Chicago Business Litigation Lawyer Blog

Toyota Agrees to Settle Unintended Acceleration Class Action

January 23, 2013 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

After two years, Toyota has finally agreed to settle the class-action lawsuit regarding unintended acceleration in its vehicles. If approved, the settlement, filed in a Federal District Court in California, would make cash payments for the loss of value on vehicles affected by the multiple recalls. The settlement also includes installing special safety features on about 3.2 million cars.
The suit was filed in 2010 after complaints were made to federal regulators that Toyota vehicles were accelerating suddenly and without the driver’s intent, causing accidents and injuries. Toyota has recalled more than eight million vehicles in the U.S. for problems related to pedals that could stick with the throttle open or get hampered by floor mats, which could get entangled in the pedals.

The class-action lawsuit alleged that Toyota’s electronics systems were at fault. A long investigation, conducted by government officials, found no evidence that faulty electronics contributed to the acceleration issues. However, a subsequent review of that investigation, conducted by a branch of the National Academy of Sciences, found that the federal regulators conducting the investigation did not have the expertise necessary to monitor electronic controls in automobiles.

The National Highway Traffic Safety Administration fined the car company more than $60 million for failing to inform regulators of the sudden acceleration issues. Toyota, on the other hand, has largely attributed these acceleration issues to driver error.

The proposed settlement includes a fund of $250 million to pay claims to former owners of cars affected by the acceleration recalls. Because of the large number of claimants though, each will receive a relatively small amount from the settlement. The company has also agreed to install brake override systems on cars whose pedals could stick or become trapped in floor mats. The installation of those systems is already under way, although about 550,000 cars have yet to receive the equipment.

The settlement also provides a customer support program for more than 16 million current Toyota owners who will be eligible for repairs on certain parts for up to 10 years. Additionally, Toyota will contribute $30 million to finance automotive safety research related to driver behavior and unintended acceleration.

The lead law firm for the plaintiffs estimated that the settlement could end up at a total around $1.2 – $1.4 billion. That makes it one of the largest settlements of its kind in automotive history.
One of the reasons people suspect Toyota made the offer is to prepare for the numerous individual personal-injury and wrongful death lawsuits, which are still currently pending in the courts. Of course, another reason to settle is to simply get past this. Before the acceleration issues, Toyota had enjoyed a pristine reputation of quality, safety, and reliability in their vehicles. Following these allegations, the company experienced a drop in sales, particularly in the United States. In 2012 though, the company’s sales in the U.S. rose about 28 percent, which is double the pace of growth for the overall market.

Facebook Settles Class Action Involving Alleged Improper Sale of Its Users Images

January 22, 2013 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

Amid all the complaints against Facebook using private information, comes a story of success for Facebook users. Last year, five members of the social networking site filed a class action lawsuit against the company for allegedly using personal information, such as images of the users for sponsored stories. The users whose pictures were used did not give permission for Facebook to use their image, and they alleged they were not given the opportunity to opt out of having their image publicly used.

After the California judge informed the lawyers representing Facebook that they would not be able to dismiss the case they agreed to settle. The settlement includes up to $10 for each user who objected to having their image used, and a multimillion dollar donation to charity. Combined with legal fees, the total settlement will run the company about $20 million. Facebook has also said that it will add a tool which allows users to view any of their content which may have been used in sponsored stories and opt out of the process.

The settlement recently moved one step closer to resolution when the U. S. District Court judge in charge of the case determined that the settlement “has no obvious deficiencies” and “appears to be the product of serious” negotiations between the lawyers representing Facebook and the plaintiffs. The case has now been preliminarily approved by the judge.

However, the social networking site may not be finished with the court system just yet. The nonprofit Center for Public Interest Law argued that Facebook should be required to obtain consent before using the names or photos of Facebook users under the age of 18. Its attorney, Robert Fellmeth, has said that he would file a further objection and, if necessary, pursue the case in appellate court.

Montana Supreme Court Approves Class Certification for Property Owners Effected by Kerr Dam

January 20, 2013 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

Once again the issue of what is required to certify a class for class-action litigation has been battled in court. In this case it went up to the Montana Supreme Court, which sided with the plaintiffs and agreed to certify the class.

