A little-noticed U.S. Supreme Court decision from this year will have an important effect on the work of our Illinois wage and hour class action lawyers. In Hertz Corp. v. Friend et al., No. 08-1107, __ S. Ct. __ (Feb. 23, 2010), the court ruled that the “principal place of business” test for a corporation’s citizenship refers to the place where the corporation’s high-level officers direct, control and coordinate its activities. This clarifies the law and resolves a number of discrepancies among lower courts around the country. It also overturns a Ninth U.S. Circuit Court of Appeals decision denying that federal courts have diversity jurisdiction in a proposed class-action wage-and-hour case brought by employees of Hertz Corporation.

Melinda Friend and John Nhieu sued Hertz Corp. for alleged violations of California state wage laws, and sought to certify a class of California plaintiffs with similar grievances. Hertz sought to remove the case to federal court under the Class Action Fairness Act, which allows cases to be moved when they have diverse citizenship and a dispute of more than $5 million. The plaintiffs argued that Hertz was a California citizen under Ninth Circuit precedent, which held that corporations’ “principal place of business” is where their business activity is “significantly larger” or “substantially predominates.” For Hertz, they argued, that was California because the company had the most offices and business there.

Hertz, which is incorporated in Delaware, argued that its “principal place of business” was New Jersey, where its corporate headquarters is found. It conceded that it had more offices in California than in any other state, but pointed out that California is just one of 44 states where it operates and accounts for far less than 50% of its revenue, rentals, employees or locations. Nonetheless, the district court followed Ninth Circuit precedent and sent the case back to state court. Hertz appealed, but the Ninth Circuit affirmed the ruling. The Supreme Court granted certiorari.

Writing for the majority, Justice Breyer started by dismissing a jurisdictional argument raised by the plaintiffs, who claimed that the Supreme Court’s jurisdiction was improper because the law allowing Hertz to appeal a remand order mentions only courts of appeal. However, other federal statutes give the court authority, the opinion said, and “We normally do not read statutory silence as implicitly modifying or limiting Supreme Court jurisdiction that another statute specifically grants.”
Turning to the meat of the case, the justices noted that the “principal place of business” language arose in response to an overload of diversity cases in federal court, as well as concerns about abuses of diversity jurisdiction. To resolve that, Congress allowed corporations to claim citizenship where they are incorporated, “and of the State where it has its principal place of business.” But this has been difficult to apply, the opinion said, resulting in splits across the circuits. To resolve it, the justices reviewed the appeals courts’ interpretations and chose a popular “nerve center” test that assigns citizenship according to where the corporation’s business is directed and controlled, as applied in cases like Wisconsin Knife Works v. National Metal Crafters, 781 F. 2d 1280, 1282 (CA7 1986).

The justices wrote that the “nerve center” will typically but not always be a headquarters, where officers and directors do business and where the public recognizes the company to be based. This helps avoid some of the flaws of approaches like the Ninth Circuit’s, they wrote, which sometimes confuse the company’s presence in a state with the state itself. For example, a rule that measures the amount of business activity in the state could grant California citizenship to many corporations, simply because California is the largest state by population. It is also a simple rule, which benefits the courts as well as corporations. This may occasionally produce odd situations, the opinion noted, as when directors and officers are housed in a different state from that where the bulk of actual business takes place. But this is a price of simplicity. Given that rule, the justices wrote, Hertz is entitled to diversity jurisdiction because it is uncontested that its “nerve center” is in New Jersey, not California. It vacated the Ninth Circuit’s ruling and returned the case to trial court.

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The online magazine of the Association of Certified Fraud Examiners is a great resouce for tips on uncovering the varying forms of business fraud. You can click here to view it.

