Chicago Business Litigation Lawyer Blog

California Court Rejects “Harsh” Arbitration Clause in Car Fraud Case – Sanchez v. Valencia Holding Company, LLC.

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

In Sanchez v. Valencia Holding Company, LLC., California’s Second District Court of Appeals explains that while a car buyer is generally bound by the terms of a sale contract, Golden State courts will not enforce terms that it deems unconscionable.

Gil Sanchez is the lead Plaintiff in a class action against Defendant car dealer Valencia Holding Company, LLC. He bought a pre-owned Mercedes-Benz from the dealer at a sales price of more than $53,000 and made a $15,000 down payment. Soon thereafter, Plaintiff allegedly experienced a wide range of problems with the vehicle, including engine failure. When the dealer allegedly was unable to repair the vehicle and indicated that the necessary repairs would not be covered under Plaintiff’s warranty, he filed the present action.

Plaintiff alleges that Defendant engaged in widespread fraud and unfair business practices in violation of California law by: (1) failing to separately itemize the amount of down payments that was to be deferred to a date after the execution of the parties’ Sale Contract; (2) failing to distinguish registration, transfer and titling fees from license fees; (3) charging buyers an “Optional DMV Electronic Filing Fee” without asking the buyer if he or she wanted to pay it; (4) charging new tire fees for used tires; and (5) telling Plaintiff to pay $3,700 to have the vehicle certified so he could qualify for a lower interest rate when that payment was actually for an optional extended warranty unrelated to the rate. In response, the dealer filed a motion to compel arbitration, asserting that the matter was subject to arbitration under the Sale Contract.

The trial court denied the motion to compel, ruling that a plaintiff suing under the state’s Consumers Legal Remedies Act has the right to maintain the suit as a class action, and therefore cannot be required to arbitrate his or her claims individually. On appeal, the Second District affirmed the lower court’s decision. However, the Court’s decision was based on the Sale Contract’s specific terms, rather than Plaintiff’s right to maintain a class action.

California law empowers a court to refuse to enforce any contractual provision that it deems both procedurally and substantively unconscionable. In this case, according to the Court, the Sale Contract’s arbitration provision “contains multiple invalid clauses, it is permeated by unconscionability and is unenforceable.” Specifically, the Court explained that “[t]he provision is unconscionable because it is adhesive and satisfies the elements of oppression and surprise; it is substantively unconscionable because it contains harsh terms that are one sided in favor of the car dealer to the detriment of the buyer.”

Illinois Court Explains Venue Transfer Rules in Business Litigation Case – Shakir Development & Construction, LLC v. Flaherty & Collins Construction, Inc.

August 9, 2012 | Peter S. Lubin and James V. DiTommaso

To transfer or not to transfer, that is often the question in inter-state business litigation where parties come from various states, often far from where the actual dispute takes place. In Shakir Development & Construction, LLC v. Flaherty & Collins Construction, Inc., the U.S. District Court for the Northern District of Illinois recently explained how a Court should decide on a request to transfer a case from one federal court to another.

Plaintiffs Shakir Development & Construction, LLC and a number of other entities as well as two individuals filed the action in Cook County Circuit Court against Defendants Flaherty & Collins Construction, Inc. and various related entities as well as two individuals, alleging fraud, breach of contract, tortuous interference with contract and unjust enrichment. According to the complaint, the parties entered into two contracts under which Defendants allegedly agreed to build and manage an apartment complex in Noblesville, Indiana. Plaintiffs allege that Defendants ultimately breached the contract, committing fraud in the course of so doing.

Defendants removed the case to the Northern District of Illinois on diversity grounds. Federal courts are empowered to hear cases in which none of the plaintiffs are from the same state as any of the defendants. In this case, the two individual defendants resided in Indiana and are Indiana citizens, while the entity defendants are Indiana corporations with their principal place of business in Indiana. The two individual plaintiffs resided in Illinois and are Illinois citizens; the entity plaintiffs are Indiana limited liability companies located in Indiana, but they are Illinois citizens for diversity purposes because their sole member is Sohail Shakir, one of the individual plaintiffs and an Illinois citizen.

