Breach of Contract

Court Grants Preliminary Injunction in Non-Compete Case, Grants equitable Extension of Non-Compete Covenant’s Duration – Travelhost v. Modglin

January 10, 2013 | Peter S. Lubin and James V. DiTommaso

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

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

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

Court Rules that Parent Company, After Acquiring a Subsidiary, May Not Sue to Enforce the Subsidiary’s Employment Agreement – CDW, LLC, et al v. NETech Corporation

November 29, 2012 | Peter S. Lubin and James V. DiTommaso

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

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

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

California Federal Court Dismisses Class Action Lawsuit Claiming Unpaid Commissions – Park v. Morgan Stanley & Co., Inc.

November 20, 2012 | Peter S. Lubin and James V. DiTommaso

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

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

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

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

October 18, 2012 | Peter S. Lubin and James V. DiTommaso

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

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

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

July 25, 2012 | Peter S. Lubin and James V. DiTommaso

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

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

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

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

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

July 24, 2012 | Peter S. Lubin and James V. DiTommaso

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

February 23, 2012 | Peter S. Lubin and James V. DiTommaso

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

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

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

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

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

Business Owners Beware, Make Sure Your Employment Agreements are Clearly Written and Reasonable

February 2, 2012 | Peter S. Lubin and James V. DiTommaso

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

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

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

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

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

Appellate Court Applies 10 Year Statute of Limitations in Construction Indemnity Case

January 12, 2012 | Peter S. Lubin and James V. DiTommaso

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

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

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

Illinois Appellate Court Dismisses Lawsuit Between Truck Manufacturer and Franchisee

December 22, 2011 | Peter S. Lubin and James V. DiTommaso

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

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

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

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