiffs make in this case that partners have the right to establish among themselves their rights, duties and obligations, as though the exercise of that right releases, waives or delimits somehow, the high fiduciary duty owed to them by the general partner—a gloss we do not find anywhere in our law. On the contrary, the fiduciary duty exists concurrently with the obligations set forth in the partnership agreement whether or not expressed therein. Indeed, at least one of the authorities relied upon by defendants is clear that although “partners are free to vary many aspects of their relationship inter se, … they are not free to destroy its fiduciary character.” Saballus, 122 Ill.App.3d at 116, 77 Ill.Dec. 451, 460 N.E.2d 755.
Thus, the language in the Articles standing alone does not deprive plaintiffs of the trial they seek against Dolan for breach of fiduciary *413 duty.

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As a business owner, partner, or shareholder, complex disputes may arise that require efficient legal resolution. Choosing the right court to file suit can be more complex than one might initially think, especially in cases involving breach of fiduciary duty claims. A recent case from the US District Court for the Western District of Wisconsin, Bare v. Al. Ringling Brewing Co., Inc., 21-CV-642-JDP, 2022 WL 2315594 (W.D. Wis. June 28, 2022), demonstrates that complex issues of federal court jurisdiction may preclude bringing certain claims in federal court, even though that may be a more appealing jurisdiction than state court.

First, it is important to understand the choice you may face in deciding which venue to pursue a potential claim. In cases where there are multiple claims or causes of action, a plaintiff may have the option to file suit in federal court. Federal jurisdiction typically arises when the case involves a federal question, such as a claim arising under federal law, or when there is diversity jurisdiction – meaning that the parties are residents of different states and the amount in controversy exceeds $75,000. However, when there are also state law claims that arise from the same set of facts, the plaintiff must consider whether to litigate these claims in state court or to consolidate them with the federal claims.

One advantage of bringing all claims, both federal and state, in federal court is the possibility of greater efficiency in the litigation process. This is because federal courts often have more resources and can handle cases more quickly than their state court counterparts. Additionally, federal court judges tend to have more experience dealing with complex legal issues, which may be particularly beneficial in cases that involve intricate federal questions. Consolidating claims in federal court also allows for the resolution of all claims in a single forum, which can save time and resources for all parties involved.

On the other hand, there are potential disadvantages to bringing state law claims in federal court. Federal courts are courts of limited jurisdiction, meaning that they can only hear certain types of cases. If a federal court decides it does not have jurisdiction over the state law claims, the plaintiff may have to litigate these claims in state court, essentially splitting the case into two separate lawsuits. This can be both time-consuming and costly. Furthermore, federal courts will apply state law to state law claims, and there is a risk that a federal court may misinterpret or misapply the relevant state law, leading to an unfavorable outcome for the plaintiff. Continue reading ›

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Pay equity has become a hot topic of discussion and legislative focus across the United States in the last few years as states seek to adopt stricter pay equity laws and to increase enforcement efforts combating pay inequities for members of protected classes. At the federal level, Congress has introduced legislation aimed at securing pay equity. The Biden administration has also indicated its support for plans to strengthen pay equity between men and women. At the state level, Illinois is one of many states, including California and New York, to have passed or amended pay equity and related laws.

In June 2021, Illinois updated its equal pay reporting and compliance requirements. This amendment followed on the heels of another amendment to the same law passed in March 2021. Illinois Senate Bill 1847 amended the Illinois Equal Pay Act (IEPA) by expanding certain reporting requirements and by accelerating deadlines to certify compliance by potentially up to two years. The June 2021 amendments sought to clarify certain ambiguities in reporting requirements that had been previously identified and to revise the IEPA’s controversial penalty provision. Importantly for Illinois employers, some Illinois employers will be subject to reporting and certification obligations under the IEPA beginning in 2022 instead of in 2024.

The June 2021 amendments to the IEPA apply to private employers with more than 100 employees in Illinois and requires these employers to:

  • Apply for an “equal pay registration certificate” from the Illinois Department of Labor (IDOL).
  • Pay a $150 filing fee and an equal pay compliance statement to the IDOL.
  • Submit their most recent Employer Information Report EEO-1.
  • Compile and submit demographic data and wage records.

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The Illinois Supreme Court recently issued its decision in a putative class-action lawsuit concerning the practice of State Farm of depreciating the cost of labor when paying out claims to holders of homeowner policies. In a 6-0 decision, the Illinois Supreme Court held that insurers may not depreciate labor costs when determining the “actual cash value” (ACV) of a covered loss where the policy does not define that term.

The case stems from a dispute following a homeowner’s insurance claim by the plaintiff Jarret Sproull under his policy issued by State Farm. Sproull’s home was damaged by wind in 2015. Sproull contacted State Farm and made a claim under his homeowner’s policy. Under Sproull’s policy, State Farm agreed to pay “only the actual cash value at the time of the loss of the damaged part of the property” initially and then the actual cost of repair or replacement after repairs were completed. Using a program called “Xactimate,” State Farm estimated a replacement cost value of $1,711.54 to repair the damage to Sproull’s home. After subtracting $1,000 for the deductible and $394.36 for depreciation and taxes, State Farm calculated an actual cash value of $317.18 and cut Sproull a check for that amount.

Believing that State Farm improperly calculated his actual cash value by depreciating labor in addition to materials, Sproull filed a putative class-action complaint in state court alleging that State Farm breached its contract by improperly depreciating the cost of intangible components of replacement cost, such as labor and concealing its practice from policyholders.

State Farm sought dismissal of Sproull’s complaint by arguing that its method of calculating actual cost value was mandated by an Illinois Department of Insurance (DOI) regulation which defined actual cash value as “replacement cost of property at time of loss less depreciation, if any.” The policy itself did not define the term actual cash value. The trial court denied the motion, finding the phrase “actual cash value” to be ambiguous in the context of State Farm’s policy. Continue reading ›

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Apple recently sued the NSO Group, an Israeli surveillance company that allegedly uses Apple products to spy on targets for its government clients. While the NSO Group has tried to portray itself as a company that helps bring criminals to justice and save lives, a closer look at their clients (and the targets of those clients) tells a more insidious story.

According to internal documents from the NSO Group that were leaked to the press, the surveillance company’s clients include the United Arab Emirates and Mexico, and the targets of those clients have included dissidents, activists, and journalists. The documents also revealed that the teenaged children of those targets (some of whom were living in the U.S.) were also surveilled.

The NSO Group’s legal troubles started back in 2019 when Facebook sued the surveillance company for targeting its WhatsApp users. The surveillance company tried to claim foreign sovereign immunity to have the lawsuit dismissed, but the United States Court of Appeals for the Ninth Circuit rejected that argument, thereby paving the way for the case to proceed through the courts.

The unanimous decision also paved the way for Apple to file its own lawsuit against the NSO Group. When Apple discovered that the NSO Group had created spyware that allowed it to access data on a target’s Apple product and transmit it back to the government servers without the target knowing about it, Apple took steps to both prevent future attacks, and to bring the NSO Group to justice for this invasion of privacy.

When it turned out that NSO’s engineers had created more than 100 fake Apple IDs to carry out the attack, Apple was able to sue the surveillance company for violating Apple’s Terms and Conditions, to which every user must agree in order to set up their account. One section of Apple’s Terms and Conditions specifies that users’ engagement with Apple and its products and services are to be governed by California state law. That’s the clause that allowed the Silicon Valley company to sue an Israeli surveillance company in U.S. federal court. Continue reading ›

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 The vast majority of breach of contract lawsuits in commercial litigation involve one party to a contract suing the other party to the contract for failing to perform. Recently, an Illinois Appellate Court was forced to address a less common scenario where the plaintiff alleging a breach of contract was not a party to the original contract. The court ultimately ruled that a non-party property owner could not assert breach of contract or negligence claims against parties to various construction contracts between the tenants of the property and the contractors and architects. The Court based its conclusion on the determination that the property owner was not an intended beneficiary of the contracts at issue.

Navigant Development, LLC owned a restaurant property on Wells Street in downtown Chicago. After two separate tenants completed two separate renovations at the property, defects in the trusses supporting the property’s ceiling were discovered. Further investigation revealed extensive damage to several of the trusses forcing Navigant to shut the building down and make repairs costing nearly a million dollars to fix the structure. Navigant’s insurer paid Navigant for the cost of these repairs and for the income lost during the time the restaurant was closed. As the owner’s subrogee, the insurer then sued various contractors and architects involved in the renovation projects, alleging multiple counts of breach of contract and negligence. In its complaint, the insurer alleged that Navigant was an intended third-party beneficiary because the defendants knew the work was to be performed at a property owned by Navigant.

