Chicago Business Litigation Lawyer Blog

AT&T Mobility v. Concepcion is Supreme Court Case Which Raises the Following Issue “Cell Phone Giant Rips Off Customers, Wants New Law Saying It’s OK.”

October 20, 2010 | Peter S. Lubin and James V. DiTommaso

Public Justice had the following to say about the briefing:

Would this headline surprise you? “Cell Phone Giant Rips Off Customers.” Maybe not. But what about this one? “Cell Phone Giant Rips Off Customers, Wants New Law Saying It’s OK.” That one might just catch your attention. I know it would mine.
Well, that second hypothetical headline is actually the premise of AT&T Mobility v. Concepcion, a hugely important case that will be argued before the Supreme Court in early November.
Yesterday, Public Justice Senior Attorney Paul Bland participated in a press briefing on this case at the National Press Club and sponsored by the American Constitution Society. Other panelists were Nina Pillard, law professor at Georgetown; Stephen Ware, law professor at the University of Kansas; and Alan Kaplinsky, a private attorney in Philadelphia who counsels financial institutions on how to shield themselves from liability.

At one point, about 38 minutes in, an audience member posted this to Twitter: “Paul Bland is on a TEAR at the AT&T Mobility v. Concepcion briefing. What passion for class actions!” This case has been under-the-radar for awhile now, but don’t be fooled: It actually has nothing to do with the minutiae of arbitration clauses like AT&T Mobility (AT&T) says it does. Really, it’s about banning class actions and taking away consumers’ rights.

First District Rules Creditor Has No Lien Rights on Payment of Unrelated Debt

October 19, 2010 | Peter S. Lubin and James V. DiTommaso

Our Chicago business attorneys were interested to see a decision sorting out how an individual creditor with a judgment in his favor may collect on the debt. In Tobias v. Lake Forest Partners LLC, No. 1-09-1054 (Ill. 1st June 22, 2010), Andrew Tobias lent $500,000 to Lake Forest Partners, a Nevada corporation. The company defaulted on the loan and Tobias won a judgment awarding him the loan principal, interest and attorney fees, against Lake Forest as well as three people who personally guaranteed the loan: Mark Weissman, Christopher French and Albert Montano. The judgment originally called for more than $668,000 to be paid to Tobias, but Tobias successfully moved to amend the judgment to call for $662,172.21 “plus costs,” possibly to account for post-judgment attorney fees, costs and interest.

Meanwhile, intervenor Greystone Business Credit II won a judgment against Weissman individually in Florida federal court. Both Greystone and Tobias sought to recover their judgments by discovering assets owned by Weissman and held by another company, MEA Management LLC. Tobias filed his request some months earlier than Greystone, and Greystone’s request was stayed. MEA had $339,444 belonging to Weissman. Tobias requested that MEA release enough to satisfy his judgment and Greystone intervened to point out that it also had an interest in the money. Tobias later petitioned for post-judgment attorney fees and costs. After entertaining out-of-court attempts to resolve this conflict, the court awarded $86,845.12 to satisfy the original judgment for Tobias, and $126,299.44 each to Weissman and Greystone. The petition by Tobias for post-judgment fees was not addressed.

Tobias appealed, arguing that the $86,845.12 award was not “full satisfaction” of his judgment, since the post-judgment attorney fees were not paid. He argued that his post-judgment attorney fees claim should have been given the same priority as the rest of the judgment, meaning priority over any other party, including Greystone. Not surprisingly, Greystone disagreed, arguing that the post-judgment attorney fees had never been reduced to a judgment and could therefore not be enforced in this situation. The First District Court of Appeal agreed with Greystone. Under sec. 2-1402 of the Illinois Code of Civil Procedure, a judgment creditor may discover assets held by a third party for the debtor. But Supreme Court Rule 277 says these proceedings “may be commenced at any time with respect to a judgment which is subject to enforcement.” Under Bank of
Matteson v. Brown, 283 Ill. App. 3d 599, 602, 669 N.E.2d 1351 (1996), the First said, that means credits cannot discover assets until a judgment has been entered.

