Chicago Business Litigation Lawyer Blog

Midwest Insurers Have Duty to Defend in Junk Fax Class-Action Suits

May 25, 2008 | Peter S. Lubin and James V. DiTommaso

The Illinois Supreme Court handed a victory to plaintiffs throughout Illinois with its 2006 ruling in an insurance dispute over whether insurers must cover the costs of a junk fax class action lawsuit for an insured covered for an “advertising injury.” In Valley Forge Insurance Co. v. Swiderski Electronics, Inc., 2006 Ill. LEXIS 1655, the state Supreme Court ruled that business insurers have a duty to defend “junk fax” class action lawsuits.

The underlying dispute in the Illinois Supreme Court case started when private investigator Ernie Rizzo filed a proposed class action lawsuit against Swiderski Electronics for sending him “junk faxes.” Unsolicited advertisements sent via fax violate both the federal Telephone Consumer Protection Act and the Illinois Consumer Fraud and Deceptive Business Practices Act. Swiderski had an insurance policy from Valley Forge Insurance Company, which insured Swiderski against a personal or advertising injury that arises out of “Oral or written publication, in any manner, of material that violates a person’s right of privacy[.]” The insurer claimed that because the faxes had not revealed Rizzo’s own personal information, they did not invade his privacy and thus were not covered. They also claimed that sending information via fax does not constitute publication.

The insurer asked a trial court for a declaratory judgment stating it was not obligated to cover Swiderski; all parties filed cross-motions seeking summary judgment. The trial court ruled in favor of Swiderski, as did the appellate court and, eventually, the Illinois Supreme Court. That court rejected Valley Forge’s arguments, rejecting the claim that faxing is not “publication,” using the plain meaning of the word. It also ruled that privacy under the federal TCPA and caselaw includes the right to be left alone:

Bond Filing Absolutely Must Precede Attachment Order Under Illinois Attachment Act, Appeals Court Rules

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

In a business fraud lawsuit pitting a bank against its security vendor, the Illinois Appellate Court for the 1st District ruled May 1 that an attachment order must be voided under the Illinois Attachment Act if plaintiffs fail to file an attachment bond beforehand. In ABN Amro Services Company, Inc. v. Navarrete Industries, Inc., No. 1-07-0089 (Ill. App. 2008), the appeals court voided such an order and remanded it to the trial court.

The case arose from alleged fraud by INS, which provided security for multiple Chicago-area La Salle Bank branches. A fraud investigator discovered that Armando Navarrete of INS was fraudulently overbilling the banks by an alleged $15.9 million, then paying kickbacks to the banks’ vice president for security, George Konjuch. The bank filed a lawsuit in September of 2006 against INS, Konjuch, Navarrete and another INS employee, alleging fraud, civil conspiracy and constructive trust, plus breach of fiduciary duty against Konjuch. (Konjuch and Navarrete have since been indicted by a federal grand jury for the scheme.)

At the same time, plaintiffs asked for a temporary restraining order, a preliminary injunction and an order of statutory prejudgment attachment, all of which were attempts to keep the alleged conspirators from absconding with the money. Upon receiving notice of these filings, defendants immediately filed motions to void the restraining order and the prejudgment attachment. After hearings, the trial court dissolved the restraining order and denied the preliminary injunction, but declined to vacate the attachment order. Both sides appealed.

Federal Judicial Center’s “Managing Class Action Litigation: A Pocket Guide for Judges” is an Excellent Research Tool for Class Action Lawyers and Judges

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

The Federal Judicial Center’s “Managing Class Action Litigation: A Pocket Guide for Judges” is an excellent research tool for class action lawyers and judges. The Manual covers in a very informative and useful manner many of the basic issues that come up in class-actions. By covering the judge’s perspective it helps class action attorneys prepare the issues in a manner that will persuade the Court. To review the Manual click on this link Managing Class Action Litigation: A Pocket Guide for Judges.

Seventh Rules Credit Must Be Firm, But Not Valuable Under FCRA

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

The Seventh U.S. Circuit Court of Appeals recently issued an opinion limiting class-action lawsuits regarding “firm offers of credit” under the federal Fair Credit Reporting Act. In Murray v. New Cingular Wireless Services, 2008 WL 1701839 (7th Cir. April 16, 2008), the Seventh Circuit also limited the scope of its 2004 decision in Cole v. U.S. Capital, Inc., 389 F.3d 719 (7th Cir. 2004). In that decision, the court said that when companies offer “a token line of credit” along with consumer goods, that credit offer must have value to the customer.

