Business Disputes

Federal Arbitration Act Controls Dispute Between Construction Companies, Third District Finds

November 9, 2010 | Peter S. Lubin and Patrick Austermuehle

Our Illinois mediation and arbitration attorneys were interested in a court ruling on the controlling legal authority in a dispute over whether an issue is arbitrable. R.A. Bright Construction Inc. v. Weis Builders Inc., No. 3-09-0910 (Ill. 3rd June 9, 2010) pits construction company Weis Builders against its subcontractor, R.A. Bright Construction. A dispute later arose in which Bright claimed Weis owed it $765,701 under two contracts the parties had signed. Bright sued and Weis moved to dismiss, or alternatives, to compel arbitration. The trial court denied the motion, but two judges from the Third District Court of Appeal reversed that decision under the Federal Arbitration Act. A third dissented, saying the FAA cannot apply because no interstate commerce was involved in the dispute.

Weis, a Minnesota company with offices in four states, was originally hired to build a Wal-Mart in Lockport, Ill. Weis in turn hired Bright to do concrete work for $2.93 million, and later, underground utilities work for $679,567. Neither party alleged fraud or misrepresentation in those contracts. For reasons the opinion does not discuss, Bright alleged that Weis owed it $765,701 on those two contracts, which Weis denied. Bright sued and Weis filed a motion to dismiss and compel arbitration, or alternatively, to stay and compel arbitration, under the Federal Arbitration Act. Before that motion could be heard, Bright filed an amended complaint seeking to enforce a mechanic’s lien against Wal-Mart for the money. The trial court later denied the motion from Weis and this appeal followed.

In its appeal, Weis argued that section 2 of the FAA compels arbitration because the Illinois Supreme Court has found that the FAA mandates judicial enforcement of arbitration agreements “in any … contract evidencing a transaction involving commerce.” Bright disagreed for two reasons. It argued that the FAA does not apply because no interstate commerce was involved in this transaction. And even if it does, Bright said, the clause in question violates the Illinois Building and Construction Contract Act.

The Third started with the issue of whether the contract between Weis and Bright was interstate commerce. The U.S. Supreme Court has found that the FAA preempts state laws hostile to arbitration and is intended to exercise power over interstate commerce to the fullest, the court noted. To interpret this situation, it relied in part on Allied-Bruce Terminix Cos. v. Dobson, 513 U.S.265, 278, 130 L. Ed. 2d 753, 767, 115 S. Ct. 834, 841 (1995), in which the Supreme Court overturned the Alabama Supreme Court on a motion to compel arbitration. In that case, a homeowner was suing a pest control company for inadequate work, and the pest control company argued that the FAA applied because it had a “slight nexus” with interstate commerce. While the work was contracted and performed locally, the companies were multistate and some materials came from out of state.

Despite the intention of the parties to stay local, the Supreme Court wrote, a strict reading of the facts showed that the commerce was in fact interstate. Similarly, the Third wrote, the transaction between Bright and Weis was an interstate transaction in fact. Weis is a multistate corporation and Bright bought some materials from a Wisconsin company. Thus, their contract was interstate commerce within the meaning of the FAA and that law applied.

The Third next disposed of Bright’s argument that the clause violates the Illinois Building and Construction Contract Act, because the FAA allows consideration of contract defenses “upon such grounds as exist at law or in equity for the revocation of any contract.” While this is valid, the court said, a defense based on the Act is not grounds to contest “any contract”; it is grounds only to contest construction and building contracts. It noted that the state Supreme Court had recently made a similar ruling in Carter v. SSC Odin Operating Co., No. 106511 (Il April 15, 2010). Finally, the Third rejected a forum non conveniens defense, saying this is not a general contract defense but a procedural mechanism. Thus, a two-judge majority reversed the trial court and remanded the case with orders to stay and compel arbitration. The dissenter, Justice McDade, disagreed that the contract between Bright and Weis was a transaction involving interstate commerce, and thus argued that the FAA does not apply to this case. “Nothing beyond ‘the multistate nature of one of the parties’ (slip order at 8) demonstrates that the transaction ‘in fact’ involved interstate commerce.”

A New York City Federal Judge Allows Chevron to Depose Opposing Counsel

October 30, 2010 | Peter S. Lubin and Patrick Austermuehle

A New York City federal court has allowed Chevron to depose the opposing plaintiffs’ attorney judge. The Court took this unusual step in the toxic tort case against Chevron involving oil contamination in Lago Agrio, Ecuador. Most court’s generally bar the litigants from deposing opposing counsel calling it harrassment.

Judge Kaplan found that there was evidence in video out takes from a documentary film about criminal prosecutions arising from the contaimination claims that made it appear as if Plaintiffs’ counsel, Donziger had worked with an expert in Ecuador to cause Chevron’s lawyers from Gibson Dunn & Crutcher to be indicted there on criminal charges.

Judge Kaplan ruled: “The outtakes contain substantial evidence that Donziger and others were involved in ex parte contacts with the court to obtain appointment of the expert; met secretly with the supposedly neutral and impartial expert prior to his appointment and outlined a detailed work plan for the plaintiffs’ own consultants; and wrote some or all of the expert’s final report that was submitted to the Lago Agrio court and the Prosecutor General’s Office, supposedly as the neutral and independent product of the expert.”

First District Rules Creditor Has No Lien Rights on Payment of Unrelated Debt

October 19, 2010 | Peter S. Lubin and Patrick Austermuehle

Our Chicago business attorneys were interested to see a decision sorting out how an individual creditor with a judgment in his favor may collect on the debt. In Tobias v. Lake Forest Partners LLC, No. 1-09-1054 (Ill. 1st June 22, 2010), Andrew Tobias lent $500,000 to Lake Forest Partners, a Nevada corporation. The company defaulted on the loan and Tobias won a judgment awarding him the loan principal, interest and attorney fees, against Lake Forest as well as three people who personally guaranteed the loan: Mark Weissman, Christopher French and Albert Montano. The judgment originally called for more than $668,000 to be paid to Tobias, but Tobias successfully moved to amend the judgment to call for $662,172.21 “plus costs,” possibly to account for post-judgment attorney fees, costs and interest.

Meanwhile, intervenor Greystone Business Credit II won a judgment against Weissman individually in Florida federal court. Both Greystone and Tobias sought to recover their judgments by discovering assets owned by Weissman and held by another company, MEA Management LLC. Tobias filed his request some months earlier than Greystone, and Greystone’s request was stayed. MEA had $339,444 belonging to Weissman. Tobias requested that MEA release enough to satisfy his judgment and Greystone intervened to point out that it also had an interest in the money. Tobias later petitioned for post-judgment attorney fees and costs. After entertaining out-of-court attempts to resolve this conflict, the court awarded $86,845.12 to satisfy the original judgment for Tobias, and $126,299.44 each to Weissman and Greystone. The petition by Tobias for post-judgment fees was not addressed.

Tobias appealed, arguing that the $86,845.12 award was not “full satisfaction” of his judgment, since the post-judgment attorney fees were not paid. He argued that his post-judgment attorney fees claim should have been given the same priority as the rest of the judgment, meaning priority over any other party, including Greystone. Not surprisingly, Greystone disagreed, arguing that the post-judgment attorney fees had never been reduced to a judgment and could therefore not be enforced in this situation. The First District Court of Appeal agreed with Greystone. Under sec. 2-1402 of the Illinois Code of Civil Procedure, a judgment creditor may discover assets held by a third party for the debtor. But Supreme Court Rule 277 says these proceedings “may be commenced at any time with respect to a judgment which is subject to enforcement.” Under Bank of
Matteson v. Brown, 283 Ill. App. 3d 599, 602, 669 N.E.2d 1351 (1996), the First said, that means credits cannot discover assets until a judgment has been entered.

The First rejected the argument from Tobias that his post-judgment claim should have the same priority as the underlying claim because it is ancillary to the underlying debt. Because of Supreme Court Rule 277, the court wrote, no claim can achieve lien status until there is a judgment. The judgment in favor of Tobias never included post-judgment attorney fees, the court wrote. If he later obtains one, it would be prioritized behind earlier judgments, including Greystone’s. For those reasons, the First found that the trial court’s order was proper and affirmed its decision.

