Breach of Contract

Guarantors of Commercial Lease Are Liable Even After Lease Changes Hands, First District Rules

December 11, 2008 | Peter S. Lubin and Patrick Austermuehle

As Naperville, Oak Brook, Wheaton, and Chicago business trial lawyers with substantial experience in shopping center claims, we were interested to see a recent decision by the First District Court of Appeal on the obligations of people who guarantee a lease. A change in the lease and a directed verdict at trial do not relieve a couple of their liability as guarantors of a commercial lease, the court has ruled. In Chicago Exhibitors Corporation v. Jeepers! Of Illinois and Swento, 1-06-3313 (Aug. 30, 2007), the court ruled that a guaranty agreement written to survive changes to the lease is enforceable even if the lease is assigned to a new tenant who changes it without the guarantor’s approval.

Harvey and Cherry Swento owned a business that leased space from a predecessor landlord to Chicago Exhibitors Corporation (CEC). To sweeten that lease, the Swentos in 1991 personally guaranteed their lease payments and all of their other obligations as tenants, with a clause specifying that the guaranty would survive changes to or assignment of the lease. In 1997, they sold their business to Jeepers! of Illinois, Inc. and executed an agreement in which Jeepers! indemnified them from losses stemming from their personal guaranty. Jeepers! then failed to pay its rent, causing CEC to demand an amendment to the lease that reaffirmed the Swentos’ personal guaranty. CEC declined to recognize the transfer of lease obligations from the Swentos’ company to Jeepers! until rent was paid in full and Jeepers! executed its own guaranty.

Jeepers! never did take on the guaranty, but it failed to pay its rent again several times. In an effort to avoid eviction, it agreed to several changes to the lease in January of 2001. The Swentos did not sign this amendment, even though it called for the ratification of all guarantors. When CEC eventually sued Jeepers! for unpaid rent and repairs, it included the Swentos as guarantors. In the trial, the Swentos asserted that the January 2001 amendment was a material change that discharged them from their obligations as guarantors; CEC successfully moved in limine for a ruling that it was not. The parties then agreed to move straight to the damages phase of the trial, so the judge granted a directed verdict on liability. The Swentos were eventually found liable for unpaid rent and damages as well as attorney fees. They appealed the in limine motion, the directed verdict and the award of attorney fees.

Restrictive Covenant Does Not Apply to Shopping Center Lease, Fourth District Decides

November 27, 2008 | Peter S. Lubin and Patrick Austermuehle

As Chicago business trial attorneys with substantial experience in disputes involving shopping centers, our firm was interested to see a recent Fourth District Court of Appeal decision allowing a shopping center to go through with its lease despite a restrictive covenant in a land sale by its predecessor. In Regency Commercial Associates v. Lopax, 4-06-0332 (May 4, 2007), the appeals court upheld the trial court’s ruling that the business at issue was not covered by the covenant, and that starting the lease while the case was still pending did not bar it from requesting a declaratory judgment.

Regency Commercial Associates, LLC and Lopax, Inc. are companies that own neighboring parcels of land in Savoy, Ill. The prior owner of Regency’s land, Arbours Development Limited Partnership, sold Lopax its land, which Lopax then leased to a Kentucky Fried Chicken franchisee. The sales contract between Lopax and Arbours restricted Arbours from allowing another “fast-food restaurant … or restaurant facility whose principal food product is chicken[.]” It also lists the types of businesses allowed, which include “casual dining.” Regency later purchased Arbours’ rights under the contract.

When Regency wanted to lease to a Buffalo Wild Wings restaurant, it negotiated with Lopax, arguing that the restaurant is “casual dining” and not fast food. Lopax disagreed, saying it believed the contract restricts any restaurant that primarily serves chicken. Regency filed for declaratory judgment, asking the court to find that Buffalo Wild Wings is not fast food and that the covenant restricts only fast-food restaurants that primarily sell chicken. Finding that there was a genuine issue of material fact to try, the court denied Lopax’s motion to dismiss.

Chicago Federal District Court Strikes Down Mandatory Arbitration Clause

October 28, 2008 | Peter S. Lubin and Patrick Austermuehle

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.

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

October 22, 2008 | Peter S. Lubin and Patrick Austermuehle

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.

Using Forensic Accountants and Certified Fraud Examiners in Shareholder, Business, Divorce and Commerical Litigation

July 23, 2008 | Peter S. Lubin and Patrick Austermuehle

As Chicago business, shareholder rights and commercial law litigators, we frequently handle cases involving allegations of business fraud or financial mismanagement, often as part of complex business dispute, that require significant expertise in financial issues. When handling a divorce involving a family business or other closely held company, we also sometimes find we need an expert’s help properly valuing the business, so we can help our clients get the most equitable possible distribution of marital property.

Our Chicago, Oak Brook, Wheaton and Naperville business trial attorneys have handled many complex business and commecial law litigation matters which have involved presenting or cross-examining accounting witnesses.

While we’re confident in our legal skills, these situations call for specialized financial skills. To give our clients the best possible representation in business, shareholder and other commercial disputes, we sometimes retain a forensic accountant or fraud examiner. Both of these jobs are twofold: They help attorneys and their clients understand the complex financial aspects of their cases, and they may also be called to testify as expert witnesses. A forensic accountant’s job is to examine a person or corporation’s accounts “cold,” from the outside; the subject isn’t generally expected to cooperate. Similarly, a fraud examiner delves deep into a company’s finances, looking for the source of anything that seems inconsistent or suspicious. Both can serve as expert witnesses who help establish the value of a business or testify to the existence of fraud.

Company President Has No Standing to Sue Alleged Alter Ego, Appeals Court Rules

July 8, 2008 | Peter S. Lubin and Patrick Austermuehle

In an Illinois business contract lawsuit, the Third District Court of Appeal has ruled that a company’s president may not hold his financer and business partner liable for the company’s debts as an alter ego. Semade v. Estes, 05–CH–31 (June 29, 2007).

Charles Semade and Nicholas Estes formed a private corporation, Heartland Pottery Company, in 1995. Estes provided financing; Semade served as president and CEO. Unfortunately, the company did not succeed. Semade filed a lawsuit against Heartland in 1998 for unpaid salary and expense reimbursements. In that case, he won a judgment of more than $294,000, only to discover that Heartland had no assets.

Semade then filed a complaint against Estes himself, contending that Estes should be liable for the judgment because he was the company’s alter ego. Under the law, that means he alleged that Estes and Heartland were the same person for all practical purposes, allowing Semade to “pierce the corporate veil” of limited liability. Semade alleged that Estes controlled all parts of the company and put income and assets in his personal accounts. However, Estes moved for summary judgment, saying Semade lacked standing because he was a director and officer of the company. The trial court agreed, and on appeal, the Third District Court of Appeal agreed.

Our Chicago Consumer Attorneys Can Assist in Recovering Money Damages for Consumer Frauds– Federal Reserve Website Assists in Reporting Consumer Fraud to the Right Agency

May 31, 2008 | Peter S. Lubin and Patrick Austermuehle

Are you a consumer with questions or concerns related to potential fraud and do not know what government agency to contact? The Chicago Federal Reserve Bank provides a web page that allows you to link to government agencies that may help you. The web page has links to federal and state banking agencies, federal and state securities agencies, and state insurance agencies located in Illinois, Indiana, Iowa, Michigan, and Wisconsin. You can also link to various useful financial , insurance, and banking tools, and to lists of financial services regulators, and consumer complaint filing information. Click here to link to the Chicago Federal Reserve Fraud web page.

If you need legal assistance in pursuing a civil lawsuit because government regulators cannot help you in recovering money lost due to fraud, our private sector lawyers can assist you by clicking here to contact us.

How to Avoid RV and Auto-Fraud — Chicago Consumer Attorneys Who Can File Suit to Recover Damages for RV and Auto-Fraud and Lemon Automobiles

May 29, 2008 | Peter S. Lubin and Patrick Austermuehle

Our law firm helps Chicago area consumers who are victims of auto and RV fraud or who purchased vechicles that are lemons to pursue lawsuits to regain their lost investment. For more information about our Nationwide Consumer Rights lawyers click here.

There are many practical ways to protect yourself from auto and RV fraud or from purchasing a lemon vechicle.

The National Association of Consumer Advocates provides the following well thought out advice on how to avoid auto fraud:

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

May 25, 2008 | Peter S. Lubin and Patrick Austermuehle

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:

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

May 23, 2008 | Peter S. Lubin and Patrick Austermuehle

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”: