Articles Posted in Business Disputes

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The Illinois Supreme Court’s recent decision in a foreclosure action could have far-reaching implications for litigations within the state. In a 5-2 decision, the Court ruled that anyone seeking to serve a defendant in Cook County via special process server must first secure a Cook County judge’s authorization for the summons to be valid.

The case arose from a foreclosure action in Kankakee County. In the underlying case, the plaintiff Municipal Trust and Savings Bank filed a complaint for mortgage foreclosure against defendant Dennis J. Moriarty in December 2016 and issued summons from Kankakee County, where the mortgaged commercial properties are located. A special process server ultimately served the defendant at Rush Hospital in Chicago, which is located in Cook County. Upon the plaintiff’s motion, the circuit court entered a judgment for foreclosure and sale. Following entry of the foreclosure judgment, a sheriff’s sale was held on the property, and plaintiff was the successful bidder. The bank then filed a motion for confirmation of the foreclosure sale.

The defendant filed a Section 2-1401 petition challenging the judgment as void arguing that the circuit court was without personal jurisdiction to enter the default judgment in the foreclosure proceeding. The Defendant asserted that under section 2-202 of the Code, a special process server cannot serve process on a defendant in Cook County without first being appointed by the circuit court. The circuit court denied the defendant’s section 2-1401 petition finding that the special process server was not required to be specially appointed to serve process on the defendant. The appellate court affirmed. The defendant petitioned for leave to appeal to the Illinois Supreme Court, which granted his petition. 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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In a recent order issued in the case of PNC Capital LLC v. TCode, Inc., the trial court swatted down the plaintiff’s excuses for refusing to answer jurisdictional discovery sought by the defendant and ultimately awarded sanctions against the plaintiff after finding that it lacked any substantial justification for its refusal to respond to essential jurisdictional discovery in order to thwart plaintiff’s constitutional right to remove the case to federal court based on diversity of citizenship. The order provides a cautionary tale for plaintiffs who wish to object to discovery issued by another party.

On September 4, 2020, the plaintiff in the case, PNC Capital LLC, which does business under the names Procuretechstaff Consulting Services and PTS Consulting Services, filed a three-count complaint against the defendant, TCode, Inc., in the Cook County state court alleging Breach of Restrictive Covenant (Count I), Tortious Interference with Contract (Count II), and Breach of Non-compete Agreement (Count III). The plaintiff has sought monetary damages of $104,000.

In response, the defendant requested that the plaintiff disclose the plaintiff’s members’ identity and state of citizenship. The purpose of the discovery was to determine if the case was eligible for removal to federal court. To be eligible for removal, the defendant would need to establish a valid basis for federal jurisdiction. In this case, the defendant sought to determine if the requirements for diversity jurisdiction under 28 U.S.C. §1332 were met. This requires establishing that the parties are completely diverse (i.e. citizens of different states) and an amount in controversy of more than $75,000. Plaintiff refused to comply, relying on a purported agreement with the defendant’s former counsel to exclusive jurisdiction in state court and venue in the Circuit Court of Cook County.

The requirements for removal of a lawsuit from state court to federal court are found in 28 U.S.C. §1446 and provides that a defendant seeking removal must file its notice of removal within 30 days following service of the complaint. However, if the pleadings do not make it clear whether the requirements for removal are met, a defendant must promptly investigate whether the case may be removed. Under such circumstances, the 30-day clock for removal does not begin to count down until the defendant receives information “from which it may first be ascertained that the case is one which is or has become removable.” 28 U.S.C. § 1446(b)(3).

In this case, the plaintiff was a limited liability company. For the purposes of invoking federal diversity jurisdiction, the citizenship of a limited liability company is based on the citizenship of each of its members. Thus, determining whether the case was removable required the defendant to identify each of the plaintiff’s members and their respective citizenships. Jurisdictional discovery is designed to obtain just this sort of information. A plaintiff is not at liberty to conceal facts necessary to the determination of whether the suit is removable or engage in a scheme to preclude the defendant’s timely removal. Rooflifters, LLC v. Nautilus Ins. Co., 13 C 3251, 2013 WL 3975382, at *3–6 (N.D. Ill. Aug. 1, 2013). 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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There are countless stories of a rock band’s members fighting over music and money, but this time it’s the widow of a band’s recently deceased member who’s fighting with the remaining members of the band over the band’s value.