The First rejected the argument from Tobias that his post-judgment claim should have the same priority as the underlying claim because it is ancillary to the underlying debt. Because of Supreme Court Rule 277, the court wrote, no claim can achieve lien status until there is a judgment. The judgment in favor of Tobias never included post-judgment attorney fees, the court wrote. If he later obtains one, it would be prioritized behind earlier judgments, including Greystone’s. For those reasons, the First found that the trial court’s order was proper and affirmed its decision.

Fifth District Enforces Mortgage Company Arbitration Agreement Except as to Class Actions

October 13, 2010 | Peter S. Lubin and James V. DiTommaso

Our Chicago alternative dispute resolution lawyers noted a recent Fifth District Court of Appeal ruling upholding an arbitration agreement but severing its class-action waiver. In Keefe v. Allied Home Mortgage Corporation, No. 5-07-0463 (Ill. 5th 2009) (PDF), Rosemary Keefe was the lead plaintiff in a proposed class action against her mortgage broker. She refinanced through Allied Home Mortgage Capital Corp. in 1999, and as part of that deal, she signed a rider requiring binding arbitration of most disputes. Five years later, she filed a proposed class action against Allied, accusing it of consumer fraud and other torts for charging third-party fees (such as credit check fees) in excess of their actual cost and failing to disclose this. Allied moved to compel arbitration. Without an evidentiary hearing, the trial court ruled that the arbitration agreement was illusory and procedurally and substantively unconscionable, and Allied filed an interlocutory appeal.

The Fifth District started by examining de novo whether the agreement was indeed illusory. An illusory promise is something that appears to be a promise but holds out no performance, or only an optional performance. The Fifth found that it was not illusory, because the arbitration rider specified that the borrower may request arbitration in any judicial proceeding started by Allied. Furthermore, it noted, the rest of the contract may be considered part of the consideration granted to the plaintiff.

It next looked at the finding that the agreement was both procedurally and substantively unconscionable. A contract is procedurally unconscionable when some impropriety during the signing of the contract — such as language that is difficult to find or understand — robs the signer of a reasonable choice. That was not the case here, the court said. The arbitration rider was not hidden by fine print, it wrote, nor was it difficult to read or understand. Rather, the arbitration rider “conspicuously” used bold capital letters to notify the plaintiff that she was signing a contract that gave away her right to a jury trial. Nor did she need to sign it to obtain the refinancing.

The court also rejected the plaintiff’s argument that the rider was unconscionable because it failed to notify her of the cost of arbitration. The Fifth noted that the arbitration rider did contain a provision notifying the plaintiff that she can get copies of rules and forms related to arbitration at any National Arbitration Forum office or by mail order. Under Kinkel v. Cingular Wireless LLC, 223 Ill. 2d 1, 22, 857 N.E.2d 250, 264 (2006), this is not enough by itself to render the contract unconscionable, the court wrote, but it may be considered along with findings on substantive unconscionability.

Finally, the Fifth looked at whether the arbitration rider was substantively unconscionable. A contract is substantively unconscionable when the contract terms are unfair, one-sided or create a large imbalance between price and cost. The plaintiff first argued that the rider is cost-prohibitive because it specifies that no claim may be brought by class action. The Fifth found some merit in this. In Kinkel, the Illinois Supreme Court found that class-action waivers are not per se unconscionable, but courts should look at their fairness as well as the cost of bringing an individual claim relative to the damages. Once again following that decision, the Fifth found the cost of pursuing an individual claim was high relative to the potential damages, especially including arbitration and attorney fees. Taking into account Allied’s failure to reveal the cost of arbitration, the court ruled that the class-action waiver was unconscionable. But rather than declare the entire contract unconscionable, the court simply severed the class-action clause, reversed the rest of the trial court’s decision and remanded the case with directions to enforce the remainder.

