Chicago Business Litigation Lawyer Blog

Three Leading Profession Organizations Have Published a New Guide to Preventing Business Fraud — If Your Business Has Been a Victim of Fraud Our Experienced Chicago, Naperville, Wheaton and Oak Brook Business Trial Attorneys Can Help Recover Your Losses

November 15, 2008 | Peter S. Lubin and James V. DiTommaso

New guidelines for fighting fraud have just been released by three leading professional organizations. “Managing the Business Risk of Fraud: A Practical Guide” is sponsored by the ACFE, The Institute of Internal Auditors (IIA), and the American Institute of Certified Public Accountants (AICPA). Principles for establishing effective fraud risk management, regardless of the type or size of an organization, are outlined in the guide.

Download “Managing the Business Risk of Fraud”

Our commercial litgation attorneys work closely with auditors, accountants, forensic accountants and certified fraud examiners to determine the extent of the damages your business has suffered due to fraud. We bring suit to recover the lost funds. Our experienced business and commercial litigation attorneys with offices in or near Naperville, Wheaton, Oak Brook and Chicago have helped businesses and individuals recover substantial losses in individual or class action lawsuits arising from business fraud by vendors, employees and others. To review a summary of the business and fraud lawsuits we have handled click here. To contact us for a free consultation about business fraud or other business litigation issues fill out the form on the left side of this blog or click here.

Attorneys May Be Disqualified When Appearing Before a Judge Who is a Former Law Partner

October 30, 2008 | Peter S. Lubin and James V. DiTommaso

Our Chicago, Naperville, Wheaton and Oak Brook business trial lawyers won an important procedural victory in a business dispute involving a closely held business. In short, we were able to convince an Illinois trial court that an attorney’s appearance should be stricken after being added to a case, we argued, because it appeared the new attorney could have been added to force the recusal of the judge, the attorney’s former law partner.

The underlying case was a high-stakes financial dispute in a closely held business. It had been litigated for six years, but was delayed when the defendants added a new lawyer to their team. This lawyer was the former law partner of the judge assigned to the case, who had already put substantial time and effort into the matter. However, to avoid any appearance of impropriety, the judge immediately recused himself when the new lawyer, the former partner, was added. Our position was that it could appear that this was precisely what the defense had intended. In fact, the new lawyer was added two days after three rulings on motions that the new judge called “hotly contested,” including rulings unfavorable to the defense.

Another attorney for the defense was a recognized expert in legal ethics, we argued, so the defense clearly must have known that the judge might recuse himself. Furthermore, the defense admitted that it had discussed the possibility of recusal with the client. And finally, the new lawyer had chosen what we alleged was a non-standard way to notify the court of his addition. Rather than asking for leave of court to move for the addition, which would have allowed the parties to discuss the addition in open court, he simply sent his appearance directly to the judge. The trial court held this was contrary to both the rules of court and the usual practice. All of this showed that it appeared that the attorney might have been added to force a change of judges, we argued. For those reasons, we moved to disqualify the new attorney.

Chicago Federal District Court Strikes Down Mandatory Arbitration Clause

October 28, 2008 | Peter S. Lubin and James V. DiTommaso

A consumer fraud case here in Chicago met an interesting end in late September. In Trujillo v. Apple Computer, No. 07 C 4946, 2008 WL 4368937 (N.D.Ill., Sept. 22, 2008) lead plaintiff Jose Trujillo filed a proposed class action against Apple and AT&T Mobility, the iPhone’s service provider. Trujillo contended that Apple and AT&T did not disclose a de facto service fee of $79 plus shipping for the iPhone’s battery, which must be replaced after 300 charges. That claim failed when the U.S. District Court for the Northern District of Illinois granted summary judgment to Apple and AT&T on Sept. 23 on the merits of Trujillo’s claims. However, as Chicago, Naperville and Oak Brook consumer rights and consumer fraud attorneys, we are very interested in a decision from the same court on the day before handing a victory to consumers. The court decided to not compel the mandatory binding arbitration required in Trujillo’s contract with AT&T, finding that contract procedurally unconscionable under Illinois state law.