A recent issue of the magazine had a very informative article about how certain types of documents are susceptible to employee forgies and other frauds . The article had this to say about fax invoices:

FACSIMILE DOCUMENTS

DiTommaso Lubin’s Chicago business trial lawyers have more than two and half decades of experience helping business clients on unraveling complex business fraud and breach of fiduciary duty cases. We work with skilled forensic accountants and certified fraud examiners to help recover monies missappropriated from our clients. Our Chicago business, commercial, and class-action litigation lawyers represent individuals, family businesses and enterprises of all sizes in a variety of legal disputes, including disputes among partners and shareholders as well as lawsuits between businesses and and consumer rights, auto fraud, and wage claim individual and class action cases. In every case, our goal is to resolve disputes as quickly and sucessfully as possible, helping business clients protect their investements and get back to business as usual. From offices in Oak Brook, near Wuakegan, Aurora, Highland Park, Wilmette, Elmhurst, and Chicago, we serve clients throughout Illinois and the Midwest.

If you’re facing a business or class-action lawsuit, or the possibility of one, and you’d like to discuss how the experienced Illinois business dispute attorneys at DiTommaso Lubin can help, we would like to hear from you. To set up a consultation with one of our Chicago, Joliet, Waukegan, Wheaton, or Naperville business trial attorneys and class action and consumer trial lawyers, please call us toll-free at 630-333-0333 or contact us through the Internet.

A very informative video prepared by Canadian accountants describing issues relating to business fraud and the types of fraud businesses face and how such frauds can be prevented.

DiTommaso Lubin’s Chicago business trial lawyers have more than two and half decades of experience helping business clients on unraveling complex business fraud and breach of fiduciary duty cases. We work with skilled forensic accountants and certified fraud examiners to help recover monies missappropriated from our clients. Our Chicago business, commercial, and class-action litigation lawyers represent individuals, family businesses and enterprises of all sizes in a variety of legal disputes, including disputes among partners and shareholders as well as lawsuits between businesses and and consumer rights, auto fraud, and wage claim individual and class action cases. In every case, our goal is to resolve disputes as quickly and sucessfully as possible, helping business clients protect their investements and get back to business as usual. From offices in Oak Brook, near Wheaton, Naperville, Evanston, and Chicago, we serve clients throughout Illinois and the Midwest.

If you’re facing a business or class-action lawsuit, or the possibility of one, and you’d like to discuss how the experienced Illinois business dispute attorneys at DiTommaso Lubin can help, we would like to hear from you. To set up a consultation with one of our Chicago, Joliet, Waukegan, Wheaton, or Naperville business trial attorneys and class action and consumer trial lawyers, please call us toll-free at 630-333-0333 or contact us through the Internet.

 

In a wage-and-hour class action, the Illinois Second District Court of Appeal reversed all parts of a Kane County trial court’s ruling denying class certification. Our Chicago unpaid overtime lawyers were interested to read the ruling in Cruz et al v. Unilock Chicago, Inc., 383 Ill.App.3d 752, 892 N.E.2d 78, 322 Ill.Dec. 831 (2008), because it helped establish that trial courts may go beyond the complaint to determine class certification — but reminded them that they should not determine class certification on the merits of the case.

Wilfredo Cruz and the four other lead plaintiffs worked at Unilock Chicago’s Aurora manufacturing plant, which makes cement paving “stones.” They were hourly employees with a half-hour lunch break. In their complaint, the plaintiffs said they were required to be at their stations 10-15 minutes before work started, in uniform, to discuss anything the previous shift needed them to know. This required employees to show up 15-30 minutes early to change and get to their stations. Similarly, they say they were required to wait for the next shift to arrive before leaving, brief that shift, clean up and change. They say they punched in for these times, but Unilock had an automatic system that deducted up to 30 minutes before a shift and 15 minutes afterward, in order to meet the company’s labor budget. Furthermore, they claim that Unilock automatically deducted the 30-minute lunch break from their time records, then regularly required them to cut short or work through lunch. If necessary, these deletions would be backed up by a manual edit by the plant’s manager, who removed time before or shifts that went past the 30- or 15-minute defaults.

Unilock disputes much of this. It concedes that time records were manually edited, but said this was necessary because workers forgot to punch in or out, and that edits were confirmed with shift supervisors. This actually added time, it argued. Nonetheless, the plaintiffs sued, claiming that all of these practices resulted in underpayment of both regular time and overtime. Citing violations of the Illinois Wage Payment and Collection Act and the Minimum Wage Law, they moved to certify a class of more than 300 current and former hourly employees who had worked at Unilock’s Aurora plant since June of 1999. The trial court denied this motion for class certification, saying that plaintiffs had failed to meet any of the four standards for class certification. Plaintiffs appealed, arguing that the trial court improperly made findings of fact and rulings that assessed the merit of the claims themselves, rather than of the class certification request.