The defendants sought dismissal of the claims arguing that Navigant was not an intended third-party beneficiary of the contracts at issue. The defendants also argued that the negligence claims were precluded by the economic loss doctrine. The trial court ultimately granted the defendants’ motions with prejudice finding that Navigant could not be an intended third-party beneficiary to the contracts between defendants and Navigant’s tenants. The trial court also found that the negligence claims were barred by the economic loss doctrine and that none of the exceptions to the doctrine applied to the case. After the court denied the insurer’s motion to reconsider the dismissal, the insurer appealed. Continue reading ›

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A former teacher at a high school who was fired later sued the school, alleging he was fired because he was an atheist. After the teacher was dismissed, the school published a press release on its website stating that the teacher had been terminated. The teacher and the school entered into a settlement agreement that included a nondisparagement clause. The teacher later sued the school a second time, arguing that it violated the nondisparagement clause by keeping the press release active on its website. The district court granted summary judgment for the school, and the teacher appealed. The appellate panel affirmed the decision of the district court, finding that the settlement agreement clause was only forward-looking and that the teacher could have negotiated for the removal of the existing press release but failed to do so. The panel rejected the teacher’s argument that each time a person accessed the press release online a new breach occurred.

In August 2013, Middlebury Community Schools hired Kevin Pack to teach high school German. Pack’s employment was terminated less than a year later, in April 2014. Soon after the termination, the school published a press release about Pack on its website criticizing Pack. The press release remains publicly available on the school’s website. In January 2015, Pack sued the school, claiming that it fired him because he was an atheist. Continue reading ›

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Almost as soon as reality TV gained prominence in our popular culture, it ceased to be reality. Producers and showrunners end up with hours and hours of footage that has to be edited down to fit the time frame of the TV show, but it didn’t take long for them to realize they could also edit the footage to tell a story … even a story that wasn’t there.

Donovan Eckhardt, one of the co-hosts of the hit HGTV show “Windy City Rehab”, alleges the network and the producers sought to create a story for their viewers by making him appear to be the villain in the story of the breakup of his professional relationship with his co-host, Alison Victoria, but Eckhardt alleges they went further than just editing raw footage.

According to the lawsuit, the show filmed scenes when Eckhardt was not present that made it look like Eckhardt was embezzling funds from their rehab projects. The camera would show Victoria looking as though she was trying to figure out where the money had gone, but Eckhardt insists every bill was cleared by Victoria and that she knew their company’s financial situation throughout every step of the process.

The allegations that Victoria was acting when she appeared to be puzzling over financial statements that didn’t add up make one wonder what else she did on the show that was acting for the benefit of the camera and not based in any reality. In one scene in the second season of the show, she teared up while discussing her rocky business relationship with Eckhardt, whose lawsuit alleges the tears were fake. Continue reading ›

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A company that provided administrative and payroll services was acquired by a bank under a stock purchase agreement. The agreement provided for the escrow of $2 million dollars, that was to be released to the sellers after a period of time had passed after the sale. Several months after the sale, a former employee came forward to reveal potentially fraudulent practices on the part of the administrative company. After an investigation by an outside law firm, the bank demanded indemnification from the sellers, but the sellers refused. The bank then sued in an attempt to recover money it had paid out to settle claims with the company’s clients. The district court determined that the indemnification claim was made too long after the bank first learned about the potential issues, but the appellate court found that undisputed facts did not show this to be the case and determined that the district court erred in granting summary judgment.

The Damian Services Corporation provides various administrative and payroll services to independent temporary staffing companies. The baseline level of service that Damian provides is short-term payroll funding to pay the temp agencies’ employees. Damian also offers other services to clients who pay more. Although Damian contracted with its temp agency clients, it invoiced the end-user companies that hired the temporary workers. The end-user employers would then pay Damian, which would, in turn, send the payments to the temp agencies after taking its cut as a fee for its services.

Damian encouraged its client staffing agencies to obtain prompt payment by providing discounts or levying fees depending on how long it took for the end-user employers to pay. These discounts and fees were negotiated independently with each staffing firm. In 2009, Damian changed its invoicing practices in such a way that made it much more difficult for staffing firms to receive discounts for prompt payment and more likely to be levied with fines. Continue reading ›

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