Articles Posted in Commercial Litigation

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At the beginning of January 2015, the Law Division of the Circuit Court of Cook County, Ill., will begin its new mandatory arbitration program for certain cases. The program is targeted for cases that have value of less than $75,000. In order to file and hear a case in Law Division, the value of the matter must exceed $50,000.

The eligibility categories of cases that will be involved in the mandatory arbitration program include breach of contract, employment disputes, including discrimination, whistleblowing cases, civil or commercial fraud or conspiracy, business interference and shareholder disputes.

The program gained approval by the Illinois Supreme Court, and then the Circuit Court Judges voted to adopt the new local rule in December 2014. The presiding judge of the Law Division is Judge James T. Flannery Jr., who said that judges would begin referring cases at the start of 2015. Arbitration sessions will begin in April or May 2015.

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Dr. Linda Bluestein was a shareholder in Central Wisconsin Anesthesiology S.C. and a member of its board of directors. After losing the vote that terminated her employment contract, Bluestein filed a lawsuit against the corporation for allegedly violating three statutes that protect “employees.” Those statutes were the Americans with Disabilities Act (ADA) and Title VII of the Civil Rights Act of 1964. The presiding federal judge concluded, however, that Bluestein was an employer of the corporation and not an employee. The court granted Central Wisconsin’s motion for summary judgment disposing of her lawsuit.

The 7th U.S. Circuit Court of Appeals in Chicago affirmed the trial judge’s order and applied the “non-exclusive list of six factors” that the U.S. Supreme Court adopted in Clackamas Gastroenterology Associates, P.C. v. Wells, 538 U.S. 440 (2003), as criteria for determining whether a shareholder qualifies as an employee under statutes that don’t provide a “working definition” of the word.

The U.S. Court of Appeals tangled with the question of determining the meaning of the term “employee.” The Supreme Court reasoned that, when the statute (ADA) does not provide a working definition, the courts should turn to the common law test for determining who qualifies as an employee. Clackamas Gastroenterology Associates, P.C. v. Wells, 538 U.S. 440 (2003).

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An industrial design firm, nClosures, produced metal cases for tablet computers, such as the iPad. Ian LeBlanc designed a case for nClosures in early 2011 called the Rhino Elite. In May 2011, the co-founders of nClosures attended a tradeshow in Chicago to showcase the Rhino Elite prototypes.

At the tradeshow, the co-founders Daniel Gorman and Daniel McKean met with Greg Carlson, CEO of Block and Co. Block manufactured metal cash drawers but was interested in entering into the tablet enclosure market. Carlson approached Gorman and McKean about a possible relationship. At a May 24, 2011 meeting, the two companies signed a confidentiality agreement regarding the potential deal between them.

After signing the agreement, nClosures gave Block the design files for the Rhino products. The parties then attempted to negotiate a written contract concerning the manufacture and sale of the tablet enclosures.

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In a case that involved thousands of toxic tort liability cases, the Illinois Appellate Court has ruled that an industrial manufacturer must turn over documents it alleged were privileged to a company indemnifying it.

In March 1999, automotive systems manufacturer BorgWarner Inc. acquired Kuhlman Corp. and its subsidiaries, including Kuhlman Electric Corp (KEC).

Since the 1950s, KEC has operated a facility in Mississippi that produces electrical transformers. As part of the Kuhlman Corp. sale, KEC represented that there was no soil contamination on its Mississippi property.

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The Illinois Business Corporation Act, Section 7.75, gives shareholders the right to inspect a company’s records, “but only for a proper purpose.” The Illinois Business Corporation Act was amended in 1984, requiring shareholders to make their demand in writing, “stating with particularity the records sought to be examined and the purpose therefore.” 805 ILCS 5/7.75.

The plaintiffs in this case, Sunlitz Holding Co. (and three of the company’s shareholders) appealed from an order that dismissed its complaint for mandamus against Trading Block Holdings Inc., which claimed that it had satisfied the “proper purpose” and “particularity” requirements.

The lawsuit complaint contained exhibits attaching two letters the plaintiff sent to Trading Block. In an April 1, 2013 letter, plaintiff Sunliz said it wanted to inspect the corporation’s records “to determine the financial condition of the company, the character of the management of the company and whether the company’s financial practices were appropriate.” In another letter dated May 17, 2013, the plaintiff said he was worried that the corporation was being used “as a piggy bank for the insiders and the board of directors.”

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Daniel Nickell filed a lawsuit against the officers and directors of Engineer Support. He claimed it had improperly diverted financial benefits by backdating stock options, which decreased the value of the corporation for its shareholders. Nickell was a shareholder of Engineer Support Systems Inc. (ESSI). ESSI merged with DRS Technologies in January 2006.

In Nickell’s lawsuit, he alleged that the officers and directors made material misrepresentations to induce the merger at a reduced price for the company in exchange for DRS assuming responsibility for the backdating scheme.