The Second District agreed. It started its analysis by refereeing the parties’ disagreement about whether courts may consider facts and allegations beyond the complaint in order to determine class certification. After a review of caselaw, the court decided that they can, relying in part on Szabo v. Bridgeport Machines, Inc., 249 F.3d 672 (7th Cir.2001). However, it was careful to say that courts should look into whether the plaintiff’s claim would satisfy the requirements for class certification, not the merits of the claim itself.

The Third next agreed with plaintiffs that the trial court had impermissibly decided several class certification issues on the merits of the case. For example, the trial court relied on depositions and pleadings when it determined that nobody had lost pay because employees who arrived early were permitted to leave early, “accept[ing] as conclusive the defendant’s evidence.” This and other examples are factual determinations that should not be determined at the class certification stage, the appeals court said. Many applied to the numerosity requirement of class certification. Not only were the trial court’s reasons for ruling on numerosity improper, the appeals court said, but evidence submitted by plaintiffs shows that 80 to 90 employees did not receive overtime, and defendants offered nothing in support of their assertion that this evidence was manipulated. For that and other reasons, the appeals court found sufficient evidence that the proposed class met the numerosity requirement.

It then addressed the requirement that class members have common questions to decide, which predominate over other issues in their cases. Again, it found that the trial court was incorrect in determining that these issues didn’t exist. The trial court wrote that there was no commonality or predominance because there was no evidence supporting the plaintiffs’ contentions about widespread unfair policies or time record manipulation. The plaintiffs argued that these conclusions ignored evidence or improperly reached the merits of the claim, and the appeals court agreed. The existence of disputed policies like requirements to work through lunch or editing time records is a common question, the appeals court said, regardless of how strong the evidence for it is at the pretrial stage. It would also be a predominant issue if the trial court determines that there was such a policy — which is a question for the merits of the claim, the court noted.

Finally, the appeals court rejected the trial court’s determination that the class representatives are inadequate because plaintiff Cruz had been a low-level supervisor. The trial court incorrectly relied on caselaw that isn’t sufficiently similar, the appeals court wrote, to determine that a supervisor cannot represent a class including the supervised. When the supervisor’s interests are the same as those of the supervisees and he or she did not participate in the alleged wrongdoing, it is inappropriate to deny his or her adequacy. Jefferson v. Windy City Maintenance, Inc., No. 96-C-7686, 1998 WL 474115 (N.D.Ill. August 4, 1998). Furthermore, if evidence implicating Cruz arises in discovery, the appeals court said, he can be discharged without discharging all the representatives. Thus, it reversed the trial court on all counts and remanded the case to Kane County circuit court with instructions to certify the class.

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Our Chicago covenant not to compete lawyers wrote a blog post last autumn about an interesting case from the Illinois Fourth District Court of Appeal. In Sunbelt Rentals v. Ehlers, No. 4-09-0290 (Ill. 4th Sept. 23, 2009), the appeals court rejected the “legitimate business interests” test used by Illinois courts to determine whether a contract’s non-compete clause is enforceable against a former employee. It said the test had never been valid, particularly in light of Mohanty v. St. John Heart Clinic, S.C., 225 Ill. 2d 52, 866 N.E.2d 85 (2006). This was a departure from previous rulings and created a split with other state appeals courts, but has not yet been challenged in the Illinois Supreme Court. However, the U.S. District Court for the Northern District of Illinois rejected the Fourth District’s reasoning in a December decision.

In Aspen Marketing Services, Inc. v. Russell and Eventnext Marketing, Inc., 2009 WL 4674061 (N.D. Ill. Dec. 3, 2009), defendant Yvon Russell and his new business, Eventnext, were sued by Russell’s former employer, Aspen. Russell had formerly been Group President for Aspen, after it bought a previous marketing company of his. When that purchase took place, Russell signed a contract with non-compete, non-solicitation and non-disclosure covenants. It barred Russell from disclosing any non-public information about Aspen, ever; soliciting Aspen clients, former clients or prospects for a year and a half after leaving; and competing with the company in any business for six months after leaving.

