Chicago Business Litigation Lawyer Blog

New York Times Reports That Nation’s Second Largest For Profit University is the Target of a Whistle Blower Suit for Allegedly Defrauding Government into Funding Student Loans

May 29, 2011 | Peter S. Lubin and James V. DiTommaso

Questions Follow Leader of For-Profit Colleges
By TAMAR LEWIN
Published: May 26, 2011
A whistle-blower case charges that an education company encouraged aggressive recruitment of unqualified students for their federal student aid.

Our law firm is pursuing class actions and putative class actions against for profit vocational schools in the Chicago area. We have interviewed many students of for profit universities, colleges and vocational schools who believe that various for profit colleges and Universities have cheated them along with the government in getting the students to borrow money with government backed loans for essentially a worthless education.. We have been looking into whistle blower allegations similar to those reported in a recent New York Times article and are interested in speaking to employee/whistle blowers at for profit colleges, universities and vocational schools who know about similar frauds to that reported by the New York Times engaged in by other for profit colleges, universities and vocational schools.

The New York Times reports:

[T]he Justice Department and two state attorneys general are intervening in a whistle-blower lawsuit charging that EDMC also violated the ban on what is known as incentive compensation. That practice encourages aggressive recruitment of unqualified students for their federal student aid.

Given the cast of characters — … a half dozen former Phoenix executives are now at EDMC — the complaint against EDMC says that “senior management knows that the compensation system it administers violates the incentive compensation ban.”
This is the first time that prosecutors have joined a suit like the EDMC whistle-blower case, and the government’s unprecedented intervention in such a compensation case comes amid escalating controversy over for-profit colleges. Enrolling about 12 percent of the nation’s higher-education students, the colleges get a quarter of all federal student aid and account for nearly half of all student loan defaults. Last Friday, the Department of Education released new data showing that more than 15 percent of those who had attended for-profit colleges defaulted within two years — twice the rate of those who attended public institutions, and three times as many as those who went to private not-for-profit colleges.

You can view the full New York Times article by clicking here.

Settlement Agreements With Former Employees Containing Broad Release Language May Prevent Subsequent Qui Tam Actions

May 25, 2011 | Peter S. Lubin and James V. DiTommaso

No matter what kind of business you own and operate, an unfortunate part of running a company is the inevitable employment disputes with employees. Whether it is an action over wages, job duties, or other issues, many business owners will find themselves in court opposite a current or former employee at some point. DiTommaso Lubin’s Naperville business attorneys know the legal challenges that business owners face, and are always mindful of new case law that affects our clients.

Enterprise Recovery Systems, Inc. v. Salmeron is a decision handed down by the Appellate Court of Illinois earlier this year regarding an employer/employee dispute filed in the circuit court of Cook County. Plaintiff Enterprise Recovery Systems hired Defendant Salmeron as general manager and director of operations for their recovery and resolution of delinquent student loans business. Defendant worked for Plaintiff for four years before being terminated, and she sued Plaintiff for sexual harassment. This case settled, and Defendant signed a broadly worded release containing language that discharged Plaintiff from any other claims arising out of Defendant’s employment with Plaintiff in exchange for $300,000. After this settlement, Defendant Salmeron filed a qui tam action against Plaintiff Enterprise on behalf of the federal government alleging that Enterprise had defrauded the government. The federal government declined to intervene in the qui tam action, and the lawsuit was eventually dismissed with prejudice due to the misconduct of Salmeron’s lawyer, according to the court. Because of issues brought to light in the qui tam action, Plaintiff filed suit against Defendant alleging fraud in the inducement and breach of Defendant’s duty of loyalty to Plaintiff. After the court found repeated misconduct by Defendant’s attorney (which included multiple violations of court orders), the trial court banned Defendant from presenting evidence in her defense of the fraud and breach of fiduciary duty action. Plaintiff then moved for summary judgment on both claims.

Plaintiff’s motion showed that Defendant produced company log reports in the qui tam suit and those reports were stolen from the Plaintiff. Furthermore, Plaintiff alleged that Defendant failed to alert Plaintiff about the supposed illegal conduct of Plaintiff’s employees prior to notifying the government and filing the qui tam lawsuit. Additionally, Plaintiffs contended that Defendant planned to file the qui tam action before signing the release that was a part of the sexual harassment suit settlement. Defendant failed to file a response to the motion for summary judgment, so the court granted the motion. Plaintiff appealed, and the matter was reviewed de novo by the Appellate Court.

