Chicago Business Litigation Lawyer Blog

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.

Regus Sued in Class Action

January 5, 2013 | Peter S. Lubin and James V. DiTommaso

Although renters usually expect to pay through the owner of the property for utilities, they usually only expect to do so if it is specifically included in the lease. According to a recent class action lawsuit against Regus PLC and its subsidiaries, the company allegedly charged fees to its renters for kitchen amenities, use of the telephones, telecom handsets, and internet activation and access.

According to the complaint, each plaintiff was provided with an “Office Agreement” which listed the location of the office, the duration of the client’s entitlement to the office, the amount of the “Initial Payment”, the amount of the security deposit, and the monthly payment from that point forward. The agreement allegedly did not “disclose any goods, services, penalties, and/or taxes for which Regus assesses charges and the amounts or methods of calculation of Regus’ charges associated with such goods, services, penalties, and/or taxes.”

However, once the plaintiffs received their bills, they found charges for things which were never mentioned in the lease. These charges included “amounts for one or more of the following …: i) ‘Kitchen Amenities Fee;’ ii) ‘Telephone Lines;’ iii) ‘Telecom Handset;’ iv) ‘Local Telephone;’ v) Internet activation and access charges; vi) taxes; and vii) penalties”. The lawsuit refers to these charges collectively as the “Unauthorized Charges”. Because of these Unauthorized Charges, the monthly payments made by clients was regularly in excess of what the Office Agreement had provided. However, if clients failed to pay these extra charges, they were allegedly subjected to penalties by Regus.

The lawsuit further alleges that Regus had clients make payment via an automated system in which the charges were automatically applied to the clients’ debit card or credit card. This meant that customers frequently got charged by Regus before even seeing a bill or having a chance to dispute the charges.

According to the complaint that was filed, Regus is also guilty of false advertising. Contrary to the experiences of the plaintiffs, the advertisements that Regus put on its website included the following:
“With Regus, you only pay for what you need when you need it”; “No up front capital expenditure required”; and “Flexible terms and one-page agreements.”

The complaint alleges that the additional fees the plaintiffs were charged directly contradict, not only the leases which were signed by the plaintiffs, but also the advertisements provided by Regus. For example, regarding the kitchen amenities, the lawsuit alleges that “Regus assessed a $30 per person monthly charge to Plaintiff … in excess of the monthly office payment amount indicated in the Office Agreement. Neither Regus’s practice of assessing this charge nor the amount of the charge is disclosed in the Office Agreement or the Fine Print. The charge was assessed regardless of whether any kitchen amenities were used.”

As far as the use of the telecom handset for which some plaintiffs were charged, the complaint alleges that “the retail value of the two handsets provided by Regus does not exceed $99.00, yet Regus charged … a total of $222.75 (including purported taxes) per month for the use of the handsets during the term of the Office Agreement.”

The lawsuit seeks to bring a class action which would include everyone who had an Office Agreement or similar agreement for one of Regus’s locations in California and who paid one or more of the Unauthorized Charges between May 8, 2008 and the time that the complaint was filed. The lawsuit is also petitioning for a second New York class which would consist of similarly situated renters in the state of New York. The plaintiffs are currently unaware of just how many people qualify to participate in the classes, but they believe that each class could consist of more than 100 members.

Georgia Federal Court Enjoins Enforcement of Covenant Not to Compete Against Former Employee

December 27, 2012 | Peter S. Lubin and James V. DiTommaso

In a dispute over the enforcement of two restrictive covenants in an employment contract, a federal court in Georgia granted a preliminary injunction preventing their enforcement. The plaintiff in Moorad v. Affordable Interior Systems, LLC filed a declaratory judgment action against his former employer to have the restrictive covenants declared unenforceable under Georgia law. The court considered the plaintiff’s request for an injunction and the defendant’s motion to dismiss for lack of subject matter jurisdiction, and ruled for the plaintiff on both.