The trial judge dismissed Nickell’s lawsuit on the grounds that his claims were pleaded as a shareholder derivative claim and that he did not have standing to sue the ESSI directors and officers for his individual claims. Nickell appealed to the Supreme Court of Missouri, which affirmed the dismissal of his case.

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Levia Moultrie began working at Penn Aluminum in 1990. Over the next 20 years, Moultrie worked in different positions, including forklift operator, block operator, utility coiler and scrap chopper.

In September 2008, Moultrie used his seniority to take on the job of forklift operator. The collective bargaining agreement between Moultrie’s union and Penn Aluminum gave Moultrie two days to show that he could perform the job.

A little more than a week after Moultrie switched into the forklift operator job, he began experiencing performance problems. During one shipment he was tasked with handling, Moultrie incorrectly hooked up some wires causing a delay in a shipment.

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Hennessy Industries was a car part manufacturer. It was sued frequently for asbestos-related personal injury claims. Hennessy sought insurance coverage for these claims from National Union Fire Insurance Co. The companies entered into a cost-sharing agreement in 2008. However, as the lawsuits and claims came in, Hennessy asked National Union to indemnify its settlements and defense costs. To resolve their differences about what was owed, Hennessy demanded arbitration under the agreement. Illinois law would be applied.

Hennessy filed a lawsuit against National Union under the Illinois Insurance Code, 215 ILCS 5/155(1), which provides that, in cases involving vexatious and unreasonable delay, the court may award reasonable attorney fees, other costs, plus an additional amount.

Hennessy claimed that National Union’s delays in providing coverage were vexatious and unreasonable. The federal district court judge in Chicago declined to dismiss the case, acknowledging a provision that “the arbitrator shall not be empowered or have jurisdiction to award punitive damages, fines or penalties,” but held that Hennessy’s claim arose under statutory law rather than under the cost-sharing agreement.

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The Illinois Appellate Court has answered a certified question that was brought to it from a circuit court judge. In this case, Michael McGrath owned a home designed and built by Patrick Plunkett Architectural Design Ltd. and insured by American Family Insurance Co. McGrath filed an insurance claim on Aug. 23, 2006 claiming that the water damage to his home was caused by the faulty design in construction by the defendant, Patrick Plunkett Architectural. American Family first denied McGrath’s claim; he then filed suit against American Family and won in federal court. McGrath won his case on summary judgment, and American Family agreed to a settlement for about $1.1 million. After paying McGrath, American Family requested that McGrath sign a written assignment to the extent of its payment, but McGrath chose not to respond.

American Family then filed suit against the defendants, Patrick Plunkett and his architectural firm, claiming negligence and causing the damage to McGrath’s home. Since American Family did not have an executed written assignment, the insurance company filed suit in its capacity as McGrath’s equitable subrogee. At the same time the American Family lawsuit was pending, it filed a lawsuit against McGrath for specific performance in order to obtain his executed written assignment. However, American Family’s suit against defendants was dismissed with prejudice on a combined motion to dismiss under §2-619.1 of the Code of Civil Procedure (735 ILCS 5/2-619.1), with a trial court finding that American Family was required to have a written assignment in order to pursue a subrogation claim. Shortly after that, American Family’s lawsuit against McGrath was dismissed with a trial court finding that American Family had released its claim for an assignment by settling the federal lawsuit. The trial judge also found that the claim was barred by res judicata based on the dismissal of the equitable subrogation suit against defendants.

American Family simultaneously appealed the dismissal of both lawsuits and the appellate court affirmed the dismissal of the subrogation claim, holding that American Family had failed to perfect its rights of subrogation under the terms of the insurance policy. However, the appellate court reversed the dismissal of American Family’s claim against McGrath and remanded the case. The opinion of the court in that case was unpublished under Supreme Court Rule 23. On remand, McGrath eventually did execute the assignment for American Family and that case was dismissed.

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Fortunee Massuda was an investor in a group of Panda Express restaurants in Chicago. The restaurants were owned by a joint venture, RC Partnership, made up of Panda Express Inc. and Rezko Concessions Inc. Massuda invested $4 million in the joint venture in exchange for an ownership interest of 11% in the joint venture. The joint venture also owned and controlled PE Chicago, a Delaware LLC. By the year 2001, the value of the RC Partnership was estimated to be $56.4 million.

By 2005, Rezko Concessions’ owner, Tony Rezko, was in deep financial and legal trouble. In April 2006, Massuda went to Panda and informed it of her intent to sue Rezko and asked whether Panda would be interested in buying her 11% share. Panda’s general counsel declined the offer and instead told Massuda that her stake was worthless.

In mid-May 2006, Rezko was urgently in need of money. In order to secure funds, Rezko offered to sell PE Chicago’s interest in RC Partnership to Panda. Panda agreed to pay Rezko $3 million, keep the deal between them secret and grant Rezko personally a buy-back option.

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