Chicago Business Litigation Lawyer Blog

Land Owners May Pursue Lawsuit Alleging Chicago Landmark Ordinance Violates Illinois Constitution, First District Rules

May 11, 2009 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

In a decision with wide-reaching implications for Chicago land owners and developers, the First District Court of Appeal found March 6 that at least part of the Chicago Landmarks Ordinance was unconstitutionally vague. Hanna v. City of Chicago, No. 1-07-3548 (Ill. 1st Dist. March 6, 2009) is an Illinois real estate lawsuit alleging that the ordinance was overly vague, improperly delegated the city’s legislative authority and violated the due process and equal protection clauses of the Illinois Constitution.

Plaintiff Albert Hanna owned property in Chicago’s Arlington Deming neighborhood, and plaintiff Carol Mrowka owned property in the East Village neighborhood. Both had been approved as Landmark Districts, which means that property owners in those areas must get approval from the Commission of Chicago Landmarks for any alteration, construction, demolition or other work on their property. Land owners may contest the designation at a hearing. The plaintiffs sued the City of Chicago, the Commission and several city officials to overturn the ordinance, which authorizes the designations.

Count I of the complaint alleges that the ordinance is so vague that citizens have no way to tell how they should behave to comply with it. Counts II and III allege that the ordinance violates provisions of the Illinois Constitution reserving legislative power to the city council and state legislature. Counts V through XX allege that the ordinance violates the constitution’s equal protection clause and substantive due process clause. In trial court, the city moved to dismiss the multiple counts of their complaint for failure to state a claim. The trial court granted the motion as to counts I through III and V through XX. The plaintiffs now appeal that decision.

Defense Contractor Northrop Grumman Settles False Claims Act Lawsuit Over Defective Satellite Parts

May 8, 2009 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

Northrop Grumman Corporation agreed April 2 to settle a federal whistleblower lawsuit for $325 million, the New York Times reported. The lawsuit alleged that TRW Inc, a defense contractor that Northrop later acquired, intentionally suppressed evidence that certain electrical parts it manufactured did not work properly, causing the expensive failure of several defense satellites in orbit. Then, an attorney quoted in the article said, the contractor charged the federal government millions of dollars to investigate the problems with a satellite. The deal included another settlement of an unrelated case by Northrop against the government, leaving the company with no net gain or loss.

The qui tam lawsuit grew out of allegations from scientist Robert Ferro, who worked for a subcontractor to TRW. Ferro found problems with certain transistors TRW manufactured for defense satellites, the article said, and reported them to TRW. But TRW not only did not report the problems to the government, but allegedly continued to sell the parts and blocked Ferro’s attempts to include the information in a report to the Air Force later. He filed a lawsuit in 2002, but because the case was under seal (as required by federal law), his name was only revealed after the settlement. As part of the settlement, Ferro will receive $48.8 million.

Federal, state and local laws allow people like Ferro to bring whistleblower lawsuits against organizations they believe are defrauding government agencies or misusing government resources. Because this typically requires inside knowledge about an organization, the False Claims Act has two unusual features giving them a special incentive. One is the requirement that the original claim and the whistleblower’s name be kept from public knowledge. The other is that the whistleblower stands to receive 15% to 30% of any money the government wins. Prosecutors can choose to intervene under the False Claims Act, but even if they do not, the whistleblower has the right to continue the suit as a “private attorney general,” often with help from a private law firm.

GMAC ‘Unfairly’ Repossessed Vehicle Under Illinois Consumer Fraud Act, Appeals Court Decides

May 6, 2009 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

Lubin Austermuehle DiTommaso’s auto fraud, lemon law, and consumer fraud trial lawyers were impressed by a recent First District Court of Appeals ruling against the credit arm of General Motors for a wrongful repossession. The court said a trial court was correct to rule that General Motors Acceptance Corporation acted unfairly when it repossessed a truck in violation of its agreement with the owner. In Demitro v. General Motors Acceptance Corporation, No. 1-06-3417 (Ill. 1st. Feb. 9, 2009), the appeals court declined to overturn a Cook County trial court ruling that GMAC violated the Illinois Consumer Fraud and Deceptive Business Practices Act.

Demitro purchased a Chevrolet Suburban in 2002 and had no trouble making payments until 2003, when he underwent surgery and went on disability in May of 2003. His payment checks for June and July of that year bounced, and in August, he spoke with a GMAC representative who told him so. The next day, Demitro called GMAC and authorized about one month’s payment to be deducted from his checking account. The GMAC representative then called a repossession agency that had already been authorized to take Demitro’s truck and put the repossession on hold. The representative sent Demitro a letter giving him seven days to make the back payments and keep his account current. After that time expired, it said, GM could exercise its right to repossess the truck.

On the very next day, Demitro awoke to discover that his truck had been repossessed. The GMAC representative was notified. He acknowledged that the repossession was a mistake and a violation of the seven-day extension in the letter, but nonetheless recommended to management that they keep the truck. They did, and informed Demitro that he was now liable for repossession charges of $39,695.04 as well as the outstanding balance on his account. Unable to get to the bank, Demitro informed GMAC that his telephone payment would bounce. GMAC later withdrew that payment from his account after he had added more money, but failed to credit him for the payment.

Whistleblower and Justice Department Settle Qui Tam Lawsuit Against Quest Diagnostics

May 1, 2009 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

Medical testing giant Quest Diagnostics settled a whistleblower lawsuit and a related criminal fine for a total of $302 million, the New York Daily News reported April 16. Quest and a subsidiary, Nichols Institute Diagnostics, were accused of defrauding Medicare by selling medical test kits that they knew did not work. The $302 million figure includes a $262 million settlement in a civil lawsuit brought by the federal government and a $40 million fine for Nichols Institute Diagnostics, which also agreed to plead guilty to felony misbranding charges.

A separate $45 million will be paid to the whistleblower in the case, Thomas Cantor, who alerted the government to Quest’s misbehavior. Cantor is a biochemist and the president of Scantibodies Labs Inc., a competitor to Quest. He realized there was a problem with the tests after doctors came to him requesting a second test, believing the results they got from Quest weren’t right. Further tests showed that the results from Quest were consistently wrong. With help from a private law firm, he filed a whistleblower lawsuit in 2004. His efforts led to the federal investigation and eventually to this settlement.

Under the federal False Claims Act (and similar state and local laws), people who know about fraud against the federal government may sue the company committing the fraud on behalf of the public. These lawsuits are first filed under seal — meaning they’re not public knowledge — but a copy is served to the federal Department of Justice. The federal government can choose to step in, but if it does not, the plaintiff is free to continue, acting as a private prosecutor in the public’s interest. As an incentive to report the fraud — which can be difficult for employees who spot wrongdoing by their employers — the whistleblower stands to collect 15% to 30% of any money won in the suit.

Seventh Circuit Rules Class Action Objectors Cannot Collect Damages for Privacy Breach Under FCRA or State Consumer Protection Law

April 26, 2009 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

In a long-running consumer privacy violation case, the Seventh U.S. Circuit Court of Appeals has denied damages to a group of homeowners whose mortgage company sold their information to telemarketers. In Mirfasihi v. Fleet Mortgage , No. 07-3402 (7th Cir. Dec. 30, 2008), Fleet Mortgage Company sold information on 1.6 million clients to telemarketers, without those clients’ permission. Two nationwide classes were certified: a class of people who bought products from the telemarketers (who used deceptive practices in their sales) and a class of people who merely had their information shared. This appeal comes from the latter group, some of whose members objected to a proposed settlement that gave them no damages.

In its analysis, written by Judge Posner, the court started by agreeing with the appellants that their claims may have some value under state consumer protection laws, despite the trial court’s conclusion that they did not. Many state statutes allow statutory damages even when no actual harm is present. However, the majority wrote, the information-sharing class had no claim in a class action — only in individual actions. And no individual plaintiff has demonstrated a willingness to sue for the “modest statutory damages” available under state laws, despite eight years of litigation and two prior appeals to the Seventh Circuit, the judge wrote.

The court turned next to the objectors’ claims under the federal Fair Credit Reporting Act (FCRA), which allows statutory damages of $100 to $1,000 per willful violation, even if no actual harm resulted from the violations. This claim also failed, because class members had not brought it up until their second round in trial court. Furthermore, the majority wrote, the FCRA claim is frivolous because Fleet is not a consumer reporting agency, as the law requires; agencies that merely pass on information about debts owed to it are not covered by the law. And under the FCRA, a report on transactions only between the customer and the agency making the report is specifically excluded from the definition of a “consumer report.”

Consumers May Be Entitled To Hundreds of Millions of Dollars of Refunds Due to Alleged Health Insurance Fraud

April 26, 2009 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

New York Attorney General Andrew Cuomo entered into a 50 million dollar settlement with health insurance carriers for alleged deceptive setting of “usual, customary and reasonable and rates” for out of net work health care providers through use of a conflicted rating agency owned by an insurance company. A news story on the settlement is below:

Our private law firm is investigating alleged deceptive use by health insurance companies of bogus low ball out of net work rates to avoid paying for needed health care and is considering filing consumer fraud class actions on behalf of victims of this practice.

Class action lawsuits our 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. Lubin Austermuehle DiTommaso 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 corporate misdeeds.

Supreme Court to Decide Whether Federal Government is Always a Party in Qui Tam Whistleblower Cases

April 24, 2009 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

The United States Supreme Court will soon decide whether the federal government is always considered a party to False Claims Act lawsuits. The court heard oral arguments in United States ex rel. Eisenstein v. City of New York, No. 08-660, on April 21. At issue is the timeline to appeal a case’s dismissal. The Federal Rules of Appellate Procedure give private parties, including those acting as relators under the law, 30 days to file a notice of appeal, but it extends that deadline to 60 days for cases in which the federal government is a party. The court will decide which deadline applies to False Claims Act cases, in which private parties bring lawsuits on behalf of the government.

The False Claims Act allows federal prosecutors or individuals to “blow the whistle” on fraud against a federal agency. The individuals are called relators. Because relators are typically insiders who work for or with the fraudulent organization, they first file their claims under a seal that hides the complaint from public view. The Justice Department receives a copy of that complaint, however, and may choose to step in. If it does not, the relator is free to continue the suit on behalf of the United States government. If the claim is successful, the relator is eligible to collect 15% to 25% of the judgment, but most of it goes to the federal government. Thus, the plaintiff is in a sense both the relator and the government.

That unusual situation set the stage for a Second Circuit Court of Appeals decision in 2008, rebuffing the claim of a relator who it said appealed the dismissal of his case too late. In United States ex rel. Eisenstein v. City of New York, 540 F.3d 94 (2d Cir. 2008), Irwin Eisenstein and four city employees sued the City of New York for assessing a fee on its nonresident employees that was equivalent to municipal income taxes on city residents. Among other claims, they asserted that this violated the False Claims Act because it reduced their taxable income and deprived the federal government of tax revenue. The Justice Department declined to intervene.

Small Entrepreneurs Turn to Litigation After Falling Victim to Alleged ‘Franchise Fraud’

April 22, 2009 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

Lubin Austermuehle DiTommaso has an active practice in franchise litigation, especially representing franchisee in disputes with franchisors they believe have not been completely honest. Because we work in this area, our Chicago franchise litigation attorneys were pleased to see a cover story on just that situation in the March/April 2009 issue of Mother Jones magazine. The article discusses allegations of “franchise fraud” — the practice by franchisors of cheating the franchisees they sign up by failing to disclose important information, writing onerous financial requirements into contracts and adding after-the-fact legal requirements franchisees didn’t agree to and can’t refuse without being sued.