The plaintiff, David Moorad, worked for the defendant, Affordable Interior Systems (AIS), from 2004 to May 2011 as the Vice President of Sales for Government Services Administration (GSA). Moorad’s employer asked him to sign an amended contract containing two restrictive covenants, a non-competition agreement and a non-solicitation agreement. According to the court’s ruling, the defendant implied that Moorad could lose his job if he refused to sign the new contract. The non-competition covenant stated that, upon termination or departure from AIS, Moorad could not work, for a period of twenty-four months, in office furniture sales or manufacturing. The clause explicitly described the geographic scope of the restriction as the entire United States. The non-solicitation clause purported to prohibit Moorad from soliciting any customers of AIS within the same twenty-four month period, including anyone who had been a customer in the prior twelve months.

Settlement of Toys “R” Us Class Action Which Alleged That Full Refunds Were Not Provided

December 15, 2012 | Peter S. Lubin and James V. DiTommaso

While this blog frequently discusses issues regarding consumer rights in the event the consumers purchase a faulty product, it is equally important for companies to provide their consumers with full disclosure regarding their return policies. This is the issue at hand in a class action lawsuit against Toys “R” Us for allegedly failing to provide customers with full refunds on items purchased with promotional gift cards or discounts.

Allegedly, Toys “R” Us customers who purchased items from the store that offered free gift cards, buy-one-get-one-50-percent-off discounts or other benefits received less money than the full purchase price when they went to return the items.

Laura Maybaum, the lead plaintiff in the case, purchased $75 worth of Toys “R” Us products and received a $10 gift card. When she later returned one of the toys, the toy company allegedly refused to pay the full purchase price.

Under California law, retailers must give no less than full cash or credit refunds unless a more restrictive policy has been announced.

A California judge has recently approved a $1.1 million settlement in the case. Under the settlement, Class Members will receive a voucher for $10 off a purchase of $50 or more. The toy company has also agreed to provide more disclosure of its return policy for merchandise bought as part of a promotion. One of the ways they intend to do this is by putting the disclosure on point-of-sale displays.

Class Members include all California consumers who purchased toys from Toys “R” Us since January 1, 2008 that qualified for a promotion and then returned one or more items.

Injunction Class Action Certified Against AriZona Ice Tea for Alleged False Use of “Natural” Label

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

As consumers become increasingly health-conscious, we see more lawsuits against food manufacturers who label their products as “natural” when, in fact, they may have highly processed ingredients. Such is the case in a lawsuit currently facing the Northern District of California. Two consumers, Lauren Ries and Serena Algozer have filed a class action on behalf of all similarly situated consumers against AriZona iced tea. They argue that the “natural” label on the beverages is deceptive, because they allegedly contain high fructose corn syrup and citric acid.

Ms. Ries claims she purchased an “All Natural Green Tea” at a gas station because she was thirsty and was looking for an option which would be healthier than soda. Ms. Algozer says she purchased several AriZona iced teas over the years, but neither plaintiff remembers the prices, nor do they have receipts.

Ms. Ries and Ms. Algozer filed for a class action under the Federal Rule of Civil Procedure 23(b)(2). This Rule is a little more lenient than Rule 23(b)(3), under which the commonality hurdle would have been much higher. As it is, potential class members only need to satisfy “minimal commonality” in order to qualify.

While this works in favor of the plaintiffs towards attaining class certification, it prevents them from collecting any monetary damages. The lawsuit was filed seeking an injunction against using the word “natural” on the product’s packaging, as well as restitution for their purchases of the mislabeled iced tea. However, the same “minimal commonality” requirements which allow this class to gain certification also prevent the class from claiming any monetary damages. Therefore, Judge Seeborg of the Northern District of California has partially certified the class for an injunction, but refused to certify the class to seek restitution for their purchases.