Russell was terminated on June 27, 2007, and started Eventnext on November 27, 2007. Aspen sued, claiming Russell successfully solicited at least one Aspen client shortly afterward. In federal district court, Russell moved to dismiss all counts, saying the restrictive covenants were overly broad and thus unenforceable. In particular, he argued that the geographic limit of the non-compete clause was overbroad because it covered the entire United States. The court found that this was not unreasonable in scope, given the nationwide nature of Aspen’s business.

It went on to consider the second half of the Illinois test of enforceability of covenants not to compete: whether the restriction serves a legitimate business interest. In a footnote, the court acknowledged the Sunbelt ruling, but said it was not binding because it had not been taken up by the Illinois Supreme Court, the Seventh Circuit or the federal district court. Aspen alleged that Russell had “near exclusive” knowledge of its business, had confidential information and used it in Eventnext. Taking those assertions as true, the district court concluded that the geographic scope was reasonable. It also rejected an argument about scope of competition barred, noting that the clause barred all competition for only six months. For those reasons, Russell’s motion to dismiss on that count was denied. The court also rejected several other motions, though it granted one as to tortious interference. The case continues.

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Our Illinois trade secrets attorneys were pleased to see an evenhanded ruling handed down by the Second District Court of Appeal. In Stenstrom Petroleum Services Group, Inc. v. Mesch, No. 2-07-0504 (Ill. 2nd Sept.7, 2007), Stenstrom sued former employee Robert Mesch for breach of a noncompete clause, breach of fiduciary duty and violations of the Illinois Trade Secrets Act. The case arises out of Mesch’s decision to leave Stenstrom and join Precision Petroleum Installation Inc., a competitor with nearly the same name as a company that Stenstrom bought. The trial court granted Stenstrom a preliminary injunction on its breach of contract claim, but denied injunctions on the other claims.

Mesch had worked in the petroleum industry since 1974, eventually becoming a project manager and salesman. Stenstrom installs, maintains and repairs petroleum equipment, such as tanks, pumps and electronics. Mesch had been working for Precision Petroleum Inc. when Stenstrom bought it in 2003. Mesch was hired during the acquisition to do the same work, and signed noncompete and confidentiality agreements. The noncompete agreement restricted Mesch from working in excavation or equipment repair in Winnebago and Boone counties for six months after his employment ended. When estimating and making bids for Stenstrom, Mesch testified that he used a crude spreadsheet inherited from his old company, rather than the estimating software other project managers at Stenstrom used.

In December of 2006, Mesch left Stenstrom and joined Precision Petroleum Installation Inc., a new company at which he had the opportunity to earn a share of profits as well as a salary. He acknowledged that PPI has bid on and discussed jobs only for Stenstrom customers, and its one client as of the hearing was a Stenstrom customer. He testified that he uses the same Excel spreadsheet and other Stenstrom data to estimate bids for PPI, but said purchasing differences between the companies mean he uses different information to calculate the bids. He also said PPI does not do excavation or repair work, relying on subcontractors. He acknowledged copying Stenstrom’s files for PPI’s use while he was at Stenstrom, but destroyed some data and handed over other data as part of the case. It would not be difficult to recreate the spreadsheet from memory, he said, because he created it, had Stenstrom discounts committed to memory and could get manufacturer prices from public knowledge.

Stenstrom president David Sockness testified at trial that the Excel spreadsheet was acquired in the 2003 purchase, is full of valuable Stenstrom information and is being used by other project managers. He said PPI had bidded on work for some of its best clients, but acknowledged that there was no exclusive agreement with several of these clients and that some take competitive bids. Stenstrom IT manager Brian Cotti testified that records show Mesch tried unsuccessfully to print a bidding report to which he did not have access. Two clients testified that their lengthy relationships with Mesch influenced their bidding decisions. At the conclusion of all of this, the trial court issued a preliminary injunction to enforce the noncompete covenant Mesch had signed until the end of the six-month period, saying it was reasonable. However, it found on the other counts that Stenstrom had failed to show it was likely to win at trial or that there was no other legal remedy available. Stenstrom and Mesch both appealed.

