Chicago Business Litigation Lawyer Blog

Illinois Court Rules that Class Certification in Toxic Dumping Cases is Not an “All or Nothing” Decision – Leib v. Rex Energy Operating Corp.

October 6, 2011 | Peter S. Lubin and James V. DiTommaso

It doesn’t take a genius to understand that every person is different. Our daily routines; our likes and dislikes; our physical, spiritual, family and money situations; each of these differences make individuals individual. In the toxic dumping class action context, the Southern District of Illinois has made clear that while personal differences mean that some questions are not suitable for class action proceedings, it should not prevent the court from certifying a class on other common questions central to the action.

In Leib v. Rex Energy Operating Corp., Plaintiffs – residents of Bridgeport, Illinois – filed suit alleging that their properties were contaminated with unsafe levels of hydrogen sulfide (H2S), a poisonous gas, released into the air from the more than 100 nearby oil wells owned by defendant PennTex Resources Illinois, Inc. (“PennTex”) and managed by defendant Rex Energy Operating Corporation (“Rex Energy”). Plaintiffs sought damages for injury to property, injunctive relief restraining Defendants from allowing further contamination and forcing them to abate the existing contamination, the establishment of a Court-administered fund for medical monitoring of class members, punitive damages, costs and fees.

Plaintiffs also filed a motion for class certification, seeking to certify a class of all persons and entities owning property or residing in the area surrounding the wells and including most of the towns of Bridgeport and Petrolia. The court determined that Plaintiffs satisfied the requirements for class certification on the question of whether and to what extent Defendants contaminated the Class Area with H2S, but not as to the question of individual property damage amounts.

The court found that the contamination question involves issues common to the entire class:

Plaintiffs’ claims arise out of the same core of operative facts, that is, the allegation that [Defendants] allowed dangerous levels of H2S to contaminate the air in the Class Area. Such alleged behavior constitutes standardized conduct toward all prospective class members. Resolution of this question — whether and, if so, to what extent [Defendants] caused contamination in the Class Area — will certainly advance the litigation.

The court further found that Plaintiffs’ claims were sufficiently common to those of the proposed class, noting “[P]laintiffs need not allege the same exact injury or be free of factual distinctions so long as their claims are based on the same legal theory.”

Employers Can Require Exempt Employees to Take Mandatory Leave and Still Meet the IMWL Salary Basis Test

September 29, 2011 | Peter S. Lubin and James V. DiTommaso

At DiTommaso Lubin, we are accustomed to litigating wage claims brought under the Fair Labor Standards Act, and most of our clients have FLSA claims. However, our firm also is well versed in Illinois wage laws, and our Tinley Park wage and hour attorneys discovered an interesting overtime class-action in the Appellate Court of Illinois.

Robinson v. Tellabs, Inc. is wage dispute over a policy instituted by Defendant Tellabs requiring employees to take mandatory unpaid days off. Defendant is a manufacturer of telecommunications components that saw a significant boom in its business during the 1990’s, but saw its profits dwindle after the turn of the millennium. As a result of the downturn in revenue, Defendant laid off a significant portion of its work force and instituted many other cost cutting measures. One of the measures implemented by the company was to institute mandatory unpaid leave several days each year around existing paid holidays. Even after the mandatory unpaid leave policy was instituted, Defendant’s had to lay off additional employees to keep the company afloat.

The named Plaintiff worked as a lead engineer for Defendant while the unpaid leave policy was in effect, and was laid off eleven months after his hiring having never been paid any overtime. Plaintiff then filed a class-action lawsuit alleging that Defendant’s implementation of their mandatory unpaid leave policy made he and similarly situated employees non-exempt for the purposes of the Illinois Minimum Wage Law (IMWL). Therefore, Plaintiffs were entitled to overtime pay for any week in which they worked more than forty hours. The trial court ruled in favor of Defendant and found that the mandatory days off was essentially a prospective salary reduction that served the company’s bona fide business needs.

Plaintiffs appealed the trial court’s decision and claimed that the trial court incorrectly applied the salary basis test in making its ruling. The Appellate Court did not find Plaintiffs’ arguments persuasive and agreed with the trial courts decision. The Court discussed that the rule relied upon by the trial court and set forth by Department of Labor opinion letters, which states “the salary-basis test permits employers to prospectively reduce employees’ salaries for a legitimate business need unless done so frequently that the purported salary becomes a sham attempt to pay an hourly wage.” The Court went on to hold that the rule “refers only to deductions during the current pay period…not reductions in future salary.”
Because Defendant’s policy caused reductions in future salary and the policy was a result of Defendant’s bona fide economic difficulties, the Court found that Defendant satisfied the salary-basis test. Additionally, the Court found the test to be met because the policy was applied uniformly among all employees and was not instituted on an ad hoc basis.

