Chicago Business Litigation Lawyer Blog

First District Rules Improper Joinder of Legal Malpractice Case With Underlying Action Does Not Foreclose Defenses

August 19, 2009 | Peter S. Lubin and James V. DiTommaso

In a Chicago legal malpractice lawsuit, the First District Court of Appeal has ruled that the defendant is not barred from certain defenses because the plaintiff improperly joined the malpractice claim with its underlying action. Preferred Personnel Services, Inc. v. Meltzer, Purtill & Stelle, LLP, No. 1-08-0389 (Ill. 1st. Jan 23, 2009).

Preferred is a staffing company with a claim against insurance broker Arthur J. Gallagher & Co. Gallagher told Preferred that it had secured malpractice insurance for the company and accepted payment for those services, but Preferred later discovered that it had no insurance. Preferred hired Illinois law firm Meltzer, Purtill & Stelle to sue Gallagher, but the firm never started its case. More than two years later, Preferred and its new lawyers sued Gallagher for breach of contract, negligence and fraud. In the same suit, it also sued Meltzer and one of its attorneys, Thomas Palmer (collectively “Meltzer”), for malpractice.

Gallagher moved to dismiss because the statute of limitations had passed in 2001, a motion that was granted by the trial court and upheld by the appellate court. While that motion was pending, Meltzer moved to dismiss the claims against it, saying the malpractice claims were premature because the underlying claim was still viable until the appeals court had ruled. This motion was denied. After the appellate decision on the Gallagher dismissal, Preferred moved for partial summary judgment, asking the court to foreclose arguments by Meltzer that the statute had not run on the Gallagher claims. The trial court granted this motion, but also certified three questions for the First District Court of Appeal to answer:

First District Strikes Verdict Against Partners But Leaves Firm Liable in Partnership Dispute

August 9, 2009 | Peter S. Lubin and James V. DiTommaso

In a partnership dispute and breach of fiduciary duty claim, the First District Court of Appeal has ruled that an attorney may sue his former firm, but not his former partners. In Kehoe v. Harrold, Wildman, Allen & Dixon, No. 1-07-0435 (Ill. 1st Dec. 23, 2008), Robert Kehoe, a former partner in the firm, sued after partners voted to change him from equity partner to nonequity partner. That is, they voted to end his part ownership of the firm and make him a salaried employee.

In 1995, after Kehoe had been a partner in Harrold Wildman for sixteen years, the firm renegotiated its financing with its bank, a deal that required every equity partner to execute a personal guaranty acceptable to the bank. Kehoe objected to the proposed guaranty and was unable to find a compromise, despite offers to draft his own version. The bank allowed the firm to take out its loan anyway. Later, the firm amended its loan agreement with the bank to eliminate the guaranty requirement but specify that partners without a guaranty are personally liable for the full amount of the debt. A few months later, partner Eisel approached Kehoe about his lack of a guaranty, and Kehoe replied that the amendment made it unnecessary.

The firm’s management committee then met and adopted a resolution allowing a two-thirds vote of partners to change the status of any partner who failed to execute a guaranty. Kehoe was present and objected, and rebuffed later advice to sign the guaranty. The partners later voted to remove his equity status per the resolution. Over the next two days, Kehoe moved his clients to a law firm of his own; he also requested his equity be paid out and was denied. He sued individual partners, claiming they breached their fiduciary duty by advocating the resolution, and the firm as a whole for breaching their obligation to pay his equity share.

Fifth District Court of Appeal Overturns Damages Award in Trade Secrets Act Lawsuit

August 3, 2009 | Peter S. Lubin and James V. DiTommaso

A client list and information on clients’ computer networks do not qualify as trade secrets under the Illinois Trade Secrets Act, the Fifth District Court of Appeal decided April 13 in a business trade secrets lawsuit. In System Development Services v. Haarman, No. 04-CH-30 (Ill. 5th 2009), System Development Services (SDS) sued four former employees who left to start a competing business offering networking services to businesses in Effingham County. A trial court found that the defendants had misappropriated a list of clients and potential clients, as well as information on SDS clients’ networks, but the Fifth District Court of Appeal overturned that decision.