Defendants then filed a motion requesting that the matter be transferred to the Southern District of Indiana, which includes Noblesville. 28 U.S.C. § 1404 allows a district court to transfer an action to another district court “for the convenience of parties and witnesses, in the interest of justice…” Citing its prior decision in Law Bulletin Publishing, Co. v. LRP Publications, Inc., the Court stated that it considers the following factors in evaluating convenience: 1) the plaintiff’s choice of forum; (2) the situs of the material events; (3) the relative ease of access to sources of proof; (4) the convenience of the witnesses; and (5) the convenience of the parties.

The Court granted Defendants’ transfer motion, finding that the factors “weigh heavily” in favor of transfer. Although Plaintiffs preferred to stay in Chicago, the Court noted that “choice of forum has only minimal value where none of the conduct occurred in the forum selected by the plaintiff.” Here, the alleged breach and fraud occurred in statements mailed from and made in meetings in Indiana. Similarly, the material events all occurred in Indiana and, as a result, the majority of witnesses – including Defendants’ employees along with subcontractors, architects and engineers – and parties were located in Indiana. Thus, the Court granted the motion to transfer.

California Court Limits Removal under Class Action Fairness Act – Westwood Apex v. Contreras

July 26, 2012 | Peter S. Lubin and James V. DiTommaso

“Location, location, location” isn’t just a mantra for real estate agents and house hunters. When it comes to litigation, venue is an important issue to consider for both plaintiffs and defendants alike. In Westwood Apex v. Contreras, the Court of Appeal for the Ninth Circuit explains an important federal law bearing on venue and, in particular, a class action defendant’s ability to change it.

Westwood Apex, a subsidiary of the for-profit higher-education institution Westwood College (Westwood) which operates campuses in 14 states including California, filed a breach of contract action against Jesus Contreras in state court, seeking to recover roughly $20,000 in unpaid student loan debt. In response, Contreras filed a class action counterclaim on behalf of all current and former Westwood students against the school as well as a number of affiliated entities alleging fraud as well as unfair and deceptive business practices in violation of various California consumer protection laws.

All of the counterclaim defendants except Westwood filed a notice of removal, transferring the action to a federal court, the District Court for the Central District of California. The Defendants asserted that removal was appropriate under a federal law called the Class Action Fairness Act (CAFA). The law grants federal courts jurisdiction over class action lawsuits where the amount in controversy exceeds $5 million and the opposing parties are minimally diverse (at least one plaintiff must live in a different state than one defendant).

After issuing an order to show cause as to why the case should not be removed, the District Court remanded the case back to the state court, ruling that CAFA does not permit a counterclaim defendant to remove an action to federal court. On appeal, the Ninth Circuit upheld this decision and the underlying reasoning.

Enacted in 2005, CAFA – codified at 28 U.S.C. § 1453 – was intended to fight perceived abuses (so-called “junk lawsuits”) in the class action litigation process. Although the statute allows “any defendant” to remove a qualifying class action, the Court held that it does not extend the removal power to counterclaim defendants. “[A] counterclaim defendant who is also a plaintiff to the original state action may not remove the case to federal court,” the Court ruled, citing the Supreme Court’s 1941 decision in Shamrock Oil & Gas Corporation v. Sheets as well as the Ninth Circuit’s more recent opinion in Progressive West v. Preciado (2007). As a result, the Court upheld the District Court’s ruling, leaving the action in state court.

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

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

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

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

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

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

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

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

Chrysler Allegedly Turns its Back on Warranty Responsibilities

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

Does the Lanham Act Prohibit Allegedly False Claims of Authorship? – Gensler v. Strabala

July 16, 2012 | Peter S. Lubin and James V. DiTommaso

Claims for trademark infringement and false advertising under the Lanham Act do not apply to allegedly false assertions of “authorship of a creative work,” according to the U.S. District Court for the Northern District of Illinois. In M. Arthur Gensler, Jr. & Associates, Inc. v. Jay Marshall Strabala, the court dismissed a Lanham Act suit based on claims of authorship of architectural designs, but suggested that a copyright claim might be more appropriate.