Developer’s Lawsuit Accuses Grocery Chain of Using ‘Dirty Tricks’ to Keep Wal-Mart Out of Town

September 30, 2010 | Peter S. Lubin and Patrick Austermuehle

Our Illinois business and commercial emergency attorneys were interested to read an article about a lawsuit suggesting corporate “dirty tricks” by the parent company of the Jewel-Osco chain of grocery stores. Rubloff Development Group Inc., a commercial real estate developer, made that accusation in a lawsuit filed in Chicago federal court in June. According to the Chicago Tribune’s Chicago Breaking Business blog, Rubloff believes Jewel-Osco hired Saint Consulting, a Massachusetts company, in secret to “harass and interfere” with a shopping center Rubloff was trying to develop in Munedelin, Ill., with a Wal-Mart as its “anchor.” Rubloff and other developers are seeking a declaratory judgment that documents in its possession do not contain confidential trade secrets belonging to Saint, as Saint has alleged.

According to Rubloff’s complaint (PDF), file in late June, Rubloff has documents it believes show that Jewel-Osco “secretly retained” Saint to delay or stop development of shopping centers slated to contain Wal-Mart stores, which might compete with Jewel-Osco. The complaint alleges that Saint is responsible for “false statements and sham litigation” against several of the plaintiffs’ developments, particularly the one in Mundelin. Sometimes, this was enough to make the Wal-Mart pull out, causing tens of millions of dollars in costs to the developers, it says. Rubloff claims it sent SuperValu a letter in early May with these accusations. Although that letter did not name Saint and was not sent to Saint, the complaint said, Saint responded a week later with a threat to sue Rubloff for “wrongful possession of … confidential, proprietary business information.”
Rubloff and its co-plaintiffs responded with this lawsuit. In it, they ask the court for a declaratory judgment that the information at issue is not privileged, confidential or trade secrets. They also ask the court to enjoin the defendants from spoiling any evidence, something they claim the defendants do routinely, and request damages for any evidence already spoiled. If permitted to submit the controversial information to the court under seal, they say they can raise claims of racketeering, tortious interference with business opportunities, fraud, antitrust claims and more, with tens of millions in potential damages.

As Chicago business emergency lawyers, we believe a declaratory judgment is a smart way for Rubloff and the other plaintiffs to strike first and avoid potentially damaging litigation in Massachusetts. A declaratory judgment is a court order declaring the legal relationships and obligations between the parties. In this case, it is likely to be a judgment declaring whether the documents at issue are trade secrets that deserve protection under Illinois law. If Saint is bluffing about this, filing for a declaratory judgment allows Rubloff to establish that fact without fighting a frivolous lawsuit, and in its own home court rather than halfway across the United States. A declaratory judgment in Rubloff’s favor would also allow the developer to go forward with its own business lawsuit against Saint and Jewel-Osco.

Illinois Securities Law Statute of Limitation Does Not Apply to Breach of Fiduciary Duty Claim

September 28, 2010 | Peter S. Lubin and Patrick Austermuehle

Our Chicago business litigation lawyers were interested in a recent decision from the First District Court of Appeal. Carpenter et al. v. Exelon Enterprises Company, No. 1-09-1222 (Ill. 1st March 18, 2010) posed a certified question to the court: Does the three-year statute of limitations established by the Illinois Securities Law apply to a claim that a majority shareholder breached its fiduciary duty to minority shareholders? In this case, the First decided that it does not, allowing Timothy Carpenter and seven co-plaintiffs to pursue a claim under a more generous five-year statute of limitations under the Illinois Code of Civil Procedure. Their victory in this interlocutory appeal allows them to continue their claim at the trial court level.

The plaintiffs all held minority shares of InfraSource, Inc., a Delaware corporation. The majority shareholder at 97% was Exelon, a Pennsylvania corporation. In 2003, Exelon created a new company for the purpose of divesting its interest in InfraSource, which allowed it to merge InfraSource with the new company. The resulting corporation sold some of its (formerly InfraSource’s) assets and business units to Exelon and others to GFI Energy Ventures, an independent third party. InfraSource would continue as a company, but the former minority shareholders were paid a pro-rated share of the proceeds. In 2007, the plaintiffs sued Exelon, alleging that it abused its power as majority shareholder. They accused Exelon of structuring the transaction in a way that did not adequately compensate them for the market value of their shares.

A second amended complaint said Exelon sold itself the InfraSource assets at an artificially low price and awarded itself preferred stock. It alleged causes of action for breach of fiduciary duty, civil conspiracy, and, against Exelon’s parent company, aiding and abetting those actions. Exelon moved to dismiss the second complaint based on the three-year statute of limitations in the Illinois Securities Law. The trial court denied this, finding that the five-year statute of limitations applied. However, it stayed further proceedings until the instant interlocutory appeal had been decided, answering the question of which statute of limitations is correct.

The First District started its analysis by examining the statue of limitations portion of the Illinois Securities Law. That language says plaintiffs have three years from the date of the relevant sale to bring claims under the Act, or on matters for which the Act grants relief. Plaintiffs specifically stated their claim under Delaware law in order to distance themselves from this statute of limitations, but Exelon argued that the statute still applies under the language allowing its use for matters for which the Act grants relief, and cited two cases in support. The plaintiffs countered that Illinois courts found that because the Act is modeled after federal securities laws, courts should look at how those laws are interpreted for guidance in interpreting the Act. Tirapelli v. Advanced Equities, Inc., 351 Ill. App. 3d 450, 455 (2004).

The First rejected both lines of case law, saying that the decision “actually depends on the resolution of a straightforward and fundamental question of statutory construction.” The relevant portion of the Illinois Securities Law gives any party in interest the right to bring legal action to enforce compliance or stop a violation. Exelon relies on that language to place the plaintiffs’ complaint under the Act, the court wrote, but incorrectly. When the Legislature added this language to the Act, it explicitly said it was trying to give Illinois security holders the right to stop illegal acts. It included the right to sue for rescission, the court said, but only to enforce the remedy the law provides. In fact, Guy v. Duff & Phelps, Inc., 628 F. Supp. 252 (N.D. Ill. 1985) explicitly examined whether the law gives a retrospective right of rescission to securities sellers and concluded that it should not be interpreted that way.

The First agreed, saying another reading would make other sections of the law irrelevant. It then dismissed arguments based on the Seventh Circuit’s finding in Klein v. George G. Kerasotes Corp., 500 F.3d 669 (7th Cir. 2007), saying the arguments that led to its contradictory conclusion did not apply, for all of the reasons discussed above. Because there is no retrospective right of rescission in the Act, the First said, the plaintiffs are not seeking relief on any matter for which the Act grants relief. Nor, as noted earlier, are they seeking relief under the Act itself. For that reason, the three-year statute of limitations provided by the Act does not apply, the court concluded. It answered the certified question posed by the trial court in the negative, essentially upholding that court’s decision, and remanded it for further proceedings.

The Wall Street Journal Reports: “Lars Johnson Has Goats on His Roof and a Stable of Lawyers to Prove It “

September 19, 2010 | Peter S. Lubin and Patrick Austermuehle

“Lars Johnson Has Goats on His Roof and a Stable of Lawyers to Prove It —
Having Trademarked the Ungulate Look, Restaurateur Butts Heads With Imitators.”
By JUSTIN SCHECK And STU WOO
The article discusses how a simple marketing idea of goats on a roof (which is simply a typical practice in some countries can be trademarked as a restaurant marketing symbol. The restaurant has filed lawsuits to enforce these claimed trademark rights against other restaurants which it claims copied its idea. The article states:

Any other business thinking of putting goats on the roof will have Mr. Johnson’s lawyers to contend with. A goat named Flipper stood on the grass roof of Al Johnson’s Swedish Restaurant.
Some patrons drive from afar to eat at the restaurant and see the goats that have been going up on Al Johnson’s roof since 1973. The restaurant 14 years ago trademarked the right to put goats on a roof to attract customers to a business. “The restaurant is one of the top-grossing in Wisconsin, and I’m sure the goats have helped,” says Mr. Johnson, who manages the family-owned restaurant. …

Last year, he discovered that Tiger Mountain Market in Rabun County, Ga., had been grazing goats on its grass roof since 2007. Putting goats on the roof wasn’t illegal. The violation, Al Johnson’s alleged in a lawsuit in the U.S. District Court for the Northern District of Georgia, was that Tiger Mountain used the animals to woo business. …

Danny Benson, the offending market’s owner, says that “legally we could fight it, because it is ridiculous.” But it would have been too expensive to fight, he says.

To read the full article which gives insight into how even what appears to be a less than novel concept can lead to litigation click here.

Lubin Austermuehle’s Oak Brook and Chicago Attorney Peter Lubin Named 2011 Illinois Super Lawyer as Class-Action, Business Litigation and Consumer Rights Attorney

September 14, 2010 | Peter S. Lubin and Patrick Austermuehle

Super Lawyers named Chicago and Oak Brook business trial attorney Peter Lubin a Super Lawyer for 2011 in the Categories of Class Action, Business Litigation and Consumer Rights Litigation. Lubin Austermuehle’s Oak Brook and Chicago business law attorneys have over a quarter of a century of experience in litigating complex class action, consumer rights and business and commercial litigation disputes. As a Chicago business law firm handle emergency business law suits involving injunctions, and TROS, covenant not to compete and trade secret lawsuits and many different kinds of business disputes involving shareholders, partnerships, closely held businesses and employee breaches of fiduciary duty. We also assist businesses and business owners who are victims of fraud.

Peter S. Lubin

online at

Video of What Not to Do at a Deposition

September 12, 2010 | Peter S. Lubin and Patrick Austermuehle

This video compilation of the Bill Gate’s deposition in the United State’s government anti-trust case against Microsoft provides good examples of how not to behave at a deposition.

Based in Chicago and Oak Brook, Ill., Lubin Austermuehle represents clients throughout Illinois and across the United States who are involved in serious or high-stakes business litigation. Our Illinois business lawyers work for both plaintiffs and defendants in cases of share holder freeze outs, closely held family business disputes, contract disputes, intellectual property infringement, trade secrets, restrictive covenants, indemnification and any other claims that could have a serious effect on the finances and future of the business. Our clients include companies in every field and businesses of all sizes, from small family businesses to major corporations. To learn more or speak to an experienced Chicago business litigation attorney, please contact us through our website or call 630-333-0333 today.

NRP Reports: “HP Sues Ex-CEO Hurd Over Oracle’s Job Offer”

September 11, 2010 | Peter S. Lubin and Patrick Austermuehle

HP Sues Ex-CEO Hurd Over Oracle’s Job Offer

by Richard Gonzales

NPR reports:

Bloomberg Reports: Tougher Standards for Filing Lawsuits Makes it Harder to Bring Employee and Investor Lawsuits

September 11, 2010 | Peter S. Lubin and Patrick Austermuehle

Wall Street Banks Benefit From Tougher Suit Standards in U.S.
By Thom Weidlich – Sep 8, 2010
This Bloomberg article should be read in full at the above link. It describes how all knids of lawsuits will be tougher to pursue in federal court with stricter standards for setting forth facts in order to even proceed with a lawsuit. The article states in part:

Two U.S. Supreme Court decisions making it tougher to pursue lawsuits may have begun to bear fruit for corporations fighting investor claims or employee litigation.

Where once it was enough to give a defendant “fair notice” of a claim and the grounds on which it rested, the high court’s 2007 holding in Bell Atlantic Corp. v. Twombly required an antitrust complaint to contain enough facts to show a claim that is “plausible on its face.” Two years later, in Ashcroft v. Iqbal, the court applied Twombly to all federal civil suits.

The Supreme Court rulings mean that someone who wants to sue in federal court “should not subject a defendant to the costs and burdens of litigation when there is no plausible basis for their claims,” Lisa Rickard, president of the U.S. Chamber of Commerce’s Institute for Legal Reform, said in an e-mail.