Market Watch reports that two Dollar Tree employees have brought a collective action under the Fair Labor Standards Act for alleged failure to pay overtime and minimum wages.
To view the full article click here.
If you believe you might be part of a class of employees forced to work off the clock or have othewise been denied overtime pay, Lubin Austermuehle may be able to help your pursue your own overtime class action. For a free consultation on your rights as an employee, contact us today.
The U.S. District Court for Minnesota is hearing a test case for how restrictive covenants are affected by social media. Our Chicago restrictive covenant litigation lawyers were extremely interested to read about TEKSystems, Inc. v. Hammernick in a June 15 ComputerWorld article. According to the article, information technology staffing firm TEKSystems is suing a former employee who once helped recruit IT professionals for the company to place at other businesses. That former employee, Brelyn Hammernick, is accused of violating her non-solicitation, non-compete and non-disclosure agreements with TEKSystems through her use of the social media website LinkedIn. The company claims Hammernick violated her agreements by connecting with at least 20 TEKSystems contract employees, among other things. Other defendants are Horizontal Integration, Hammernick’s new company, and two colleagues who moved there from TEKSystems, Quinn VanGorden and Michael Hoolihan.
According to the federal complaint, Hammernick signed an agreement not to work for a competitor of TEKSystems for 18 months after leaving her job there and within a 50-mile radius of the company’s Edina, Minnesota office. The agreement also restricted her from recruiting employees and clients of TEKSystems for the same 18-month period, including people who had been contract employees for up to two years beforehand, and from revealing the company’s confidential information. The complaint accuses Hammernick of violating all three provisions after moving to Horizontal Integration, a direct competitor. In addition to connecting with former colleagues on LinkedIn, the company accuses her and her two colleagues of using their knowledge of TEKSystems’ clients to solicit them for Horizontal Integration and soliciting several contract employees to move to Horizontal Integration. TEKSystems asked for substantial financial damages as well as injunctions enforcing the restrictive covenants.
This case contains numerous more conventional restrictive covenant issues, but our Illinois non-compete litigation attorneys are also very interested in the novel issue of whether social media contact is in itself a violation of a non-solicitation clause. Without knowing more about the situation, we suspect that the district court will not accept this argument. In itself, connecting with someone on LinkedIn or another social networking site does nothing more than give both people access to each other’s contact information. This could be considered an “electronic Rolodex,” and no court would uphold a non-solicitation agreement that requires an ex-employee to discard her Rolodex. In fact, the language of the agreement, as laid out in the complaint, prohibits contact with TEKSystems employees only for the purpose of soliciting them away from the company. For this reason, we think TEKSystems will have an uphill battle on that claim.
Our Aurora, Ill. shareholder derivative claim lawyers were interested to see an appellate case that examined whether a limited liability corporation can be a party to a case brought under its own operating agreement. In Trover v. 419 OCR Inc. et al., No. 5-09-0145 (Ill. 5th, January 12, 2010), Joseph Trover sued 419 OCR Inc., O’Fallon Development Group LLC, Mark Halloran and Steve Macaluso, alleging a variety of shareholder complaints and fraud claims over a real estate deal that had gone sour. Trover, individually and as the trustee of a trust in his name, was part of a limited liability company called the Far Oaks Development Group. Other members of Far Oaks were defendants Halloran and Macaluso as well as non-defendant Garrett Reuter. Far Oaks owned land around a golf course that the members wished to develop. Reuter, Halloran and Trover also were part of a business called Far Oaks Golf Club, LLC.
In 2005, members of FODG agreed to sell and assign the company’s interest in the land to 419 OCR Inc., which was owned by Halloran and Macaluso, in order to gain a tax advantage. Trover claims he relied on the defendants and the advice of an attorney when he agreed to this. Halloran and Macaluso allegedly made an oral promise to pay the Golf Club the price of land to be sold, as well as a sum to be determined. Trover claims this was supposed to be put into writing. However, it was not included in the contract that transferred the land to 419 OCR, and it was never put into writing in other ways.