The article focuses on the Coffee Beanery, a chain of cafes, and one Maryland couple’s experience when they started a Coffee Beanery franchise in Annapolis. At their initial meeting with the franchisor, Coffee Beanery vice president Kevin Shaw allegedly told them they could clear $125,000 a year in the right location. Not only did this allegedly violate a federal law that forbids franchisors from predicting future earnings, but it wasn’t quite true — the magazine said 40 franchises had already failed at the time. Another 60 have since died.

But a bigger problem was the expense of the equipment that the Coffee Beanery said they were contractually obligated to accept. The franchisor allegedly sent them expensive equipment that didn’t work, was unnecessary or wasn’t appropriate for their business. It also allegedly demanded that they abide by contractual obligations they didn’t remember signing up for, such as a gift card program. All of this cost tens or even hundreds of thousands of dollars — and refusing would have opened them up to a lawsuit.

Appeals Court Upholds Finding Against Breach of Contract Because No Contract Existed

April 5, 2009 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

A recent Illinois appeals court ruling caught the eyes of our Naperville business litigation attorneys. On December 22, the Illinois First District Court of Appeal ruled that a trial court was correct in finding no breach of contract between an individual and an investment firm. CFC Investment v. McLean, No. 1-08-0161 (Ill. 1st Dec. 22, 2008). Defendant Daniel McLean was a real estate developer and investor doing business through a group of companies the appeals court collectively called River East. Plaintiff CFC Investments was an investor in River East.

CFC offered to sell its interest in 2001, and part owner Craig Duchossois, through phone calls and written negotiations with McLean, agreed on a price of $16.7 million. McLean wrote in a signed letter that he was “willing to arrange for the purchase of your interest in River East” and that after CFC’s written agreement, he would “commence to secure the capital.” Duchossois signed to signal his acceptance and sent it back in September of 2001. McLean then wrote a letter specifying that River East needed 90 days to complete the buyout. However, no action was taken until March of 2002, when Duchossois wrote to demand that McLean finish the deal. He received no response. In early April of 2003, River East investors sold their interests to Mitsui Sumitomo Insurance Company. CFC’s share of the proceeds was $2.5 million.

In 2004, CFC sued McLean for breach of contract. The trial turned partially on the issue of whether McLean had offered to buy the shares himself, as Duchossois believed, or merely find investors to do it, as McLean contended. The trial court barred evidence favorable to CFC several times, rejected a proposed jury instruction from the company and answered a question from the jury over CFC’s objections. CFC appealed of all these decisions.

Auto Dealership Entitled to New Trial Over Compensation Under Quantum Meruit, Seventh Circuit Decides

April 1, 2009 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

In a breach of implied contract lawsuit, a Wisconsin auto dealership must have a new trial because the original trial judge misconstrued Wisconsin law on quantum meruit and unjust enrichment, the Seventh U.S. Circuit Court of Appeals ruled. Lindquist Ford, Inc. v. Middleton Motors, Inc., Nos. 08-1067 & 08-1689 (7th Cir. February 25, 2009).

Middleton Motors, a Ford dealership near Madison, Wis., was a struggling business when it asked the more successful Lindquist Ford of Iowa for financial and management help. In their initial negotiations in 2003, they agreed that Lindquist’s manager, Craig Miller, would manage both dealerships and be compensated by Middleton with a percentage of the profits once he made the dealership profitable again. No deal was struck at that time, but nonetheless, Miller started managing Middleton.

In subsequent months, negotiations ran aground when Lindquist repeatedly did not offer a cash infusion, proposed as an investment in the business, that Middleton wanted. During this time, Middleton repeated several times that Miller’s compensation would be a percentage of Middleton’s profits when the dealership was profitable again. About a year into this situation, Middleton fired Miller, frustrated that the dealership was still unprofitable and no deal had been reached on a cash infusion. Two months after the firing, Miller sent Middleton a letter demanding a salary for 2003, and half of profits for the next two years. Middleton disagreed that it owed Miller anything.