Articles Posted in Business Disputes

While many consider an oral agreement to be as binding as a legal contract, not everyone chooses to see it that way. Bruton Smith, owner of Speedway Motors Inc. (SMI) and Charlotte Motor Speedway, discovered this for himself regarding an agreement he made with Cabarrus County in North Carolina.

According to the lawsuit, Smith agreed to build a drag strip and make more than $200 million in upgrades to the Charlotte Motor Speedway. In return, Concord and Cabarrus county officials offered $80 million in tax breaks. The deal was announced in November 2007 but was never put into writing until the day after the zMax Dragway officially opened in August 2008, three weeks before its first scheduled race.

The contract stipulated that SMI was to spend its millions in infrastructure improvements within three years, but would be reimbursed through property tax breaks as improvements increased the value of the drag strip. Smith rejected the contract and SMI and Charlotte Motor Speedway sued the city in September 2009. Concord was dropped from the case after agreeing to pay $2.8 million and getting land easements. It is a common method used by North Carolina governments to encourage company investment.

SMI’s lawyers allege that local officials made a verbal promise in 2007 to provide $80 million in no more than six years. They also allege that the county had a financial motive and therefore cannot defend itself with a local law which protects municipalities from lawsuits.
Lawyers for Cabarrus County on the other hand, claim that the 2007 agreement was “an agreement to agree, which is not an agreement at all”. They also said that the fact that SMI built the drag strip and made other improvements before the deal was finalized is not the fault of the county.

The county’s lawyers further declare that it would be difficult for the county to come up with $80 million quickly because it is permitted to collect no more than $104 million in property taxes each year. According to the lawyers, that information is public knowledge and so SMI cannot claim that it was blindsided.

The dispute began when Smith gave the orders for workers to start grazing land on speedway property for the $60 million drag strip 20 miles north of Charlotte before obtaining the requisite permits to do so. When the area residents complained about the potential for increased noise, Smith dismissed the complaints. In a 2008 interview, he asked, “Do you have any friends that built a house close to a speedway that didn’t know there was a speedway here? Can you imagine? All of you knew there was a speedway here, right?”
When local officials delayed in granting the permits, Smith threatened to build the drag strip elsewhere and move the speedway, which helps to foster a motorsports industry with an estimated worth of $6 billion a year in North Carolina.

It is not clear whether SMI – which owns the track and seven others in Georgia, Tennessee, California, Kentucky, Nevada, New Hampshire and Texas – has yet received any of the $80 million it was allegedly promised.

A judge dismissed the lawsuit last year but Smith is now trying to resurrect it. A three-judge state Court of Appeals panel will hold a closed-door discussion to determine whether the lawsuit will be heard by a jury. They are expected to reach a decision within the next three months and, if they decide to allow the case to move forward, it could be appealed to the Supreme Court. If the lawsuit does not move forward, SMI may have to wait as long as 40 years to be reimbursed.

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The Federal Telephone Consumer Protection Act (TCPA) makes it illegal to send unsolicited advertisements to fax machines. The Act provides that damages in these cases will be equal to the actual monetary loss suffered by the plaintiff or $500 per fax, whichever is greater. In the event that violation of the Act is found to be knowing and willful, the penalty is tripled.
In Standard Mutual Insurance Co. v. Lay, the defendant, a real estate agency, had hired a “fax broadcaster” which allegedly assured that only people who had agreed to receive advertisements would get its blast fax. This turned out not to be the case though, and the subsequent class-action litigation sought the triple penalty of $1,500 for each of the 3,478 faxes, which had reportedly been sent. The case settled for more than $1.7 million.

Meanwhile, the insurer filed a declaratory judgment action, seeking a declaration of no coverage. After the underlying action settled, the class representative became involved with the declaratory judgment action. The Circuit Court ruled in favor of the insurer and the Appellate Court upheld that ruling, stating that the TCPA penalties could not be insured as a matter of public policy, since they were punitive damages.

The attorney for Lay argued that it was the nature of the conduct, rather than the nature of the penalty, which should determine insurability. He explained that the insured’s conduct was not willful or wanton and did not involve the type of intentional wrongdoing which public policy does not allow to be insured as it would encourage such conduct. The attorney argued that a point by point or “conduct by conduct” analysis is necessary when determining whether conduct is uninsurable as a matter of public policy because it involves willful and wanton misbehavior. The attorney argued that Valley Forge Insurance Co. v. Swiderski Electronics ruled that TCPA damages have the potential to be covered under an advertising injury policy, much like the one involved in the case currently before the Court and that no intentional wrongdoing was involved.

The attorney for the insurer argued that there was an issue of possible breaches by the insured of the policy. The insurer defended under a reservation of rights letter. About four months after the case was filed, the attorney that had been hired by the insurer was fired by the insured. A month or two later, the insured agreed to the $1.79 million settlement with a covenant not to execute against any of the insured’s assets. The insurer’s attorney thereby suggested that there were questions of a breach of the cooperation clause and a voluntary payment had been undertaken. Chief Justice Kilbride asked the attorney if the insurer knew about and objected to the insured’s settlement. The attorney responded that the insurer had not been aware of the settlement.

