Chicago Business Litigation Lawyer Blog

Claim for Fraud in the Sale of a Business Requires Proof of Both Reasonable and Justifiable Reliance on a Misrepresentation – Walid v. Irene Couture

May 17, 2013 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

A couple who bought a retail business in New Jersey filed suit for fraud, alleging that the seller materially misrepresented the business’ revenues. After a bench trial, the lower court ruled for the defendants in Walid v. Yolanda for Irene Couture, Inc., holding that the plaintiffs did not demonstrate by clear and convincing evidence that their reliance on the defendants’ misrepresentations was justified. The New Jersey Superior Court, Appellate Division vacated the judgment, finding the defendants liable for fraud, remanding the case, and instructing the trial court to apportion liability among the defendants.

Anwar and Donna Walid, saw an online listing for the sale of a retail business, Irene’s Bridal Shop. They contacted the listing broker, who gave them a “fact sheet” from the owner, Yolanda for Irene Couture, Inc. (YIC). The fact sheet stated that the business had annual sales exceeding $500,000 and profits of almost $300,000. The listed sales price was $700,000. The Walids agreed to a purchase price of $700,000, subject to “proof of sales” and review by an attorney and an accountant. They retained an attorney, but Mr. Walid decided, against the attorney’s advice, to examine the financial reports himself rather than hire an accountant. YIC’s financial information showed annual income from 2003 through early 2006 well in excess of $500,000. The Walids obtained bank financing, and the sale closed in May 2006.

The business failed, and the Walids filed suit against YIC, its owner, and the accountant who prepared the financial reports Mr. Walid had reviewed prior to the sale. They amended the complaint to include Yolanda Couture, Inc. (YC), a New York company owned by YIC’s owner. They alleged that YC’s revenues were deposited into YIC’s bank accounts in order to inflate YIC’s earnings.

Literary Agent Sued for Allegedly Stealing Rights for “To Kill a Mocking Bird” From Harper Lee

May 17, 2013 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

Many people will try to take advantage of the sick and elderly by having them sign away their rights when they are vulnerable. However, when someone in a compromised position signs a legal document, a court of law may choose not to find that document to be binding.

Such is allegedly the case with Harper Lee, the author of “To Kill a Mockingbird”, in signing her copyright over to her agent. Eugene Winick represented Lee for more than 40 years. When Winick fell ill in 2002, his son-in-law, Samuel Pinkus, took over many of Winick’s clients. Lee has recently filed a lawsuit in Manhattan to regain control of her copyright.

According to the lawsuit, in 2007, Pinkus “engaged in a scheme to dupe” the then 80-year-old Lee into signing over her copyright for “To Kill a Mockingbird” without payment. At the time, Lee was recovering from a stroke in an assisted-living facility. The complaint alleges that, “Pinkus knew that Harper Lee was an elderly woman with physical infirmities that made it difficult for her to read and see”. Lee says she has no memory of agreeing to sign over her copyright.

The transfer allegedly secured for Pinkus “irrevocable” interest in the income derived from her book. It also helped him to avoid paying legal obligations to his father-in-law’s company for royalties that Pinkus misappropriated.

Although the copyright was reassigned to Lee last year as a result of a separate legal action, Pinkus was allegedly still receiving royalties from the novel as of this year, the complaint alleges. The current lawsuit is asking that any commissions Pinkus has received since 2007 be returned to Lee.

The lawsuit also claims that Pinkus has failed to provide royalty statements in recent years to explain money earned by the book. Additionally, Pinkus allegedly failed to respond to offers by HarperCollins to discuss licensing e-book rights and did not respond to the publisher’s request for assistance related to the book’s 50th anniversary.

“To Kill a Mockingbird” was published in 1960 and is Lee’s only published book. It is considered a classic and has sold more than 30 million copies.

Does Facebook “Like” Button Give Rise to First Amendment Rights? Federal Appellate Court Set to Decide the Issue.

