Business Disputes

Illinois Court Explains Tortious Interference with Contract Claim – Metro Premium Wines v. Bogle Vineyards, Inc.

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

The legal theory of tortious interference with a contract protects a business’s relationships from tampering by others. In Metro Premium Wines v. Bogle, the District Court for the Northern District of Illinois explains how the theory is applied.

Plaintiff Metro Premium Wines, Inc. (Metro), an Illinois wine distributor, sued Bogle Vineyards, Inc. (Bogle), a California vineyard, and fellow distributor Winebow, Inc. (Winebow), alleging that Bogle and Winebow hatched an improper scheme to take away Metro’s distributorship of Bogle’s wine in Chicago in favor of Winebow.

Under the terms of an oral agreement, Metro held the exclusive rights to distribute Bogle wines in the area for roughly 20 years. Metro asserts that in 2009 a Winebow executive approached Metro about buying the company. Claiming that he needed to perform due diligence before making an offer, the executive allegedly requested that Metro provide confidential sales, pricing and financial data. The parties signed a confidentiality agreement providing that Winebow would use this information only in relation to tendering an offer. Bogle sales manager Sam Bon allegedly then made several calls to Metro, encouraging it to sell the company to Winebow.

According to Metro, Winebow had no intention of buying the company and, with Bogle’s assistance, instead allegedly hatched the ruse in order to obtain the confidential information. Shortly after allegedly receiving the information, Winebow began operating a distributorship in Chicago and offered to buy Metro for only $500,000, despite the fact that the company had been recently appraised at $2 million. 10 days after the offer, Bogle allegedly sent a letter to Metro questioning the company’s sales performance and demanding that it take action to increase sales within four months or lose its exclusive distributorship. In September 2010, Bogle terminated Metro’s distributorship and made Winebow its exclusive distributor in the area.

Metro filed suit, bringing fraud, conspiracy and tortious interference claims against both Winebow and Bogle – as well as separate breach of contract claims against Winebow – asserting that the parties conspired to improperly take Metro’s confidential information in order to jump start Winebow’s Chicago operations. Bogle and Winebow subsequently filed a motion to dismiss the fraud, conspiracy and tortious interference claims.

Recovering Damages for Future Income in Business Breach of Contracts Cases – Hardee’s Food Systems, Inc. v. Hallbeck

June 14, 2012 | Peter S. Lubin and James V. DiTommaso

A company who is injured by another entity or individual’s breach of a contract is generally entitled to recover damages. In Hardee’s Food Systems. Inc. v. Hallbeck, the District Court for the Eastern District of Missouri explains that in addition to recovering based on the immediate economic damage caused by a contract breach, a plaintiff may also seek to recoup the loss of future or expected income.

Defendants are five individuals who owned a Hardee’s fast food restaurant franchise in Ottawa, Illinois. They first opened the Ottawa franchise in the early 1970’s and owned 21 Hardee’s restaurant franchises over the following decades. By 2008, however, the Ottawa restaurant was the last remaining Hardee’s in its market area. Defendants closed this restaurant in February 2009.

Plaintiff, which operates and licenses others to operate Hardee’s restaurants, filed this action alleging that Defendants violated a five-year Renewal Franchise Agreement (Agreement) between the parties by closing the Ottawa franchise more than a year before the Agreement expired. Plaintiff seeks damages in the amount of approximately $50,000 in lost royalty and advertising fees, allegedly due under the Agreement. In response, Defendants filed a motion for summary judgment, arguing that the Agreement’s fees provision was terminated when they closed the restaurant, that the fees sought are speculative and that enforcement of the fee provision is against public policy.

The court denied Defendant’s summary judgment motion, ruling that prospective royalty and advertising fees that Plaintiff argues it would have earned if the franchise remained open may be recoverable. Noting that the Agreement provided that any disputes be governed by Missouri law, the court held that “[a] fact finder could reasonably find that absent the closure, some revenue would have been realized from continued operation, and the length of operations and amount of revenue that might have been derived are fact issues.” While it was not certain that Plaintiff would ultimately be able to recover damages here, there was, according to the court, “a genuine issue of material fact… as to whether lost royalties and advertising fund contributions in the event of a breach were reasonably within parties’ contemplation at the time they entered into the Agreement.”

The court further ruled that the damages sought were not merely speculative because Plaintiff based the figure on projected sales, applicable fee rates and the time value of money. Finally, the court noted that it was confident that the same conclusion would be reached if the matter was subject to Illinois law.

Court of Appeals Upholds Bonus Award Against Suit by Minority Shareholders, Applying Safe Harbor and Business Judgment Rules – Warren v. Campbell Farming Corp.

