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As Illinois trade secrets litigation attorneys, we were interested to see a trade secrets lawsuit arise out of the time-sensitive and competitive world of women’s fashion. As the Naples Daily News reported in July, Florida clothing company Chico’s FAS Inc. has sued competitor Cache Inc. and two former employees who moved to Cache, Rabia Farhang and Christine Board. Chico’s alleges that Farhang and Board shared designs from Chico’s White House/Black Market line with Cache, resulting in nearly identical spring and summer collections from the two brands. The lawsuit’s complaint includes exhibits of pictures of both collections. It accuses the women of breach of their nondisclosure agreements and legal duties, and Cache of inducing them to breach those agreements, and all defendants of tortious interference with contractual relations, misappropriation of trade secrets, unfair competition, theft, unjust enrichment and civil conspiracy.

According to the complaint in the case (PDF), which was filed in New York state court, Cache has not been financially successful in the past four or five years, during which time Chico’s White House/Black Market line has done well. Chico’s alleges that Cache tried to fix this by inducing Farhang and Board to leave Chico’s in the fall of 2009, taking their knowledge of design plans for 2010 clothing lines along with other trade secrets and confidential information. At Chico’s, Farhang and Board both participated in the designs of the 2010 lines, Farhang as a senior officer. Using the allegedly stolen designs, the complaint says, Cache saw an increase in sales in spring of 2010, and Chico’s alleges that Cache will use stolen designs in its fall line as well. Because of this, it requested preliminary and permanent injunctions stopping Cache from selling clothes from its spring, summer and fall lines, as well as a recall of the spring and summer lines. It also asked for financial damages and court orders protecting its trade secrets and confidential information.

Our Chicago business emergency lawyers believe this case is a good example of a situation in which swift action is necessary. If the allegations by Chico’s are true, its intellectual property and brand have already been somewhat diluted by Cache’s use of very similar designs in its spring and summer lines. This would be ongoing damage to the company that includes difficult-to-measure non-financial harm to its identity and customer loyalty, as well as actual financial damages from infringement. Furthermore, the tight schedules of fashion and retail companies mean that they bring out their fall lines in mid-summer, which means the court must take quick action on the July 29 lawsuit to stop the infringing on the fall line. This also means that Cache’s fiscal health could be in serious trouble if the count chooses to grant the injunction against the fall line and the recall order for the spring and summer lines. For both sides, this claim represents a legal emergency requiring quick action to protect their business.

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NPR reports:

Can’t put your BlackBerry down? Your boss may come to dread that if you’re working while you’re off the clock. A police sergeant in Chicago is suing the city. He says he’s due plenty of overtime back pay because he logged in on his BlackBerry to continue working even though his shift was over.

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Publich Justice reports on its website:

The consumer and civil rights communities are closely watching AT&T Mobility v. Concepcion, a case that will be argued in the Supreme Court this November. Depending on how broadly the Court reads the question presented in Concepcion, the case could decide the fate of consumer and employee class actions for years to come.

Public Justice’s Senior Attorney Paul Bland, Staff Attorney Claire Prestel and Brayton-Baron Fellow Melanie Hirsch explain what is at stake in ATT Mobility v. Concepcion, a case with profound consumer and civil rights implications. The U.S. Supreme Court is scheduled to hear the case this fall. Click here to see what is at stake.

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As Chicago alternative dispute resolution attorneys, we were pleased to read a decision from the First District Court of Appeal on compelling arbitration in an oral contract related to a written contract. In Marks v. RSM et al, No. 1-09-1988 (Ill. 1st. March 12, 2010), Carol Marks allegedly contracted with RSM McGladrey Inc. to do accounting for investments she held. That was a written contract including an arbitration clause. Marks alleges that she later entered a separate oral contract with the managing director of RSM and RSM for investment advice. However, she was unhappy with the advice she received and later sued the defendants. The defendants sought to compel arbitration under the written contract, and the trial court denied this, saying there was no arbitration agreement for the oral contract. The First upheld that decision.

Marks allegedly originally retained RSM to monitor her investment accounts. For that work, she signed an “engagement letter” as a contract, which included two clauses of interest. One specifies that RSM will use its professional judgment in applying “rule applicable to this engagement.” The other is a binding arbitration clause requiring dispute resolution to go through the American Arbitration Association. Marks signed, but during the remainder of her first year with RSM, she alleges that RSM failed to provide the portfolio reporting services she expected and instead allegdly began to promote various investments to her. She further alleged that RSM charged her separately for those services and emphasized that they were separate, but no written contract was signed. The court also notes that Bober and RSM allegedly  were not registered with the state of Illinois or with the SEC as providers of investment services.