The attorney for the class representative counter-argued that the insured had the right to settle under the circumstances and that the insurer had certainly known about the settlement.
The Illinois Supreme Court heard these arguments on the final day of the March term and is expected to make a decision in the fall. You can watch the oral argument before the Supreme Court by clicking here.

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Our Chicago class action and consumer rights attorneys fight for consumers rights in Illinois and throughout Illinois and the country. Our Chicago class action law firm pursue breach of contract and consumer fraud cases for consumers all over the country and in Kane, DuPage and Cook County Illinois as well as throughout the states of Illinois, Indiana, Wisconsin, Iowa, and Michigan.

Our Naperville and Aurora, Illinois consumer rights private law firm handles individual and class action predatory lending, unfair debt collection, lemon law, and other consumer fraud cases that government agencies and public interest law firms such as the Illinois Attorney General may not pursue.

The Chicago consumer rights attorneys at DiTommaso Lubin are 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.

This blog has recently discussed the matter of Johnson & Johnson’s faulty hip implants. The Articular Surface Replacement (ASR) was released in the United States in 2005 and recalled in 2010. It is now the subject of more than 10,000 lawsuits filed against Johnson & Johnson. The first of these to go to trial was in Los Angeles, California and the jury recently decided in favor of the plaintiff.

Loren Kransky, a retired prison guard, was not supposed to be the first of the 10,000 cases to go to trial. He was diagnosed with terminal cancer though, and his case was moved up. The jury deliberated for five days before finding the device faulty and awarding Mr. Kransky $338,000 for his medical bills and $8 million for his pain and emotional suffering. They decided against issuing punitive damages because they did not believe that DePuy acted with fraud or malice.
Johnson & Johnson says it will appeal the ruling and it disputed the decision that the device had a flawed design.

The all-metal device’s design caused the cup and ball to strike against each other as the patient moved, shedding metallic debris into the body as it did so. The debris inflamed and damaged the surrounding tissue and bone, causing pain and, in some cases, permanent injuries.
All-metal implants have become mostly obsolete because most of them suffered from similar flaws. However, data suggests that the ASR was much worse than competing products. An internal Johnson & Johnson document for example, showed that close to 40% of patients who received the ASR would need to undergo a second operation within five years to have the device removed or replaced.

Traditional artificial hips on the other hand, made of metal and plastic, are expected to last at least 15 years before needing replacement. The normal replacement rate for early unexpected failures after five years is about 5%.

Experts have speculated that Johnson & Johnson will spend billions to resolve all of these lawsuits. If juries continue to award damages in amounts similar to the one they gave Mr. Kransky, the speculations will no doubt prove accurate enough. Thousands of the individual cases have been consolidated into one large proceeding in a Federal District Court in Ohio. That should simplify matters somewhat and speed up the process. A resolution of that action could also provide a framework for settling the bulk of the cases and determining awards to patients.

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After the seller of a business sued the buyer to enforce a promissory note, signed as part of the sale, the buyer asserted a defense of fraudulent inducement in Bu v. Sunset Deli Park of NY Corp, et al. The buyer alleged that the seller misrepresented the weekly income of the business prior to the sale. The New York Supreme Court in Brooklyn denied the plaintiff’s motion for summary judgment, finding that the defendants had raised sufficient issues of fact as to their fraud defense.

The plaintiff, Su Nam Bu, sold her deli business to defendant In Suk Cho for $220,000 in September 2010. The stock purchase agreement executed by the parties stated that Cho would pay Bu $1,000 upon signing the agreement, and $49,000 at closing. Cho signed a promissory note on September 27, 2010 for the remaining $170,000, in which she would pay thirty-six monthly installments beginning in March 2011, plus a lump sum payment of $50,000 by September 15, 2012. A security agreement, or “chattel mortgage,” signed by the parties pledged the deli’s property, inventory, accounts receivable, equipment, and fixtures as collateral for the promissory note.

Cho made six payments on the note, but the seventh and eighth payments allegdly bounced. Bu filed suit to enforce the note. Cho answered with a fraudulent inducement defense, claiming that Bu represented the deli’s weekly income as $15,000 to $17,000 prior to the sale, but Cho found it to be an average of $11,000 to $12,000 upon taking over its operations.

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When things go wrong in the operating room, it can sometimes be difficult to discern who the real perpetrator is. In the case of thousands of hip implants designed and sold by Johnson & Johnson, the issue is with the company producing and selling the implants, not the hospital or the doctor. Andrew Ekdahl, appointed in 2011 to head the company’s troubled DePuy Orthopaedics division after the flawed implant had been recalled, tried at first to say that it was not the design that was flawed. Rather, he argued that the surgeons were not implanting them correctly.

However, there is much evidence which allegedly points to the contrary. Before it was sold in the U.S., the device (the Articular Surface Replacement, or A.S.R.) was used in other countries for an alternative hip replacement procedure called resurfacing. It was not used in the United States because the Food and Drug Administration would not pass it due to concerns about “high concentration of metal ions” found in the blood of patients who had received the device.
Mr. Ekdahl, head of the marketing team in charge of the device at the time, failed to disclose this information when marketing the device outside of the United States. When a news article appeared last year about the FDA’s ruling, Mr. Ekdahl issued a statement that any implication that the FDA had determined there were safety issues with the A.S.R. was “simply untrue”. In 2009, the FDA was still asking the company for more safety information regarding the hip implant version which was being used in the United States.

Since the A.S.R.’s introduction to the U.S. in 2005, more than 10,000 lawsuits have been filed against DePuy regarding the device. The first of these cases to go to trial is currently being fought in court in Los Angeles. Recently, portions of Mr. Ekdahl’s videotaped testimony was shown for the jury. In the video, when pressed as to whether DePuy decided to recall the A.S.R. due to safety issues, Ekdahl insisted that the company did it “because it did not meet the clinical standards we wanted in the marketplace.”

Despite that assertion, Mr. Ekdahl and other DePuy marketing executives all allegedly publicly stated at the time that the device was performing extremely well. Internal documents on the other hand, conflict with those statements. The documents have recently been made available to the public as a result of the litigation.

Included in these documents is a statement made in 2008 by Dr. William Griffin, a surgeon who served as one of DePuy’s top consultants. He allegedly told Mr. Ekdahl and two other DePuy marketing officials that he had concerns regarding the cup component of the A.S.R. and that he believed it should be “redesigned”.

Before the device was recalled in 2010, DePuy was aggressively promoting it in the U.S. as a breakthrough device and implanting it into thousands of patients. Yet internal DePuy projections estimated that it would allegedly fail in 40% of patients within five years, a rate eight times higher than normal.

According to Mr. Ekdahl’s testimony, he did participate in a meeting that resulted in a proposal to redesign the A.S.R.’s cup, but the plan was dropped. The reasoning used was that sales of the device did not justify the expense.

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With all the debate raging around healthcare these days, cases like this one must be particularly harmful to the reputation of companies like Hospital Corporation of America (HCA).

It is common practice for profitable hospital chains to buy community hospitals to convert to profit status. These purchases typically include an agreement for the purchaser to spend money to fix up the community hospitals and spend a certain amount on charitable care in the community.

In 2003, HCA purchased twelve hospitals in the Kansas City area from Health Midwest for $1.125 billion. As part of the deal, HCA agreed to spend $300 million in capital improvements to the hospitals in the first two years and an additional $150 million in the three years after that. The hospital chain also agreed to maintain the levels of care which had previously been provided to low-income members of the community for ten years.

The Health Care Foundation of Greater Kansas City is a nonprofit organization which was created from the proceeds of the sale of the hospital. When they received their first report from HCA in 2004, they allegedly realized the company was already behind in their promised payments.

Of the $300 million that was supposed to have been spent in the first two years, records allegedly indicated that only $50 million had been spent.

HCA’s reports also allegedly indicated that the amount of charitable care provided in their inner-city hospital had fallen while the level of charitable care provided at the more affluent suburban hospital had gone up dramatically.

The foundation repeatedly asked HCA for an explanation but, when they received none, they finally filed a lawsuit against the health care company in 2009.

In the trial, HCA argued that it had met its obligation to spend money on hospitals by building two new hospitals rather than repairing the older facilities. However, Judge John Torrence of Jackson County Circuit Court decided that the agreement had specifically called for improvements to the existing hospitals, not the construction of new hospitals. He therefore ruled that HCA stilled owed $162 million of the $300 million it had agreed to spend between 2003 and 2005. He then named a court-appointed forensic accountant to determine whether HCA had provided the charitable care it had agreed to provide.

In his ruling, the judge said HCA’s own written statements included “differing amounts” of money spent on charitable care. One HCA report said it had provided $48 million in charitable care to the community in 2009 while another report on its Web site claimed that it had provided more than $87 million. The annual report to the foundation, on the other hand, said it had provided $185 million in charitable care that year.

When asked about the widely differing numbers, neither the president of HCA’s Midwest division nor other HCA executives could offer an explanation.

The $162 million will be paid to the foundation, which will use it to create grants to provide care for uninsured and under-insured families in the area. It is unclear whether the spending on improvements for the local hospitals will take place.

But HCA may end up required to cough up even more than the $162 million paid to the foundation, depending of what the court-appointed accountant discovers. Paul Seyferth of Seyferth Blumenthal & Harris, which represents the foundation, speculates that the HCA will “have a tremendously difficult time convincing anybody that they spent what they claim they spent”.

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