SDS sets up and maintains computer networks for local businesses. It maintains a database of clients and potential clients, and stressed to employees that both the list and the clients’ network information should be kept private. Defendants Timothy Haarman, Jason Repking, Rick Hoene and Terry Oldham left SDS after a bad financial year and started a competing business, Technical Partners. None had signed a restrictive covenant limiting their right to compete with SDS. However, when starting out, they sent out a mailing to potential clients that SDS thought was suspiciously similar to addresses in its client database. They also relied on former SDS customers during their first month inbusiness. SDS sued them for violations of the Illinois Trade Secrets Act and breach of fiduciary duty.

At a bench trial, the plaintiff testified that some of the addresses at issue contained information not found in the telephone book, and that work orders and emails were deleted from their system shortly before defendants left. However, the company’s owners told the court that they had no personal knowledge that a client list was stolen. The defendants testified that they made their mailing list using the phone book, the Internet and a chamber of commerce listing. They also relied on client relationships formed at SDS and personal connections. One defendant testified that no special knowledge other than the ordinary knowledge of a network technician was necessary to serve SDS and Technical Partners clients.

Continued Employment for a Short Time Is Not Adequate Consideration for Post-Employment Restrictive Covenant, Appeals Court Decides

July 29, 2009 | Peter S. Lubin and James V. DiTommaso

DiTommaso Lubin’s Illinois breach of contract litigation attorneys were pleased to see a split Illinois Third District Court of Appeal decision clarifying the circumstances under which a post-employment restrictive covenant is valid. The decision came in Brown & Brown v. Patrick Mudron, No. 03-CH-1363 (Ill. 3rd March 11, 2008), in which a Florida insurance company sued a former employee for breaching a restrictive covenant in her employment agreement.

Diane Gunderson, the employee, worked for a Joilet, Ill. company that was taken over by Brown & Brown. Brown asked Gunderson to sign a new employment agreement with them, and in fact, fired an employee who refused to do so. The agreement said Gunderson’s employment could be terminated any time for any reason and prohibited her from soliciting or servicing any of Brown’s employees for two years after ending her employment with the company. She signed the agreement, but resigned seven months later and went to work for a competitor. Brown sued, alleging that Gunderson had breached the restrictive covenant at her new job. The trial court granted summary judgment in favor of Gunderson because it couldn’t find any evidence that she had breached the covenant, and Brown appealed.

The majority started by disposing of a “choice of law” provision in the contract requiring all disputes to be resolved in Brown’s home state of Florida. Illinois law applies anyway, the court wrote, because Illinois has a greater interest in the case and moving it to Florida would be against Illinois public policy interests. International Surplus Lines Insurance Co. v. Pioneer Life Insurance Co. of Illinois , 209 Ill. App. 3d (1990).

Homeowner May Sue for Lending Fraud by Mortgage Insurer, Seventh Circuit Rules

July 19, 2009 | Peter S. Lubin and James V. DiTommaso

In a case based on the federal Truth in Lending Act (TILA) and Illinois Consumer Fraud and Deceptive Business Practices Act, the Seventh Circuit has ruled that a victim of a bait-and-switch scheme for title insurance may sue his lender. Doss v. Clearwater Title Co., No. 07-2400 (7th Cir. Dec. 24, 2008). Charles Doss refinanced his mortgage in 2004, using a company called The Loan Arranger that did indeed arrange a loan for Doss with Franklin Financial Company. Franklin asked Doss to get title insurance, which he did through Clearwater Title Company.

Clearwater turned out to be an unlicensed company with a secret affiliation with The Loan Arranger. Doss was told via closing documents that the title insurance cost was $500, but was actually charged $1,470. In late 2006, Doss sued all three companies plus JP Morgan Chase, which held his mortgage, and Saxon Mortgage Services, Inc., which serviced it. However, Chase and Saxon had filed for foreclosure against Doss earlier in that year, and in response to the lawsuit, filed papers claiming that Doss had no claim because he had already sold his home. Doss replied that their quitclaim deed was a forgery and that indeed, he had filed documents showing he was still the owner. The trial court sided with Chase and Saxon and dismissed the homeowner’s claims.

Doss appealed; while the appeal was pending, an Illinois trial court found that the property had not changed hands. The Seventh Circuit first examined the claim by Chase and Saxon that the trial court had no jurisdiction under the TILA because Doss had sold the property. That was irrelevant, the court said, because the question was whether Doss had actually sold the property. On the dismissal itself, the Seventh found that the trial court should have treated the sale allegations by Chase and Saxon as a motion for summary judgment, which would have given Doss a chance to present and support his own assertions. This would have led the trial court to conclude that there was indeed a genuine issue of material fact in the case and continued the litigation, the opinion said.