As a result of the alleged solicitations, Marks allegedly put $500,000 into Lancelot Investors Fund II, which put the money into a hedge fund called Thousand Lakes. Marks alleged this conduct damaged her economically. She sued RSM and its managing director, alleging that they breached their fiduciary duties and oral contract with her by allegedly failing to investigate Lancelot and that they allegedly negligently held themselves out as investment experts. She sought to void the oral contract and the Lancelot investment.

In trial court, the defendants denied all of her allegations and also moved to compel arbitration under the engagement letter. This motion was denied without any decision rendered on the merits of the underlying breach of fiduciary duty claim. On their motion for consideration, the defendants alleged that they provided no investment advice and did not recommend Lancelot; rather, the RSM managing director saw from the accounting work that Marks could use such advice, so he introduced her to advisors who did recommend Lancelot. This motion too was denied, and defendants appealed, saying the dispute is covered by the arbitration agreement. They also argued that the Federal Arbitration Act supports this because it has a presumption of arbitrability.

The First rejected this position. Under the FAA, which it said was the governing law in this case, it was proper for the trial court rather than an arbitrator to decide arbitrability. Under that law and the Supreme Court’s decision in AT&T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 649, 89 L. Ed. 2d 648, 656, 106 S. Ct. 1415, 1418 (1986), parties cannot be compelled to arbitration unless they have agreed to do so in their contract.

Illinois case law seems to confirm this. The court cited Johnson v. Noble, 240 Ill. App. 3d 731, 732-33 (1992), which also concerned a case with one written contract and one oral contract. In that case, as in this one, the defendant sought to compel arbitration based on the written contract, but the plaintiff argued that the claims arose from the oral contract. The trial and appeals courts agreed, saying the dispute was not arbitrable because it arose from a separate oral contract. Similarly, in Board of Managers of Chestnut Hills Condominium Ass’n. v. Pasquinelli, Inc., 354 Ill. App. 3d 749 (2004), an appeals court upheld the plaintiff’s right to sue because the claims at issue were outside the scope of the arbitration agreement.

In this case, the First wrote, defendants had two separate agreements, one oral and one written. The dispute arose out of the oral contract, it said, so Marks was not required to conform to the terms of the written contract. In fact, the court said the language of the written contract indicates that the parties did not intend to extend the contract past “this engagement.” For those reasons, it upheld the trial court’s decision and remanded it to the trial court for further proceedings.

When the case returned to the trial court, the parties ultimately agreed to it being dismissed with prejudice pursuant to a stipulation to dismiss.  The defendants denied all of the allegations and the case did not proceed to trial so plaintiff’s claims remained allegations that were not proven at a trial. Defendants maintain that the allegations that they did anything wrong were baseless and lacked any merit.

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As mediation and arbitration attorneys in Chicago, we were interested to see an Illinois Supreme Court decision from this year that clarifies state law’s relationship with the Federal Arbitration Act. Carter v. SCC Operating Company, No. 106511 (Ill. April 15, 2010) (PDF). The plaintiff, Sue Carter, is administering the estate of Joyce Gott, who was a resident of Odin Healthcare Center, a nursing home, for two months in 2005 19 more days in January of 2006. She died in the home that month. Carter, acting as Gott’s legal representative, signed an agreement on Gott’s original admission to the home agreeing to binding arbitration; Gott signed the same agreement herself on her second admission. The agreement also specifically mentioned that it is governed by the Federal Arbitration Act.

After Gott’s death, Carter filed a lawsuit in Marion County alleging Odin violated the state Nursing Home Care Act and the Wrongful Death Act by failing to provide proper care and supervise caregivers, resulting in juries that led to Gott’s death. Odin answered the complaint and then moved to compel arbitration under the arbitration agreement and then FAA. Carter answered that the arbitration agreement is null because it is against Illinois public policy under the Nursing Home Care Act, and the FAA allows arbitration agreements to be voided for “grounds that exist at law or in equity to void any contract.” At an evidentiary hearing, the trial court accepted that argument and others made by Carter and voided the arbitration agreement. Odin appealed, and the Fifth District Court of Appeal upheld the trial court’s decision, but only as to the FAA argument. In essence, the appeals court said the Nursing Home Care Act is an ordinary defense available for all contracts under state law, putting it outside the FAA.

Odin appealed to the Illinois Supreme Court, which initially denied the appeal but changed its mind after the Second District split with the Fifth on this issue and the U.S. Supreme Court denied certiorari to Odin. Attorney General Lisa Madigan was also permitted to intervene.

