Chicago Business Litigation Lawyer Blog

Appellate Court Holds Mechanics Lien Pursuant to an Oral Contract Valid Under Home Repair and Remodeling Act

July 5, 2011 | Peter S. Lubin and James V. DiTommaso

Many of us have had work done to our homes at some point, and sometimes difficulties arise during the course of such projects. DiTommaso Lubin is familiar with the legal issues that arise in such cases, and our lawyers are always concerned about protecting the rights of consumers. Universal Structures LTD v. Buchman is a case about a home improvement construction deal gone bad.

In Universal Structures LTD v. Buchman, Defendants contracted with Plaintiff to perform a series of demolition and remodeling projects at their home in Northfield, Illinois. The work was eventually completed and Defendants paid most of the amount billed by Plaintiff, but the payment left an outstanding balance of over $100,000. Plaintiff then recorded a mechanic’s lien for the unpaid amount and eventually filed a lawsuit to foreclose on the lien. Defendants successfully moved to dismiss the lawsuit because Plaintiff failed to present them with a written contract or work order to be signed and also did not present Defendants with a consumer rights brochure. The trial court dismissed Plaintiff’s suit because each of those failures constituted a violation of the Home Repair and Remodeling Act.

On appeal, the Court reviewed whether Plaintiff was “precluded from asserting a mechanic’s lien upon defendant’s property . . . when there was no signed contract or work orders and no delivery by plaintiff of the consumer rights brochure” as required by the Act. The Court found that Plaintiff had entered into a valid oral contract with Defendants and had tendered written, itemized work orders for approval before performing any work, which created a right to a mechanic’s lien. Furthermore, there is no language in the Act that that invalidates an oral agreement in the absence of a signed contract or failure to provide the consumer rights brochure. The Court pointed out that a contract is unenforceable under that Act only when the subject matter or purpose of the contract violated the law. As such, the Court reversed the lower court’s ruling and remanded the case for further proceedings.

Appellate Court of Illinois Upholds Discharge of Guaranty Contract on Discharge Grounds

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

Most businesses require loans to normalize their income stream and ensure that they have the cash necessary to operate. Some business owners enter into guaranty contracts to get the capital that they need, and in the process become personally liable for the debt of their company. In such instances, disputes often arise when the other party attempts to enforce the guaranty contract to collect on the debt. DiTommaso Lubin has been involved with contract disputes of all kinds, and our Elgin guaranty contract attorneys recently uncovered a case that illustrates why it is important to draft such contracts carefully and enforce them in a timely manner.

In Riley Acquisitions Inc. v. Drexler, Defendant and her husband initially entered into a guaranty contract and promissory note with a third party to get credit for the two companies owned by the couple. Eventually, the marriage dissolved, and each spouse took control of one of the companies. Defendant’s company dissolved shortly thereafter, and Defendant then sent a letter to the third party revoking her personal guaranty. Her ex-husband eventually filed for bankruptcy – discharging his liability under the guaranty in the process, and leaving Defendant as the only guarantor on the loan. The third-party who owned the debt eventually sold and assigned its interest to Plaintiff, who filed suit to collect on the loan. Defendant asserted affirmative defenses that her obligation under the note terminated after her company (the principal on the note) dissolved and that Plaintiff’s claims were barred under the applicable ten-year statute of limitations. Defendant won a directed verdict on the basis of her discharge and statute of limitations defenses, and Plaintiff appealed.

The Appellate Court found that because Defendant’s company dissolved, its obligation on the note terminated five years later under the applicable portion of the Illinois Business Corporation Act of 1983. This effectively terminated Defendant’s liability as well because the guaranty contract did not expressly provide that liability would continue in such a situation. Thus, because Plaintiff filed suit nine years after the dissolution of Defendant’s company, the Court upheld the trial court’s verdict on discharge grounds and did not address the statute of limitations issue.

Crain’s Chicago Business’s Expose and Investigative Report on the Problem of Wage Theft in the Chicago Area

June 19, 2011 | Peter S. Lubin and James V. DiTommaso

Crain’s Chicago Business published an insightful investigative report on the problem of wage theft in the Chicago area.