May 17, 2012 | Peter S. Lubin and James V. DiTommaso

The Tenth Circuit Court of Appeals reviewed a dispute among shareholders of a closely-held corporation in Warren v. Campbell Farming Corporation. It affirmed a district court ruling that the majority shareholder did not breach fiduciary or statutory duties to the corporation by approving a bonus proposal over the minority shareholders’ objections. The court considered arguments relating to conflicts of interest and fairness, the business judgment rule, and the majority shareholder’s fiduciary duty.

Campbell Farming Corporation is a closely-held Montana corporation whose principal place of business is in New Mexico. The plaintiffs, H. Robert Warren and Joan Crocker, were minority shareholders with 49% of the shares, while defendant Stephanie Gately controlled 51%. Warren and Gately served as directors with Gately’s son, Robert Gately, who also served as the president. Stephanie Gately proposed a bonus to her son totalling $1.2 million in cash and company stock, in part to prevent him from leaving the company. Stephanie Gately voted all of her shares in favor of the proposal, so it passed despite Warren and Crocker’s votes in opposition.

Warren and Crocker filed suit in New Mexico federal court, asserting breach of fiduciary duties and various common law claims. The district court ruled in favor of the defendants after a bench trial. It found that, while the bonus met Montana’s definition of a “conflict of interest,” it was permissible under a safe-harbor statute that allowed conflict-of-interest transactions if they were “fair to the corporation.” Mont. Code. Ann. §§ 35-1-461(2), 35-1-462(2)(c). The court also found that the bonus was permitted by the business judgment rule and that the defendants did not breach any fiduciary duties. The plaintiffs appealed to the Tenth Circuit.

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.

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.

Appellate Court Rules that Adding an Arbitration Clause to an Insurance Agreement Does Not Constitute a Change in Coverage under Illinois Law

November 10, 2011 | Peter S. Lubin and James V. DiTommaso

Workers’ compensation insurance is a necessary part of doing business for many companies, so the attorneys at DiTommaso Lubin are always on the lookout for emerging legal issues in that area. Our Naperville business attorneys recently discovered a decision rendered by the Appellate Court of Illinois that is significant for current and potential clients who have workers’ compensation insurance agreements that contain an arbitration clause.

All-American Roofing, Inc. v. Zurich American Insurance Company pits Plaintiff All-American Roofing against its Defendant insurer, Zurich American in a lawsuit that arose from alleged unpaid deductibles and retrospective insurance premiums. The five-year insurance agreement was based upon retrospectively rated premiums that required Plaintiff to reimburse Defendant after the end of a policy year for claims that arose during that year. After the fourth year, the policy exchanged the retrospectively rated premiums for a larger deductible. The dispute began when Defendant summoned Plaintiff to arbitration regarding the aforementioned unpaid sums pursuant to a mandatory arbitration clause contained within the parties’ agreement. In response to the arbitration summons, All-American Roofing filed for declaratory judgment along with claims for breach of contract, fraud, and related causes of action. Plaintiff requested that the trial court declare that the mandatory arbitration clause was unenforceable and sought damages for their other claims. The trial court stayed the arbitration, dismissed most of Plaintiffs claims through summary judgment and ordered the parties to arbitrate the remaining issues. Plaintiff then appealed the trial court’s rulings regarding the arbitration clause, contract, and fraud claims.

On appeal, Plaintiff argued that the arbitration clause was added to their policy after the first year of coverage and that the clause constituted a material alteration to the policy’s coverage. Furthermore, Plaintiff argued that the Illinois Insurance Code required Defendant to give notice that it was not renewing the original coverage. Because Defendant failed to give such notice, the arbitration clause did not legally take effect. The Appellate Court disagreed, stating that the addition of an arbitration clause did not constitute a change in coverage, and cited the plain language of the statute for their reasoning. The Court went on to hold that the agreements and subsequent addenda to it for the first two years were valid because the parties lawfully entered into the agreements and there was sufficient consideration on both sides. The Court also upheld the trial courts granting of Defendant’s motion for summary judgment on Plaintiff’s fraud claim because there was not sufficient evidence in the record of fraud nor had Plaintiffs identified any material issue regarding Defendant’s alleged violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. The Court held that the arbitration clause was not operative for the final two year of the agreement because Plaintiffs never signed the amended policy documents for those years. The Appellate Court reversed the trial court on this issue because they disagreed with the trial court’s ruling that Plaintiff’s payment and acceptance of coverage signified acceptance of the new terms.

All-American Roofing, Inc. v. Zurich American Insurance Company provides a valuable lesson to business owners who utilize arbitration clauses in their contracts. Namely, this case tells us to read the fine print in any contract before signing it, as you may be getting more (or less, depending on your point of view) than you originally bargained for.

llinois Appellate Court Rules that a Relocation Provision in a Commercial Lease Must Abide by State Regulations

October 20, 2011 | Peter S. Lubin and James V. DiTommaso

Earlier this year, the Appellate Court of Illinois handed down an opinion that has implications for businesses with leased premises. Our Aurora business attorneys found Bright Horizons Children’s Centers LLC v. Riverway Midwest LLC, which is a dispute regarding a commercial lease that was initially filed in Cook County.