Illinois Noncompete Agreements 101 – Nortek Products Ltd v. FNA Group, Inc.

September 22, 2011 | Peter S. Lubin and James V. DiTommaso

The District Court for the Northern District of Illinois’ recent opinion in Nortek Products Ltd v. FNA Group, Inc. provides a basic overview of how courts consider whether to enforce the terms of a noncompete agreement.

Plaintiffs began manufacturing pressure water products for Defendants in 2003. Five years later, the parties entered into a “License Contract” under which Plaintiffs would manufacture pressure washers that included specific hoses that Defendants held a patent on and/or involved specific technology for which Defendants had applied for a patent.

They also entered into a “Nondisclosure, Noncompetition and Non-solicitation Agreement” (NDA) prohibiting Plaintiffs from the “manufacture, assembly, use, sale, marketing, after-sale service or other disposition of any Licensed Product, any related ancillary activities and any other business [Defendants] may license (or co-operate with) [Plaintiffs] or consider licensing (or co-operating with) [Plaintiffs],” for three years after the expiration of the License Contract. The NDA also included a non-solicitation provision, barring Plaintiffs from soliciting Defendants’ customers for 10 years after the Licensing Contract’s expiration. Finally, the NDA’s nondisclosure provision stated that Plaintiffs would not disclose Defendants’ trade secrets or confidential information. The NDA did not include a geographic limitation.

Plaintiffs filed suit against Defendants for breach of contract. Defendants, in turn, filed a counterclaim alleging that Plaintiffs breached the NDA by soliciting business from Defendants’ customers and engaging in unauthorized business activities using Defendants’ confidential and proprietary business information.

In denying Plaintiffs’ motion to dismiss the counter claim, the court first determined that the NDA should be considered under an employee-employer framework, rather than in the context of a sale of business. “[B]ecause the covenants in the License Contract serve to protect confidential customer information and customer relationships, they are more akin to covenants ancillary to an employment contract than to a sale of a business,” the court ruled.

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.

Michigan Toxic Pollution Class Action Stalls in Circuit Court – Dow Chemical v. Henry

August 25, 2011 | Peter S. Lubin and James V. DiTommaso

A Michigan court recently pumped the breaks on a class action toxic pollution suit against Dow Chemical, finding that while property owners may be able to prove that the chemical giant contaminated local rivers and surrounding property with toxins, the plaintiffs did not meet the standards for bringing the suit as a class action.

The Michigan Messenger’s Eartha Jane Melzer reports that “[o]perations at Dow’s Midland plant have spread dioxin — a highly toxic and cancer-causing byproduct of the chemical manufacturing process — and other chemicals, through the Tittabawassee and Saginaw Rivers and into Lake Huron. Flooding of the rivers downstream from Dow has deposited dioxin-laden sediments on properties in the floodplain.”
Dow Chemcial v. Henry concerns a suit by roughly 150 Tittabawassee property owners filed against Dow on behalf of the more than 2,000 people with property in the floodplain in 2003 and claiming that their property had lost value due to contamination. Two years later, Saginaw County Judge Leopold Borello certified the class of property owners, a ruling that Dow appealed to the Michigan Supreme Court.

In order to be certified as a class, Michigan law requires that a group of plaintiffs meet the following criteria:

(a) the class is so numerous that joinder of all members is impracticable;
(b) there are questions of law or fact common to the members of the class that predominate over questions affecting only
individual members;
(c) the claims or defenses of the representative parties are typical of the claims or defenses of the class;
(d) the representative parties will fairly and adequately assert and protect the interests of the class; and
(e) the maintenance of the action as a class action will be superior to other available methods of adjudication in promoting the convenient administration of justice.

MCR 3.501(A)(1). On appeal, the state supreme court remanded the case to Judge Borello, requiring that he analyze the action under criteria (c) and (d) above.

Upon further consideration, Borello reversed his earlier approval of class status for the group. In so doing, he relied on the recent U.S. Supreme Court decision in Wal-Mart Stores v. Dukes, a 5-4 ruling in which the court reversed a lower court’s decision to certify a class of women employees alleging bias in pay and promotions, noting that the company’s decentralized structure meant that the case involved millions of employment decisions and that the women failed to show “some glue holding the alleged reasons for all those decisions together.”

7th Circuit Court of Appeals Rules Employees Entitled to Compensation for Time Spent Donning Safety Gear Under State Law

August 24, 2011 | Peter S. Lubin and James V. DiTommaso

The federal government passed the Fair Labor Standards Act (FLSA) to ensure that American workers would be paid appropriately for the work they provide. While some people may think of the FLSA as a statute that is concerned only with getting workers their unpaid overtime, the language of the law is broad enough to ensure that employees are paid for all of their time spent working, regardless of whether that time is overtime or not. Our Downers Grove wage and hour class-action attorneys found a case in the Seventh Circuit Court of Appeals involving employees who were not paid for the time they spent donning safety gear and wanted to share it with our readers.

