Articles Posted in Illinois Supreme Court

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At DiTommaso-Lubin, we pride ourselves on staying abreast of changes in the law that may affect our clients, especially those rendered by the highest court in the state. The Supreme Court of Illinois released a new decision not long ago that was picked up by our Lombard business litigation attorneys, and the case is of particular interest to business owners who have personally guaranteed a business loan. In JP Morgan Chase Bank, N.A. v. Earth Foods, Inc. the Court addressed the meaning of the term surety and whether a guarantor falls within that definition under the Illinois Sureties Act.

The initial dispute in JP Morgan Chase Bank, N.A. v. Earth Foods, Inc. arose from a line of credit extended by Plaintiff JP Morgan Chase Bank to Defendant Earth Foods. The loan was personally guaranteed by the three co-owners of Earth Foods, and three years after the line of credit was first extended, Earth Foods defaulted on the loan. Plaintiff then filed a lawsuit against both the company for breach of contract and the co-owners as guarantors of the defaulted loan. The individual Defendants asserted an affirmative defense that the guaranty obligation was discharged under the Sureties Act because the Act applies to both guarantors and sureties and the law does not distinguish between the two. Plaintiffs then filed a motion for summary judgment, which was granted by the trial court. In granting the motion, the court held that the individual Defendants were guarantors and the Act only applied to sureties. Defendants appealed the trial court’s decision, and the appellate court held that the term surety encompassed both a surety and a guarantor under the Act and remanded the case. Plaintiffs petitioned the Supreme Court to review the appellate court’s reversal.

On appeal, the Supreme Court performed an extensive statutory analysis of the Illinois Sureties Act. In performing this analysis, the Court first determined that dictionaries, treatises and past court decisions recognize a clear legal distinction between guarantors and sureties. They then went on to determine the legislative intent behind the Sureties Act through a discussion of other laws related to the same subject matter. Through their discussion, the Court held that a suretyship differs from a guaranty in that a suretyship is a primary obligation to ensure the debt is paid, while a guaranty is an obligation to pay the debt if the principal does not pay. The Court went on to say that the plain language of the Act indicates that the protections of the Sureties Act are not applicable to guarantors. Despite this ruling, the Court held that summary judgment was improperly granted in JP Morgan Chase Bank’s favor and remanded the case to the trial court due to genuine issues of fact regarding whether the parties intended the individual Defendants to be guarantors or sureties for the loan in question.

JP Morgan Chase Bank, N.A. v. Earth Foods, Inc. unequivocally answered the question whether the terms surety and guarantor are interchangeable for the purposes of the Illinois Sureties Act. Despite the fact that there is a clear distinction between the two, the Supreme Court allows for the intent of the parties to rule when including either term in a loan agreement. Therefore, business owners should be careful when drafting and negotiating the terms of a guarantor or a surety and be clear which role is intended by the parties to avoid a potential lawsuit down the road.

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A recent ruling clarifying how Illinois state law applies to city ordinances caught the attention of our Chicago consumer protection attorneys. In Landis et al v. Marc Realty et al, Ill. Sup. Co. No. 105568 (May 21, 2009), tenants Ana and Ken Landis signed a lease for a Chicago apartment, starting June 1, 2001. They paid a security deposit of $8,400. However, they found a persistent leak in the apartment that the defendants, Marc Realty LLC and Elliott Weiner, were not able to fix. They came to a mutual agreement to vacate in exchange for being released from the lease and left in November of 2001. In April of 2006, they filed suit under Chicago’s Residential Landlord Tenant Ordinance, alleging that the defendants never paid back their security deposit.