The Appellate Court upheld the trial court’s grant of summary judgment as to the fraud in the inducement claim because the court found that Defendant knew she had information for the qui tam case against Plaintiff at the time she negotiated the sexual harassment claim’s settlement and release. Furthermore, the court found that Defendant waited until she had received her last settlement payment before filing the qui tam lawsuit and signed the settlement agreement with no intention of honoring it. The Court upheld summary judgment as to Plaintiff’s breach of the duty of loyalty cause of action because Defendant was a high-level member of Plaintiff’s management team and owed a duty of loyalty to the company. This duty was breached when Defendant sought to profit from information harmful to the company that was obtained through her position of trust within the company. The Court also explained that it was reasonable for Plaintiffs to expect Defendant to neither exploit her position for personal gain nor hinder the business operations of the company

Northern District of Illinois Grants Motion to Dismiss in Trade Secrets Case Due to Lack of Personal Jurisdiction

May 24, 2011 | Peter S. Lubin and James V. DiTommaso

After hiring someone, businesses expect not only that their new employee will perform his job adequately, but also that he will do no harm to the company or its ability to do business. Employers know that their expectations are not always met by those employees, which is why the use of employment contracts with non-compete clauses are quite common these days. Our Chicago restrictive covenant attorneys just discovered a recent court decision that details a dispute between an employer and an ex-employee regarding one such employment agreement.

In Zep Inc. v. First Aid Corp., Plaintiff Zep employed the individual Defendants as sales representatives for its industrial cleaning products business pursuant to an employment agreement that contained non-disclosure, non-solicitation, and non-compete provisions. During their employment, Defendants had access to Plaintiff’s customer lists, supplier lists, pricing information, and other proprietary information. Eventually, a competitor, Defendant First Aid, hired the other named Defendants away from Plaintiff and subsequently solicited Plaintiffs clients and other employees.

As a result, Plaintiff filed suit for breach of contract, trade secret misappropriation under the Illinois Trade Secrets Act (ITSA), and tortious interference with contract. Plaintiff contends that First Aid induced the other Defendants to breach the employment agreements they signed with Plaintiff and that the other Defendants used and disclosed Plaintiffs trade secrets. In response, Defendants filed motions to dismiss the claims, which were granted as to three of the individual defendants due to a lack of personal jurisdiction. The Court found that because three of the individual Defendants were residents of Michigan and Ohio, Plaintiff is located in Georgia, and the employment agreements were signed outside of Illinois, they did not have the requisite minimum contacts to give an Illinois court jurisdiction over the matter. Furthermore, Plaintiff had not alleged that any of Defendants’ actions were aimed at Illinois, and neither had their actions caused harm to Plaintiff in Illinois, so specific personal jurisdiction was also improper. The Court denied the remaining motions to dismiss – finding that the non-compete provisions were enforceable because the geographic limitations were reasonable and the non-solicitation clause was limited in scope to Plaintiff’s competitors for a span of one year. Plaintiff’s allegations were also found to be sufficient to support a claim under the ITSA because it had identified a list of confidential information and trade secrets in its pleadings.

Court Rules that Expiration of Public Transit Passes is Legal

May 23, 2011 | Peter S. Lubin and James V. DiTommaso

DiTommaso Lubin prosecutes consumer protection class-action lawsuits on a regular basis, and in order to best serve our present and future clients, we are always mindful of new Illinois cases in the field. Howard v. Chicago Transit Authority is a consumer rights decision from the Appellate Court of Illinois that our attorneys found in the course of their research.

Howard v. Chicago Transit Authority is a case between those who ride public transportation in Chicago and the Chicago Transit Authority (CTA). Initially, the named Plaintiff started the litigation because of Defendant CTA’s policy of allowing the transit cards needed to ride on Defendant’s transit system to expire one year after the cards are issued. The named Plaintiff had purchased such a card, and when that card expired, he lost the remaining balance on his card. After discovering that he had lost the money on the card, Plaintiff filed a putative class-action lawsuit, alleging violations of the Consumer Fraud and Deceptive Business Practices Act and the Uniform Deceptive Trade Practices Act. Defendant then filed a motion to dismiss, which was granted by the trial court. Plaintiffs then appealed the lower court’s dismissal.

The Appellate Court reviewed the trial court’s dismissal de novo and examined the reasoning used by the lower court’s decision. The case was dismissed by the trial court because Defendant successfully argued that Plaintiff’s claims could not stand due to the terms and conditions of the card. These terms and conditions clearly stated that the transit card had an expiration date and could not be redeemed for cash, replaced, or refunded. Additionally, upon purchase of the transit card, the Court held that Plaintiff had entered into a valid contract of carriage and therefore Defendant had committed no wrongful conduct. Plaintiff claimed that the terms and conditions of the card referred only to the use of the card itself and not the use of money placed on the card. The Court disagreed and upheld the trial court’s ruling that use of the card was part and parcel of using the money on the card. The Court went on to state that “the terms on a fare pass are incorporated into the carrier’s contract for carriage and are enforceable as written.” Thus, because the contract for carriage contained the expiration clause and Plaintiffs accepted those terms, the contract was valid and the suit was properly dismissed.

Northern District of Illinois Denies Class Certification in an Action to Recover Unpaid Overtime Under FLSA

May 18, 2011 | Peter S. Lubin and James V. DiTommaso

There are many employees out there who should be getting paid overtime wages, but because they have been misclassified by their employers, those people are being paid on a salary basis instead. We at DiTommaso Lubin know that these things happen, which is why we fight for the rights of employees who have been paid incorrectly. Our Evanston overtime class action attorneys recently discovered one such case regarding the misclassification of employees and wanted to share it with our readers.

In Gromek v. Big Lots, the named Plaintiff worked for Defendant as an assistant store manager, and was never paid for any of the time he worked in excess of forty hours per week. Plaintiff regularly worked over forty hours, and spent most of his time performing non-managerial and non-exempt duties for Defendant, but was paid a salary and never received overtime wages. As such, Plaintiff filed suit to recover his unpaid overtime pursuant to the Fair Labor Standards Act (FLSA), and sought conditional class certification of the action under FLSA §216(b) to include all of his fellow assistant store managers who worked for Defendant.

The Court sought to determine whether Plaintiffs were similarly situated enough to meet the requirements of §216. Plaintiffs provided declarations from fifteen potential class members stating that they had all been misclassified and underpaid due to Defendant’s common policy, which weighed in favor of granting class certification. However, a previous and similar class-action filed by another group of Defendant’s assistant store managers was decertified because many of those Plaintiffs had significantly different job duties, which made the claims unsuitable for resolution by class-action. Due to this earlier case, the Court denied the class certification motion because Plaintiffs had failed to show why their case differed from the prior action, though the Court stated it would be willing to hear any such arguments the Plaintiffs could provide.

New York Times Reports: “Judge Allows Redlining Suits to Proceed”

May 12, 2011 | Peter S. Lubin and James V. DiTommaso

Judge Allows Redlining Suits to Proceed
Two cases, one stemming from practices in Memphis and another in Baltimore, accuse Wells Fargo of steering black clients to expensive subprime loans.

The Article reports:

“The City of Memphis and Shelby County have not alleged that Wells Fargo lending practices resulted in a host of social and political ills plaguing entire sections of the community,” Judge Anderson wrote in a 32-page order. “Rather plaintiffs contend that defendants have targeted individual property owners with specific lending practices (reverse redlining), resulting in specific effects (foreclosures and vacancies) at specific properties, which in turn created specific costs (services and tax revenue) for local government.”
Judge Anderson’s ruling came two weeks after Judge J. Frederick Motz, of Federal District Court in Maryland denied Wells Fargo’s attempt to dismiss a similar lawsuit brought by the mayor and city council of Baltimore. Two previous versions of that lawsuit, claiming reverse redlining, in which the bank steered African-Americans toward more predatory loans, had been dismissed by the court

NPR Reports: “Gulf Residents, Businesses Entangled In Bitter Legal Battle”

May 12, 2011 | Peter S. Lubin and James V. DiTommaso

Over the course of three months, the BP Macondo well gushed an estimated 200 million gallons of oil into the Gulf of Mexico. One year since the explosion, hundreds of Gulf residents and business owners are still embroiled in a complex legal battle with BP and other companies involved. Host Michel Martin discusses the legal aftermath of the oil spill with Steve Korris, a reporter for The Louisiana Record.

Northern District of Illinois Federal Court Grants Injunction in Misappropriation of Trade Secrets Case

May 10, 2011 | Peter S. Lubin and James V. DiTommaso

Trade secrets are the lifeblood of many companies these days, and protecting those secrets is always of the utmost importance. Through our years of experience advising and representing companies, we here at DiTommaso Lubin know how to maintain the security of your trade-secret portfolio and prosecute those who attempt to misappropriate any of your trade secrets. Because employees with trade-secret knowledge come and go with such frequency these days, our Des Plaines trade-secret attorneys wanted to share a recent court decision that illustrates the perils companies face due to departing employees.

In Mintel International Group LTD v. Neergheen, Plaintiff Mintel initially employed Defendant in its London-based marketing department, and upon his hiring, Defendant signed an employment contract that included non-compete and confidentiality restrictive covenants. Defendant was then transferred to Plaintiff’s Chicago office where he signed a second employment contract containing non-compete and confidentiality clauses similar to those in the first agreement. This second contract also contained a clause prohibiting the solicitation of Plaintiff’s employees and customers – all of the clauses were in effect for one year after the cessation his employment with Plaintiff. Defendant eventually left the employ of Plaintiff and began working for a competitor company in a different product area in order to comply with his non-compete. Plaintiff failed to ask Defendant to return the laptop given to him by the company during his exit interview, and also failed to ask him about proprietary information he had emailed to himself prior to his departure – despite knowing that he had taken possession of the information before he left.

Eventually, Plaintiff filed suit against Defendant alleging violations of the Computer Fraud and Abuse Act (CFAA), the Illinois Trade Secrets Act (ITSA), and breach of the non-disclosure, non-compete, and non-solicitation provisions in his employment contract with Defendant. Plaintiff sought injunctive relief and money damages. After a bench trial, the Court found that Defendant had not violated the CFAA because he had only emailed copies of Plaintiff’s files to a private email address, which did not satisfy the damage requirement of the statute. The Court next held that, while the copied files qualified as trade secrets, Defendant did not violate the ITSA because there was no proof that he had or would use the information in his position at a competing company. Finally, the Court found that the restrictive covenants were not invalid as a matter of law, and enjoined Defendant from: ever using any of Plaintiff’s proprietary info, contacting any of Plaintiff’s customers for nine months, or working for his new employer in the same area as he had with Plaintiff for a period of six months.

A Compilation of Excellent Videos on Car Dealer Fraud — Our Chicago Car Dealer Fraud Attorneys Stand up For Consumer Rights

May 8, 2011 | Peter S. Lubin and James V. DiTommaso

//www.youtube.com/watch?v=XNXtjk-w6Vs

We bring suit for odometer fraud and other car dealer scams such as selling rebuilt wrecks as certified used cars. Super Lawyers has selected our DuPage and Cook County auto-fraud and lemon law attorneys as among the top 5% in Illinois. We only collect our fee if we win or settle your case. We recently settled a used car fraud case for $100,000 for a $9,000 car that was three cars welded together. Our co-counsel in auto-fraud cases has achieved two six figure punitive damages awards in the last year against Illinois car dealers. For a free consultation call us at our toll free number 630-333-0333 or contact us on the web by clicking here.

New York Times Reports: “Star Chef, Facing a Suit, Files for Bankruptcy” to Shut Down Wage and Overtime Class-Action

May 5, 2011 | Peter S. Lubin and James V. DiTommaso

Star Chef, Facing a Suit, Files for Bankruptcy
By NICK FOX
Published: April 26, 2011
The Chapter 7 petition by the celebrity chef Geoffrey Zakarian may help him to fend off more than $1 million in legal claims from his former kitchen staff at Country.

Many restaurants around the country are being sued in class-actions and collective actions for failing to pay overtime and other violations of federal and state wage laws. The New York Times has reported a very interesting story regarding one such lawsuit against celebrity chef Geoffrey Zakarian. The story explains how Zakarian’s former partners have taken the unsual step of filing affidavits in favor of the class after paying a $200,000 settlement. Zakarian and his partners are involved in litigation where they allege his used the restaurant Country as his personal piggy bank and breached fiduciary duties to them. To avoid the cook staff’s class action lawsuit and the high cost of defending it Zakarian has filed for bankruptcy.

The article states:

Of the 179 creditors listed in the Chapter 7 bankruptcy petition he filed on April 6 in federal court in Bridgeport, Conn., 152 are former cooks at Country. They are part of a class action lawsuit against Mr. Zakarian and his management firm that claims that when he was an owner of the restaurant and its chef, he failed to pay the workers time and a half for overtime, falsified pay records to shortchange them and deducted from their paychecks for staff meals they were not given. They are seeking $1 million in damages and $250,000 in penalties.

Neither legal action has been widely reported in the news media, nor has the bitterness between Mr. Zakarian and two former partners that has led those two men to take the workers’ side and face off in court against him.

The article goes on to provide many more interesting facts regarding Zakarian’s alleged mistreatment of his employees and partners. You can read the full article by clicking here where you can also conenct to links to the Complaint and various affidavits filed in the lawsuit. The affidavit by one former line cook describes how the workers were forced to work many unpaid hours. You can view it by clicking here.