The article states:

The effects of wage theft bleed out further, robbing the local economy of consumer spending, says Mr. Theodore, the author of the UIC study. Low-income families are more likely to spend their paychecks quickly on goods and services. When they don’t receive their wages, retailers and other merchants lose out. Lost sales also mean lost sales tax revenues for state and local governments. Those same governments are called on to fill the gap when underpaid workers can’t make ends meet. A UIC study released in August found that a quarter of warehouse workers employed in Will County relied on government assistance to cover basic needs. The report concludes that paying low wages to temporary workers—if they’re paid at all—”effectively shifts the burden of supporting families to the public.”
This holiday season, like every year, religious organizations across the country will distribute turkeys and other food to needy families, says Kim Bobo, executive director of Interfaith Worker Justice, a national workers rights group based in Chicago. But if those workers received all their pay, many could buy their own turkeys. People argue that in a time of economic crisis, workers should just be grateful to have a job and that society should do nothing that might burden employers during a recession, Ms. Bobo says. But it’s exactly because times are hard that workers need all the wages they are owed.

You can read the full article by clicking here.

NPR Reports in Two Stories About New Orleans Judge Who Will Hear Gulf Spill Cases

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

Video — Luxury Used Car Dealer Arrested for Consumer Fraud

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

Northern District of Illinois Federal Court Dismisses Double Derivative Shareholder Action Due to Lack of Parent / Subsidiary Corporate Relationship

June 15, 2011 | Peter S. Lubin and James V. DiTommaso

Members of the board of directors of a corporation have the responsibility to orchestrate the business in such a way that is advantageous to the shareholders and the continued growth and prosperity of the company. However, there are times when those directors may act in a way that serves their own interests, and the only way to protect the business is for shareholders to file a derivative suit on behalf of the company. DiTommaso Lubin is always researching new developments in this field of law, and our Chicago shareholder derivative action attorneys recently came across one such case filed here in the Northern District of Illinois, Eastern District federal court.

Reiniche v. Martin is a double derivative suit brought by individual plaintiffs who are shareholders of a corporation, Health Alliance Holdings (HAH), that itself is a primary shareholder of HA Holdings (Holdings), another corporation. Plaintiffs allege that Defendants sought to freeze them and other HAH shareholders out through a series of illegal and wasteful acts that resulted in an insider transaction to sell Holdings for $10 and debt relief to another company in which Defendants had an interest. That transaction was approved by Holdings’ board of directors in spite of the fact that there was no quorum present to do so, and HAH was denied its right to sit on the board. In doing so, Plaintiffs alleged that the Defendant directors and other shareholders of Holdings breached their fiduciary duties to the company. Defendants then moved to dismiss the suit under Federal Rule of Civil Procedure 12(b)(6), claiming that Plaintiffs lacked standing, their claim was untimely, and the claims are insufficient under the law and barred by the business judgment rule.

The Court held that Plaintiffs did not have double derivative standing because such standing is only granted in the context of a parent/subsidiary relationship, and HAH was only a shareholder in Holdings – it was not a parent or holding company of Holdings. The Court went on to say that because the individual Defendant shareholders were each minority owners, none of them had a controlling interest in Holdings, and therefore did not owe a fiduciary duty to the Plaintiffs. As such, the Court found no policy reason for invoking a double derivative action and granted Defendants’ motions to dismiss.

Class Members Don’t Need Identical Claims to Maintain a Class-Action Under the FLSA

June 15, 2011 | Peter S. Lubin and James V. DiTommaso

Our lawyers are passionate about protecting the rights of workers and are constantly researching new wage and hour decisions rendered by the federal courts here in Illinois. Our Buffalo Grove overtime class-action attorneys recently discovered a case that impacts potential clients seeking to certify wage and hour class actions under the Federal Labor Standards Act (FLSA).

The Plaintiff in Russell v. Illinois Bell Telephone Co. worked at Defendant’s call center in Arlington Heights, Illinois for five years and was paid hourly wages, commissions, and bonuses. Plaintiff and the other purported class members all had scheduled shifts and lunch breaks, but allegedly were required to perform work tasks both before their shifts and during their lunch breaks. Plaintiffs were not paid for the work they performed pre-shift and during lunch breaks, and filed suit for their unpaid wages. The trial court then conditionally certified the class, and additional discovery commenced.

Through discovery, Plaintiffs learned that Defendant has a written policy that hourly employees must obtain permission from a supervisor before working overtime and any employee who works overtime must be compensated accordingly. Defendant’s Code of Business Conduct also explicitly states that “managers are prohibited from requiring nonexempt employees to work off the clock.” However, after deposing 24 individual Plaintiffs, the record showed that the majority of Plaintiffs had to spend time logging into their computer systems prior to the start of their shift because their supervisors had instructed them to be “open and available” at the start of their shift. To be “open and available,” Plaintiffs had to boot up their computers and get several applications up and running. This system start-up process took between three and twenty minutes to complete depending upon the individual computer.