Among the issues addressed by the court are:

* Under Cole, an offer of credit entangled with an offer of merchandise must be valuable. However, Cole does not apply to “pure offers of credit” not entangled with another offer. The FCRA requires only that an offer of credit be firm, not that it be valuable to most or all of its recipients.

Tolling Agreement Supersedes Statute of Limitations in Legal Malpractice Case

May 23, 2008 | Peter S. Lubin and James V. DiTommaso

The Illinois Appellate Court for the 1st District ruled May 7 that a legal malpractice class action against the law firm DLA Piper Rudnick Gray Cary could not go on because it was filed well after a tolling agreement ended. In Joyce v. DLA Piper Rudnick Gray Cary LLP, 1-07-1966 (Ill.App. May 7, 2008), the court upheld the dismissal of a purported class action by stockholders of 21st Century Telecom Group, a Chicago telephone company, pursuant to a tolling agreement between 21st Century and DLA Piper.

The underlying dispute started in 1999, when 21st Century agreed to merge with competitor RCN. DLA Piper attorneys drafted a merger agreement with a mistake that lowered the price of the stock 21st Century shareholders were to receive by $19 million. In response, Edward Joyce, the stockholders’ representative, made a tolling agreement with DLA Piper, in which the statute of limitations was tolled unless a stockholder lawsuit was filed against the firm on or before December 31, 2002. The firm agreed not to avail itself of any statute of limitations defense until after that day. This agreement was amended four times, each time altering only the date. The last agreement set that date at August 21, 2005.

Joyce filed a legal malpractice class action in Cook County against DLA Piper on August 30, 2006. After some procedural disputes, including a finding by the trial court that the filing was timely, the firm won a motion to dismiss based on plaintiff’s lack of standing as a non-client. The plaintiffs appealed and the defendant cross-appealed on the trial court’s decision that the suit was timely.

The Chicago Consumer Attorneys at DiTommaso Lubin Win Precedent In Hotel Billing Fraud Case

May 23, 2008 | Peter S. Lubin and James V. DiTommaso

Our firm obtained a favorable verdict in a consumer fraud case with Terrill v. Oakbrook Hilton Suites & Garden Inn 788 NE2d 789 (2nd Dist 2003). In that case, our client, Cathy Terrill, was overcharged for a hotel room; her bill contained a charge for “taxes” that included an undisclosed non-tax charge for security services. This case was part of a set of class actions in Du Page County from 2000 to 2007 (Oakbrook Terrance Hotel Overcharge Class Actions), all of which alleged that hotels misled and overcharged their customers by including non-tax charges as “taxes” on their bills.

In Terrill, the Oakbrook Terrace Hilton moved for summary judgment at the trial court, claiming the Hotel Operators Occupation Tax Act (35 ILCS 145/3(f)) and Illinois Supreme Court precedent barred Terrill’s suit. The trial judge denied that motion and the hotel appealed. It claimed that because the security fees paid for extra security from Oakbrook Terrace law enforcement — a local government entity with the power to collect taxes — it had already paid the extra money to the state Department of Revenue and could not be sued.

The Illinois Second District Court of Appeal rejected that argument, calling it “untenable at best”:

Illinois Supreme Court Rules Subcontractors Are Not Subject to Consumer Protection Law

May 23, 2008 | Peter S. Lubin and James V. DiTommaso

The Illinois Home Repair and Remodeling Act does not apply to subcontractors, the state Supreme Court ruled April 3. The court’s decision in MD Electrical Contractors, Inc. v. Abrams, (Il. Sup. Ct. 2008; Doc. No. 104000) resurrected an electrical subcontractor’s breach of implied contract lawsuit against a Napierville family.

The dispute started in 2004, when Abrams family contracted with Apex Builders, Inc. for improvements to their home. MD Electrical Contractors, Inc., did just under $15,000 worth of electrical work on the project as a subcontractor. It was not paid for that work, and in 2005, it sued the family for payment. In its complaint, MD stipulated that it had no contract with them. The Home Repair and Remodeling Act (HRRA) requires repair and remodeling contractors that work with individual homeowners to provide a written contract and a consumers’ rights brochure to customers. Because MD had not provided a contract or a brochure to the defendants, as required by the HRRA, defendants argued that there could be no implied contract, under the plaintiffs’ theory of quantum meruit. They successfully moved to dismiss at the trial court level, but were reversed by the appellate court, which ruled that the HRRA does not apply to subcontractors. The Illinois Supreme Court agreed.