The Second District started by rejecting Stenstrom’s argument that the six-month restrictive covenant should have been calculated from the date Mesch ceased breaching it. The court flatly rejected this, saying the contract’s language clearly pegged the period from the day Mesch left his job at Stenstrom. It also rejected Stenstrom’s claim that it should have received a preliminary injunction based on Trade Secrets Act violations. This is based on the Excel spreadsheet Mesch used to create bids at Stenstrom and later at PPI, which Stenstrom said were full of protectable information and the result of significant investment. However, the appeals court said, Stenstrom failed to rebut Mesch’s testimony that the spreadsheet was based on publicly available information and memory, so it failed to raise a fair question about whether the information was secret enough to qualify as a trade secret.

Next, Stenstrom argued that the trial court should have granted an injunction against Mesch based on his alleged breach of fiduciary duty, a claim it said it made to avoid Stenstrom’s solicitation of its customers. Mesch was working for PPI when he copied Stenstrom’s files, the company said, and used it for PPI’s benefit. However, the Second District wrote, much of Stenstrom’s argument on breach of fiduciary duty rests on its Trade Secrets Act claim. That issue was settled above, the court said. Furthermore, Stenstrom waived its breach of fiduciary duty claim by failing to argue it clearly, the court said.

Finally, the court rejected Mesch’s argument that the trial court should have entered no preliminary injunction at all on the breach of restrictive covenant claim. Mesch is wrong to argue that the enforcement of the restrictive covenant will affect the independent Trade Secrets Act and breach of fiduciary duty claims, the court wrote. But in any case, it said, the issue is moot because the preliminary injunction period ended before the case came to the Second District. And thanks to the court’s decision on Stenstrom’s argument to change the period when the restrictive covenant applies, there’s no need to consider it. Thus, all of the trial court’s decisions were affirmed.

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DiTommaso Lubin is a litigation firm with many local clients in the Chicago-land area. Our Oak Park wage and hour attorneys recently came across an interesting case about a class-action filed in the circuit court of Cook County. Lewis v. Giordano’s Enterprises Inc. pits Plaintiff Mina Lewis, an hourly employee, against her former employer, Giordano’s, who owns and operates multiple restaurants in the Chicago metro area. The lawsuit alleged violations of the Illinois Minimum Wage Law (IMWL) and the Illinois Wage Payment and Collection Act (IWPCA) for Defendants’ automatic deduction of $0.25 per hour in exchange for making food and drink available to working employees.

This particular opinion was rendered by the Appellate Court of Illinois First District, Third Division in response to an interlocutory appeal filed by the Plaintiff. For those readers unfamiliar with legal jargon, an interlocutory appeal is a way for a party to appeal a specific issue in an ongoing case. Normally, a party must wait for a decision by the trial court before bringing an appeal to an appellate court.

In Lewis v. Giordano, the Plaintiff moved for class certification in early 2007 and the hearing on the matter was scheduled for November 14th of that year. Defendants then filed for and received several extensions of time to delay the trial court from ruling on the class certification question. Defendant obtained leave of the court initially because they had retained additional counsel shortly before the hearing date, and won a second motion to delay the ruling because of ongoing settlement discussions.

Plaintiff discovered later that during the time period after moving for class certification, Defendants obtained signed releases from employees that absolved Giordano’s of all liability arising out of the wage violations alleged in Plaintiff’s complaint. Defendants incentivized the employees to sign the release by offering them a one-time payment of ten dollars. Upon discovery of this information, Plaintiff filed a motion to prevent Defendants from obtaining any more releases and informed the trial court that there had been no good faith settlement negotiations during the time period that Defendants’ filed their motions to delay the class certification hearing. Plaintiffs also requested that the court declare all of the releases void as a matter of law. The trial court partially granted Plaintiff’s motion by enjoining Defendants from obtaining any more releases and declaring the releases obtained after the November 14th hearing date to be void. Plaintiff then filed the interlocutory appeal to the Appellate Court to have the releases signed prior to November 14th voided as well.