May 15, 2013 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

Many of us use Facebook “likes” every day to express our feelings and opinions on the internet. In fact, according to Facebook, around 3 billions “likes” and comments are made on the social network site on a daily basis. However, it is still a relatively new form of expression and, as such, might not get the protection of the American Constitution’s first amendment.

The issue has been brought before a judge in Hampton, Virginia where a deputy, Daniel Ray Carter, was fired by his sheriff. Carter sued for violation of the First Amendment after he was fired, alleging that he was let go as a result of “liking” the Facebook page of his boss’ political opponent during the town’s 2009 sheriff election. According to the lawsuit, Hampton sheriff B.J. Roberts said to Carter, “You made your bed, now you’re going to lie in it – after the election, you’re gone.” About five months after Roberts’s re-election, Carter was fired, along with five other employees who either supported Carter’s opponent or did not actively campaign for Carter during the election.

U.S. District Judge Raymond A. Jackson dismissed the suit, saying that the U.S. Constitution does not protect clicking the thumbs-up button on a Facebook page. According to Judge Jackson, the “like” button is not substantial enough of a statement to be considered free speech. In his decision, he wrote, “Merely ‘liking’ on a Facebook page is insufficient speech to merit constitutional protection.”

An appeal by Carter and his former co-workers is being reviewed by the U.S. Court of Appeals for the 4th Circuit. The American Civil Liberties Union has also filed an amicus brief supporting the effort to overturn Judge Jackson’s ruling. To demonstrate the power that a single click can have these days, the ACLU cited re-tweeting, signing a petition, and donating to a campaign online as examples. If the appeals court rules against Carter, the ACLU argues that all of these actions will be ineligible for protection under the Constitution’s first amendment. Rebecca K. Glenberg, the legal director of the ACLU of Virginia, told the Washington Post that “Pressing a ‘like’ button is analogous to other forms of speech, such as putting a button on your shirt with a candidate’s name on it.” The ACLU argues that, as the technological world grows, we must protect the news ways of communication which will inevitably develop.

Facebook has also come forward in support of Carter and the ACLU, saying that a Facebook “like” is the modern equivalent of putting up a front-yard campaign sign. Facebook will get a chance to argue their side of the case before a three-judge panel of the 4th Circuit Court of Appeals. The social media company will be allowed three minutes of oral argument when the panel hears the case.

Prenda Lawyers Sanctioned for Alleged Shake Down Scheme Against Alleged Porn Down Loaders

May 13, 2013 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

While copyright attorneys are very useful in protecting the rights of citizens, there are those who allegedly use illegal means to take advantage of copyright laws, as well as the high cost of litigation.

Three attorneys, Paul Hansmeier, John Steele, and Paul Duffy allegedly set up a copyright-trolling operation which came to be known as Prenda Law. The attorneys at Prenda Law allegedly forged copyright documents to give themselves the right to sue those who illegally downloaded pornography. They would then search the IP address of those who illegally downloaded the porn and sue. Before going to trail however, Prenda Law would offer the defendant a settlement of about $4,000, just below what a bare-bones defense in court would cost. To avoid the expense of litigation, and the embarrassment of having their names associated with a public trial involving pornography, the defendants allegedly were, more often than not, willing to pay the settlement.

In order to pull off this alleged scheme, the attorneys would file early-discovery requests with the courts so they could settle. Once they came upon a determined defendant though, Prenda allegedly quickly backed off. U.S. District Judge Otis Wright notes that, “Without better technology, prosecuting illegal BitTorrent activity requires substantial effort in order to make a case. … It is simply not economical viable to properly prosecute the illegal download of a single copyrighted video.”

Instead of admitting to the existence of other possibilities (for example, an outsider using a home WiFi signal), Wright says that Brett Gibbs, an attorney who worked for Prenda Law who is now testifying against Prenda, deliberately downplayed them. In one case, Gibbs described the defendant’s property as “a very large estate consisting of a gate for entry and multiple separate houses/structures on the property.” A quick search using Google Street View though, showed a very different picture: a modest home in West Covina, a Los Angeles suburb. Wright says, “It is a small house in a closely packed residential neighborhood, … There are also no gates visible. Gibbs’s statement is a blatant lie.”

At the hearing, the attorneys behind Prenda took the Fifth Amendment. They refused to answer such simple questions as who owned their shell companies and where the settlement money (rumored to be in the millions) was going.

The judge ordered the three Prenda attorneys to pay sanctions to defense attorneys of $36,150 to Morgan Pietz and $1,950 to Nicholas Ranallo. Wright then doubled that amount “as a punitive measure” for a total of $81,319.72. The judge says in a footnote that the total “is calculated to be just below the cost of an effective appeal”. The Prenda attorneys have 14 days to pay the sanctions.

Wright is also suggesting that the attorneys be disbarred. He states that, “there is little doubt that Steele, Hansmeier, Duffy [and] Gibbs suffer from a form of moral turpitude unbecoming an officer of the court.” In many states, California included, crimes reaching the level of “moral turpitude” lead to automatic disbarment. Wright says that he will be referring the four lawyers to every state bar in which they are currently admitted to practice.

Additionally, the judge has suggested that the alleged Prenda scheme warrants criminal investigation. In his conclusion, Wright says, “The Court will refer this matter to the United States Attorney for the Central District of California. The [court] will also refer this matter to the Criminal Investigation Division of the Internal Revenue Service and will notify all judges before whom these attorneys have pending cases.”

Lubin Austermuehle DiTommaso Prevails on Behalf of Client in Defamation, Libel and Cyber Squatting Case Involving Creation of Web Pages, YouTube Videos and Facebook Page Devoted to Criticizing a Chicago Area Used Car Dealer

May 10, 2013 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

Our client David Bates created various web pages, YouTube videos and a Facebook page devoted to criticizing a local used car dealer that advertises extensively on the internet. The dealer sued Mr. Bates. Before our firm formally appeared, the dealership obtained a temporary restraining order restraining Mr. Bates from accusing the dealer of engaging in false advertising. Shortly after we appeared, we filed briefs arguing that Mr. Bates had a First Amendment right to criticize the dealer. We then obtained discovery proving that the dealer had filed a false affidavit to obtain the temporary restraining order because it had in fact engaged in false advertising in the past. We sought sanctions and the Federal Court entered a rule to show cause as to why the dealer shouldn’t be sanctioned for filing a false affidavit. A copy of that rule to show cause order can be seen by clicking here. A copy of our brief opposing entry of a prior restraint on Mr. Bate’s speech which we asserted would violate his First Amendment rights can be seen here. A copy of our sanctions brief can be seen here.

Following entry of the rule to show cause order, the case settled with the dealer providing Mr. Bates with a full release. The parties then headed to binding arbitration to decide if any of Mr. Bates’s videos were defamatory and thus should be removed from YouTube.

The Arbitrator ruled that none of the videos need to be removed as removing them would violate Mr. Bate’s First Amendment Rights. A copy of the brief we filed on behalf of Mr. Bates in the Arbitration can be viewed here. A copy of the Arbitrator’s decision ruling that none of of Mr. Bates’s videos were defamatory can be seen here.

With this decision, Mr. Bates has obtained a full release of all charges leveled against him and none of his material on the internet was censored. The Arbitrator ruled that minor errors in Mr. Bates’s videos do not make them defamatory because they are otherwise substantially accurate. The Arbitrator also ruled that the dealer failed to prove that its reputation had been harmed by Mr. Bates’s videos.

Public Citizen Defends Consumers’ First Amendment Rights to Criticize a Business On Yelp

May 9, 2013 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

Our law firm is devoted to protecting consumers’ First Amendment rights to truthfully and accurate criticize businesses particularly businesses who advertise heavily on the internet. Consumers should be able to vigorously voice their opinions about car dealers and other businesses who engage in fraudulent advertising and other unfair business practices. Most big consumer businesses now force consumers to agree to secret binding arbitration of disputes in arbitration fora that often are stacked in favor of business or which business funds pay for. This makes online criticism more important as long as the critic attempts to be truthful and honest and isn’t acting a business in reckless disregard of the truth. In that regard with we were very interested to see a new posting by Public Citizen on the subject of protecting online criticism.

Paul Alan Levy reports about Public Citizen’s recent efforts in a defamation suit allegedly designed to stop citizens from criticizing a carpet cleaning business on Yelp:

You can’t live in the DC area and not encounter the pervasive advertising for Hadeed Carpet Cleaning, from mailed coupons and display advertising in the Washington Post that promise unbelievably low prices, to classic rock broadcast from the “Hadeed.com Studios” and advertising during Washington Capitals games. But regular users of pages about Hadeed on the Yelp web site quickly learn Hadeed’s dirty secret — more than thirty of the eighty-odd reviews posted there complain that the advertised prices are routinely not honored.

Even one of Hadeed’s Yelp admirers, who gave Hadeed four of five stars for the quality of its work, ridiculed the complainers in these terms: “I can give a life lesson to the people who only wanted the $99 special, there is no such thing! Every wall to wall cleaning company uses that as a way to lure you in but no one will charge you $99.” She also gives her secret about how to protect against unannounced price increases from Hadeed: pay in advance!
Apparently hoping to deter further criticism, Hadeed has singled out seven anonymous reviewers as defendants in a defamation lawsuit. It does not deny that its service staff routinely demand higher-than-advertised prices when they show up to do the work, but instead claims that it suspects, based on a mysterious review of some customer database, that these seven reviews were really posted by some unnamed competitor. Unlike some other ISP’s lately, Yelp is standing up for its users’ privacy, and so refused to comply with a Virginia subpoena because (among other reasons) Hadeed never provided any evidence that the gist of the reviews was false. Hadeed moved to compel compliance, and the trial judge, refusing to apply the otherwise-broadly-accepted Dendrite test, ordered compliance because it felt that it was enough for Hadeed to show that the statements “may be tortious.” And when Yelp refused to comply – because Virginia requires non-party discovery recipients to commit contempt of court to get the right to appeal — the court found it in contempt.

In an appellate brief that we have filed today on behalf of Yelp, we make two basic points. First, Virginia should agree with other states that demand both a legal and a factual showing that the lawsuit has merit. In that regard, read carefully, Hadeed’s defamation claim asserts only that the individual reviewers were not really customers, and Hadeed is not defamed by false statements about whether a given defendant was a customer. Nor, indeed, has Hadeed offered any reason to credit its supposition that the seven reviewers were not customers; what evidence there is in the record points in the other direction.

We also argue that a California company like Yelp should not be subject to a Virginia subpoena just because its web site is accessible in Virginia and because Virginia companies like Hadeed advertise on the web site. When AOL was based in Virginia, litigants in other states had to get Virginia subpoenas to demand identifying information about AOL users; by the same token, Hadeed should have to use the normal interstate discovery procedures when it wants identifying information about Yelp users from ISP’s in other states.

The work of Public Citizen to protect consumers’ free speech rights is commendable. If you cannot obtain a free legal defense to defamation suits, consumers must turn to a private attorney. Often times consumers home owners’ insurance provides coverage for defense costs when the consumer is sued for online reviews. We defend consumers in those suits and help them arrange for the defense costs to be covered by their insurance carriers.

New Kickback Lawsuit Brought Against Novartis

May 6, 2013 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

A kickback by any other name is still a kickback. Novartis Pharmaceuticals Corp. has already paid the price for allegedly giving kickbacks but it allegedly appears not to have learned its lesson yet. After having settled fraud charges based on kickbacks less than three years ago, Novartis is now facing another lawsuit from the government for allegedly giving kickbacks to pharmacies that transferred kidney transplant patients from competitors’ drugs to its own.

The civil health care fraud lawsuit was filed in the U.S. District Court in Manhattan and it seeks unspecified damages and civil penalties. According to the lawsuit, the kickback scheme goes back as far as 2005.

U.S. Attorney Preet Bharara said the company allegedly used the “lure of kickbacks disguised as rebates” to turn at least 20 pharmacies into a sales force for its own drug, Myfortic. According to the lawsuit, this illegal behavior cost the public tens of millions of dollars in drugs dispensed by pharmacists who had accepted Novartis’s kickbacks in exchange for selling the more expensive drugs.

Novartis’s system allegedly opposed the use of a cheaper, generic immunosuppressant drug. The lawsuit claims that the pharmaceutical company found that it was highly profitable to pay pharmacies kickbacks of up to as much as 10 or even 20 percent in exchange for switching patients to Myfortic.

According to the lawsuit, Novartis offered one Los Angeles pharmacist a “bonus” rebate of several hundred thousand dollars in order to get the pharmacist to “shoulder the burden” of switching between 700 and 1,000 transplant patients to Myfortic.

The arrangement violates the federal anti-kickback statute which prohibits the offer or payment of rebates and other inducements for the purchase of drugs or services covered by Medicare, Medicaid or other health program.

Novartis denies the claims and said in a statement that it will defend itself. It said that the investigation into the pharmaceutical company’s interactions with specialty pharmacies relating to the handling of Myfortic had been previously disclosed.

The company said, “As a leading healthcare company, Novartis strives to achieve high performance with high integrity. [Novartis Pharmaceuticals Corp.] is committed to high standards of ethical business conduct and regulatory compliance in the sale and marketing of our products.”

Super Lawyers Names Peter Lubin 2013 Selection

April 30, 2013 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

Super Lawyers named Chicago and Oak Brook business trial attorney Peter Lubin a Super Lawyer in the Categories of Class Action, Business Litigation, and Consumer Rights Litigation. Lubin Austermuehle DiTommaso’s Oak Brook and Chicago business trial lawyers have over thirty years experience in litigating complex class action, consumer rights and business and commercial litigation disputes. We handle libel and defamation cases, First Amendment issues and emergency business law suits involving injunctions, and TROS, covenant not to compete, franchise, distributor and dealer wrongful termination 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.

Lubin Austermuehle DiTommaso’s Wheaton, Naperville, and Aurora litigation attorneys have more than two and half decades of experience helping business clients unravel the complexities of Illinois and out-of-state business laws. Our Chicago business, commercial, class-action, and consumer litigation lawyers represent individuals, family businesses and enterprises of all sizes in a variety of legal disputes, including disputes among partners and shareholders as well as lawsuits between businesses and consumer rights, auto fraud, and wage claim individual and class action cases. In every case, our goal is to resolve disputes as quickly and successfully as possible, helping business clients protect their investments and get back to business as usual. From offices in Oak Brook, near Naperville and Glen Ellyn, we serve clients throughout Illinois and the Midwest.

If you’re facing a business or class-action lawsuit, or the possibility of one, and you’d like to discuss how the experienced Illinois business dispute attorneys at Lubin Austermuehle DiTommaso can help, we would like to hear from you. To set up a consultation with one of our Chicago class action attorneys and Chicago business trial lawyers, please call us toll-free at 630-333-0333 or contact us through the Internet.

Former Illinois Governor Thompson Says That Recent Lawsuit Against the White Sox is Simply a Self-Serving Tirade

April 30, 2013 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

Chicago has long been known for its corrupt politicians. A former executive of the Illinois Sports Facilities Authority (ISFA) claims that the IFSA is no exception in a recent lawsuit. The Authority denies those allegations.

Perri Imer, the former executive director of the ISFA, has filed a lawsuit against former Illinois governor Jim Thompson and the White Sox owner Jerry Reinsdorf. The lawsuit alleges that the two conspired to have Imer fired two years ago to stop her reforms at the public agency from going through. The complaint alleges that Reinsdorf and Thompson, who was chairman of the ISFA at the time, “sought to silence Perri Imer and to stifle her efforts to protect Illinois taxpayers from Reinsdorf’s greed.”

According to the lawsuit, Reinsdorf allegedly pressured Thompson to remove Imer because of her success in getting the White Sox to pay $1.2 million in yearly rent to the agency for the use of U.S. Cellular Field. According to the lawsuit, Reinsdorf allegedly had “undue influence” over former Governor Thompson and apparently over all the members of the ISFA Board of Directors who became complicit in allowing Reinsdorf to treat Cellular Field and the surrounding publicly owned lands as his personal fiefdom.”

According to the complaint, the public agency used taxpayer money to build and renovate U.S. Cellular Field as well as to build the restaurant next door, Bacardi at the Park. However, most of the revenue from those two facilities has allegedly gone to the White Sox.

The lawsuit alleges that the “highly favorable terms granted to the White Sox in 1998 and intended to last until at least 2029 served to create a sense of entitlement on the part of White Sox Chairman Reinsdorf, who has repeatedly acted as though U.S. Cellular Field was a gift by the Illinois taxpayers to Reinsdorf and his team”.

Thompson dismissed the lawsuit as a “self-serving tirade” and both he and a Reinsdorf spokesman denied the allegations.

Honeygate Leads to Civil Anti-Dumping Suit Relating Chinese Honey Being Dumped into the U.S. Market

April 29, 2013 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

The government sometimes imposes sanctions on certain imports for the sake of fair competition on behalf of domestic producers, among other reasons. When companies choose to ignore those sanctions, they could find themselves held accountable, not only by the government, but also by the domestic producers who were harmed by the illegal imports.

The “Honeygate” investigation, led by the U.S. Immigration and Customs Enforcement investigative arm of the U.S. Department of Homeland Security is one such case. The investigation resulted in a series of seizures of illegally imported honey, criminal charges, and massive fines. The United States District of Illinois filed criminal charges against two of the country’s largest industrial honey suppliers, Groeb Farms, Inc. and Honey Solutions. The two companies entered into Deferred Prosecution Agreements with the government and confessed to knowingly facilitating the importation, purchase, and sale of the mislabeled Chinese honey in order to avoid the U.S.-imposed antidumping duties.

The United States government had imposed antidumping duties on Chinese honey because they found that the honey was sold at such a low price as to interfere with the sale of domestically-produced honey.

To avoid the United States’s antidumping duties, the honey distributors engaged in a massive conspiracy involving transshipping Chinese honey through other countries, disguising the honey’s origin, and then illegally importing the Chinese honey into the United States in order to avoid paying the U.S. dumping duties.

Three domestic honey producers, Adee Honey Farms, Bill Rhodes Honey Company, LLC, and Hackenberg Apiaries, have now filed a class action complaint in the U.S. District Court for the Northern District of Illinois. In addition to the three named plaintiffs, the class action asserts claims on behalf of a nationwide class consisting of all individuals and entities “with commercial beekeeping operations (300 or more hives) that produced and sold honey in the United States during the period from 2001 to the present.”

The lawsuit is building on the Honeygate investigation in its attempt to obtain compensation for the financial losses suffered by the domestic honey producers as a result of Groeb’s and Honey Solutions’s conduct. The class-action alleges that, by intentionally participating in the purchase, packaging, distributing, and sale of the Chinese honey, the two companies deceived consumers and purchasers.

The lawsuit alleges that consumers were deceived because the Chinese honey has allegedly been found to be “heavily adulterated, containing inexpensive sweeteners and sometimes blended with high fructose corn syrup and other additives, despite the fact that importers, in league with [Groeb and Honey Solutions], represent that it is pure honey.”
James J. Pizzirusso one of the attorneys representing the domestic honey producers, states that the domestic honey industry, which is “critically important to agriculture, has suffered losses at the hands of these fraudulent suppliers.”

Adam J. Levitt, another attorney for the plaintiffs, said “It is important that American beekeepers and honey producers get to play on a level playing field”.