According to court documents, AT&T was the only wireless phone carrier for the iPhone when Trujillo purchased the phone in 2007. (Without a service provider, the iPhone’s telephone function will not work.) Trujillo activated a service plan with AT&T online, through Apple’s iTunes software, which directs the user to AT&T’s Web site. In order to sign up, the user must click a box indicating that he or she has read and agrees to AT&T’s service agreement. The service agreement is many pages, and in fact, displays as multiple separate pages on AT&T’s Web site. If the user does not check the box indicating that he or she has read this agreement, that user cannot sign up and will not have access to all of the iPhone’s functions.

In court papers filed earlier in the case, AT&T argued that Trujillo had the opportunity to read the service agreement when he signed up for service through iTunes. It also said he had access to the service agreement before this, in two separate ways: in paper booklets at the Apple store and online, on the AT&T Wireless Web site. But in later supplementary papers, it admitted that neither of those statements was true. The paper booklets, it turned out, were not available in the Apple store, though they may have been available in an AT&T store that Trujillo later visited to have a credit check done. The court’s opinion also noted that a footnote in the new papers said the applicable terms of service were not available online after all, though an obsolete version was available through the Web site’s search function. The true terms of service were available when Trujillo signed up through iTunes, it said, but in a small window, with the language relevant to arbitration about two-thirds of the way through.

Class Certification Allowed Even in Cases With Small Damages

October 27, 2008 | Peter S. Lubin and James V. DiTommaso

Chicago and Oak Brook-based DiTommaso Lubin has recently been working on a proposed class action consumer protection case with national reach, in tandem with colleagues in Maryland. Our case alleges violations of the Fair Credit Reporting Act, a federal law regulating when and how credit reporting agencies may provide information about consumers to third parties like marketing companies. The FCRA requires that credit agencies may only give out consumers’ information if they have written permission or to companies that will extend a “firm offer of credit” to the consumers.

Our proposed lead plaintiff received a flyer offering him an automotive loan from a company that turned out to allegedly have nothing to do with the offer. That is, there was no firm offer of credit, in violation of the FCRA. It’s important that our plaintiff suffered no actual financial damage due to this privacy violation, fortunately. However, under the FCRA, he doesn’t need to if the violation of the law was “willful.” Instead, he may sue for “statutory damages,” an amount of money set by law, as well as the cost of attorneys’ representation and any punitive damages the court decides to impose to punish illegal or very unethical behavior by the defendant.

The statutory damages authorized by the FCRA are very small by the standards of modern litigation — $100 to $1,000 per person. In fact, this amount is so small that it might discourage both plaintiffs and their lawyers from pursuing a case, given the small reward. However, a proposed class action changes that landscape dramatically. In a class action, plaintiffs with the same complaint share the same lawyers, in essence pooling their resources. In doing so, they also pool the money they stand to win, from which the lawyers are paid. This allows them to move forward with a claim they might otherwise have had to abandon — giving them greater access to justice.

Evidentiary Hearings in Motions to Disqualify Illinois Attorneys

October 24, 2008 | Peter S. Lubin and James V. DiTommaso

A recent case of ours includes a motion to disqualify attorneys for the defense under Rule 3.7 of the Illinois Rules of Professional Conduct. Part (b) of that rule states that a lawyer may not represent a client in a case where he or she may be called as a witness to give testimony prejudicial to the client. We moved for an evidentiary hearing on this subject, because our underlying contentions included the contention that the lawyers for the defense witnessed the intentional torts that underlay the case.

Illinois law takes a motion to disqualify an attorney very seriously. Disqualifying a lawyer is considered drastic under state law, because it touches on basic rights by destroying the client’s relationship with the lawyer of his or her choosing. Schwartz v. Cortelloni, 177 Ill.2d 166 (1997). For that reason, an evidentiary hearing to determine what evidence is relevant and admissible is generally either necessary or wise. City of Kalamazoo v. Michigan Disposal Service, 125 FSupp2d 219 (WD Mich 2000). In fact, some appeals courts have found that a lack of an evidentiary hearing is sufficient to allow them to question a trial court’s decision.