In its analysis, the state Supreme Court had only to consider the idea that the Nursing Home Care Act’s anti-waiver provision is a defense to any contract dispute in Illinois. It did not accept that argument. While the court noted that there was no express or implied preemption in the FAA, it said preemption can also be found where state law specifically conflicts with federal law. After examining how the FAA and the Nursing Home Care Act have been interpreted, it concluded that this is such a case. It cited Southland Corp. v. Keating, 465 U.S. 1, 79 L. Ed. 2d 1, 104 S. Ct. 852 (1984), in which the Supreme Court found that the FAA applies in state court and preempts conflicting state laws. The majority opinion specifically addressed the issue at hand, saying a state law governing investment contracts was not a “ground… for revocation of any contract,” but only for contracts that fall under that law. Similarly, in Preston v. Ferrer, 552 U.S. 346, 169 L.Ed. 2d 917, 128 S. Ct. 978 (2008), the Supreme Court found that an arbitration contract was enforceable even though state law referred the underlying dispute to an administrative agency.

Thus, the Supreme Court said, the lower courts were wrong to believe that the Nursing Home Care Act (or other state laws) could only be preempted by the FAA if it singled out arbitration. It also rejected an argument from the Attorney General that the right to a jury trial is too fundamental to be waived, noting that “it is axiomatic” that parties may make arbitration agreements. However, the court noted that there are numerous other issues in this case, including whether the nursing home contract constituted interstate commerce under the FAA. Thus, it reversed and remanded the case to the Fifth District for consideration of those issues.

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Our Chicago trade secrets litigation attorneys were interested to see that a trade secrets and breach of restrictive covenant case was responsible for clarifying a point of procedure at the trial level. In Vision Point of Sale v. Haas et al., No. 103140 (Ill. Sup. Co. Sept. 20, 2007), the Cook County trial court certified a question of law having to do with unintentional noncompliance with a procedural requirement. In such a case, the court asked, may courts consider information of record that goes beyond the reasons for the noncompliance? The First District Court of Appeal said yes, but the Illinois Supreme Court reverse that decision.

The case arises from a Trade Secrets Act, breach of fiduciary duty, tortious interference and unjust enrichment claim filed by Vision Point of Sale, Inc. against Ginger Haas and Legacy Inc. Haas was an executive assistant at Vision before resigning and immediately taking a job at Legacy. Vision contended that Haas, at Legacy’s direction, stole confidential and proprietary information as she left, with the goal of soliciting Vision’s customers. Both companies refurbish and sell used point-of-sale equipment. Vision requested and received a preliminary injunction as well as a permanent injunction. Discovery on the permanent injunction included a request for admissions from defendants. When Vision returned its responses, the final page was signed by its attorney, but the final page of the document was signed by Vision CEO Frank Muscarello. This violated the Illinois Code of Civil Procedure, which required Muscarello’s signature on the final page of responses as well.

The defendants immediately moved to strike the document as defective and deem all of its facts admitted because of the missing signature. The trial court granted that motion. Vision moved for more time to file a set of amended responses. That motion argued that a good-faith reading of the rules was enough “good cause” to allow the amendment. It was denied, but after the case proceeded and the court became frustrated with the defendants’ noncompliance with the preliminary injunction, it vacated that denial and allowed Vision to amend its responses. Not surprisingly, the defendants objected and asked the court to certify the question in the instant appeal. The appellate court found that courts may consider information in the record beyond the reasons for the noncompliance, writing that in this situation, the circuit court may consider any facts that “strike a balance between diligence in litigation and the interests of justice.” The defendants appealed to the Illinois Supreme Court.

In considering this appeal, the high court said it was considering Supreme Court Rule 183, and to a lesser extent, Rule 216. Rule 183 says that courts may extend deadlines if one party makes a motion requesting the extension and shows good cause. The relevant parts of Rule 216, which deals with requests for admissions, say that recipients must respond within 28 days with a sworn statement denying the objections or a written statement saying they are improper in some way. Otherwise, every fact in the document is deemed admitted. The court started with a detailed discussion of Bright v. Dicke, 166 Ill. 2d 204 (1995), the last Illinois Supreme Court case interpreting the good-cause requirement. In that case, the high court found that circuit courts have the discretion to extend the 28-day deadline for responses to requests to admit.

However, the Bright court upheld the trial court’s decision to deny an extension in that particular case, because the movant had failed to show good cause. That court said the “mere absence of inconvenience or prejudice to the opposing party is not sufficient to establish good cause under Rule 183,” and that the burden of establishing good cause should be on the movant. Thus, the rule established by Bright says that trial courts may extend deadlines for responses to requests for admissions if the movant can show good cause. The defendants argue that this is inconsistent with the appellate court’s ruling in the instant case — and the Supreme Court agreed. The appellate court’s analysis focused on issues other than why the plaintiffs failed to meet their deadline, the high court wrote, making it at odds with Bright. Allowing courts to consider the totality of the circumstances, the court wrote, would allow too many irrelevant issues to enter into the analysis.