Court Enforces Covenant Not to Compete Against Former Franchisee of Pizza Restaurant – Singas Famous Pizza Brands v. New York Advertising

December 13, 2012 | Peter S. Lubin and James V. DiTommaso

A former franchisee of a regional pizza restaurant chain were barred from operating pizza restaurants within certain geographic areas, according to the Second Circuit Court of Appeals in New York City. In Singas Famous Pizza Brands Corp., et al v. New York Advertising, the plaintiffs sought to enjoin the defendant from opening two new pizza restaurants shortly after the termination of the defendant’s franchise agreement with the plaintiffs. The franchise agreement included a covenant not to compete, stating that the franchisee could not operate similar pizza restaurants within a specified geographic area. The defendant challenged the enforceability of the geographic restriction. The district court ruled for the plaintiffs, and the appeals court affirmed the ruling.

The plaintiffs, Singas Famous Pizza Brand Corp. and Singas Famous Pizza & Restaurant Corp., collectively referred to as “Singas,” operate or franchise multiple pizza restaurants in the New York City metropolitan area. Each restaurant uses Singas’ unique branding and menu. The defendants operated two pizza restaurants, a former Singas franchise in the East Village, Manhattan, and a new restaurant in Jackson Heights, Queens. Singas obtained a preliminary injunction that barred the defendant from operating both restaurants. The defendant appealed only as to the Jackson Heights restaurant, arguing that the ten-mile geographic restriction was unduly broad.

Court Orders Customer to Take Down Customer Review on Yelp

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

Tax Whistleblower is Awarded $38 million by IRS

December 11, 2012 | Peter S. Lubin and James V. DiTommaso

In late October 2012, attorneys representing a tax whistleblower announced that their client had been awarded more than $38 million by the IRS for exposing a corporate tax avoidance scheme. This award comes less than two months after the IRS awarded $104 million to Bradley Birkenfeld for blowing the whistle on his former employer, UBS, and constitutes the second major award since the IRS whistleblower program was revised in 2006.

Of note is the fact that the whistleblower’s identify has not been revealed, consistent with IRS policy. It is reported that the target corporation did not even know that the IRS investigation was triggered by a tip from a whistleblower.

The identity of the target corporation was also not disclosed, though it is said to be a Fortune 500 company. Based on current IRS guidelines which provide that a whistleblower must be awarded between 15 and 30 percent of monies collected by the IRS, the target corporation presumably paid to the government between $126 million and $250 million in taxes and penalties.

This award should demonstrate to other corporate insiders that they can safely report their employer’s improper tax practices without their identity being disclosed. To maintain anonymity, a tax whistleblower’s information can be reported to the IRS through counsel.

Lie Spotting Video — Our Chicago Fraud and Shareholder’s Rights Lawyers Bring Suit For Plaintiffs Damaged by Lies

December 10, 2012 | Peter S. Lubin and James V. DiTommaso

Employment Retaliation Claims on the Rise

December 1, 2012 | Peter S. Lubin and James V. DiTommaso

Employment retaliation claims are on the rise, according to the U.S. Equal Employment Opportunity Commission (EEOC). The EEOC reports that, in 2011, retaliation claims accounted for 37.4 percent of all charges filed with the EEOC, amounting to a total of 37,334 charges. This number represents an increase of more than 72 percent since 2000, when the total number of retaliation claims was 21,613.

What Is Employee Retaliation?

Employees are protected from discrimination in the workplace through various federal and state laws, such as Title VII of the Civil Rights Act of 1964 (as amended), the Equal Pay Act of 1963, the Age Discrimination Act of 1967, Title I of the Americans with Disabilities Act of 1990 and the Genetic Information Nondiscrimination Act of 2008. These laws, not only prohibit acts of discrimination based on race, gender, religion, disabilities, and age, but they also prohibit employers from firing, demoting, harassing or otherwise retaliating against an employee or applicant who files a charge of discrimination or participates in a discrimination lawsuit or investigation.