Federal Reserve Board Handbook on the Fair Debt Collection Practices Act Provides a Very Good Summary of the Act — Our Chicago, Naperville, Waukegan, Wilmette, Northbrook and Wheaton Civil Litigation Attorneys Assist Victims Of Abusive Debt Collectors

July 18, 2009 | Peter S. Lubin and James V. DiTommaso

The Federal Reserve Board has prepared an excellent summary of consumer rights available under the Fair Debt Collection Practices Act (“FDCPA”) in an online handbook on the FDCPA. You can view the handbook by clicking here.

Our consumer rights private law firm handles individual and class action unfair debt collection and other consumer fraud cases that government agencies and public interest law firms such as the FTC may 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 consumer fraud and consumer rip-offs, and in the right case filing consumer protection lawsuits and class-actions you too can help ensure that other consumers’ rights are protected from consumer rip-offs and unscrupulous or dishonest practices.

Our Naperville, Aurora, Waukegan, Joliet, Elgin, Highland Park, Northbrook, Wilmette, Wheaton, Oak Brook, and Chicago consumer civil litigation lawyers provide assistance in fair debt collection, consumer fraud and consumer rights cases including in Illinois and throughout the country. You can click here to see a description of the some of the many individual and class-action consumer cases we have handled. A video of our lawsuit which helped ensure more fan friendly security at Wrigley Field can be found here. You can contact one of our Chicago area consumer protection lawyers who can assist in lemon law, unfair debt collection, junk fax, prerecorded telephone solicitations, and other consumer, consumer fraud or consumer class action cases by filling out the contact form at the side of this blog or by clicking here.

Illinois Probate Law Allows Executors to Set Multiple Deadlines for Claims Against Estates, Appeals Court Decides

July 13, 2009 | Peter S. Lubin and James V. DiTommaso

A legal malpractice plaintiff who is also the executor of an estate may issue new creditor notices to avoid having his case dismissed, the First District Court of Appeal decided March 31. In Jaason v. Sullivan, No. 1-08-1254 (Ill. 1st Dist. March 31, 2009), the executor, Erik Jaason, filed a Chicago legal malpractice lawsuit against Barbara J. Sullivan and B.J. Sullivan & Associates for alleged mistakes in a will Sullivan prepared for Alexander Koepp.

In his complaint, Jaason alleges that Koepp instructed Sullivan to prepare a will giving Jaason the right to purchase Koepp’s home for $150,000, at Jaason’s discretion. However, Koepp’s home was already held in joint tenancy with his wife, Karsti Koepp. Thus, upon Alexander Koepp’s death in November of 2006, the property was outside the purview of the will and passed to Karsti Koepp under the joint tenancy, leaving Jaason with no option to purchase it. He sued Sullivan in December of 2007 for legal malpractice, alleging that her failure to recognize and take action on the joint tenancy fell outside the applicable standard of care.

In response, Sullivan filed a motion to dismiss the suit as time-barred. The Illinois Code of Civil Procedure requires that, in cases where probate has been opened, plaintiffs must file their claims for legal malpractice within the time given for claims against the estate or the time given for contesting the validity of a will — whichever is greater. The six-month window for contesting the will had clearly elapsed in the 13 months since Koepp’s death. To make a claim against an estate, creditors in Illinois have three months from the date they receive a notice of the death in the mail, or six months from the date of publication of the death as a legal notice, whichever is later.

Incorrect Breakdown of Principal and Interest Does Not Violate FDCPA Requirement for ‘Truthful Information,’ Seventh Circuit Rules

July 8, 2009 | Peter S. Lubin and James V. DiTommaso

In a Fair Debt Collection Practices Act class action, the Seventh U.S. Circuit Court of Appeals has ruled that a bill collector’s failure to correctly break down a bill into principal and interest does not violate that Act. Wahl v. Midland Credit Management, No. 08-1517 (7th Cir. Feb. 23, 2009) was a class action lawsuit alleging that debt collectors violate the FDCPA when they send out bills that state the correct total amount but break down the charges incorrectly.