In its review, the court noted that the common understanding in home repair work is that subcontractors work directly for contractors, who in turn work for homeowners. That understanding is critical for interpreting the HRRA, said the court. Relying on the plain language of the law and the accompanying brochure, definitions of terms, other laws and legislative intent, it found that the HRRA does not apply to subcontractors:

FACTA Class Actions Grow

May 23, 2008 | Peter S. Lubin and James V. DiTommaso

Since the Fair and Accurate Credit Transactions Act took full effect in 2006, businesses have seen a rapid growth in class-action lawsuits over credit card numbers printed on receipts. FACTA, which was intended to help prevent identity theft, requires businesses that accept credit cards to hide all but the last five digits of the card number on receipts, and not to print the expiration date at all.

Businesses that failed to meet those requirements in time were hit with hundreds of class actions within the first year of the law’s effective date in December of 2006. Restaurants, at which consumers regularly and normally leave credit card receipts, have been an especially frequent defendant. The actions allege that businesses in violation of FACTA are willfully disregarding the law because they had several years to comply, and ask for up to $1,000 for each violation. Federal appeals courts split on the matter of whether a business’s unintentional failure to comply with FACTA was “willful,” but the U.S. Supreme Court decided in 2007’s Geico v. Edo, 551 U.S. __ (2007), an appeal from the Ninth U.S. Circuit Court of Appeals, that a willful violation may be “reckless disregard” for the law as well as a knowing or intentional violation.

Senator Charles Schumer of New York introduced legislation on May 6, 2008 that would end liability for businesses that print expiration dates but comply with the requirement to shorten credit card numbers. The proposed Credit and Debit Card Receipt Clarification Act of 2008 would declare any business that printed the expiration date but not the entire number to be “not in willful noncompliance” with FACTA. It would apply to any unresolved lawsuit, regardless of when that lawsuit was filed.

Contract Counterclaim Fails and Sanctions Upheld, Seventh Circuit Rules

May 23, 2008 | Peter S. Lubin and James V. DiTommaso

The Seventh U.S. Circuit Court of Appeals issued a ruling May 13 in United Stars Industries, Inc. v. Plastech Engineered Products, Inc., 07-2919 (7th Cir. 2008), a business contract dispute in which Plastech alleged that its tubing supplier, United Stars, overcharged it by about $1.6 million. The case is also notable because the appellate court upheld $30,000 in sanctions against the law firm Jones Day for “frivolous claims.”

The underlying dispute started when United Stars notified Plastech, its customer, that it had been charging Plastech surcharges for the cost of raw materials, even though about 9% of those materials were lost during processing. Plastech contends that it did not agree to pay the full amount of those surcharges; thus, it believed United Stars owed it about $900,000, and Plastech refused to pay another $700,000 bill, for a total of $1.6 million in dispute. Plastech stopped paying United Stars, even after reaching a purported compromise in 2005, then found another vendor. In the ensuing lawsuit, in U.S. District Court for the Western District of Wisconsin, the judge awarded $1.3 million to United Stars, sending Plastech into bankruptcy.

On appeal, Plastech contended that the trial judge erred in deciding that the companies reached a compromise in 2005. However, the Seventh said, Plastech’s claim fails regardless of whether there was a compromise, because it did not present “a scrap of evidence” to support its interpretation of the companies’ contract. Furthermore, the language of the contract itself favored United Stars.

Pennsylvania District Court Certifies Health Club Fee Class Action

May 23, 2008 | Peter S. Lubin and James V. DiTommaso

As billing fraud class action attorneys, we were pleased to see that a Pennsylvania federal district court recently certified a class in a lawsuit alleging three health clubs in Pennsylvania charged excessive startup fees. In Allen v. Holiday Universal, the court certified a class of all plaintiffs who joined a Bally Total Fitness in Pennsylvania (which includes Holiday Universal, Inc. and Scandinavian Health Spa gyms) on or after December 7, 1998 and paid more than $100 in startup costs.

In a 63-page Memorandum of Order, U.S. District Judge Gene Pratter of the Eastern District of Pennsylvania rejected several arguments raised by the defense that the class should not be certified. Among those arguments were:

* Club members with different contracts were too different to form a class.