Chicago Business Litigation Lawyer Blog

Illinois Supreme Court Rules Subcontractors Are Not Subject to Consumer Protection Law

May 23, 2008 | Peter S. Lubin and Patrick Austermuehle

The Illinois Home Repair and Remodeling Act does not apply to subcontractors, the state Supreme Court ruled April 3. The court’s decision in MD Electrical Contractors, Inc. v. Abrams, (Il. Sup. Ct. 2008; Doc. No. 104000) resurrected an electrical subcontractor’s breach of implied contract lawsuit against a Napierville family.

The dispute started in 2004, when Abrams family contracted with Apex Builders, Inc. for improvements to their home. MD Electrical Contractors, Inc., did just under $15,000 worth of electrical work on the project as a subcontractor. It was not paid for that work, and in 2005, it sued the family for payment. In its complaint, MD stipulated that it had no contract with them. The Home Repair and Remodeling Act (HRRA) requires repair and remodeling contractors that work with individual homeowners to provide a written contract and a consumers’ rights brochure to customers. Because MD had not provided a contract or a brochure to the defendants, as required by the HRRA, defendants argued that there could be no implied contract, under the plaintiffs’ theory of quantum meruit. They successfully moved to dismiss at the trial court level, but were reversed by the appellate court, which ruled that the HRRA does not apply to subcontractors. The Illinois Supreme Court agreed.

In its review, the court noted that the common understanding in home repair work is that subcontractors work directly for contractors, who in turn work for homeowners. That understanding is critical for interpreting the HRRA, said the court. Relying on the plain language of the law and the accompanying brochure, definitions of terms, other laws and legislative intent, it found that the HRRA does not apply to subcontractors:

FACTA Class Actions Grow

May 23, 2008 | Peter S. Lubin and Patrick Austermuehle

Since the Fair and Accurate Credit Transactions Act took full effect in 2006, businesses have seen a rapid growth in class-action lawsuits over credit card numbers printed on receipts. FACTA, which was intended to help prevent identity theft, requires businesses that accept credit cards to hide all but the last five digits of the card number on receipts, and not to print the expiration date at all.

Businesses that failed to meet those requirements in time were hit with hundreds of class actions within the first year of the law’s effective date in December of 2006. Restaurants, at which consumers regularly and normally leave credit card receipts, have been an especially frequent defendant. The actions allege that businesses in violation of FACTA are willfully disregarding the law because they had several years to comply, and ask for up to $1,000 for each violation. Federal appeals courts split on the matter of whether a business’s unintentional failure to comply with FACTA was “willful,” but the U.S. Supreme Court decided in 2007’s Geico v. Edo, 551 U.S. __ (2007), an appeal from the Ninth U.S. Circuit Court of Appeals, that a willful violation may be “reckless disregard” for the law as well as a knowing or intentional violation.

Senator Charles Schumer of New York introduced legislation on May 6, 2008 that would end liability for businesses that print expiration dates but comply with the requirement to shorten credit card numbers. The proposed Credit and Debit Card Receipt Clarification Act of 2008 would declare any business that printed the expiration date but not the entire number to be “not in willful noncompliance” with FACTA. It would apply to any unresolved lawsuit, regardless of when that lawsuit was filed.

Contract Counterclaim Fails and Sanctions Upheld, Seventh Circuit Rules

May 23, 2008 | Peter S. Lubin and Patrick Austermuehle

The Seventh U.S. Circuit Court of Appeals issued a ruling May 13 in United Stars Industries, Inc. v. Plastech Engineered Products, Inc., 07-2919 (7th Cir. 2008), a business contract dispute in which Plastech alleged that its tubing supplier, United Stars, overcharged it by about $1.6 million. The case is also notable because the appellate court upheld $30,000 in sanctions against the law firm Jones Day for “frivolous claims.”