Under the RLTO, landlords must repay security deposits, or the balance of such deposits, within 45 days of the date tenants move out or within seven days after the tenant gives notice. If they hold on to the deposits for more than six months, they must pay interest that accrues from the day the rental term began. If they fail to make either payment, tenants are entitled to sue for twice the security deposit plus interest. Neither party in this case disputed this. Instead, Marc Realty moved to dismiss the complaint as untimely under the two-year statute of limitations for a statutory penalty in Illinois. The plaintiffs argued that the RLTO did not provide a statutory penalty, but instead was governed by the five-year miscellaneous statute of limitations or the ten-year statute of limitations applied to contracts. The trial and appellate courts sided with defendants, and plaintiffs appealed.

The majority started by noting that the case rests on the proper interpretation of the phrase “statutory penalty.” It first took up the question of whether a city ordinance qualifies as a statute, which the plaintiffs argued that it did not. The appeals courts are split on this question, the Supreme Court wrote, and prior Supreme Court cases don’t quite apply. The court assumed that the Legislature intended the word “statutory” to take its ordinary dictionary definition, but found that dictionaries are also split on the issue. Applying the general principle that courts should give statutes their broadest possible meaning, the Supreme Court found that the Legislature intended “statutory” to encompass municipal ordinances as well as state law. It noted that this is most fair because it gives all claims for statutory penalties in Illinois the same statute of limitations.

The court next disposed of the plaintiffs’ arguments about the word “penalty.” Under McDonald’s Corp. v. Levine, 108 Ill. App. 3d 732 (1982), statutory penalties must impose automatic liability for violation; set forth a predetermined amount of damages; and impose damages without regard to actual damages. The plaintiffs concede that the RLTO meets the first test, but said the damages are not predetermined because a dollar amount isn’t specified. It doesn’t need to, the court wrote; the formula provided by the statute is sufficient to be counted as “predetermined.” It also dismissed the plaintiffs’ argument that they are seeking actual damages, noting that other areas of the RLTO specify actual damages, but this one does not. The ordinance also says nothing about the contractual obligations between landlords and tenants, the court said, despite plaintiffs’ argument that they were seeking to enforce contractual rights. Thus, the RLTO does impose a “statutory penalty” — and the lower courts’ judgments were affirmed.

In a dissent, Justices Kilbride and Karmeier disagreed with the majority on the question of whether the Legislature intended to include municipal ordinances in the definition of “statutory penalty.” Saying that courts must interpret laws according to the intent of drafters at the time, the justices wrote that “statutory” took only the state-law meaning in 1874, when the law was written. Furthermore, several Illinois Supreme Court precedents show that this interpretation was in use by courts of the time as well: “This court’s precedent could not be more clear.” And the result in this case contradicts a more recent ruling in Clare v. Bell, 378 Ill. 128 (1941), they wrote, which the majority mentioned but failed to adequately distinguish, leaving an inconsistent ruling. The justices also dissented from the majority’s denial of a rehearing.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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As Chicago business, shareholder rights and commercial law litigators, we frequently handle cases involving allegations of business fraud or financial mismanagement, often as part of complex business dispute, that require significant expertise in financial issues. When handling a divorce involving a family business or other closely held company, we also sometimes find we need an expert’s help properly valuing the business, so we can help our clients get the most equitable possible distribution of marital property.

Our Chicago, Oak Brook, Wheaton and Naperville business trial attorneys have handled many complex business and commecial law litigation matters which have involved presenting or cross-examining accounting witnesses.

While we’re confident in our legal skills, these situations call for specialized financial skills. To give our clients the best possible representation in business, shareholder and other commercial disputes, we sometimes retain a forensic accountant or fraud examiner. Both of these jobs are twofold: They help attorneys and their clients understand the complex financial aspects of their cases, and they may also be called to testify as expert witnesses. A forensic accountant’s job is to examine a person or corporation’s accounts “cold,” from the outside; the subject isn’t generally expected to cooperate. Similarly, a fraud examiner delves deep into a company’s finances, looking for the source of anything that seems inconsistent or suspicious. Both can serve as expert witnesses who help establish the value of a business or testify to the existence of fraud.

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

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

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

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

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

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

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

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

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