Bright Horizons is a company that operates day care facilities across the state of Illinois. The company entered into a ten year commercial lease agreement with Riverway for a property in Rosemont, Illinois. The lease agreement contained restrictive language allowed for the building to only be used for a child-care center. The agreement also contained a relocation provision which gave Riverway the right to relocate Bright Horizons, upon 180 day written notice, to a different property of equal quantity and quality to the original premises. The dispute between these two parties arose when Riverway sought to invoke the relocation clause less than one year into the lease.

Riverway attempted to exercise the relocation provision on three occasions. The first attempt was unsuccessful because the alternative premises allegedly presented to Bright Horizons did not meet the requirements of the lease agreement. Bright Horizons accepted the second space offered by Riverway, but Riverway withdrew their notice before renovating the new facilities to meet the requirements of the lease. Riverway then proposed a third relocation premises, and allegedly informed Bright Horizons that if they were unable to agree on an alternative space, Riverway would terminate the lease in 180 days from the date of the notice. This third property allegedly ran afoul of state licensing standards for child care facilities and the Illinois Administrative Code. Bright Horizons informed Riverway that the third property did not meet Illinois’ licensing standards and could not be legally used as a child care facility. In response, Riverway informed Bright Horizons that they were in default of the lease and that Bright Horizons could cure their default by relocating to the third alternative premises.

Bright Horizons then filed for declaratory judgment requesting that the trial court find: 1) that they were not in breach of the lease, 2) that Riverway could not terminate the lease, and 3) that Riverway had failed to properly exercise the relocation clause of the lease agreement. Bright Horizons then filed for summary judgment on these issues, which was granted by the trial court. Riverway then appealed the trial court’s ruling. On appeal the Appellate Court agreed with the trial court’s grant of summary judgment in favor of Bright Horizons. In so ruling, the Court held that the lease allowed for one permitted use of the premises and required that Bright Horizons comply with all laws and regulations, including the state child-care licensing standards. The Court held that Bright Horizons’ relocation to the proffered space would violate state regulations and cause Bright Horizons to be in breach of the lease due to their inability to operate a child-care. As such, the Court affirmed the ruling of the trial court granting summary judgment in favor of Bright Horizons.

Appellate Court Overturns Grant of Summary Judgment in Successor Liability Case

October 9, 2011 | Peter S. Lubin and James V. DiTommaso

For many business owners, they operate their companies with the hopes that they will continue to be successful ventures long after they are gone. However, both low level and senior personnel eventually move on, and businesses may have obligations to their surviving family members. DiTommaso Lubin is familiar with such agreements, and often times companies may not wish to honor those obligations after employees are no longer working for the company. Pielet v. Pielet is one case discovered by our Crystal Lake business litigation lawyers that addresses that very issue.

In Pielet v. Pielet, Arthur Pielet allegedly entered into a consulting agreement with Defendants that provided him lifelong monthly payments in exchange for his consulting services for Defendants scrap metal business, and should he pass on, those payments were to continue and be paid to his wife until her death. Arthur Pielet eventually died, and Defendants then allegedly ceased making payments to his widow, who filed suit alleging a breach of contract and successor liability among other causes of action. Plaintiff successfully filed a motion for summary judgment, and Defendants appealed the trial court’s decision.

On appeal, Plaintiff argued that Defendant PBS One, a successor in interest to Pielet Corp. (the company who was originally obligated under the consulting agreement), was liable under the agreement because they had entered into a purchase and assignment agreement with Pielet Corp. In response, PBS One argued that a novation had occurred whereby Pielet LP had substituted for Pielet Corp. in the consulting agreement, which absolved PBS One of liability. PBS One supported their claims with deposition testimony that, in the absence of providing a defense, at least raised an issue of material fact as to the existence of the novation. Additionally, PBS One argued that because the company had dissolved four years prior to the cessation of payments (and the accrual of Plaintiff’s claims), the applicable Illinois Survival Statute prevented Plaintiff’s claim.

The Appellate Court began with its analysis of the Survival Statute, and found that the statute applies to “rights”, “liabilities”, and “causes of action.” Because the case at bar concerned Plaintiff’s “right” to payment and Defendants’ “liability” to pay, and Plaintiff raised her claim to payment within the five-year period allowed under the statute, her claim was allowed under the law. The Court went on to discuss Defendant’s second argument regarding the existence of a novation that would place liability elsewhere. The Court did not make a finding of a novation, but the facts indicated that a novation could be inferred at two different points in time. Thus, the Court concluded that a triable fact question existed as to whether a novation occurred, and if there was a novation, at what point in time did it occur. In so holding, the Court reversed the trial court’s grant of summary judgment on all of the appealed causes of action, and remanded the case.

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

September 8, 2011 | Peter S. Lubin and James V. DiTommaso

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

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

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

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