The underlying dispute started when United Stars notified Plastech, its customer, that it had been charging Plastech surcharges for the cost of raw materials, even though about 9% of those materials were lost during processing. Plastech contends that it did not agree to pay the full amount of those surcharges; thus, it believed United Stars owed it about $900,000, and Plastech refused to pay another $700,000 bill, for a total of $1.6 million in dispute. Plastech stopped paying United Stars, even after reaching a purported compromise in 2005, then found another vendor. In the ensuing lawsuit, in U.S. District Court for the Western District of Wisconsin, the judge awarded $1.3 million to United Stars, sending Plastech into bankruptcy.

On appeal, Plastech contended that the trial judge erred in deciding that the companies reached a compromise in 2005. However, the Seventh said, Plastech’s claim fails regardless of whether there was a compromise, because it did not present “a scrap of evidence” to support its interpretation of the companies’ contract. Furthermore, the language of the contract itself favored United Stars.

Pennsylvania District Court Certifies Health Club Fee Class Action

May 23, 2008 | Peter S. Lubin and Patrick Austermuehle

As billing fraud class action attorneys, we were pleased to see that a Pennsylvania federal district court recently certified a class in a lawsuit alleging three health clubs in Pennsylvania charged excessive startup fees. In Allen v. Holiday Universal, the court certified a class of all plaintiffs who joined a Bally Total Fitness in Pennsylvania (which includes Holiday Universal, Inc. and Scandinavian Health Spa gyms) on or after December 7, 1998 and paid more than $100 in startup costs.

In a 63-page Memorandum of Order, U.S. District Judge Gene Pratter of the Eastern District of Pennsylvania rejected several arguments raised by the defense that the class should not be certified. Among those arguments were:

* Club members with different contracts were too different to form a class.

Expose of Illegal Debt Collector Tactics — FTC Website Summarizes Consumer Right to be Free From Debt Collector Harrassment

May 16, 2008 | Peter S. Lubin and Patrick Austermuehle

Illegal debt collection practices exposed:

The Federal Trade Commission’s (“FTC”) website summarizes illegal debt collection practices. Below is the summary from the site:

Fair Debt Collection

Northern District of Illinois Federal District Judge Rules That Bona Fide Error Defense in a Putative FDCPA Class-Action Must be Pled With Particularity Under Rule 9

May 16, 2008 | Peter S. Lubin and Patrick Austermuehle

Judge Dow of the Federal Court for the Northern District of Illinois dismissed without prejudice a bona fide error defense in a putative Fair Debt Collection Act class-action for failure to plead facts akin to the “first paragraph in any newspaper story.” The Court ruled that a bona fide error defense raises a claim of mistake, and therefore must be pled with factual particularity under Rule 9.

The Court held:

Notwithstanding the “disfavored” status of motions to strike and the “liberal pleading standard” in Fed. R. Civ. P. 8, the Court concludes that the motion is well taken. Because the defense at issue deals with an alleged “mistake” — a “bona fide error” in the statutory parlance — Defendant is obligated to comply with both Fed. R. Civ. P. 8 and 9(b). The standard under Rule 9(b) requires parties to state the circumstances of a mistake with “particularity.” As the Seventh Circuit has explained, Rule 9(b) mandates that parties allege at the pleading stage “the who, what, when, where, and how of the mistake.” GE Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1078 (7th Cir. 1997). Defendant correctly points out that Rule 9(b) permits pleaders to allege matters such as intent and knowledge in a more general manner. However, the remaining factual details of an alleged mistake — for example, who made the mistake and when and how it occurred — must be set out with “particularity” in the pleading. Although Defendant has added some detail to its original effort to plead its affirmative defense, there still is work to do before the Court reasonably can conclude that Defendant has complied with its obligation to provide “the first paragraph of any newspaper story” (GE Capital Corp., 128 F.3d at 1078) setting forth with particularity Defendant’s version of the circumstances supporting the defense, as Rule 9(b) and the Seventh Circuit case law require.