PR Newswire Reports: “Proposed Settlement in Class Action Suit Against Audi, Volkswagen Wins Judge’s Approval”

October 9, 2010 | Peter S. Lubin and James V. DiTommaso

Proposed Settlement in Class Action Suit Against Audi, Volkswagen Wins Judge’s Approval

The article states:

Volkswagen and Audi have agreed to pay sludge-related maintenance costs for nearly 480,000 vehicles as part of a proposed settlement conditionally approved in federal court. The order filed Thursday, September 23, 2010 by Judge Joseph L. Tauro in Boston, defined the group, or “class,” that can benefit from the settlement as all current and former owners and lessees of Audi’s A4 (model year 1997-2004) and Volkswagen’s Passat (model year 1998-2004) that were equipped with a 1.8 liter turbo engine.

Penalty Under Landlord Tenant Ordinance Is Statutory, Illinois Supreme Court Finds

October 6, 2010 | Peter S. Lubin and James V. DiTommaso

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.

Developer’s Lawsuit Accuses Grocery Chain of Using ‘Dirty Tricks’ to Keep Wal-Mart Out of Town

September 30, 2010 | Peter S. Lubin and James V. DiTommaso

Our Illinois business and commercial emergency attorneys were interested to read an article about a lawsuit suggesting corporate “dirty tricks” by the parent company of the Jewel-Osco chain of grocery stores. Rubloff Development Group Inc., a commercial real estate developer, made that accusation in a lawsuit filed in Chicago federal court in June. According to the Chicago Tribune’s Chicago Breaking Business blog, Rubloff believes Jewel-Osco hired Saint Consulting, a Massachusetts company, in secret to “harass and interfere” with a shopping center Rubloff was trying to develop in Munedelin, Ill., with a Wal-Mart as its “anchor.” Rubloff and other developers are seeking a declaratory judgment that documents in its possession do not contain confidential trade secrets belonging to Saint, as Saint has alleged.

According to Rubloff’s complaint (PDF), file in late June, Rubloff has documents it believes show that Jewel-Osco “secretly retained” Saint to delay or stop development of shopping centers slated to contain Wal-Mart stores, which might compete with Jewel-Osco. The complaint alleges that Saint is responsible for “false statements and sham litigation” against several of the plaintiffs’ developments, particularly the one in Mundelin. Sometimes, this was enough to make the Wal-Mart pull out, causing tens of millions of dollars in costs to the developers, it says. Rubloff claims it sent SuperValu a letter in early May with these accusations. Although that letter did not name Saint and was not sent to Saint, the complaint said, Saint responded a week later with a threat to sue Rubloff for “wrongful possession of … confidential, proprietary business information.”
Rubloff and its co-plaintiffs responded with this lawsuit. In it, they ask the court for a declaratory judgment that the information at issue is not privileged, confidential or trade secrets. They also ask the court to enjoin the defendants from spoiling any evidence, something they claim the defendants do routinely, and request damages for any evidence already spoiled. If permitted to submit the controversial information to the court under seal, they say they can raise claims of racketeering, tortious interference with business opportunities, fraud, antitrust claims and more, with tens of millions in potential damages.

As Chicago business emergency lawyers, we believe a declaratory judgment is a smart way for Rubloff and the other plaintiffs to strike first and avoid potentially damaging litigation in Massachusetts. A declaratory judgment is a court order declaring the legal relationships and obligations between the parties. In this case, it is likely to be a judgment declaring whether the documents at issue are trade secrets that deserve protection under Illinois law. If Saint is bluffing about this, filing for a declaratory judgment allows Rubloff to establish that fact without fighting a frivolous lawsuit, and in its own home court rather than halfway across the United States. A declaratory judgment in Rubloff’s favor would also allow the developer to go forward with its own business lawsuit against Saint and Jewel-Osco.