The plaintiff, M. Arthur Gensler, Jr. & Associates, Inc. (“Gensler”) is a design firm with offices in multiple countries. It employed the defendant, Jay Marshall Strabala (“Strabala”) as an architect from 2006 to 2010. Gensler sued Strabala under the Lanham Act and two Illinois deceptive trade practice statutes. Strabala moved the court to dismiss Gensler’s suit for failure to state a claim for which relief may be granted, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. The court agreed and dismissed the case.

In considering a 12(b)(6) motion, a court must consider all of a plaintiff’s “well-pleaded factual allegations” as true. While Strabala was an employee of Gensler, he worked on multiple high-profile projects, including the Shanghai Tower in China and multiple buildings in Houston, Texas. Strabala left Gensler in February 2010 and began practicing under an assumed business name, 2DEFINE Architecture. While based in Chicago, he advertised offices in Shanghai, China and Seoul, South Korea. Strabala set up a website and a page on the photo-sharing site Flickr to market his business. His Flickr site included claims that he designed the Shanghai Tower and several of Gensler’s Houston buildings. Gensler sued to stop Strabala from claiming primary responsibility for the design of these buildings.

Gensler alleged that Strabala’s claims constituted “false designation of origin” and “false advertising” under the Lanham Act. The court considered whether a claim of authorship of a creative work could be considered a “false designation of origin,” and concluded that it cannot. In Dastar Corp. v. Twentieth Century Fox Film Corp., a 2003 Supreme Court case involving a film studio and a video publisher, the Supreme Court considered whether “origin of goods” included the author/producer of the films themselves, or just the actual physical videotapes. It specifically interpreted the “origin of goods” provision to refer to actual tangible goods, not creative works. Because Gensler could not cite any authority that overruled the Dastar holding, the Illinois district court found its claim unpersuasive. The court did note, however, two federal appellate cases that applied Dastar but allowed the possibility of copyright claims.

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.

Suing an Auto Insurer for Underpaying on an Accident Claim – Greenberger v. Geico

June 28, 2012 | Peter S. Lubin and James V. DiTommaso

In previous posts, we’ve explained some of the ways in which car buyers who have been hoodwinked by dealers and manufacturers can seek to get their money back. The Seventh Circuit Court of Appeal’s ruling in Greenberger v. Geico concerns another player in the auto industry accused of fraud: an auto insurance company. The ruling explains that a plaintiff looking to sue an insurance company for breach of contract or fraud for low-balling a damage estimate must have the physical evidence to prove that the money paid by the insurer was not enough to fix the car.

Plaintiff Steven Greenberger sued Defendant Geico, his car insurance carrier, alleging breach of contract, consumer fraud in violation Illinois law and common-law fraud. In 2002, Plaintiff was involved in an auto accident, which left his 1994 Acura with bumper, steering box, suspension and lower body damage. After inspecting the car, a Geico adjuster issued Plaintiff a check for just over $3,000. Plaintiff did not repair the car. An individual later approached Plaintiff about buying the car, but when the potential buyer had it inspected by a mechanic, the mechanic indicated that the car needed more than $5,000 worth of repairs.

Plaintiff filed a proposed class action, claiming that Geico systematically violates its promise to restore policyholders’ vehicles to pre-loss condition by omitting certain necessary repairs from it collision damage estimates. A district court dismissed Plaintiff’s claims.

On appeal, the Seventh Circuit affirmed the lower court’s decision, finding that Plaintiff’s claims are barred by the Illinois Supreme Court’s decision in Avery v. State Farm Mutual Automobile Insurance Co., 216 Ill.2d 100, (2005). In Avery, the Supreme Court held that a policyholder’s suit against his insurer for failing to restore his collision-damaged car to its pre-loss condition cannot succeed without an examination of the car to determine whether the money paid by the insurer to cover the claim is sufficient to repair it. In the present matter, Plaintiff’s car was damaged in an accident; Geico inspected it and issued a check to cover Plaintiff’s insurance claim. Instead of repairing the car, however, Plaintiff donated it to charity. Thus the car was not available for examination.

Avery also established, according to the court, that a fraud claim cannot be simply a reformulated breach of contract claim. In other words, a fraud claim must allege more than simple failure to follow through on a promise. Since Plaintiff’s claims are limited to allegations concerning Geico’s promise to restore damaged cars to pre-loss condition, these are essentially contract claims that cannot also be alleged as fraud.

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.