The Court reviewed the issue de novo to determine whether releases of claims from putative class-members obtained by an employer while a motion for class certification has been filed but not yet ruled upon are void as a matter of Illinois law. Upon review, the releases signed by employees whose wages dropped below the minimum wage rate because of the $0.25 deduction were expressly void under section two of the IMWL. The remaining releases obtained after Plaintiff filed her motion for class certification were declared void as well. The Court reasoned that public policy dictated that once a motion for class certification is filed, a defendant employer may not solicit or accept releases from putative class-members.

Lewis is a boon for potential wage and hour litigants, and serves as an inducement to Plaintiffs and their attorneys to get on the ball after filing a class action wage and hour lawsuit. The lesson here is straightforward; an experienced and prudent Aurora wage and hour attorney can prevent a Defendant from obtaining releases that will erode the number of potential class members by promptly filing a motion to certify the class after filing suit.

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A recent decision by the U.S. Court of Appeals for the District of Columbia caught the attention of our Illinois overtime rights attorneys. In Robinson-Smith v. Government Employees Insurance Co., No. 08-7146 (D.C. Cir. Jan. 5, 2010), more than 200 auto damage adjusters sued auto insurance company GEICO for unpaid overtime. The adjusters claimed that they were incorrectly classified as administrative employees, making them exempt from overtime laws. A federal district court agreed and granted summary judgment to the workers. However, the D.C. Circuit reversed that decision, saying the claims adjusters meet the definition of administrative employees because they exercise “some discretion” on the job.

The case turns on whether the adjusters exercise “discretion and independent judgment with respect to matters of significance,” as required by the Department of Labor definition of an administrative employee. The adjusters claimed they did not have sufficient discretion or independence, in part because they estimate only the price of auto damage and not liability. The trial court agreed, finding that supervisors have to sign off on some of the adjusters’ decisions, and their decisions were largely constrained by GEICO training and standards. But the appeals court opinion, authored by Judge Karen L. Henderson, said it was undisputed that the adjusters exercised at least some discretion. Because the DOL test does not include a requirement for how often that discretion is exercised or whether it’s a primary duty, the judge wrote, some discretion is enough to make the adjusters ineligible for overtime.

The case follows a similar decision from the Ninth Circuit in In re Farmers Ins. Exch., Claims Representatives’ Overtime Pay Litig., 466 F.3d 853 (9th Cir. 2006). That case had very similar facts, and was also overturned at the appeals level by a court that found the definition of “administrative employee” sufficient for claims adjusters. Like that decision, the D.C. Circuit’s decision in Robinson-Smith overturns only a grant of summary judgment for the claims adjusters. This means both sides will still have a chance to prove their claims at trial.

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An excellent video summarizing lemon law rights is below:

If you believe you purchased a car that is a lemon, have been a victim of auto fraud, auto dealer fraud, auto repair fraud or have been deceived into buying a flood car, rebuilt wreck or salvage vechicle DiTommaso Lubin may be able to help rectify the problem. We or experienced co-counsel are prepared to file suit in the right case anywhere in the country. For a free consultation on your rights as an employee, contact us today.

Our Auto Dealer Fraud, Auto Repair Fraud Auto Fraud, RV Fraud, and Boat Fraud private law firm and our affliated co-counsel handle individual and class action consumer rights, lemon law, and autofraud lawsuits that government agencies and public interest law firms may decide not pursue. Class action lawsuits our law firm has been involved in or spear-headed have led to substantial awards totalling over a million dollars to organizations including the National Association of Consumer Advocates, the National Consumer Law Center, and local law school consumer programs. DiTommaso Lubin is proud of our achievements in assisting national and local consumer rights organizations obtain the funds needed to ensure that consumers are protected and informed of their rights. By standing up to employee and consumer fraud and rip-offs, and in the right case filing employee or consumer protection lawsuits and class-actions you too can help ensure that consumers’ rights are protected from unscrupulous, illegal or dishonest practices.

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