However, the court did agree with plaintiffs that the cases subsequently arising from Bright created an unduly harsh discovery rule. Cases like Hammond v. SBC Communications, Inc. (SBC), 365 Ill. App. 3d 879, 893 (2006) expanded the rule in Bright to create “a second, broader, harsher, and apparently inflexible standard that ‘mistake, inadvertence, or attorney neglect’ on the part of the moving party can never serve as the sole basis for establishing good cause[.]” This can be fatal to cases and is unnecessarily severe, the high court said, but the appellate court’s decision is not the answer. Rather, the Supreme Court clarified that it never intended such a result in Bright and overruled cases creating that result. This analysis was enough for the Supreme Court to overrule the trial court’s ruling on the discovery motion in this case. However, the high court also found that the plaintiffs’ response was not deficient because the appellate ruling on which it is based, Moy v. Ng, 341 Ill. App. 3d 984 (2003), has no basis in Rule 216 or the Code of Civil Procedure. Thus, the appellate court was reversed and the case was remanded.

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The Seventh U.S. Circuit Court of Appeals made a ruling this year that will be important to the work of our Chicago consumer class action attorneys. In Cunningham Charter Corp. v. Learjet Inc., 592 F.3d 805 (7th Cir. 2010), the court decided that federal courts retain jurisdiction under the Class Action Fairness Act, even when they decline to certify any class in the case at bar.

Cunningham bought one or more jets from Learjet and was dissatisfied. It filed a proposed class action against Learjet in Illinois state court for breach of warranty and product liability. Learjet removed it to federal court under CAFA, and Cunningham moved for class certification. That motion was denied, and without a class, the district judge thought it was appropriate to move the case back to state court. Learjet then petitioned for leave to appeal the remand order, and the Seventh agreed to hear it to resolve the issue of whether denial of class certification eliminates subject matter jurisdiction under CAFA.

The Seventh based its opinion almost entirely on the language of the Act. Crucially, the law says it applies to “any class action [within the Act’s scope] before or after the entry of a class certification order.” The majority wrote that this language was probably intended to give defendants the option of removing the case either before or after class certification. But they seized on the use of the indefinite article — a class certification order rather than the class certification order. This word choice shows that the law is not limited to cases in which a class certification order is eventually issued, the court wrote. In addition the law’s definition of a class action is any civil action filed under rules authorizing a class action — not as an action with a certified class. “As actually worded, (d)(8)… implies at most an expectation that a class will or at least may be certified eventually,” the court wrote.

Another part of the Act says a class certification order is “an order issued by a court approving the treatment of some or all aspects of a civil action as a class action.” This could imply that a class certification order is required for the claim to be a class action — if read in isolation. But again, the definition of a class action in this Act is a claim that is filed as a class action, not necessarily certified as one, the majority wrote. The court interpreted this language to mean that a class-action suit cannot be maintained as a class-action suit without the eventual certification of a class.

The Seventh then reviewed previous federal appellate decisions in agreement with this interpretation, including Vega v. T-Mobile USA, Inc., 564 F.3d 1256, 1268 n. 12 (11th Cir. 2009) as well as its own previous assumption in Bullard v. Burlington Northern Santa Fe Ry., 535 F.3d 759, 762 (7th Cir. 2008). If a state has different standards for class certification than Rule 23, the federal standard, the case could be denied class certification at the federal level, remanded, then continue as a class action at the state level. That would be contrary to the purpose of the Act, the court said. Finally, the Seventh cited the general principle that proper diversity jurisdiction is not revoked by changes that take place after the suit is filed. If diversity jurisdiction is proper before a class is certified, the majority wrote, it’s proper after a class is not certified.

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Lubin Austermuehle represents businesses caught on either side of a dispute about online or offline defamation of a business or its products or services. Our Chicago business attorneys have assisted our clients in removing damaging and false reviews from internet review sites run by their competitors. Self-publishing on the Internet, and sites like Yelp, make it easy for individuals to publish false information about a competitor or a business they don’t happen to like. Online business libel laws balance the need to protect small businesses from false and damaging information with the First Amendment right to free speech. Our Illinois trade libel and trade disparagment attorneys represent both plaintiffs and defendants in claims regarding false and misleading claims; deceptive online publishing; misuse of a trademark, logo or other identifying feature. You can contact one of our Nationwide Class Action attorneys at 630-333-0333 for a free consultation or contact one of our Chicago class action attorneys us online.

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Our Chicago Class Action Lawyers Have Represented Auto-Buyers and buyers of other defective products in State-Wide and National Class Actions in courts in different parts of the United States. You can call one of our Nationwide class action lawyers for a free consultation at 630-333-0333 or contact us online.

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