In Spoerle vs. Kraft Foods Global, Plaintiffs were employed in Defendant’s plant in Madison, Wisconsin preparing meat products as hourly workers and spent several minutes at the outset of each work day putting on steel-toed boots, hard hats, and other safety gear required to perform the job. Plaintiffs filed suit to challenge a trade-off — struck in a collective bargaining agreement between Plaintiffs’ union and Defendant — where Plaintiffs would not be paid for their time spent donning this protective gear in exchange for a higher base pay rate. The FLSA permits such a tradeoff under §203(o), but Plaintiffs argued that Wisconsin law has no equivalent exception, and therefore state law requires payment for time spent donning such gear. Defendant argued that the FLSA and federal labor laws pre-empt the state law, so the CBA agreement should be honored and the time spent dressing in safety gear should remain noncompensable. The district court found in favor of the Plaintiffs, and Defendant appealed.

On appeal, defendant argued that §203(o) was the federal government’s decision to “permit a collectively bargained resolution to supersede the rules otherwise applicable to determining the number of hours worked.” The Court of Appeals did not find this argument persuasive, however, because nothing placed in a CBA exempts an employer from state laws of general application. Therefore, the Court found that the district court did not err in ruling that Plaintiffs were entitled to be paid for their time spent equipping themselves with safety gear.

Court Certifies Class-Action for Unpaid Employee Login Time

August 18, 2011 | Peter S. Lubin and James V. DiTommaso

Courts have been flooded lately with claims by non-exempt employees who have not been compensated for time spent logging into computer systems and performing other start-up procedures. As experienced overtime lawyers, DiTommaso Lubin has been tracking many of these cases, and the Northern District of Illinois made a recent ruling on one such case.

In Kernats v. Comcast Corporation, Plaintiffs worked for Defendant as customer account representatives (CAE’s) who performed non-exempt work and were paid on an hourly basis. Plaintiffs worked in one of Defendant’s eight call centers in Illinois, and while all Plaintiffs did not perform exactly the same job, they did have the same job description and primary duty. Additionally, they all had similar training, were governed by the same employment policies, and were compensated in the same way. Also, all CAE’s were allegedly required to first log into a work computer, load all of the necessary computer applications, and log into Defendant’s phone system before the start of their shift. In addition to the customer service responsibilities, Defendant required CAE’s to learn about new products, services, marketing campaigns, and review company emails.

Plaintiffs filed suit alleging that Defendant failed to compensate Plaintiffs for the time after they first logged in, but prior to their scheduled start time, which violated the Illinois Wage Payment and Collection Act (IWPCA). Plaintiffs also claimed that working this uncompensated time caused them to work more than forty hours a week. This entitled them to overtime compensation pursuant to the Illinois Minimum Wage Law (IMWL). After some limited discovery, Plaintiffs moved to certify two classes, one for each state law claim, under Federal Rule of Civil Procedure 23.

In making their ruling, the Court found that Plaintiffs met the threshold requirements of Rule 23(a) because the class members were subject to standardized conduct by Defendant. This conduct was the implementation of a company-wide practice allowing CAE’s to work after their login, but before the start of their shift without being paid. The class-members’ claims also were based upon the same legal theory, and thus met the minimal requirements of typicality and commonality. The Court then held that the requirements of Rule 23(b)(3) were met because the evidence required to prove liability that was common to the class significantly outweighed the evidence particular to the individual class members. The Court also found that a class-action was the preferable means for adjudicating the issues because the individual recovery for individuals would be relatively small, while the aggregate recovery would be quite large. As such, the Court ruled that the requirements of FRCP 23 were met and certified the class-action.

Chicago Tribune Reports on Litigation Arising Out of Bankruptcy of Giordano’s Pizza Franchisor

August 14, 2011 | Peter S. Lubin and James V. DiTommaso

The Chicago Tribune has recently reported on two lawsuits arising out of the bankruptcy of the franchisor for the Giordano’s pizza chain.

In one suit the bankruptcy trustee has sued franchisee for failing to use the the required pizza dough thus allegedly harming the quality and uniformity of Giordano’s pizzas. This type of lawsuit often arises in the franchise setting the article explains. The article states:

It’s common, especially in the restaurant business, for a franchisor to dictate suppliers in their franchise agreements.

“If a customer does not receive essentially the same product, same quality and same experience, the brand image is tarnished and the customer less likely to patronize the franchise in the future,” said Christian Burden, a Quarles & Brady LLP partner focusing on disputes involving distributors and franchises. “To use the quintessential example of the Big Mac, from the franchisor’s perspective, a Big Mac in Chicago must taste and appear generally the same as a Big Mac in Los Angeles, Toronto, Brazil, and so on.”

But it’s also not unheard of for franchisees such as those at Giordano’s to look for alternative sourcing. …

You can read the full article by clicking here.

The other Tribune article details a lawsuit filed by the former Giordano’s franchisor claiming that the franchisor’s lender-banks, former lawyers and other franchisees conspired to rob them of the business. You can view a copy of the complaint in this lawsuit by clicking here. The article describes the lawsuit’s claims as follows:

The lawsuit said that the men enlisted Fifth Third Bank, Giordano’s chief lender, as well as Chicago lawyer Michael Gesas and several Giordano’s franchisees “to participate in the scheme” in which they’d push the Apostolous out and take over the company. Secret meetings were held from September 2010 to February 2011, the lawsuit said. Gesas didn’t respond to a request for comment.

First, they intended to weaken the Chicago-based deep dish pizza chain financially, the suit said. Then, the Apostolous “were fraudulently induced” into signing agreements in August 2010 and October 2010 that worsened their lending terms with Fifth Third, which is owed more than $40 million in the bankruptcy.

Fifth Third threatened to “throw the family in the street” if they didn’t go along with the new terms, the lawsuit said. Aynessazian, who also owns eight Giordano’s franchises, Roche and Gesas made “material omissions” to the Apostolous and failed to represent the interests of the Glenview family, the suit said.

Before the execution of the October 2010 deal with Fifth Third, Apostolou had a heart attack, leaving him even more dependent on his lawyers and Aynessazian. The stress also prompted him to see a psychiatrist, the lawsuit said.

“The final step of the scheme involved seizing control of (Giordano’s) by pressuring the Apostolous into filing a Chapter 11 bankruptcy by which the assets and value of (Giordano’s) could be usurped for the benefit of Fifth Third, and the Apostolous’ ownership interests could be purchased at a materially deflated price for the benefit of the franchisee takeover group,” the lawsuit said.

You can read the full article by clicking here.

CNN reports: Designer Loses First Round of Trademark Lawsuit on Red Soled High Heels — Lawyer Vows to Continue the Fight on Appeal and Lambasts Judge’s Decision

August 14, 2011 | Peter S. Lubin and James V. DiTommaso

CNN reports that French Shoe Designer Christian Louboutin lost the first round of a trademark lawsuit seeking to protect his iconic red soled high heels. Louboutin’s lawyer blasted the Court’s decision and vowed he would fight on in an appeal. The story explains that many designers want to use red soled shoes and don’t think they should be excluded from doing so with one designer receiving a monopoly on that color. The story states:

“Everyone sees the flash of red and associates the red with Louboutin,” attorney Harley Lewin said Thursday about his client.
In fact, Louboutin’s red soles have graced many a red carpets, adorning the feet of celebrities Oprah Winfrey, Heidi Klum and Sarah Jessica Parker. …
In his decision Wednesday, U.S. District Judge Victor Marrero acknowleded that in choosing a red sole for his shoes, Louboutin had “departed from longstanding conventions and norms of his industry,” to create a product, “so eccentric and striking that it is easily perceived and remembered.”
However, Marrero went on to say that, “Louboutin’s claim to the ‘the color red’ is, without some limitation, overly broad and inconsistent with the scene of trademark registration.”
“This was a trademark that never should’ve been issued,” David Bernstein, attorney for the defendant, Yves Saint Laurent said. …
Judge Marrero’s decision drew parallels between painters and fashion designers, calling them both members of a creative industry where no one should be barred from using color to achieve their aesthetic. Doing so could, “interfere with creativity and stifle competition.”
Bernstein agrees. “No designer should be able to monopolize a color.” …
Lewin says his client “separated his shoes from everyone else’s by using a red sole.”
Lewin said he’s never had such an outpouring from his fellow attorneys, law professors and members of the fashion industry, telling him, “This [verdict] is an abomination. Tell your client to appeal.”

You can read the full story by clicking here.

SEC Opens New Whistle Blower Office

August 14, 2011 | Peter S. Lubin and James V. DiTommaso

The New York Times reports that the SEC has now opened for business its new whistblower office as required by the Dodd-Frank financial reform bill. The office will respond to consumer tips regarding securities fraud. If a consumer tip leads to a successful prosecution and recovery, the consumer and the federal goverment will benefit (and, securities fraud will be deterred). Under the whistle blower program, corporate insider tipsters could receive up to 30 percent of the money the SEC collects from the corporate wrong doer and its officers or directors. To qualify for the fraud tip bounty, an employee needs to provide new information that leads to successful enforcement achieving more than $1,000,000 in fines. The SEC will tap into the $450 million Investor Protection Fund to hand out the rewards. The S.E.C. says the program will help it save money as insider tipsters provide a road map to the financially strapped SEC investigators and attorneys.