However, Illinois and federal courts have held that an evidentiary hearing is unnecessary when the facts are not disputed, or when investigation is unlikely to provoke an admission that one side has ulterior motives. Robinson v. Boeing Co., 79 F3d 1053 (11th Cir 1996). The Eleventh Circuit’s decision in In Re BellSouth Corp., 334 F3d 941, 962 (11th Cir 2003), supporting Robinson, laid down factors for judges to consider when considering disqualifying an attorney for alleged “judge shopping.” These include “the fundamental right to counsel, the court’s docket, the injury to the plaintiff, the delay in reaching decision, the judicial time invested, the expense to the parties objecting and the potential for manipulation or impropriety.”

Contribution Act Does Not Bar Breach of Fiduciary Duty Claim in Embezzlement Case

October 22, 2008 | Peter S. Lubin and James V. DiTommaso

In a Chicago breach of contract and breach of fiduciary duty case, the Illinois First District Court of Appeal has ruled that an insurance company may sue a bank for allowing embezzlement from one of the insurer’s clients. Continental Casualty Company v. American National Bank and Trust Company of Chicago, No. 1-07-0627 (Sept. 25, 2008).

Continental Casualty Company is the assignee of General Automation, Inc. GAI was the victim of $1.32 million worth of embezzlement by an accountant, Lawrence Cohn, who deposited $370,000 of the stolen money into his own account at American National Bank. (He also embezzled by paying his client’s money directly to the IRS to cover his own taxes.) The checks drew on GAI’s corporate account, also at ANB. After Cohn was caught, his former accounting firms settled with GAI, but the bank did not. Continental Casualty, the insurer for one of Cohn’s former firms, sued ANB as GAI’s assignee for allowing the fraudulent deposits, for breach of contract and violation of the Illinois Fiduciary Obligations Act.

The trial court dismissed the case on statute-of-limitations and insufficiency grounds. The appeals court reversed and remanded, but the trial court again stopped the case, granting summary judgment to ANB because the Illinois Joint Tortfeasor Contribution Act bars settlement requests from a settling party to a nonsettling party. This was the subject of the instant appeal.

Shareholders Cannot Use Attorney Client Privilege to Effect a Freeze-Out

October 20, 2008 | Peter S. Lubin and James V. DiTommaso

Our Chicago business litigation firm recently handled a case in which one 50% shareholder allegedly tried to freeze out the other using lawyers hired by the companies owned equally by both. When our clients filed a shareholder freeze-out and breach of fiduciary duty claim and began discovery, the defendants balked, citing the attorney-client privilege to explain why they should not be required to turn over important and incriminating information.

As experienced business litigators know, this is no defense at all. Because our clients were equal shareholders in the business, we argued they were entitled to access to certain attorney communications. Furthermore, there is well-established law showing that the attorney-client privilege cannot be misused to deny discovery when the company or its officer is accused of breaching its fiduciary duty to stockholders. In other words, fiduciary duty trumps the privilege. Caselaw says a corporation may not use the privilege to shield relevant communications from discovery in an action by its own stockholders, unless there is good cause. The multipart test for good cause developed by the courts takes into account the nature of the communication, the seriousness of the allegations and other factors. Garner v. Wolfinbarger, 430 F2d 1093 (5th Cir. 1970).

The attorney-client privilege also cannot be raised when the disputed communications were made after the date the attorney and client began a fraudulent or criminal scheme that was part of the lawsuit. That is, communications about crime, fraud or torts are excepted from the attorney-client privilege. Cleveland Hair Clinic, Inc. v. Puig, 968 FSupp 1227, 1241 (ND Ill 1996). Unfortunately, we believed this to be the situation in our case.

Trademark Dispute Between Naperville Small Business and National Corporation Can Proceed

October 16, 2008 | Peter S. Lubin and James V. DiTommaso

In a business trademark dispute, the Seventh Circuit has ruled that large auto parts retailer AutoZone may proceed with its trademark infringement lawsuit against a two-store automotive services business in Naperville and Wheaton, Illinois, called Oil Zone and Wash Zone. AutoZone, Inc. v. Michael Strick, No. 07-2136 (7th. Cir. Sept. 11, 2008).

AutoZone sells auto parts and products, and has been well-known in the Chicago area since the early 1990s, according to the opinion. In that decade, defendant Michael Strick opened his Oil Zone stores outside Chicago, in Wheaton and Naperville. These stores sold automotive services such as oil changes, not parts or products; the Naperville location also offered car washes under the name “Wash Zone.”

AutoZone learned of Strick’s businesses in 1998, but did not contact him until sending a letter in February of 2003. It filed a lawsuit against Strick and his businesses near the end of that year, alleging service mark, trademark and trade name infringement and trademark dilution under the federal Lanham Act, federal unfair competition law, the Illinois Trademark Registration and Protection Act and Illinois common law. Both sides sought summary judgment, which was granted to Strick only, on his claim that there was no reasonable likelihood of confusion between his trademark and AutoZone’s. Strick’s defense of laches — that AutoZone had waited too long to sue — was not addressed. AutoZone appealed on the likelihood of confusion issue.

Protect Yourself from Abusive Bill Collectors With the Fair Debt Collection Practices Act

October 14, 2008 | Peter S. Lubin and James V. DiTommaso

We have watched with dismay as report after report rolls in with bad financial news. Just like other Americans, many individuals and families here in the Chicago area are having more trouble making ends meet right now and may be at risk of losing their homes. Because our consumer rights and debt collection abuse prevention lawyers handle consumer litigation in Chicago, Oak Brook, Naperville and other parts of Illinois, we are particularly concerned about unfair and abusive practices by bill collectors, who many people may be hearing from more and more these days. Many consumers don’t realize it, but we are actually protected under federal law from some of the worst excesses of collection agencies by the Fair Debt Collection Practices Act.

The FDCPA prohibits abusive and deceptive conduct by companies that collect debts. This covers a wide variety of practices, including misleading statements and outright lies, threats, abusive or foul language, attempts to embarrass the consumer publicly, bypassing the consumer’s lawyer and tacking on fees or interest the consumer never agreed to. Under the law, debt collectors may not harass you with repeated unnecessary phone calls, call you names, use a raised voice or curse words, or call you at work after you’ve explained in writing that your employer does not allow it. If they threaten lawsuits, wage garnishments or other legal actions, those actions must be possible and they must follow through.

In addition, the law requires debt collectors to follow certain rules, including:

Fallen Investment Bank Socked With Fair Debt Collection Practices Lawsuit

October 13, 2008 | Peter S. Lubin and James V. DiTommaso

Given all of the more recent high-profile financial failures, it might be easy to forget the fall of Bear Stearns, the first investment bank to go down in our current economic downturn. But we were interested to read recently that the firm recently settled charges that it violated the Fair Debt Collection Practices Act, a federal law our Chicago, Naperville and Oak Brook debt collection abuse prevention lawyers work with often in our Chicago consumer rights litigation practice. According to the Chicago Tribune, Bear Stearns and its mortgage debt collection subsidiary, EMC Mortgage, settled multiple FDCPA charges with the Federal Trade Commission for $28 million in September, and also agreed to change its loan servicing policies.

As with so much other economic news in 2008, the problem started with subprime and other non-standard mortgages. Bear Stearns was heavily invested in these (by buying them from the original lenders), a choice that is largely blamed for its failure. EMC serviced those mortgages, and according to the FTC, committed multiple violations of the FDCPA in its dealings with mortgage holders. The FTC complaint charged EMC with failing to check into the information provided by the original lenders on the mortgages, which led to incorrect charges and incorrect reports to credit bureaus that hurt the homeowners’ credit. EMC was also charged with:

• Charging fees homeowners never authorized, including a $500 fee for “loan modification”