Illinois Securities Law Statute of Limitation Does Not Apply to Breach of Fiduciary Duty Claim

September 28, 2010 | Peter S. Lubin and James V. DiTommaso

Our Chicago business litigation lawyers were interested in a recent decision from the First District Court of Appeal. Carpenter et al. v. Exelon Enterprises Company, No. 1-09-1222 (Ill. 1st March 18, 2010) posed a certified question to the court: Does the three-year statute of limitations established by the Illinois Securities Law apply to a claim that a majority shareholder breached its fiduciary duty to minority shareholders? In this case, the First decided that it does not, allowing Timothy Carpenter and seven co-plaintiffs to pursue a claim under a more generous five-year statute of limitations under the Illinois Code of Civil Procedure. Their victory in this interlocutory appeal allows them to continue their claim at the trial court level.

The plaintiffs all held minority shares of InfraSource, Inc., a Delaware corporation. The majority shareholder at 97% was Exelon, a Pennsylvania corporation. In 2003, Exelon created a new company for the purpose of divesting its interest in InfraSource, which allowed it to merge InfraSource with the new company. The resulting corporation sold some of its (formerly InfraSource’s) assets and business units to Exelon and others to GFI Energy Ventures, an independent third party. InfraSource would continue as a company, but the former minority shareholders were paid a pro-rated share of the proceeds. In 2007, the plaintiffs sued Exelon, alleging that it abused its power as majority shareholder. They accused Exelon of structuring the transaction in a way that did not adequately compensate them for the market value of their shares.

A second amended complaint said Exelon sold itself the InfraSource assets at an artificially low price and awarded itself preferred stock. It alleged causes of action for breach of fiduciary duty, civil conspiracy, and, against Exelon’s parent company, aiding and abetting those actions. Exelon moved to dismiss the second complaint based on the three-year statute of limitations in the Illinois Securities Law. The trial court denied this, finding that the five-year statute of limitations applied. However, it stayed further proceedings until the instant interlocutory appeal had been decided, answering the question of which statute of limitations is correct.

The First District started its analysis by examining the statue of limitations portion of the Illinois Securities Law. That language says plaintiffs have three years from the date of the relevant sale to bring claims under the Act, or on matters for which the Act grants relief. Plaintiffs specifically stated their claim under Delaware law in order to distance themselves from this statute of limitations, but Exelon argued that the statute still applies under the language allowing its use for matters for which the Act grants relief, and cited two cases in support. The plaintiffs countered that Illinois courts found that because the Act is modeled after federal securities laws, courts should look at how those laws are interpreted for guidance in interpreting the Act. Tirapelli v. Advanced Equities, Inc., 351 Ill. App. 3d 450, 455 (2004).

The First rejected both lines of case law, saying that the decision “actually depends on the resolution of a straightforward and fundamental question of statutory construction.” The relevant portion of the Illinois Securities Law gives any party in interest the right to bring legal action to enforce compliance or stop a violation. Exelon relies on that language to place the plaintiffs’ complaint under the Act, the court wrote, but incorrectly. When the Legislature added this language to the Act, it explicitly said it was trying to give Illinois security holders the right to stop illegal acts. It included the right to sue for rescission, the court said, but only to enforce the remedy the law provides. In fact, Guy v. Duff & Phelps, Inc., 628 F. Supp. 252 (N.D. Ill. 1985) explicitly examined whether the law gives a retrospective right of rescission to securities sellers and concluded that it should not be interpreted that way.

The First agreed, saying another reading would make other sections of the law irrelevant. It then dismissed arguments based on the Seventh Circuit’s finding in Klein v. George G. Kerasotes Corp., 500 F.3d 669 (7th Cir. 2007), saying the arguments that led to its contradictory conclusion did not apply, for all of the reasons discussed above. Because there is no retrospective right of rescission in the Act, the First said, the plaintiffs are not seeking relief on any matter for which the Act grants relief. Nor, as noted earlier, are they seeking relief under the Act itself. For that reason, the three-year statute of limitations provided by the Act does not apply, the court concluded. It answered the certified question posed by the trial court in the negative, essentially upholding that court’s decision, and remanded it for further proceedings.

Court Rules Illinois Courts Should Hear Contract Dispute Despite Case in New York

September 28, 2010 | Peter S. Lubin and James V. DiTommaso

Our Chicago business attorneys were interested to note a ruling establishing that an Illinois venue is correct in a case of dueling lawsuits between companies working in Illinois and New York. In Whittmanhart, Inc. v. CA, Inc. and Niku LLC, No. 1-09-3136 (Ill. 1st June 22, 2010), Whittmanhart bought software from CA and its wholly owned subsidiary, Niku, in 2006 and entered into an end-user license agreement. They later entered into a statement of work saying CA employees would help Whittmanhart implement and develop the software, in exchange for an hourly fee and expenses. CA invoiced Whittmanhart several times during the project, but claims no invoices were ever paid. Whittmanhart claims CA and Niku breached their own contract by failing to deliver a fully functioning software system by a specified date and failing to invoice monthly, as specified.

CA and Niku sued Whittmanhart in New York federal court Nov. 12, 2008 for breach of contract and account stated. They sought payment of the invoices, plus attorney fees and court costs. In December of that year, Whittmanhart told the court it would move to dismiss for lack of federal diversity jurisdiction, as all three companies are Delaware citizens. On the same day, CA and Niku filed a claim in New York state court. Two hours later, they voluntarily dismissed the federal case. About 40 minutes later, but in a different time zone, Whittmanhart filed a lawsuit against CA and Niku in Cook County trial court, creating dueling lawsuits. That claim asks for financial damages, attorney fees and court costs and a declaratory judgment that it did not owe further money to CA and Niku.

Whittmanhart did not answer the New York state complaint and CA moved for default judgment. Whittmanhart then argued that it had not been properly served and successfully moved to dismiss. CA then filed an identical claim in New York state court, which Whittmanhart moved to dismiss on the grounds that the Illinois action was pending and on forum non conveniens. This was denied. CA later moved to dismiss the Illinois action on the grounds that New York was considering the same claim, and this motion was granted. Whittmanhart appealed to the First District Court of Appeal.

In its analysis, the First started by dismissing arguments made by CA and Niku based on things that happened after the trial court made its decision. The court then acknowledged that the lawsuits in both states had identical parties and were based on the same contracts — the statement of work and end-user license agreement. Those contracts were written with reference to other states’ laws. But this by itself was not enough to dismiss the claim, the court said; courts may still allow parallel claims to go forward according to their judgment. “Illinois is clearly the more logical forum for this dispute,” the First wrote, noting that much of the disputed work took place in Cook County and that the Illinois action was the first properly filed claim.

Furthermore, Whittmanhart’s Illinois action has a claim for monetary damages that was not made in New York, the court noted, meaning there was a better chance of complete resolution in Illinois. And if Whittmanhart were to file a counterclaim in New York, it could proceed independently of a decision in favor of CA. That means res judicata would not completely bar the Illinois action. For those reasons, the First found that the trial court had abused its discretion. It reversed the decision and remanded the case to Cook County trial court.

Law.com reports: “3rd Circuit Overturns 8-Figure Settlement in Lending Class Action — Again”

September 23, 2010 | Peter S. Lubin and James V. DiTommaso

3rd Circuit Overturns 8-Figure Settlement in Lending Class Action — Again
By Shannon P. Duffy
Law.com reports:

For the second time, a federal appeals court has overturned an eight-figure settlement in a class action predatory lending suit on the grounds that the trial judge failed to follow the rigorous and precise steps involved in certifying a settlement class.

In its 100-page opinion in In re Community Bank of Northern Virginia, a unanimous, three-judge panel of the 3rd U.S. Circuit Court of Appeals overturned a $47.6 million settlement on the grounds that the trial judge applied the wrong legal standard in ruling on class certification.

The ruling is a stunning second setback for both the plaintiffs and the defendants whose prior settlement of $33 million was overturned by the 3rd Circuit in 2005. It’s a coup for a coalition of objectors, represented by lawyers from Alabama, North Carolina, Missouri, Maryland and Georgia, who have now succeeded twice in blocking settlements of claims they say are worth more than $3 billion.

You can read the full article here.