Plaintiff Barbara Wahl had just $66.98 on a credit card when she sustained a stroke and racked up much larger medical bills during a time when she couldn’t work. The credit card went unpaid and eventually, the balance was $1,149.09, mostly in interest and late fees. Midland purchased the debt in January of 2005 and started sending demand letters to Wahl. The letter at issue arrived April 15, 2005, listing both the “current balance” and “amount due” at $1,160.57. On the back side, it listed the “principal” as $1,149.09 and the “accrued interest” as $11.48. This was followed by a similar letter listing a higher interest. The letters construed the “principal” as the total value of the debt Midland had bought, including interest accrued with the original creditor.

Wahl filed a proposed class-action lawsuit in federal court for the Northern District of Illinois. One of her two claims was that Midland had violated the FDCPA by incorrectly stating that the principal on her account was $1,149.09 rather than breaking down the original principal, the original interest and the new interest. Debt collectors are not required by law to break down charges, it said — but when they do, the law requires that the breakdown not contain false or misleading information. On cross-motions for summary judgment, the trial court ruled in favor of Midland. Wahl appealed.

First District Rules Insurer Must Defend Private Security Company in Chicago Fire Damage Lawsuits Despite ‘Joint Venture’

June 29, 2009 | Peter S. Lubin and James V. DiTommaso

A private security company’s agreement with a competitor does not foreclose insurance coverage in lawsuits filed against the first company alone, the First District Court of Appeal has ruled. Clarendon America Insurance Company v. B.G.K. Security Services, Inc., No. 1-07-2994 (Ill. 1st Dec. 19, 2008), arises out of a 2003 fire at a Cook County-owned building at 69 West Washington Street in Chicago. Twenty-two lawsuits resulted from the fire. Clarendon, which insures BGK, had filed for declaratory judgment that it had no duty to defend BGK in those suits.

Clarendon’s argument focuses on language in its policy, specifying that the insured parties include “[a]ny organization you newly acquire or form, other than a partnership, joint venture or limited liability company…” It used that language to argue that coverage for BGK in the 22 fire lawsuits should be excluded, because BGK had entered into a joint venture with another security company, Aargus Security Systems, Inc. Both sides filed for summary judgment in the trial court, and the trial court sided with BGK. Clarendon appealed, arguing both the summary judgment language and that it should have been allowed to complete discovery because the record was unclear.

By contrast, BGK argued that Clarendon has a duty to defend because the lawsuits name BGK rather than the joint venture, and BGK is also the insured named by the insurance policy. The appeals court agreed. Pointing out that the joint venture is extrinsic evidence, the court reasoned that this evidence involves facts that could drastically change the underlying litigation (the fire lawsuits) by affecting BGK’s liability. That would make it an impermissible consideration under Illinois caselaw, the court wrote, and thus, the trial court was right to exclude it.

Appeals Court Dismisses Chiropractor’s Class Action Lawsuit Against Insurer for Alleged Underpayment and Breach of Contract

June 22, 2009 | Peter S. Lubin and James V. DiTommaso

In a proposed class-action insurance fraud lawsuit, the Illinois Third District Court of Appeal has ruled that a chiropractor may not sue a workers’ compensation insurer. In Martis v. Grinnell Mutual Reinsurance Company, No. 3-08-0004 (Ill. 3rd March 27, 2009), chiropractor Richard Martis sued Grinnell Mutual Reinsurance Company after Grinnell’s billing employees incorrectly paid Martis too little for treating an injured worker.

In February of 2006, Martis began treating an employee of Water Management Corp. of Illinois who had been injured on the job. He was to be paid by Water Management’s workers’ compensation policy, issued by Grinnell. When he submitted his bills to Grinnell, the insurer’s outside billing firm applied PPO discounts to those bills even though Martis did not have a PPO agreement with Grinnell. Thus, Grinnell underpaid Martis. He responded with a proposed class-action lawsuit encompassing all Illinois health care providers who had been underpaid by Grinnell in the same way, through incorrect PPO discounts.

The complaint by Martis alleged conspiracy, unjust enrichment, breach of contract and violations of the Illinois Consumer Fraud Act. The trial court granted Grinnell’s motion to dismiss the conspiracy and unjust enrichment counts. However, it certified the class of health-care providers as to the breach of contract claim. Grinnell appealed the denial of its motion to dismiss the breach of contract claim and the class certification to the Third District.