In addition to the pre-shift issues, the record showed that Plaintiffs would often have to work a few minutes past the end of their shifts to finish handling calls already in progress. Because Defendant has a policy that any overtime worked in an amount less than eight minutes is not compensable and many of the post-shift calls are resolved in less than eight minutes after the end of their shift, Plaintiffs were not compensated for the overtime worked while finishing calls at the end of the day.

After more discovery and the deposition of thirty-nine individual Plaintiffs, Defendants moved to decertify the class based upon individual issues embedded in the case and the absence of a company-wide policy that violates the FLSA. The Court found that the class members shared enough of a factual and legal nexus that pursuing a class-action was proper through the use of subclasses where necessary. The Court went on to decertify the individual claims that did not fall into the enumerated subclasses of pre-shift overtime, post-shift overtime, and work performed while on lunch breaks. Finally, the Court stated that due to the large amount of discovery still to be performed, that they reserved the right to revisit the decertification issue should it become apparent that the case was unmanageable as a class-action.

Indiana District Court Certifies Class-Action Under FLSA for Untimely Overtime Payments

June 13, 2011 | Peter S. Lubin and James V. DiTommaso

Filing a lawsuit requires some legwork up front, but overall is a relatively painless process. Getting a class-action lawsuit certified by a federal court, however, is neither easy nor straightforward. DiTommaso Lubin focuses on getting major wage and hour lawsuits certified as class-actions and getting them resolved. Our Buffalo Grove overtime attorneys unearthed a federal case from the Northern District of Indiana regarding class certification that is of interest to both our present and future wage claim clients.

The dispute in Powers v. Centennial Communications Corp. arises out of claims for unpaid overtime and overtime adjustments for sales commissions for work performed by Plaintiffs in their capacity as a sales representatives for Defendant. Additionally, Plaintiffs claim that when they were paid commission-based overtime, the timing of those payments also violated federal law. The named Plaintiff filed suit as a result, and she alleged violations of the Indiana Wage Payment Satute and the federal Fair Labor Standards Act (FLSA), and sought to certify a class-action on the federal claim under FLSA.

The District Court found that, in spite of the fact that she was not paid owed overtime wages, Plaintiff failed to make FLSA’s required initial showing that she and her putative class members were “victims of a common policy or plan” to do so. Finding fault with the fact that Plaintiff had only shown that one person (the named Plaintiff) had not been paid correctly, the Court declined to certify the class as to the unpaid overtime claim, as it would “have the effect of turning every individual violation of the FLSA into a bulky collective action.”
The Court then turned to the unpaid commissions-bassed overtime claim and determined that it could proceed to the opt-in stage because Defendant had systematically deferred the commission-based payments pursuant to its stated Sales Compensation Plan. Because the applicable statutes allow only for a limited delay in the payment of overtime adjustment payments and Defendant had repeatedly waited weeks to make the required payments after they were earned, the case could proceed as a class-action.

New York Times reports: “Truck Dealers Win $2 Billion in Ford Suit”

June 12, 2011 | Peter S. Lubin and James V. DiTommaso

The New York Times reports that Ford truck dealers won a $2 billion class action judgment against Ford for failing to honor its dealership contracts to provide the same pricing for medium and heavy size trucks to all dealers.

The article states:

The ruling, by Judge Peter J. Corrigan, of the Cuyahoga County Common Pleas Court in Cleveland, said that Ford made the dealers pay a total of $800 million more than they should have for nearly 475,000 medium- and heavy-duty trucks, including tractor-trailers and bulldozers.

The damages include $1.2 billion in interest and were calculated based on the formula that was used by a jury in February to award $4.5 million to the lead plaintiff in the lawsuit, Westgate Ford in Youngstown, Ohio.

Judge Corrigan upheld the February ruling and added $6.7 million in interest to the jury’s award. “Ford’s breach of its obligation to sell Westgate trucks only at prices published to any dealer,” Judge Corrigan wrote in his ruling, shifted “any surplus in profit from Westgate to Ford.”

You can read the full article by clicking here.

NPR Reports “Courts Consider Blocking Massey Mine Merger”

June 11, 2011 | Peter S. Lubin and James V. DiTommaso

NPR reports:

Courts in West Virginia and Delaware will consider preliminary injunctions Tuesday against Wednesday’s expected merger of coal mine giants Massey Energy and Alpha Natural Resources.

Massey owns the Upper Big Branch mine in West Virginia where 29 mine workers died in a massive explosion last year. The disaster figures heavily into the attempts to block the merger by large institutional investors.

“The mine explosion last year was not some bolt of lightning hitting a corporate factory where there’s really nobody to blame,” says Mark Lebovitch, an attorney representing the New Jersey Building Laborers Pension Fund and other institutional Massey shareholders with a lawsuit pending in Delaware.