When the singer Chris Cornell died, his widow, Vicky Cornell, inherited his share of the interest in the band, Soundgarden. The other members have offered to buy Cornell’s share for $278,000, but she alleges that amount represents just a fraction of what her share in the band is worth.

Cornell is suing the remaining members of Soundgarden for allegedly devaluing her share in the band, and has asked a judge to decide on an appropriate buyout price based on the value of Soundgarden’s master recordings. Additionally, Cornell is also asking the court to factor in the potential for future sales, including merchandise, tours, and even new music that could be created with artificial intelligence using extant recordings of Chris Cornell’s vocals.

A representative for Soundgarden said the remaining members of the band have acted in good faith in trying to buy out Cornell’s share of interest in the band. The amount they offered was allegedly based on the value of the band as estimated by Gary Cohen, a valuation expert who they claim is highly regarded and respected in the music industry. In trying to settle their disputes with Cornell, the surviving members of the band have allegedly offered to pay Cohen’s estimated value several times over. They say it’s about their music and their legacy, not about the money. But Cornell tells a different story. Continue reading ›

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For producers and manufacturers, alike supply contracts have many advantages. For manufacturers, it ensures a steady supply of raw goods for manufacturing, and for producers, it secures a steady stream of revenue. All contracts though come with the risk that one of the parties will breach them. In a recent decision, the Seventh Circuit provided guidance for interpreting the “adequate assurances” provision of Section 2-609 of the Uniform Commercial Code.

The dispute at issue is nearly a decade old. In 2009, BRC Rubber & Plastics Inc., a designer, and manufacturer of rubber and plastic products primarily for the automotive industry entered into a five-year supply contract with Continental Carbon Company for the supply of carbon black, an ingredient often used in the manufacture of rubber products. The agreement included baseline prices for three types of carbon black and provided that the prices were “to remain firm throughout the term of this agreement.”

In 2011, the supply of carbon black became generally tight and shortages were commonplace. In response, Continental sought to unilaterally increase the prices it charged BRC. BRC responded to the news of the price increase by objecting that the increases breached the contract. Continental refused to rescind the increase and its vice president of marketing and development instructed the sales representative in charge of the BRC account to withhold shipments to BRC unless it agreed to the increase.

Even after being informed of the anticipated increase price, BRC continued placing new orders at the contact prices. Continental did not respond to BRC’s objections to the increase but did continue to fulfill the orders until May of 2011. After Continental missed a shipment, BRC contacted Continental but Continental’s representative would not guarantee to supply product under existing purchase orders and claimed that it was “out of his control.” Without a confirmation that Continental would perform in conformity with the contract, BRC scrambled to find alternate suppliers and eventually received a shipment from another provider at spot rates higher than the contract rate. Continue reading ›

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Two inventors who were entitled to royalties on the sales of products sued the purchaser of their former company over their royalty rights. The litigation and arbitration took years, and after the third round of arbitration, the arbitrator determined that the inventors were not entitled to compensation from the company they sued. Despite this finding, the two continued to engage in litigation against the firm. After their final suit was dismissed in the district court, the company sought sanctions for bringing a groundless lawsuit. The district court granted the motion, finding that the suit had been barred by the doctrine of res judicata and the plain language of the governing agreements. The appellate panel agreed, determining that the results of the third and fourth rounds of arbitration made the suit frivolous and it affirmed the imposition of sanctions.

In 1997, Tai Matlin and James Waring co-founded Gray Matter Holdings, LLC. In 1999, they entered into a Withdrawal Agreement with Gray Matter. The agreement entitled Matlin and Waring to royalties on the sales of certain key products. In 2003, Gray Matter sold some of its assets to Swimways Corp.

Since that sale, Matlin and Waring have been engaged with Gray Matter in protracted litigation and arbitration over their royalty rights. During the third arbitration, the arbitrator determined that Gray Matter had not transferred its royalty obligations to Swimways in 2003, and therefore remained solely responsible for any royalty compensation owed to Matlin and Waring under the Withdrawal Agreement. Continue reading ›

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A disgruntled investor sued the organization that regulates registrations for certain securities brokers after he lost his investment. The investor argued that the securities broker had a history of misconduct dating back more than 30 years and should have had his membership revoked under the organization’s bylaws. The investor claimed that because the organization violated its own bylaws, it was liable for the actions of the securities broker. The district court determined that the organization did not violate the bylaws because the conduct of the broker had not led to the expulsion of an associated organization, only a voluntary withdrawal. The appellate panel agreed and affirmed the decision of the district court.

The Commodities Futures Trading Commission promotes the integrity of the U.S. derivatives markets through regulation via the Commodity Exchange Act. Congress authorized the CFTC to establish futures associations with authority to regulate the practices of its Members. Since 1981, there has been a single CFTC-approved registered futures association under the CEA, the National Futures Association. The NFA is charged with processing registrations for futures commission merchants, swap dealers, commodity pool operators, commodity trading advisors, introducing brokers, retail foreign exchange dealers, and relevant associated persons.

One requirement enforced by the NFA is Bylaw 301(a)(ii)(D), which prohibits a person from becoming or remaining a member if they were, by their conduct while associated with another member, a cause of any suspension, expulsion, or order. Between 1983 and 2015, Thomas Heneghan was an associated person of fourteen different NFA-Member firms. Dennis Troyer, an investor in financial products since the 1990s, invested hundreds of thousands of dollars in financial derivatives through NFA Members and their associates.

Although Troyer chronicled history of misconduct by Heneghan, dating as far back as 1985, the first interaction between Troyer and Heneghan was not until October 2008 when Troyer invested more than $160,000 between October 2008 and March 2011 under Heneghan’s advisement. In 2009, Heneghan came under the scrutiny of the NFA. This scrutiny continued for several years as Heneghan changed affiliation across several NFA member firms. Heneghan was eventually barred from NFA membership, associate membership, and from acting as the principal of an NFA member in 2016. Continue reading ›

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A plastics company purchased ingredients from a producer of rubber products for many years under a series of short-term agreements. A few years after signing a long-term agreement, the rubber producer attempted to unilaterally raise the price of the products it was selling to the plastics company. When the plastics company protested that this was not allowed under the agreement, the rubber producer failed to make scheduled deliveries on time. The plastics company then sought an alternate source of rubber and sued the producer for the difference in cost it paid. The district court determined that the rubber company failed to adequately assure the plastics manufacturer of its ability to perform under the contract, and the plastics company was therefore entitled to seek supplies elsewhere and recoup damages. The appellate panel affirmed, finding that the plastic company’s actions were reasonable under the Uniform Commercial Code.

BRC Rubber & Plastics, Inc. designs and manufactures rubber and plastic products, primarily for the automotive industry. Continental Carbon Company manufactures carbon black, an ingredient in many rubber products. Before 2010, BRC bought all the carbon black it needed from Continental, though the two companies did not have a long term supply contract.

In 2009, BRC solicited bids from several suppliers of carbon black, seeking a long-term contract to ensure continuity of supply. Continental won the bidding, and in late 2009 the two companies signed a five-year contract to run to Dec. 31, 2014. Continental agreed to supply BRC with approximately 1.8 million pounds of prime furnace black annually in equal monthly quantities. The contract listed baseline prices for three types of carbon black which were to remain firm throughout the agreement. The contract also included instructions for calculating the feedstock price adjustment to account for fluctuations in the price of oil and gas. Continue reading ›

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When a class action settles, class members generally have three options: (1) remain a part of the class, (2) opt-out of the settlement, or (3) object to the settlement. Many courts have bemoaned a perceived rise in the abuse of the third option by class members using a technique commonly referred to as “objector blackmail.” Objector blackmail involves class members filing frivolous objections to a class settlement, appealing decisions approving the settlement over such objections, and then seeking to obtain a side payment from the defendant in exchange for dismissal of their appeals. A recent Seventh Circuit opinion may spell the beginning of the end of this practice.

The issue of objector blackmail was front and center in the case of Pearson v. Target Corp. The plaintiffs in Pearson filed a putative class action alleging that the retailer Target, among others, made false claims about dietary supplements they manufactured and distributed. In March of 2013, the parties reached a settlement and asked the district court to approve it. After the first settlement was thrown out on appeal, the parties then reached a second settlement. Following the district court’s preliminary approval of the second settlement, three class members objected to the settlement. The objections ran the gamut from the number of class counsel’s fees to the failure of the defendants to admit liability under a statute they had not been accused of violating in the case. Continue reading ›

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