Halloran and Macaluso then proceeded to develop the land, sell lots and make a profit. Part of the interest in the land was transferred to another business called the O’Fallon Development Group. Trover’s lawsuit claims that FODG never received any money based on that land sale. Count I alleged breach of the oral contract against 419 OCR; Count II alleged breach of contract against the O’Fallon Group, which assumed obligations under the contract because of unity of ownership. Count III was a shareholder derivative action brought by Trover on behalf of FODG, alleging breach of fiduciary duty and corporate waste by Macaluso and Halloran. Count IV was a similar shareholder derivative action, brought by the Golf Club against Halloran only. Count V alleged fraud by Halloran and Macaluso individually, accusing them of making false representations when they said the sale price of the land would be paid back to the Golf Club.
After the lawsuit was filed, the defendants filed a motion to compel arbitration as required by the broadly worded operating agreements behind FODG and the Golf Club. The trial court denied this motion, and the defendants filed the interlocutory appeal that went before the Fifth District.
The appeals court upheld the trial court’s decision on four of the five counts. The transfer of the land from FODG to 419 OCR was within the scope of the operating agreements, the court found, but 419 OCR and O’Fallon were not parties to that agreement. Illinois law does not allow courts to compel arbitration among entities that were not parties to the arbitration agreement, the court wrote. Thus the trial court was correct to deny arbitration as to Counts I and II.
Counts III and IV are shareholder derivative actions, the court wrote, so compelling arbitration would require a finding that an LLC is a party to the agreement that creates itself. This is an issue of first impression in Illinois, the court noted. Relying on language in the Illinois Limited Liability Company Act, the court found that LLCs are not parties to their own agreements, because “A limited liability company is a legal entity distinct from its members.” The operating agreement specifies that it is between the signers, and the signers did not indicate that they were signing on behalf of either LLC in the case. And the agreement specifically states what actions members must take to legally bind the LLC. That shows that members knew how to do so but did not. Thus, the appeals court upheld the trial court on Counts III and IV as well.
The defendants were luckier with Count V, which named Halloran and Macaluso as individuals. Because both Halloran and the plaintiff signed the operating agreement with the arbitration clause, the court wrote, they are bound by it. Macaluso did not sign the original operating agreement, but he did buy 100 shares of each LLC after the fact. That makes him a member under the Illinois LLC Act, the court wrote, and binds him to everything in the agreement. Thus, he has the right to compel arbitration. For all of those reasons, the appeals court reversed the trial court as to Count V but upheld on the other counts, and sent the case back to trial.
A company involved in an underlying federal patent infringement case may not re-litigate the question of whether its software provider should indemnify it from that case, the First District Court of Appeal has ruled. As Chicago business attorneys, we were interested to read the ruling in Peregrine Financial Group v. TradeMaven LLC, No. 1-08-1111 (Ill. 1st 2009). This case springs from an intellectual property case filed in Chicago federal court, in which Trading Technologies, Inc., a software company, accused competitor TradeMaven and commodities brokerage firm Peregrine of infringing its software patents. TradeMaven and Peregrine came to separate settlements in that case, but Peregrine then sued TradeMaven in state court for multiple causes of action, including indemnification. The trial court graned TradeMaven’s motion for summary judgment on the indemnification count, and the First upheld it.
Peregrine licensed TradeMaven’s electronic trading software in 2004. In the licensing agreement, TradeMaven warranted that its software did not violate the rights of any third party, including intellectual property rights. It later agreed to indemnify Peregrine for expenses related to claims of infringement of “any property right.” Less than a year later, Trading Technologies filed its suit. Peregrine claims it sought and received assurances from a TradeMaven officer that TradeMaven would cover Peregrine’s costs in the suit. However, Peregrine did not file any claims against TradeMaven in that litigation. TradeMaven settled in January of 2006, at which time Peregrine sent it a letter reminding it of the indemnification obligation.
Peregrine settled in March of 2006, on the same day that TradeMaven amended its settlement to include additional payment. TradeMaven claims it made that payment in exchange for Trading Technologies executing a general release in Peregrine’s favor. Peregrine claims it didn’t ask for this payment and that the payment did not extinguish its indemnification rights or discharge its obligations. In connection with the settlements, the court later put forth a consent judgment that included language stating that each party would pay its own attorneys’ fees. Peregrine later sent TradeMaven a letter reminding it that it still owed Peregrine indemnification, and when TradeMaven did not indemnify Peregrine, Peregrine sued for indemnification, breach of contract, breach of warranty and tortious interference. The trial court dismissed the warranty claim and granted partial summary judgment on indemnification, saying the consent judgment blocked that claim under the doctrine of res judicata. After a motion to reconsider was denied, Peregrine appealed.
Peregrine’s first argument on appeal was that TradeMaven did not meet its burden of proving res judicata because the indemnification cause of action was not a cause of action in the federal patent infringement case. The appeals court disagreed. Both cases arose out of the underlying license agreement, the First wrote, which means both arose from the same transaction, circumstances or factual nebulae, as required by the law. It also dismissed Peregrine’s claim that its lawsuit was distinct from the patent infringement lawsuit because it brought no claims against TradeMaven in the patent infringement case. This is true, the court said, but Peregrine could have claimed indemnification at any time during the case, since indemnification was part of the licensing agreement. Peregrine was demonstrably aware of its rights and had incurred costs and fees, the court said.
The court next examined Peregrine’s argument that it had no obligation to bring a claim for indemnification during the federal case because the cause had not accrued. In support, it cited Guzman v. C.R. Epperson Construction, Inc., 196 Ill. 2d 391 (2001), in which the Illinois Supreme Court ruled that a third-party claim for indemnification does not accrue until a defendant settles or has a judgment entered. However, the First said Guzman did not apply because in this case, Peregrine was not a third party, but a named defendant. Furthermore, it noted, Guzman used Illinois law and had an implied indemnification contract, not federal law and an express indemnification contract, as in this case. It also rejected two other arguments based on caselaw, saying this case is more like Threshermen’s Mutual Insurance Co. v. Wallingford Mutual Insurance Co., 26 F.3d 776 (7th Cir. 1994), in which the Seventh Circuit, applying Wisconsin law, found that an insurance company could and should have raised its indemnification claim during the underlying case.
Finally, the First rejected the argument that equity should prevent it from allowing TradeMaven to avoid its obligations under the license agreement, especially since it had said it would. The court said it may be sympathetic, but that Peregrine had made its own predicament and that it would not upset res judicata on that basis alone. Thus, the First upheld the trial court’s decision to grant summary judgment on indemnification.
Public Justice had the following to say about the briefing:
Would this headline surprise you? “Cell Phone Giant Rips Off Customers.” Maybe not. But what about this one? “Cell Phone Giant Rips Off Customers, Wants New Law Saying It’s OK.” That one might just catch your attention. I know it would mine.
Well, that second hypothetical headline is actually the premise of AT&T Mobility v. Concepcion, a hugely important case that will be argued before the Supreme Court in early November.
Yesterday, Public Justice Senior Attorney Paul Bland participated in a press briefing on this case at the National Press Club and sponsored by the American Constitution Society. Other panelists were Nina Pillard, law professor at Georgetown; Stephen Ware, law professor at the University of Kansas; and Alan Kaplinsky, a private attorney in Philadelphia who counsels financial institutions on how to shield themselves from liability.At one point, about 38 minutes in, an audience member posted this to Twitter: “Paul Bland is on a TEAR at the AT&T Mobility v. Concepcion briefing. What passion for class actions!” This case has been under-the-radar for awhile now, but don’t be fooled: It actually has nothing to do with the minutiae of arbitration clauses like AT&T Mobility (AT&T) says it does. Really, it’s about banning class actions and taking away consumers’ rights.
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.
Our Chicago alternative dispute resolution lawyers noted a recent Fifth District Court of Appeal ruling upholding an arbitration agreement but severing its class-action waiver. In Keefe v. Allied Home Mortgage Corporation, No. 5-07-0463 (Ill. 5th 2009) (PDF), Rosemary Keefe was the lead plaintiff in a proposed class action against her mortgage broker. She refinanced through Allied Home Mortgage Capital Corp. in 1999, and as part of that deal, she signed a rider requiring binding arbitration of most disputes. Five years later, she filed a proposed class action against Allied, accusing it of consumer fraud and other torts for charging third-party fees (such as credit check fees) in excess of their actual cost and failing to disclose this. Allied moved to compel arbitration. Without an evidentiary hearing, the trial court ruled that the arbitration agreement was illusory and procedurally and substantively unconscionable, and Allied filed an interlocutory appeal.
The Fifth District started by examining de novo whether the agreement was indeed illusory. An illusory promise is something that appears to be a promise but holds out no performance, or only an optional performance. The Fifth found that it was not illusory, because the arbitration rider specified that the borrower may request arbitration in any judicial proceeding started by Allied. Furthermore, it noted, the rest of the contract may be considered part of the consideration granted to the plaintiff.
It next looked at the finding that the agreement was both procedurally and substantively unconscionable. A contract is procedurally unconscionable when some impropriety during the signing of the contract — such as language that is difficult to find or understand — robs the signer of a reasonable choice. That was not the case here, the court said. The arbitration rider was not hidden by fine print, it wrote, nor was it difficult to read or understand. Rather, the arbitration rider “conspicuously” used bold capital letters to notify the plaintiff that she was signing a contract that gave away her right to a jury trial. Nor did she need to sign it to obtain the refinancing.
The court also rejected the plaintiff’s argument that the rider was unconscionable because it failed to notify her of the cost of arbitration. The Fifth noted that the arbitration rider did contain a provision notifying the plaintiff that she can get copies of rules and forms related to arbitration at any National Arbitration Forum office or by mail order. Under Kinkel v. Cingular Wireless LLC, 223 Ill. 2d 1, 22, 857 N.E.2d 250, 264 (2006), this is not enough by itself to render the contract unconscionable, the court wrote, but it may be considered along with findings on substantive unconscionability.
Finally, the Fifth looked at whether the arbitration rider was substantively unconscionable. A contract is substantively unconscionable when the contract terms are unfair, one-sided or create a large imbalance between price and cost. The plaintiff first argued that the rider is cost-prohibitive because it specifies that no claim may be brought by class action. The Fifth found some merit in this. In Kinkel, the Illinois Supreme Court found that class-action waivers are not per se unconscionable, but courts should look at their fairness as well as the cost of bringing an individual claim relative to the damages. Once again following that decision, the Fifth found the cost of pursuing an individual claim was high relative to the potential damages, especially including arbitration and attorney fees. Taking into account Allied’s failure to reveal the cost of arbitration, the court ruled that the class-action waiver was unconscionable. But rather than declare the entire contract unconscionable, the court simply severed the class-action clause, reversed the rest of the trial court’s decision and remanded the case with directions to enforce the remainder.
Proposed Settlement in Class Action Suit Against Audi, Volkswagen Wins Judge’s Approval
The article states:
Volkswagen and Audi have agreed to pay sludge-related maintenance costs for nearly 480,000 vehicles as part of a proposed settlement conditionally approved in federal court. The order filed Thursday, September 23, 2010 by Judge Joseph L. Tauro in Boston, defined the group, or “class,” that can benefit from the settlement as all current and former owners and lessees of Audi’s A4 (model year 1997-2004) and Volkswagen’s Passat (model year 1998-2004) that were equipped with a 1.8 liter turbo engine.
A recent ruling clarifying how Illinois state law applies to city ordinances caught the attention of our Chicago consumer protection attorneys. In Landis et al v. Marc Realty et al, Ill. Sup. Co. No. 105568 (May 21, 2009), tenants Ana and Ken Landis signed a lease for a Chicago apartment, starting June 1, 2001. They paid a security deposit of $8,400. However, they found a persistent leak in the apartment that the defendants, Marc Realty LLC and Elliott Weiner, were not able to fix. They came to a mutual agreement to vacate in exchange for being released from the lease and left in November of 2001. In April of 2006, they filed suit under Chicago’s Residential Landlord Tenant Ordinance, alleging that the defendants never paid back their security deposit.
Under the RLTO, landlords must repay security deposits, or the balance of such deposits, within 45 days of the date tenants move out or within seven days after the tenant gives notice. If they hold on to the deposits for more than six months, they must pay interest that accrues from the day the rental term began. If they fail to make either payment, tenants are entitled to sue for twice the security deposit plus interest. Neither party in this case disputed this. Instead, Marc Realty moved to dismiss the complaint as untimely under the two-year statute of limitations for a statutory penalty in Illinois. The plaintiffs argued that the RLTO did not provide a statutory penalty, but instead was governed by the five-year miscellaneous statute of limitations or the ten-year statute of limitations applied to contracts. The trial and appellate courts sided with defendants, and plaintiffs appealed.
The majority started by noting that the case rests on the proper interpretation of the phrase “statutory penalty.” It first took up the question of whether a city ordinance qualifies as a statute, which the plaintiffs argued that it did not. The appeals courts are split on this question, the Supreme Court wrote, and prior Supreme Court cases don’t quite apply. The court assumed that the Legislature intended the word “statutory” to take its ordinary dictionary definition, but found that dictionaries are also split on the issue. Applying the general principle that courts should give statutes their broadest possible meaning, the Supreme Court found that the Legislature intended “statutory” to encompass municipal ordinances as well as state law. It noted that this is most fair because it gives all claims for statutory penalties in Illinois the same statute of limitations.
The court next disposed of the plaintiffs’ arguments about the word “penalty.” Under McDonald’s Corp. v. Levine, 108 Ill. App. 3d 732 (1982), statutory penalties must impose automatic liability for violation; set forth a predetermined amount of damages; and impose damages without regard to actual damages. The plaintiffs concede that the RLTO meets the first test, but said the damages are not predetermined because a dollar amount isn’t specified. It doesn’t need to, the court wrote; the formula provided by the statute is sufficient to be counted as “predetermined.” It also dismissed the plaintiffs’ argument that they are seeking actual damages, noting that other areas of the RLTO specify actual damages, but this one does not. The ordinance also says nothing about the contractual obligations between landlords and tenants, the court said, despite plaintiffs’ argument that they were seeking to enforce contractual rights. Thus, the RLTO does impose a “statutory penalty” — and the lower courts’ judgments were affirmed.
In a dissent, Justices Kilbride and Karmeier disagreed with the majority on the question of whether the Legislature intended to include municipal ordinances in the definition of “statutory penalty.” Saying that courts must interpret laws according to the intent of drafters at the time, the justices wrote that “statutory” took only the state-law meaning in 1874, when the law was written. Furthermore, several Illinois Supreme Court precedents show that this interpretation was in use by courts of the time as well: “This court’s precedent could not be more clear.” And the result in this case contradicts a more recent ruling in Clare v. Bell, 378 Ill. 128 (1941), they wrote, which the majority mentioned but failed to adequately distinguish, leaving an inconsistent ruling. The justices also dissented from the majority’s denial of a rehearing.
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.
Chicago Business Litigation Lawyer Blog