The case involves several property owners along the shoreline of the Flathead River in Montana who are going to court for erosion against the sides of the lake caused by the Kerr Dam keeping the lake at artificially high levels. According to the lawsuit, the lake reached peak elevation levels of 2,980 feet before the dam was built in 1938. Now the Dam keeps the lake at 2,983 feet, which is causing severe erosion to the sides of the lake and widening its “footprint” particularly during fall storms. While the amount of erosion caused by the high levels might be deemed reasonable when considering the recreational needs of shoreline property owners and businesses in the summer, the degree of erosion occurring when the lake’s level is kept artificially high into October and November could be deemed unreasonable.
Initially, Flathead District Judge Kitty Curtis denied certification of the class, saying that the cause of the erosion would need to be shown on a property-by-property basis around the lake and on parts of the Flathead River affected by the lake levels.

The state Supreme Court disagreed, saying that damage caused by the dam over the years has to be considered collectively because the lake can only be maintained at singular elevations, and those elevations cannot be changed for particular lakeshore properties. The liability of the defendants on the other hand, will have to be determined separately, as will the damages for each property. The two defendants are Montana Power Co. and PPL Montana. Shoreline easements granted to the dam operator when the dam was built provide protections for that operator.

The case has gone to the Supreme Court for review three times since litigation got under way in 1999. This most recent ruling defines the “class” as anyone who has owned property on the lake or certain portions of the river since November 1991. Due to that very large range, the class includes about 3,000 properties and could include multiple owners of each property.
Since the state Supreme Court’s ruling, the class-action lawsuit is going back to the Flathead District court, which will schedule hearings for 2013. Jamie Franklin, a Chicago-based attorney who is arguing the case on behalf of the plaintiffs, says he is ready for the hearings to proceed.
This ruling demonstrates another victory for class-action litigation. At a time when courts and judges across the country are finding reasons not to certify class actions and contracts are making it more difficult for consumers to bring class action litigation to the courts, decisions like these seem to be getting more rare.

Court Grants Preliminary Injunction in Non-Compete Case, Grants equitable Extension of Non-Compete Covenant’s Duration – Travelhost v. Modglin

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

A Texas federal court, after initially dismissing a motion for preliminary injunction as moot, granted the plaintiff’s motion for reconsideration in Travelhost, Inc. v. Modglin. The court ruled that, although the two-year time period of the non-compete agreement had already expired, the plaintiff was entitled to a preliminary injunction and an equitable extension of the non-compete agreement for an additional two years. The court based its reversal of its prior ruling on evidence subsequently obtained from the defendant through discovery, which suggested that the defendant had engaged in an ongoing pattern of behavior in violation of the non-compete agreement.

The plaintiff, Travelhost, publishes print and online materials related to travel. It entered into a contract with the defendants, The Real Chicago Publishing LLC (RCP) and Trent Modglin, in 2007, in which RCP would distribute Travelhost’s Chicago magazine and sell advertising in the downtown Chicago area. The contract included a two-year covenant not to compete with Travelhost within the Chicago area. Modglin is RCP’s sole member, and he reportedly agreed to be individually bound by the non-compete agreement.

RCP distributed eight issues of the magazine between 2007 and late 2009. According to Travelhost, RCP began distributing and selling advertising for a competing magazine, “The REAL Chicago,” sometime after November 2009. Travelhost sued RCP and Modglin in March 2011, requesting preliminary and permanent injunctions. RCP never filed an answer to the suit, so the court entered a default preliminary injunction and default judgment against it. The suit proceeded against Modglin alone.

Regus Sued in Class Action

January 5, 2013 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

Although renters usually expect to pay through the owner of the property for utilities, they usually only expect to do so if it is specifically included in the lease. According to a recent class action lawsuit against Regus PLC and its subsidiaries, the company allegedly charged fees to its renters for kitchen amenities, use of the telephones, telecom handsets, and internet activation and access.

According to the complaint, each plaintiff was provided with an “Office Agreement” which listed the location of the office, the duration of the client’s entitlement to the office, the amount of the “Initial Payment”, the amount of the security deposit, and the monthly payment from that point forward. The agreement allegedly did not “disclose any goods, services, penalties, and/or taxes for which Regus assesses charges and the amounts or methods of calculation of Regus’ charges associated with such goods, services, penalties, and/or taxes.”