“What you had with Massey was a board and a senior management team that over the course of years put profits above safety,” Lebovitch contends. “[They] really showed contempt for anyone on the outside warning them, saying ‘You are running this business in a way that is dangerous and you are going to harm people, kill people and, frankly, destroy corporate value.'”
Massey’s stock price plummeted after the April 2010 explosion, generating strong interest in a takeover from several rivals. The company owns deposits of metallurgical coal used for making steel. Met coal, as it’s called, is in great demand and is fetching high prices.

Some shareholders had so-called “derivative” lawsuits pending against Massey long before the Upper Big Branch explosion. They cited lax safety oversight and won a court-ordered settlement requiring specific “corporate governance enhancements” designed to improve safety and restore the company’s value.

But the Upper Big Branch explosion prompted those shareholders to seek a contempt of court citation against the company. Their case is in West Virginia courts.

In both cases, the shareholders say the Massey board and company executives agreed to a takeover by Alpha Natural Resources to shield them from liability in the lawsuits. Massey and its board would cease to exist after a merger and the lawsuits would presumably become moot.

Alpha could continue the lawsuits but it benefited from the diminished value created by Massey’s poor safety record and the Upper Big Branch explosion. Alpha has also announced that it will fold into its new management team several Massey executives, including Chief Operating Officer Chris Adkins.

Adkins will assist in the integration of Alpha’s safety program, called Running Right, across the merged companies.

That makes it unlikely that Alpha will continue the shareholder claims after the merger, says Badge Humphries, an attorney representing the California State Teachers Retirement System and other institutional shareholders in the West Virginia lawsuit.

Humphries says he finds it difficult to believe that Alpha will make “a claim against their new co-head of safety asserting that he’s responsible for the Upper Big Branch disaster. It’s just not going to happen,” he says.

Also moving to Alpha if the merger is approved is Shane Harvey, Massey’s general counsel. Harvey, Humphries says, was responsible for making sure Massey met the terms of the safety settlement.

The suing shareholders want preliminary injunctions to block a planned merger vote among all Massey and Alpha shareholders Wednesday morning.

“Trying to undo a merger after it is closed is a difficult task,” Humphries adds. “The courts have compared it to unscrambling an egg.”

The West Virginia Supreme Court of Appeals will also consider Tuesday a request from NPR and the Charleston Gazette to unseal documents in the case in that state, which include depositions from Massey and Alpha executives.

Humphries suggests the sealed documents show that Massey agreed to the sale so that its board of directors and executives would be free of liability in the lawsuits. He declined to provide details given a confidentiality agreement that made the depositions possible.

The sealed depositions include statements from Massey executives who declined to testify in the joint state and federal investigations into the cause of the Upper Big Branch explosion.

“Certainly the public [and] shareholders have a right to know what impact the Upper Big Branch tragedy has on this proposed merger,” says attorney Sean McGinley, who represents NPR and the Charleston Gazette in the case.

Davitt McAteer led an independent investigation of the Upper Big Branch explosion and noted in the group’s final report two weeks ago that the failure of the Massey executives to testify keeps the probe from being complete.

“The fact that they failed to provide testimony made it more difficult for us to understand the thinking that was going on prior to and during the course of the disaster,” McAteer says. “The opening of the sealed transcripts and sealed depositions will be helpful to us to try to understand…the actions of [Massey] management.”

Massey Energy did not respond to an NPR request for comment for this story but has said it operated its mines safely. The company also blames the Upper Big Branch explosion on a natural, unpredictable and unpreventable infusion of explosive natural or methane gas. McAteer contests that in his report.

Massey asked the West Virginia Supreme Court to keep documents sealed at least until 5 p.m. EST Tuesday. That would leave little time for review by Massey and Alpha shareholders before they’re scheduled to vote on the merger at 9:30 am EST Wednesday morning.

A spokesman for Alpha Natural Resources says the company will not comment “while the litigation is playing out.” But Alpha has said in court documents that it believes Massey shareholders are getting a good price in the takeover. The company also insists its board will consider continuing the shareholders lawsuits.

In a hearing in the Delaware case last week, Judge Leo Strine referred to Massey stockholders as “the least sympathetic characters” in the case.

“Any investor who invested in Massey…knew the managerial culture it was buying into,” Strine said. “And knew that you had people who believed that their way of doing it was better than the people charged with enforcing the law.”

Strine unsealed some documents in the case last week. He may issue a ruling Tuesday. West Virginia’s Supreme Court considers Tuesday the shareholders’ request for an injunction and the request by NPR and the Charleston Gazette to unseal court records.