However, once the plaintiffs received their bills, they found charges for things which were never mentioned in the lease. These charges included “amounts for one or more of the following …: i) ‘Kitchen Amenities Fee;’ ii) ‘Telephone Lines;’ iii) ‘Telecom Handset;’ iv) ‘Local Telephone;’ v) Internet activation and access charges; vi) taxes; and vii) penalties”. The lawsuit refers to these charges collectively as the “Unauthorized Charges”. Because of these Unauthorized Charges, the monthly payments made by clients was regularly in excess of what the Office Agreement had provided. However, if clients failed to pay these extra charges, they were allegedly subjected to penalties by Regus.

The lawsuit further alleges that Regus had clients make payment via an automated system in which the charges were automatically applied to the clients’ debit card or credit card. This meant that customers frequently got charged by Regus before even seeing a bill or having a chance to dispute the charges.

According to the complaint that was filed, Regus is also guilty of false advertising. Contrary to the experiences of the plaintiffs, the advertisements that Regus put on its website included the following:
“With Regus, you only pay for what you need when you need it”; “No up front capital expenditure required”; and “Flexible terms and one-page agreements.”

The complaint alleges that the additional fees the plaintiffs were charged directly contradict, not only the leases which were signed by the plaintiffs, but also the advertisements provided by Regus. For example, regarding the kitchen amenities, the lawsuit alleges that “Regus assessed a $30 per person monthly charge to Plaintiff … in excess of the monthly office payment amount indicated in the Office Agreement. Neither Regus’s practice of assessing this charge nor the amount of the charge is disclosed in the Office Agreement or the Fine Print. The charge was assessed regardless of whether any kitchen amenities were used.”

As far as the use of the telecom handset for which some plaintiffs were charged, the complaint alleges that “the retail value of the two handsets provided by Regus does not exceed $99.00, yet Regus charged … a total of $222.75 (including purported taxes) per month for the use of the handsets during the term of the Office Agreement.”

The lawsuit seeks to bring a class action which would include everyone who had an Office Agreement or similar agreement for one of Regus’s locations in California and who paid one or more of the Unauthorized Charges between May 8, 2008 and the time that the complaint was filed. The lawsuit is also petitioning for a second New York class which would consist of similarly situated renters in the state of New York. The plaintiffs are currently unaware of just how many people qualify to participate in the classes, but they believe that each class could consist of more than 100 members.

Georgia Federal Court Enjoins Enforcement of Covenant Not to Compete Against Former Employee

December 27, 2012 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

In a dispute over the enforcement of two restrictive covenants in an employment contract, a federal court in Georgia granted a preliminary injunction preventing their enforcement. The plaintiff in Moorad v. Affordable Interior Systems, LLC filed a declaratory judgment action against his former employer to have the restrictive covenants declared unenforceable under Georgia law. The court considered the plaintiff’s request for an injunction and the defendant’s motion to dismiss for lack of subject matter jurisdiction, and ruled for the plaintiff on both.

The plaintiff, David Moorad, worked for the defendant, Affordable Interior Systems (AIS), from 2004 to May 2011 as the Vice President of Sales for Government Services Administration (GSA). Moorad’s employer asked him to sign an amended contract containing two restrictive covenants, a non-competition agreement and a non-solicitation agreement. According to the court’s ruling, the defendant implied that Moorad could lose his job if he refused to sign the new contract. The non-competition covenant stated that, upon termination or departure from AIS, Moorad could not work, for a period of twenty-four months, in office furniture sales or manufacturing. The clause explicitly described the geographic scope of the restriction as the entire United States. The non-solicitation clause purported to prohibit Moorad from soliciting any customers of AIS within the same twenty-four month period, including anyone who had been a customer in the prior twelve months.

Settlement of Toys “R” Us Class Action Which Alleged That Full Refunds Were Not Provided

December 15, 2012 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

While this blog frequently discusses issues regarding consumer rights in the event the consumers purchase a faulty product, it is equally important for companies to provide their consumers with full disclosure regarding their return policies. This is the issue at hand in a class action lawsuit against Toys “R” Us for allegedly failing to provide customers with full refunds on items purchased with promotional gift cards or discounts.

Allegedly, Toys “R” Us customers who purchased items from the store that offered free gift cards, buy-one-get-one-50-percent-off discounts or other benefits received less money than the full purchase price when they went to return the items.

Laura Maybaum, the lead plaintiff in the case, purchased $75 worth of Toys “R” Us products and received a $10 gift card. When she later returned one of the toys, the toy company allegedly refused to pay the full purchase price.

Under California law, retailers must give no less than full cash or credit refunds unless a more restrictive policy has been announced.

A California judge has recently approved a $1.1 million settlement in the case. Under the settlement, Class Members will receive a voucher for $10 off a purchase of $50 or more. The toy company has also agreed to provide more disclosure of its return policy for merchandise bought as part of a promotion. One of the ways they intend to do this is by putting the disclosure on point-of-sale displays.

Class Members include all California consumers who purchased toys from Toys “R” Us since January 1, 2008 that qualified for a promotion and then returned one or more items.

Injunction Class Action Certified Against AriZona Ice Tea for Alleged False Use of “Natural” Label

December 14, 2012 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

As consumers become increasingly health-conscious, we see more lawsuits against food manufacturers who label their products as “natural” when, in fact, they may have highly processed ingredients. Such is the case in a lawsuit currently facing the Northern District of California. Two consumers, Lauren Ries and Serena Algozer have filed a class action on behalf of all similarly situated consumers against AriZona iced tea. They argue that the “natural” label on the beverages is deceptive, because they allegedly contain high fructose corn syrup and citric acid.

Ms. Ries claims she purchased an “All Natural Green Tea” at a gas station because she was thirsty and was looking for an option which would be healthier than soda. Ms. Algozer says she purchased several AriZona iced teas over the years, but neither plaintiff remembers the prices, nor do they have receipts.

Ms. Ries and Ms. Algozer filed for a class action under the Federal Rule of Civil Procedure 23(b)(2). This Rule is a little more lenient than Rule 23(b)(3), under which the commonality hurdle would have been much higher. As it is, potential class members only need to satisfy “minimal commonality” in order to qualify.

While this works in favor of the plaintiffs towards attaining class certification, it prevents them from collecting any monetary damages. The lawsuit was filed seeking an injunction against using the word “natural” on the product’s packaging, as well as restitution for their purchases of the mislabeled iced tea. However, the same “minimal commonality” requirements which allow this class to gain certification also prevent the class from claiming any monetary damages. Therefore, Judge Seeborg of the Northern District of California has partially certified the class for an injunction, but refused to certify the class to seek restitution for their purchases.

Court Enforces Covenant Not to Compete Against Former Franchisee of Pizza Restaurant – Singas Famous Pizza Brands v. New York Advertising

December 13, 2012 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

A former franchisee of a regional pizza restaurant chain were barred from operating pizza restaurants within certain geographic areas, according to the Second Circuit Court of Appeals in New York City. In Singas Famous Pizza Brands Corp., et al v. New York Advertising, the plaintiffs sought to enjoin the defendant from opening two new pizza restaurants shortly after the termination of the defendant’s franchise agreement with the plaintiffs. The franchise agreement included a covenant not to compete, stating that the franchisee could not operate similar pizza restaurants within a specified geographic area. The defendant challenged the enforceability of the geographic restriction. The district court ruled for the plaintiffs, and the appeals court affirmed the ruling.

The plaintiffs, Singas Famous Pizza Brand Corp. and Singas Famous Pizza & Restaurant Corp., collectively referred to as “Singas,” operate or franchise multiple pizza restaurants in the New York City metropolitan area. Each restaurant uses Singas’ unique branding and menu. The defendants operated two pizza restaurants, a former Singas franchise in the East Village, Manhattan, and a new restaurant in Jackson Heights, Queens. Singas obtained a preliminary injunction that barred the defendant from operating both restaurants. The defendant appealed only as to the Jackson Heights restaurant, arguing that the ten-mile geographic restriction was unduly broad.

Court Orders Customer to Take Down Customer Review on Yelp

December 12, 2012 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso