Paul Porvaznik – Chicago Business Lawyer

Paul Porvaznik – Chicago Business Lawyer
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Paul Porvaznik
Chicago Business Lawyer
“Side Letter Agreement” Doesn’t Change
Unequivocal Loan Terms Where Not Signed By
Borrower: The (Ruthless?) Illinois Credit
Agreements Act
July 28, 2015 by PaulP (Edit)
The Illinois Credit Agreements Act, 815 ILCS 160/1, et seq. (the “ICAA”) and its requirement that
credit agreements be in writing and signed by both creditor and debtor, recently doomed a
borrower’s counterclaim in a multi-million dollar loan default case.
The plaintiff in Contractors Lien Services, Inc. v. The Kedzie Project, LLC, 2015 IL App (1st) 130617-
U, sued to foreclose on a commercial real estate loan and sued various guarantors along with the
corporate borrower.
The borrower counterclaimed, arguing that a “side letter agreement” (“SLA”) signed by an officer
of the lender established the parties’ intent for the lender to release additional funds to the
borrower – funds the borrower claims would have gotten it current or “in balance” under the loan.
The trial court disagreed and entered a $14M-plus judgment for the lender plaintiff. The
corporate borrower and two guarantors appealed.
MY BIO CONTACT ME EXPERT WITNESS SERVICES, MEDIA QUERIES
EXPERT WITNESS SERVICES, MEDIA QUERIES PRACTICE AREAS
PUBLISHED CONTENT (PRINT AND ELECTRONIC MEDIA) PRESENTATIONS/PROJECTS

Held: Affirmed
Rules/Reasoning:
The ICAA provides that a debtor cannot maintain an action based on a “credit agreement” unless
it’s (1) in writing, (2) expresses an agreement or commitment to lend money or extend credit or
(2)(a) delay or forbear repayment of money and (3) is signed by the creditor and the debtor. 815
ILCS 160/2
An ICAA “credit agreement” expansively denotes “an agreement or commitment by a creditor to
lend money or extend credit or delay or forbear repayment of money not primarily for personal,
family or household purposes, and not in connection with the issuance of credit cards.” So, the
ICAA does not apply to consumer transactions. It only governs business/commercial
arrangements.
The ICAA covers and excludes claims that are premised on unwritten agreements that are even
tangentially related to a credit agreement as defined by the ICAA.
The borrower argued that the court should construe the SLA with the underlying loan as a single
transaction: an Illinois contract axiom provides that where two instruments are signed as part of
the same transaction, they will be read and considered together as one instrument.
The court rejected this single transaction argument. It found the SLA was separate and unrelated
to the loan documents. The SLA post-dated the loan documents as evidenced by the fact that the
SLA specifically referenced the loan. Conversely, the loan made no mention of the SLA (since
it didn’t exist when the loan documents were signed).
All these facts militated against the court finding the SLA was part-and-parcel of the underlying
loan transaction.
Another key factor in the court’s analysis was the defendants admitting that the SLA post-dated
the loan (and so was a separate and distinct writing). The court viewed this as a judicial
admission – defined under the law as “deliberate, clear, unequivocal statement by a party about a
concrete fact within that party’s knowledge.”
Here, since the SLA was not part of the loan modification, it stood or fell on whether it met the
requirements of the ICAA. It did not since it wasn’t signed by both lender and borrower. The
ICAA dictates that both creditor and debtor sign a credit agreement. Here, since the debtor didn’t

Filed Under: Business Torts, Contract Law, Creditor's Rights Tagged With: creditor, debtor, ICAA, illinois credit
agreements act, judicial admission, side letter agreement, writing requirement
sign the SLA (it was only signed by lender’s agent), the SLA agreement was unenforceable. As a
consequence, the lender’s summary judgment on the counterclaim was proper.
Afterwords:
This case and others like it show that a commercially sophisticated borrower – be it a business
entity or an individual – will likely be shown no mercy by a court. This is especially true where
there is no fraud, duress or unequal bargaining power underlying a given loan transaction.
Contractor’s Lien Services also illustrates in stark relief that ICAA statutory signature requirement
will be enforced to the letter. Since the borrower didn’t sign the SLA (which would have arguably
cured the subject default), the borrower couldn’t rely on it and the lender’s multi-million dollar
judgment was validated on appeal.
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Commercial Real Estate Broker’s Judgment
Against Property Owner Upheld Where Owner
Negotiated Deal Behind Broker’s Back
In AMA v. Kaplan Realty, Inc., 2015 IL App(1st) 143600, the court looked to the common dictionary
definitions of “exclusive” and “refer” as they apply to an exclusive real estate listing agreement
to find that a commercial real estate broker could recover unpaid commissions from a property owner
who negotiated a property sale without the broker’s knowledge.
Here is the relevant chronology: the plaintiff property owner hired the defendant broker to sell a
multi-unit apartment building. The parties signed an exclusive listing agreement running from
January 2009 – January 2010 that required the owner to refer all purchase inquiries to the broker and
that provided for a 5% commission on the gross sale price from any buyer during the term of the
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agreement.
About two months before the agreement expired, the owner started dealing directly with a
prospective buyer whom the broker had earlier introduced to the owner. The owner and buyer
continued to discuss the details of the purchase through the end of the contractual listing period.
Ultimately, some 18 days after the agreement expired, the owner and buyer signed a $6.75M sales
contract for the parcel. After learning of the sale, the broker recorded a lien for 5% of the sale price.
The plaintiff filed a slander of title suit (arguing that the broker lien clouded property title) and the
broker filed a breach of contract counterclaim for his 5% commission.
The trial court entered summary judgment for the broker for nearly $500K and the owner appealed.
Affirming, the First District rejected the owner’s argument that since the broker “knew about”
the property’s eventual buyer, the owner complied with the listing contract. The court noted that
the contract required the owner to “immediately refer” any prospect who contacted the owner for
any reason and there was no exception for prospects known to the broker.
Looking to the Merriam-Webster’s College Dictionary, 11th edition (“MWCD”) “refer” means “to
send or direct for treatment, air or information, or decision.” Under this definition, the owner was
obligated to send anyone who contacted the owner about the property to the broker. MWCD, p.
1045, 11th ed. 2006.
The court also noted that the listing agreement was an exclusive one. “Exclusive” in the listing
contract context denotes “limiting or limited to possession, control or use by a single individual or
group.” MWCD, p. 436 (11th ed. 2006). Under this definition, the court found that the subject listing
agreement gave the broker the sole right to market the property – even to the exclusion of the owner.
Affirming the money judgment for the broker, the court found that the owner’s sustained pattern of
excluding the broker from communications with the buyer and failing to apprise the broker of the
owner’s contacts with the buyer supported the trial court’s half-million dollar judgment for the
broker.
Afterword:
This case represents a straightforward application of contract interpretation principles to merit what
the court believes is a fair result for the broker. The owner’s pattern of bypassing the broker to
contact the buyer directly, coupled with the fact that the purchase contract was signed so soon after
the listing agreement terminated was a suspicious factor weighing in favor of upholding the money

Filed Under: Real estate litigation Tagged With: broker's lien, commercial real estate, exclusive listing agreement,
kaplan, procuring cause
judgment against the owner.
I’m left wondering why the broker didn’t file suit to foreclose his broker’s lien. As I’ll write in a
future post, the Illinois Commercial Real Estate Broker Lien Act, 770 ILCS 15/1 et seq. (“Broker Act”),
arms a commercial broker who secures a buyer (or tenant) but isn’t paid with a strong remedy. The
successful Broker Act plaintiff can recover her attorneys’ fees against the owner or buyer, whatever
the case may be. 770 ILCS 15/5, 10, 15.

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Sole Shareholder Of Dissolved Corporation Can
Sue Under Nine-Year Old Contract – Eludes Five-
Year ‘Survival’ Rule
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Haskins, d/b/a Windows Siding Unlimited, Inc. v. Hogan, 2015 IL App (3d) 140609-U – A Synopsis
In 2003, Plaintiff’s former company entered into a written contract with defendant to install windows
on defendant’s home. Defendant failed to pay.
The windows company was administratively dissolved in 2005 by the Illinois Secretary of State.
Seven years later, in 2012, Plaintiff – the sole shareholder of the windows company – assigned the
company’s claim against the defendant to himself and sued defendant for breach of contract.
The court granted the defendant’s motion for summary judgment and found that the claim was
untimely under Illinois’ five-year survival period for a dissolved corporation’s claims. Plaintiff
appealed.
Reversing the trial court, the appeals court first noted that a dissolved corporation’s assets belong to
the former shareholders, subject to the rights of creditors.
Section 12.80 of the Business Corporation Act provides that an administrative dissolution of a
company does not take away or effect any civil remedy belonging to the corporation, its directors, or
shareholders, for any pre-dissolution claim or liability.
The lone limitation on this rule is that suit must be filed on the pre-dissolution claim within five
years of the dissolution date. 805 ILCS 5/12.80.
This five-year “survival period” represents the outer limit for lawsuits by or against dissolved
corporations. The purpose of the five-year survival period is to allow the corporation to wrap up its
affairs. The court clarified that the five-year time span applies both to voluntary and involuntary
dissolutions.
There are two exceptions to the five-year rule that allow a shareholder to file suit outside the five-
year period. They are: (1) where the shareholder is a direct beneficiary of the contract; and (2) where
the shareholder seeks to recover a fixed, easily calculable sum. (¶ 17).
To meet the first exception, the shareholder must show the parties manifested an intent to confer a
benefit on the third party/shareholder. Here, this first exception didn’t apply since there was
nothing in the contract suggesting an intent to benefit the plaintiff individually: the windows contract
was clearly between a corporate entity (the windows company) and the defendant.

Filed Under: Contract Law, Corporate Tagged With: BCA, corporate survival, dissolution, five-year, limitations,
shareholder, small claims
The second exception did apply, however. The contract was for a fixed sum – $5,070. As a result, the
court found the 10-year limitations period for breach of written contracts applied (instead of the 5-
year survival statute) and the plaintiff’s suit was timely (he sued in 2012 for a 2003 breach – within 10
years.) (¶¶ 17-20); 735 ILCS 5/13-206.
Comments: An interesting application of the five-year corporate survival rule to the small claims
context. It appears to be wrongly decided though. The plaintiff clearly didn’t establish the
first exception to the five-year rule: that he was a third-party beneficiary of the 2003 windows
contract. Since he failed to establish both exceptions, the five-year rule should have applied and
time-barred the plaintiff’s claim.
Maybe it’s because the plaintiff was the sole shareholder of the defunct corporation that the court
collapsed the two exceptions. Regardless, it remains to be seen whether this decision is corrected or
reversed later on.
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Facebook Posts Not Hearsay Where Offered To
Show How Ex-Wife Presented Relationship To
Others – Illinois Case Note
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Reversing a family law judge’s decision to terminate ex-spousal maintenance, the Second District
appeals court in In re Marriage of Miller, 2015 IL App(2d) 140530 delves into the foundation
requirements for getting Facebook pages into evidence and again highlights the crucial role social
media plays in litigation in this digitally saturated culture.
The trial court granted the ex-husband (“Husband”) motion to terminate maintenance payments to
his ex-wife (“Wife”) based on her multiple Facebook posts that she was in a relationship and
(presumably) living with another man. Illinois divorce law posits that maintenance payments
must cease when the recipient remarries or cohabitates with another on a continuing basis.
Since the Facebook posts revealed the Wife frequently trumpeting her new relationship, the court
found that the policies behind maintenance payments would be compromised by allowing the
Wife to continue receiving payments from Husband.
The Wife appealed, arguing that the trial court shouldn’t have allowed her Facebook posts into
evidence.
Held: Reversed (but on other grounds). Wife’s social media posts were properly authenticated, not
hearsay and any prejudice to her didn’t substantially outweigh the posts’ probative value.
Rules/reasoning:
– To enter a document into evidence at trial or on summary judgment, the offering party must lay
a foundation for it;

– The party offering the document into evidence – including a document to impeach (contradict) a
witness on the stand – must authenticate the document through the testimony of a witness who
has personal knowledge sufficient to satisfy the court that the document is what the proponent
claim it is;
– To lay a foundation for an out-of-court statement (including a document), the party attempting
to get the statement into evidence must direct the witness to the time, place, circumstances and
substance of the statement;
– Hearsay is a statement, other than made by the declarant while testifying at trial or hearing,
offered in evidence to prove the truth of the matter asserted;
– When the making of statement is the significant fact, hearsay isn’t involved (ex: the mere fact
that a conversation took place isn’t hearsay);
Here, the court found that the Facebook posts weren’t offered for their truth. Instead, they were
offered to illustrate the way the Wife was portraying her current relationship to others. The court
deemed the posts relevant to the issue of how “public” or “out in the open” the Wife was about
the relationship.
And since the Husband didn’t offer the posts for the truth of their contents (that Wife was in fact
living with someone and so disqualified from further maintenance payments) but instead to show
the court the manner in which the Wife presented the relationship to others, the court properly
allowed the posts into evidence.
The Second District also agreed with the trial court that the posts didn’t unfairly prejudice the
Wife. Indeed, the court characterized the posts as “bland”, “cumulative” and less effective than
the parties’ live testimony.
(¶¶ 33-38)
The Wife still won though as the appeals court reversed the trial court’s decision to terminate
Husband’s maintenance obligations. The court found that more evidence was needed on the
specifics of the Wife’s existing relationship including whether it was continuing and conjugal
enough to constitute a “de facto marriage” (as opposed to a “dating” relationship only) and thus
exclude the Wife from further maintenance payments from Husband.
Take-aways:

Filed Under: Evidence, Social Media, Trial Practice Tagged With: business record, evidence, Facebook posts,
foundation, hearsay, trial
Hearsay doesn’t apply where out-of-court statement has independent legal significance;
Facebook posts authored by a party to lawsuit will likely get into evidence unless their prejudice
outweighs their probative value;
Where social media posts are authored by third parties, it injects another layer of hearsay into the
evidence equation and makes it harder to get the posts admitted at trial.
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Fraud, Economic Loss and Contractual Integration
Clauses (And More): Illinois Fed Court Provides
Primer
Plaintiff purchased the defendant’s nation-wide network of auto collision centers as part of a
complicated $32.5M asset purchase agreement (APA). A dispute arose when the plaintiff paid $9.5M
to a paint supply company and creditor of the defendant in order to consummate the APA. The
plaintiff argued that the defendant breached the APA by not satisfying the paint supply debt and
securing a release from the paint supplier before the APA’s closing date. Plaintiff sued on various
tort and contract theories. Defendant countersued for reformation, rescission and breach of contract.
Both parties moved to dismiss.
In granting the bulk of the defendant’s motion to dismiss, the court in Boyd Group, Inc. v. D’Orazio,
2015 WL 3463625 (N.D.Ill. 2015) examines the interplay among several recurring commercial
litigation issues including the economic loss doctrine as it applies to negligent misrepresentation
claims, the impact of a contractual integration clause, and the pleading requirements for fraud in
Illinois.
The court dismissed the breach of contract claim based on the APA’s integration clause. Where
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parties insert an integration clause into their contract, they are manifesting their intent to guard
against conflicting interpretations that could result from extrinsic evidence. If a contract has a
clear integration clause, the court cannot consider anything beyond the “four corners” of the
contract and may not address evidence that relates to the parties’ understanding before or at the
time the contract was signed.1
Here, the plaintiff’s breach of contract claim was based in part on e-mails authored by the defendant
the same day the APA was signed. Since the APA integration clause clearly provided that the APA
was constituted the entire agreement between the parties, the court found that the defendant’s e-
mails couldn’t be considered to vary the plain language of the APA.2.
The plaintiff’s negligent misrepresentation claim was defeated by the economic loss doctrine, which
posits that where a written contract governs the parties’ relationship, a plaintiff’s remedy is one
for breach of contract, not one sounding in tort. An exception to this rule is where the defendant is
in the business of providing information for the guidance of others in their business transactions.
Case law examples of businesses that the law deems information suppliers (for purposes of the
negligent misrepresentation/economic loss rule) include stockbrokers, real estate brokers and
terminate inspectors. Conversely, businesses whose main product is not information include
property developers, builders and manufacturers.
Here, the in-the-business exception (to the economic loss rule) didn’t apply since defendant operated
car collision repair businesses. He did not supply information for others’ business guidance. The
court found the defendant more akin to a manufacturer of a product and that any information he
furnished was ancillary to his main collision repair business.3
The one claim that did survive the motion to dismiss was plaintiff’s fraud claim. To plead common
law fraud under Illinois law, the plaintiff must establish (1) a false statement of material fact, (2)
defendant’s knowledge the statement was false, (3) defendant’s intent to induce action by the
plaintiff, (4) plaintiff’s reliance on the truth of the statement, and (5) damages resulting from reliance
on the statement. Fraud requires heightened pleading specificity and it must be more than a simple
breach of contract. A fraud claim must also involve present or past facts; statements of future
intent or promises aren’t actionable. 4
The plaintiff’s complaint allegations that the defendant factually represented to the plaintiff that he
was in the process of securing the release of the paint supply contract as an inducement for plaintiff
to enter into the APA were sufficiently factual to state a fraud claim under Federal pleading rules.
Afterwords:

Filed Under: Business Torts, Contract Law Tagged With: asset purchase agreement, condition precedent, Davis
mcgrath, economic loss doctrine, fraud, integration clause, LLC, negligent misrepresentation, unjust enrichment
1/ Economic loss rule bars negligent misrepresentation claim where the defendant’s main business is
providing a tangible product rather than information;
2/ A clearly drafted integration clause will prevent a party to a written contract from introducing
evidence (here, emails) that alters a contract’s plain meaning;
3/ The failure of a condition precedent won’t equate to a breach of contract where the party being
sued for breach failure isn’t the fault or responsibility of the party being sued for breach;
4/ A plaintiff successfully can plead fraud where it involves a statement concerning a present or past
fact, not a future one.
References:
1. 2015 WL 3463625, * 7
2. Id.
3. Id. at * 11
4. Id. at **8-9

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Illegality Defense Doesn’t Defeat HVAC
Subcontractor’s Damage Claim Versus General
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Contractor on Chicago Transit Authority Project
(N.D. 2015)
I’ve written before on the illegality defense to breach of contract suits. It’s bedrock contract
law that an agreement to do something criminal (example – murder, arson, selling drugs, etc.) is
unenforceable against the person who doesn’t perform (example: if I fail to pay a hit man, he can’t
sue me for the $).
The illegality defense also applies in the civil context where it can defeat an agreement that runs
afoul of a State or Federal statute. The policy underpinning for the illegality rule is that it would
make a mockery of the justice system if you could sue to enforce an agreement to commit a crime.
Energy Labs, Inc. v. Edwards Engineering, 2015 WL 3504974 (N.D.Ill. 2015) examines contractual
illegality in the context of a high-dollar subcontract to supply HVAC equipment to the Chicago
Transit Authority (CTA).
The plaintiff air conditioning parts subcontractor was hired by the defendant to provide parts in
connection with the defendant’s contract with the CTA. When the defendant found out that
plaintiff was procuring its parts in a foreign country, it cancelled the contract since the Buy
America Act, 49 U.S.C. s. 5323 (“BAA”) required the parts used in the CTA project to be made in
the U.S.
Plaintiff sued to recover damages resulting from the defendant’s contract cancellation since
plaintiff had already designed and started making the HVAC parts. Defendant moved to dismiss
on the basis that the contract was illegal since it violated the BAA.
The court denied the motion to dismiss. While the general rule is that a contract that violates a
Federal statute is normally unenforceable, the court said the rule isn’t automatic. Instead, the
court considers the “pros and cons” of enforcing the putative illegal contract taking into account
the benefits of upholding the contract against the drawbacks of doing so.
Even if a contract isn’t illegal, a Federal court can still refuse to enforce it when doing so would
violated a clear congressional goal or policy. Illegality also applies where a contract isn’t illegal on
its face but requires a contracting party to commit an illegal act carrying out its obligations. To
determine whether a contract violates a Federal statute, the court compares the four-corners of the
contract to the statutory text and any interpreting case law.(*3).

Filed Under: Civil Procedure, Contract Law Tagged With: breach of contract, Davis mcgrath, defenses, federal
statute, illegality, unenforceable
Here, the court found that the contract wasn’t explicitly illegal. The purchase orders submitted by
the general contractor defendant didn’t require it to pay for plaintiff’s services with
Federal funds. The defendant was free to pay the plaintiff with its own funds; not
the government’s. In addition, the BAA doesn’t outlaw the sale of all foreign-made air
conditioning units to government agencies like the CTA. It instead only applies to projects that
are paid for at least in part with Federal funds. As a consequence, the contract wasn’t illegal on its
face.
Next, the court rejected the defendant’s argument that allowing plaintiff to enforce the contract
violated public policy. In the procurement contract context, where there is a mandatory contract
term that is based on a strong Federal policy, this policy is read into the contract by operation of
law. However, this so-called Christian doctrine1 only applies to parties that contract directly with
the government; not to subcontractors like the plaintiff. This is because subcontractors contract
with general contractors, not with the government. To impose a Federal procurement edict on a
subcontractor who often doesn’t even know he is contracting for government work is plainly
unfair. (*5).
Afterword:
An interesting discussion of the illegality defense in somewhat arcane context of Federal
procurement rules. The court gave a constricted reading to the illegality rule and looked at the
underlying fairness if the contract was defeated. The fact that the plaintiff performed extensive
work before termination figured heavily in the court’s analysis. Another key ruling is that only
general contractors, not subcontractors like the plaintiff here, have the duty to inquire into
applicable procurement requirements.
————————————————————————————–
1. G.L. Christian and Associates v. United States, 312 F.2d 418 (1963).
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Contractor’s Legal Malpractice Suit Can Go
Forward In Case of (Alleged) Misfiled Mechanics’
Lien: IL 1st Dist.
Construction Systems, Inc. v. FagelHaber LLC, 2015 IL App (1st) 141700, dramatically illustrates the
perilous consequences that can flow from a construction contract’s failure to identify the
contracting parties and shows the importance of clarity when drafting releases intended to protect
parties from future liability.
The plaintiff contractor sued its former law firm (the Firm) for failing to properly perfect a
mechanics lien against a mortgage lender on commercial property. The plaintiff alleged
that because of the Firm’s lien perfection failure, the plaintiff was forced to settled its claim
for about $1.3M less than the lien’s worth (about $3M).
In the underlying lien case, the plaintiff and defendant Firm got into a fee dispute and the
Firm withdrew. The Firm turned over its file to the plaintiff after the plaintiff made a
partial payment of the outstanding fees (owed to defendant Firm) and signed a release (the
“Release”). The Release, which referenced “known and unknown” claims and contained
“without limitation” verbiage, was signed by the plaintiff in 2004. Plaintiff filed the current
malpractice suit in 2009.
The trial court entered summary judgment for the Firm on the basis that the Release
immunized the Firm from future claims. Plaintiff appealed.
Held: Reversed
Rules/Reasons:
Reversing summary judgment for the Firm, the First District first applied the relevant rules
governing written releases in Illinois.
– a release is a contract and is governed by contract law;

– a release will be enforced as written where it’s clearly worded
– the scope and effect of a release is controlled by the intention of the parties;
– the intention of the parties is divined by reference to the words of the release and a
release won’t be construed to defeat a claim that was not contemplated by the parties
when they signed it;
– A “general” release will not apply to specific claims where a party is unaware of other
(specific) claims;
– Where one party to a release owes the other a fiduciary duty (e.g. lawyer-client), the party owing
the fiduciary duty has the burden of showing that it disclosed all relevant information to the other
party.
(¶¶ 25-28).
Here, the court gave the Release a cramped construction. It held that it didn’t apply to the
malpractice suit since that case wasn’t filed until 5 years after the Release was signed and
there was no evidence that the plaintiff knew that the Firm possibly flubbed the lien filing
when it (the plaintiff) signed the Release. This lack of evidence on the parties’ intent raised
a disputed fact question that required denial of summary judgment.
Next, the court turned to the Firm’s judicial estoppel argument – that the plaintiff couldn’t
sue for malpractice since it obtained a benefit in the underlying lawsuit (a settlement
payment of $1.8M from the competing lender) by claiming it was an original contractor and
not a subcontractor. Judicial estoppel applies where (1) a party takes two positions under
oath, (2) in separate legal proceedings, (3) the party successfully maintained the first
position and obtained a benefit from it; and (4) the two positions are inconsistent. (¶ 37).
The issue was paramount to the underlying lien case because if the plaintiff was a subcontractor,
it had to comply with the 90-day notice requirement of Section 24 of the Lien Act. But if it was a
general or original contractor, plaintiff was excused from the 90-day notice requirement. Based on
this factual uncertainty, the court found the plaintiff had a right to pursue alternative arguments
to salvage something of its approximately $3M lien claim.

Filed Under: Business Torts, Civil Procedure Tagged With: davis mcgrath llc, judicial estoppel, legal malpractice,
mechanics lien, prejudgment interest, release
The court also agreed with the plaintiff that it could recover prejudgment interest on the
legal malpractice claim. Since that claim flowed from the underlying allegation that the
Firm failed to perfect plaintiff’s lien, and since Section 21 of the Illinois Mechanics Lien Act
allows for prejudgment interest (770 ILCS 60/21), the plaintiff could add the interest it
would have recovered to the damage claim versus the Firm. (¶ 48).
Afterwords:
1/ A broad release can still be narrowly interpreted to encompass only those claims that were
likely in the release parties’ contemplation. If a claim hadn’t come to fruition at the time a release
is signed, the releasing party can argue that an expansive release doesn’t cover that inchoate claim;
2/ Judicial estoppel requires more than alternative pleadings or arguments. Instead, the litigant
must take two wholly contradictory statements and obtain a benefit from doing so. What’s a
“benefit” is open to interpretation. Here, the plaintiff received $1.8M on its lien claim in the
earlier litigation. Still, this wasn’t a benefit in relation to the value of its lien – which exceeded
$3M;
3/ If the underlying claim – be it common law or statutory – provides for pre-judgment interest,
then the later malpractice suit stemming from that underlying claim can include pre-judgment
interest in the damages calculation.

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Car Seller’s Impossibility and Commercial
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Frustration Defenses Fail In Missing Mercedes
Case – IL ND
(photo credit: www.sfcitizen.com (visited 7.6.15))
Sunshine Imp & Exp Corp. v. Luxury Car Concierge, Inc., 2015 WL 2193808 (N.D.Ill. 2015) serves as a
recent example of how difficult it is for a breach of contract defendant to successfully argue the
impossibility or commercial frustration defense.
There, a case involving multiple layers of interconnected luxury car sellers, the plaintiff car seller
sued another seller for breach of contract when the defendant’s failed to deliver a $100k Mercedes to
the plaintiff.
The defendant blamed one of its vendors’ for failing to produce the car. That vendor, in turn, cited
the embezzlement of one of its sellers as the cause of the breach.
The defendant argued that since it couldn’t control the various parties involved in acquiring the car,
it was immunized from liability under the impossibility and commercial frustration defenses.
The court rejected the defenses and entered judgment for the plaintiff for the full amount paid for
the no-show Mercedes.
The defendant first made a procedural challenge to plaintiff’s suit. It argued that since the plaintiff
never formally responded to defendant’s affirmative defenses, the plaintiff waived its challenge to
them. The court quickly disposed of this argument. While under Illinois law, the failure to object to
an affirmative defense can result in the admission of the defense and a waiver of a right to contest it,
this isn’t the case in Federal cases.
This is because Federal procedural rules govern Federal cases and under FRCP 8(b), if a responsive

pleading isn’t required, an allegation in a defense is considered denied or avoided. Moreover, FRCP
7(a) specifies the types of pleadings that are allowed and a reply to an affirmative defense isn’t one of
them. As a result, affirmative defenses raised in an answer are automatically deemed denied in
the Federal scheme since no reply to affirmative defenses are permitted (unless ordered by the court).
The defendant’s impossibility of performance and commercial frustration defenses also failed
substantively.
The impossibility doctrine applies where there is an unanticipated circumstance that makes
performance “vitally different” from what was or should have been within the reasonable
contemplation of the parties. Impossibility applies in very limited situations – parties to a contract
normally must adhere to the agreement terms and subsequent contingencies that aren’t spelled out in
a contract won’t invalidate the contract.
What’s more, the fact that a promisor can’t control the acts of a third party won’t trigger the
impossibility defense unless the contract explicitly says so. What’s more, a contracting promisor isn’t
absolved of his obligations due to a third party’s failure to perform.
The court found the defendant’s impossibility defense lacking since it was (or should have
been) foreseeable that the defendant’s supplier would have failed to deliver the car for any number
of reasons.
(**3-4).
The defendant’s related defense of “commercial frustration” also fell short. This defense applies in
two circumstances: (1) where a frustrating event isn’t foreseeable and (2) that event totally or almost
totally destroys the value of the party’s performance. An example of this is where the destruction of
a building terminates the lease.
Like impossibility, commercial frustration applies sparingly; it is only where a party’s performance is
rendered “meaningless” due to the unforeseen circumstance that the contract terminates. The
defense becomes operative where a contract assumes the continued existence of a certain state of
things and that state of things ceases to exist.
A successful commercial frustration defense voids the contract and requires any monies paid to be
returned to the paying party.
The court discarded the defendant’s commercial frustration defense on the basis that the defendant

Filed Under: Civil Procedure, Contract Law Tagged With: affirmative defense, breach of contract, commercial
frustration, foreseeable, FRCP 7, Illinois, impossibility, mercedes
could have foreseen that its supplier would have failed to tender the Mercedes. Since the defendant
failed to negotiate this possibility into the contract, the defense failed. (**5-6).
Take-aways:
The procedural lesson is that a formal response to an affirmative defense isn’t required in Federal
court unless required by the court.
The case’s chief legal point is that in contracts where a party’s performance is dependent on that of a
third party/parties, the party should spell this out in the contract. Failing that, the contract will likely
be enforced as written even though the breach is caused by someone’s else’s failure to perform.
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Company’s Fraud Suit Versus Rival’s Ex-CFO
Defeated by Prior Arbitration Award: Illinois Res
Judicata Basics
The privity element of the res judicata doctrine focuses on whether two parties to two separate
lawsuits have legal interests that are so intertwined they should be treated as the same parties.
Privity is usually an easier question than the res judicata’s other well-settled components – whether
the two cases stem from the same transaction and whether that first case was resolved via a final
judgment on the merits.
In Alaron Trading Co. v. Hehmeyer, 2015 IL App (1st) 133785-U, the First District examines res
judicata’s privity element through the lens of a trading firm suing an officer of a rival company for
stealing clients and not paying referral fees where that rival previously won an arbitration award
against the trading firm for breach of contract.
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Facts and Chronology: In 2012, the corporate officer defendant’s former company won a $400,000
arbitration award against the plaintiff trading firm for prematurely terminating a year-long trading
contract. Several months after the arbitration award, the plaintiff sued the defendant in state court
alleging various fraud and tortuous interference claims. The trial court granted defendant’s Section 2-
619 motion, premised on res judicata.
Held: Affirmed.
Rules/Reasons:
– A motion under Code Section 2-619(a)(4) is the proper section to bring a res judicata motion;
– Res judicata requires an “identity of cause of action” between two separate legal proceedings
(here, an arbitration case followed by a later court case);
– Res judicata can bar a defendant in one case from filing claims in a second case where the
second case claims are based on the same facts as the plaintiff’s first case allegations.
– Separate claims are considered the same for res judicata purposes where they arise from a single
group of operative facts, even though the causes of action are titled differently;
– Res judicata not only bars claims that were brought in an earlier case/arbitration, but also claims
that could have been brought;
– Res judicata also requires “privity” between parties to two separate proceedings. Privity applies
where two parties are different in name but whose legal interests are substantially aligned such
that an adjudication of one party’s rights in an earlier case will bind the second party in the
second case;
– Quintessential privity relationships include members of partnerships and corporation and their
officers, directors and shareholders;
(¶¶46-49, 56).
Here, all res judicata grounds were present. The defendant in the state court case was the ex-CEO of
the prior arbitration plaintiff. In addition, the state court plaintiff (the trading firm and arbitration
defendant) filed a voluminous counterclaim in the arbitration that was based primarily on the (state
court) defendant’s conduct and that stemmed from the same underlying facts as the state court
complaint.

Filed Under: Business Torts, Civil Procedure Tagged With: arbitration, corporate officer, fraud, privity, res
judicata, same cause, subsequent lawsuit
Given his former CEO status, the defendant’s interests neatly aligned with those of his former
employer – the arbitration plaintiff. And since the court found that the state court plaintiff could
have filed counterclaims against the defendant CEO in the earlier arbitration, res judicata applied
and defeated plaintiff’s current court action.
Afterwords:
The lesson of this case is to file all possible claims against all possible parties that stem from the same
underlying facts. This is especially urgent where it looks like there is a possibility of multiple
proceedings: that is, where successive lawsuits (or arbitrations) could be filed. Otherwise, by holding
back on claims in a prior case, a litigant could be foreclosed from filing claims in a second suit.
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Chicago Daily Law Bulletin 6.30.15 – Article on
Lease Assignment and Prevailing Party Attorneys’
Fees Standards in Commercial Litigation
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Filed Under: Real estate litigation
CDLB6.30.15 from linkedincontent_fe3
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Contractor’s Substantial Performance Of Home
Repair Work Defeats Homeowners’ Breach of
Contract Suit – IL 5th Dist.
June 29, 2015 by PaulP (Edit)
Brown v. Daech & Bauer, 2015 IL App (5th) 140203-U, serves as a recent example of a court applying
the substantial performance doctrine in favor of a contractor in a disgruntled homeowner’s breach of
contract suit versus the contractor.
The homeowner plaintiffs sued the contractor for defective work on plaintiffs’ home after some hail
damage. The plaintiffs joined statutory claims for violation of the Home Remodeling and Repair Act
(HRRA) and the Consumer Fraud Act (CFA) in their complaint.
For its part, the contractor counterclaimed for monies withheld by the plaintiff. After a bench trial,
the lower court sided with the contractor and awarded it damages. It ruled against the plaintiffs on
all claims.
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The 5th District affirmed and in doing so, gives some content to both the substantial performance
and partial performance doctrine under Illinois contract law.
In Illinois, contractors aren’t required to perform with surgical precision. Instead, contractors only
need to exhibit the “honest and faithful performance of the material and substantial parts of the
contract with no willful departure from or omission of the essential terms of the contract.” This is the
substantial performance doctrine.
Like most legal tests, the substantial performance one is fluid and fact-based. A contractor can meet
the standard even where there are some defects, deviations or omissions from the contract. So long
as the project’s structural integrity remains intact and any contractual deviations can be fixed without
damaging the property, the contractor can likely show substantial performance and recover under
the contract. The homeowner’s recourse when faced with a substantially (as opposed to perfectly)
performing contractor is to take a credit against the contract price for any defects in the contractor’s
work.
The appeals court agreed with the trial court’s finding that the plaintiff met the substantial
performance standard. Since this finding wasn’t against the manifest weight of the evidence
(“unreasonable, arbitrary, not based on the evidence”), the judgment for the contractor was upheld.
The court also found that the contractor could recover under the related doctrine of partial
performance. This rule applies where a plaintiff performs most but not all of the material terms of a
contract – where it consists of several component parts that can be neatly separated from each other.
The key inquiry in deciding whether a contract is “entire” as opposed to “severable” (divisible,
basically) is whether the parties gave a single assent to the whole transaction or whether they agreed
separately to various parts of the contract.
Here, the court found that while the contractor didn’t finish about $1,000 worth of the $4,000-plus
contract, it could still recover for the portions of the contract it did sufficiently perform. The court
found that certain aspects of the contract were different enough to allow piecemeal recovery.
Lastly, the court rejected the homeowners’ HRRA claim premised on the contractor’s failure to
supply the required statutory brochure. First, the court agreed with the contractor’s argument that it
did in fact provide all HRRA disclosures. Moreover, even if it didn’t furnish the forms, the plaintiff
still failed to show any measurable damages caused by the HRRA breach. At most, this was a
technical violation that didn’t merit wholesale defeat of the plaintiff’s suit.
Take-aways:

Filed Under: Real estate litigation
A pretty straight-forward illustration of the substantial performance doctrine and what a homeowner
and contractor must show to win on a breach of contract suit based on faulty construction. The case
emphasizes that contractors aren’t held to a flawlessness standard but instead they only must
perform the material parts of a contract in a workmanlike fashion.
This case also signals a court’s unwillingness to defeat a contractor claim where there is a technical
violation of the HRRA. Absent actual damages flowing from an HRRA misstep, a homeowner likely
won’t win on this claim.

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Seventh Circuit Files: Court Voids LLC Member’s
Attempt to Pre-empt LLC’s Suit Against That
Member
In Carhart v. Carhart – Halaska International, LLC, (http://law.justia.com/cases/federal/appellate-
courts/ca7/14-2968/14-2968-2015-06-08.html) the plaintiff LLC member “ingeniously” attempted to
shield himself from a breach of fiduciary duty claim by the LLC by (1) taking an assignment of a
third-party’s claim against the LLC; (2) getting then registering a default judgment against the
LLC; (3) seizing the LLC’s lone asset: it’s breach of fiduciary duty claim against the plaintiff: and
(4) buying that fiduciary duty suit for $10K. This extinguished the LLC’s claim versus the
plaintiff.
Plaintiff was co-owner of the defendant LLC. A third-party sales agent sued the LLC in
Minnesota Federal court (the “Minnesota Suit”) and the Plaintiff paid $150,000 for an assignment
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of that case.
Plaintiff later obtained a $240K-plus default judgment against the LLC in the Minnesota Suit as
the LLC had no assets to fight the case in that forum.
Meanwhile, the LLC, through its other owner, sued the plaintiff in Wisconsin State Court (the
“Wisconsin Suit”) for breach of fiduciary duty in connection with plaintiff’s alleged plundering of
the LLC. While the WIsconsin Suit was pending, Plaintiff registered the Minnesota judgment in
Wisconsin Federal court.
Plaintiff, now a judgment creditor of the LLC, “bought” the LLC’s only asset – the Wisconsin Suit
(the LLC’s breach of fiduciary duty claim against plaintiff) – for $10,000. The effect of this steeply
discounted purchase was to immunize the plaintiff from the Wisconsin Suit since the LLC no
longer had a claim to pursue versus the plaintiff. The LLC appealed.
The Seventh Circuit voided the sale of the Wisconsin Suit finding the sale price was
disproportionately low.
FRCP 69(a)(1) allows a federal district court to enforce a money judgment by writ of execution but
only pursuant to the procedure authorized by the state in which the federal court is located.
The key question was whether Wisconsin considers a lawsuit or chose in action as property that
can be seized to pay a judgment. While a chose in action is normally considered intangible
property that can be assigned and used to satisfy a judgment, the rule is tempered by the court’s
“anti-troll” sentiment and by the requirement that the amount paid for a chose in action not be so
low as to shock the conscience of the court.
The court branded the plaintiff a “troll of sorts” who bought the LLC’s legal claim for a relative
pittance in order to extinguish the LLC’s claim against the plaintiff. This was illustrated by the
fact that the plaintiff paid $150,000 for an assignment of a third-party’s claim against the LLC.
The court found that under Wisconsin law, the $10,000 the plaintiff paid for the LLC’s claim
against him was conscience-shockingly low when compared to the $150,000 he paid another for an
assignment of a claim versus the LLC.
In short, according to the court, plaintiff did not purchase the LLC’s lawsuit in good faith. As a
result, the Seventh Circuit ordered the district court to rescind the lawsuit purchase so that the
LLC could prosecute its fiduciary duty claim against the plaintiff in the Wisconsin Suit.

Filed Under: Civil Procedure, Corporate Tagged With: assignment, breach of fiduciary duty, carhart, chose in
action, Federal court, FRCP 69, Gala ska, judgment enforcement, LLC, post-judgment, seventh circuit
Take-aways:
This seems like the right result. The court guarded against a litigant essentially buying his way
out of a lawsuit (at least it had the appearance of this) by paying a mere fraction of what the suit
was possibly worth.
The case serves as an example of a court looking beneath the surface of a what looks like a routine
judgment enforcement tool and adjusting the equities between the parties. By voiding the sale,
the LLC will now have an opportunity to pursue its breach of fiduciary duty claim against the
plaintiff in State Court.
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Putting A GPS Device On Car Isn’t Enough for
Invasion of Privacy “Intrusion on Seclusion” Claim
– IL SD (“If I Can’t Have You, No One Can” – Part
Deux ??)
Secretly planting a GPS tracking device on a plaintiff’s car would certainly qualify for an invasion
of the plaintiff’s privacy. Wouldn’t it?
Not always. That’s the key take-away from Troeckler v. Zeiser, 2015 WL 1042187, a recent Southern
District of Illinois case that examines this question adapted to a plaintiff’s intrusion on seclusion
claim filed against her ex-husband – the defendant who, with some help, secretly affixed a GPS
device (a “black box”) to the plaintiff’s car.
The defendant’s two principal acts giving rise to plaintiff’s suit were (1) installing the GPS device;
and (2) repeatedly trying to log-in to the plaintiff’s personal email, computer and cell phone
accounts. Plaintiff sued for invasion of privacy/intrusion on seclusion (the “Intrusion Claim”) and
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conspiracy against the ex-husband and the people he hired to install the device and log in to
plaintiff’s e-mail.
The defendant moved to dismiss all claims and the Court dismissed some claims and sustained
others.
On the Intrusion Claim, the court noted that in Illinois, intrusion on seclusion is a species of the
invasion of privacy tort. To make out a valid invasion of privacy claim in Illinois, a plaintiff must
demonstrate (1) an unauthorized intrusion or prying into the plaintiff’s seclusion; (2) an intrusion
that is offensive or objectionable to a reasonable person, (3) the matter upon which the intrusion
occurs is private; and (4) the intrusion causes anguish and suffering.
Element (3) – the intrusion involves something that is private – generates the most litigation. Case
examples of private matters include poking holes in a bathroom ceiling and installing hidden
cameras in a doctor’s examination room. Conversely, private facts contained in public records
(name, address, SS #, e.g.) do not satisfy the privacy element.
The court looked to a New Jersey case for guidance as to whether installing a GPS device was
actionable intrusion on seclusion. The New Jersey court in Villanova v. Innovative Investigations,
Inc., 21 A.3d 650 (N.J.App.Ct 2001) held that a defendant who surreptitiously placed a GPS monitor
on her ex-husband’s car (to see if he was cheating on her) was not an invasion of privacy where
there was no evidence the defendant drove his car into a private or secluded location.
Following the reasoning of the NJ case, the Troeckler court dismissed the plaintiff’s Intrusion
Claim since the plaintiff failed to allege that she drove her car somewhere in which she had a
reasonable expectation of privacy.
The plaintiff fared better on the Intrusion Claim as it pertained to the defendant hacking into her
private email accounts. The court found that for purposes of a motion to dismiss, the plaintiff did
sufficiently allege a claim for invasion of privacy based solely on the e-mail allegations.
The plaintiff won and lost parts of her conspiracy claim against her ex and the various people he
enlisted to help him install the GPS device and breach the plaintiff’s emails accounts. Civil
conspiracy requires concerted action and an underlying wrongful act. Since the plaintiff failed to
establish invasion of privacy on her Intrusion Claim, there was no predicate tort for the
conspiracy.
The result was different with respect to the e-mail hacking though. Since logging in to the

Filed Under: Business Torts Tagged With: civil conspiracy, emails, GPS, Intrusion on Seclusion, invasion of
privacy
plaintiff’s private accounts was a possible invasion of privacy (at least at the early pleading stage),
the conspiracy claim survived as it related to the e-mail claims.
Afterwords:
1/A defendant’s unauthorized hacking into a plaintiff’s private email accounts can underlie an
intrusion on seclusion/invasion of privacy claim;
2/ In the context of installing a monitoring device on someone’s car, the privacy tort is applied
literally: if the plaintiff doesn’t show that she drove somewhere private or “secluded,” invasion of
privacy isn’t the proper cause of action to assert. With the benefit hindsight, the plaintiff
probably should have pled a violation of the civil stalking statute based on the defendant’s GPS
installation.
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Plaintiff Loses Bid to Repossess Dog Gifted to Ex:
Illinois Replevin, Personal Property and Gift Law
Basics
Koerner v. Nielsen, 2014 IL App (1st) considers the parameters of an inter vivos gift (a gift made during
a giver’s lifetime) as they pertain to the question of who owns a dog after the break-up of a romantic
relationship.
The plaintiff gave her then-boyfriend (the defendant) a dog (a Stig) for Christmas. About fourteen
months later, the parties’ broke up and the defendant moved out, taking the dog with him. Plaintiff
filed a replevin suit to get the dog back.
A two-day bench trial culminated in a judgment for the defendant. Plaintiff appealed.
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Held: Affirmed. Plaintiff made a gift of the dog to the defendant, defendant accepted the gift, and
plaintiff failed to show that the gift was revoked.
Under Illinois personal property and gift law, where a defendant asserts that he owns something
based on a gift from a plaintiff, he must prove, by clear and convincing evidence, donative intent:
that the owner departed with “exclusive dominion and control over the subject of the gift” and
delivered the property to the donee (the party claiming he is the gift’s recipient).
Donative intent is determined at the time of the transfer of property, and is based on what was done
or said at the time of transfer, not at some later date. The delivery element of a gift is satisfied where
the parties live together (like here).
A gift in contemplation of marriage (e.g. an engagement ring) is a conditional gift. If the condition
(the marriage) never materializes, the property reverts back to the gifting party.
The court rejected plaintiff’s argument that she never delivered the dog to the defendant. The
plaintiff claimed that since she maintained insurance on the dog at all times and was listed as the
owner on the dog’s registration papers, she never relinquished control of the dog.
The court found “documentary title is not conclusive of ownership” and noted that all that is
required is that the donor part with exclusive dominion and control.
Since the plaintiff could point to no evidence that showed the gift of the dog to defendant was
conditional on a later marriage or continuing the relationship, the court found that the defendant
conclusively established that the dog was an unconditional gift to him and that he was the rightful
owner.
Take-away: This case is post-worthy for its discussion of a somewhat arcane legal topic (in the sense
that inter vivos gifts are not often the subject of published opinions) in a commonplace fact setting.
The case holds practical relevance for lawyers and non-lawyers alike as it highlights the potential
complications that arise when romantic cohabitants break up and there is no formal marital union to
neatly divide their personal property upon dissolution.
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Filed Under: Civil Procedure, Remedies Tagged With: clear and convincing evidence, delivery, dog, donative
intent, gift, inter vivos, personal property, replevin
Apparent Agency Questions Defeat Summary
Judgment in Guaranty Dispute – IL ND
The Northern District of Illinois recently examined the nature of apparent agency liability in the
context of a breach of guaranty dispute involving related limited liability companies (LLCs). The
plaintiff in Hepp v. Ultra Green Energy Services, LLC, 2015 WL 1952685 (N.D.Ill. 2015) sued to enforce a
written guaranty signed by the defendant company in connection with a $250K-plus promissory note
signed by a company owned by the defendant’s managing member.
The court denied the plaintiff’s summary judgment motion. It found there were material and triable
fact issues as to whether the person signing the guaranty had legal authority to do so.
The court first addressed whether the guaranty was supported by consideration. Consideration is
“bargained-for exchange” where the promisor receives something of benefit (or the promisee suffers
detriment) in exchange for the promise. A guaranty’s boiler-plate provision that says “For Value
Received” creates a presumption (but one that can be rebutted) of valid consideration.
Where the guaranty is signed at the same time as the underlying note, the consideration for the note
transfers to the guaranty. But where the guaranty is signed after the note, additional consideration
(beyond the underlying loan) needs to flow to the guarantor. A payee’s agreement to forbear from
suing can be sufficient consideration.
Here, the plaintiff agreed to extend the deadline for repayment of the note by thirty days. According
to the court, this was sufficient consideration for the plaintiff to enforce the guaranty. **3-4.
Next, the court shifted to its agency analysis and considered whether the LLC manager who signed
the guaranty had authority to bind the LLC. Answer – maybe not.
Apparent agency arises where (1) the principal or agent acts in a manner that would lead a
reasonable person to believe the actor is an agent of the principal, (2) the principal knowingly
acquiesces to the acts of the agent, and (3) the plaintiff reasonably relies on the acts of the
purported agent.

Filed Under: Contract Law, Corporate, Creditor's Rights Tagged With: apparent agency, authority, consideration,
guaranty, LLC, manager, member, operating agreement
When considering whether a plaintiff has shown apparent agency, the focus is on the acts of the
principal (here, the LLC), and whether the principal took actions that could reasonably lead a third
party to believe the agent is authorized to perform the act in question (here, signing the guaranty
on the LLC’s behalf).
The scope of an apparent agent’s authority is determined by the authority that a reasonable person
might believe the agent has based on the principal’s actions. Also, a third party dealing with an
agent has an obligation to verify the fact and extent of an agent’s authority. **5-6.
The court found there material questions of disputed fact as to whether the plaintiff reasonably relied
on the LLC manager’s representation that he had authority to sign the guaranty for the LLC. The
court noted that this was an unusual transaction that was beyond the ordinary course of the LLC’s
business (since it implicated a possible conflict of interest (the manager who signed the guaranty was
an officer of the corporate borrower) and it resulted in a pledge of the LLC’s assets), and culminated
in the LLC taking on another $125,000 in debt in exchange for a short repayment time extension. * 7.
The anomalous nature of the transaction coupled with the affidavit testimony of several LLC
members who said they had no knowledge of the manager signing the guaranty, created too many
unresolved facts to be decided on summary judgment.
Take-aways:
1/ A guaranty signed after the underlying note requires additional consideration running to the
guarantor;
2/ Great care should go into drafting an Operating Agreement (OA). Here, because the OA
specifically catalogued numerous actions that required unanimous written consent of all members,
the LLC defendant had ammunition to avoid the plaintiff’s summary judgment motion.
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As-Is Rider in Real Estate Contract Doesn’t Defeat
Implied Warranty of Habitability in Home Sale –
Fattah v. Bim Deconstruction – Part II of II)
The Fattah v. Bim (2015 IL App (1st) 140171) developer defendant seemed to have double
protection. Not only did the person it sold the home to (Buyer 1) waive the implied warranty of
habitability, but Buyer 1’s buyer – the plaintiff – took the home “as-is” pursuant to a contract
rider.
Despite the added layer of protection, the court still allowed the plaintiff’s case to proceed against
the developer defendant. It’s reasons:
– the “as is” rider was part of the contract between plaintiff and Buyer 1: it has no bearing on
plaintiff’s rights versus the defendant;
– even if the “as is” rider did impact plaintiff’s rights versus the defendant, the rider wouldn’t
negate the implied warranty of habitability;
– that’s because the “as is” rider (in the plaintiff-Buyer 1 contract) didn’t mention the implied
warranty of habitability or a waiver of it;
– where a purchaser agrees to accept a house “as is” and the “as-is” provision doesn’t refer to any
implied warranties in general and also doesn’t disclose the consequences of waiving an implied
warranty, the as-is provision can’t be viewed as a valid disclaimer that a home builder/developer
can rely on.
(¶¶ 34-35)
The court also fond that when a purchaser accepts a home as-is, a builder/developer still has to
carry its burden of proving the home buyer knowingly waived the implied warranty of
habitability “by showing a conspicuous provision [that] fully discloses the consequences of [the
waiver.]” Since the defendant failed to meet its burden, the as is rider didn’t defeat the earlier
waiver of the implied warranty of habitability on the house.
The court further circumscribed the implied warranty waiver signed by Buyer 1. It held that a
waiver of an implied warranty of habitability protects only the person identified in the contract. It

Filed Under: Real estate litigation Tagged With: as is, bim, construction, defects, fattah, home, implied warranty,
patio, waiver
doesn’t extend to unwitting parties (like the plaintiff) unless there is a clear intent for that waiver
to apply to a third party.
The as-is rider precludes the plaintiff from pursuing Buyer 1 (who sold the home to plaintiff) for
damages based on home defects but it does not impact plaintiff’s rights versus the developer. The
developer defendant was not party to the as-is agreement between plaintiff and Buyer 1 wasn’t a
named beneficiary of it.
Now What?
While the plaintiff obtained a reversal of summary judgment in the builder’s favor, he still hasn’t
won the case. He must now carry his burden of proving the defendant breached the implied
warranty of habitability. He must prove: (1) latent defects in the house, (2) that interfere with the
reasonably intended use of the house and (3) the latent defects manifested themselves within a
reasonable time after the house was purchased.
The court agreed that the patio collapse constituted a latent defect. Plaintiff will now have to
establish elements (2) and (3) – that the patio defects interfered with plaintiff’s use of the home
and that he learned of the defects a reasonable time after he bought the house.

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Implied Warranty of Habitability Waiver Doesn’t
Bind Second Home Buyer: Deconstructing Fattah
v. Bim (IL 1st Dist.)(Part I of II)
Fattah v. Bim, 2015 IL App (1st) 140171 will likely be viewed as a significant victory for
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homeowners (and a correlative loss for builders) in residential construction disputes.
The plaintiff bought a million-plus dollar home in Chicago’s northern suburbs from the
defendant homebuilder “as-is” and subject to an earlier waiver of the implied warranty of
habitability signed by a prior purchaser (“Buyer 1″) who sold the house to the plaintiff.
In reversing a bench trial judgment for the defendants, the court answered some important
questions concerning the scope and enforceability of disclaimers contained in the sale of real
property in Illinois.
Facts:
The sale of the home from defendant to Buyer 1 included a written waiver of the implied warranty
of habitability that specifically provided it was binding on the seller, the purchaser, and any
successors.
The plaintiff bought the property from Buyer 1 “as is” three years after Buyer 1 bought it. The
contract’s as-is rider provided, among other things, that the seller (Buyer 1) shall not be
responsible for “the repair, replacement or modification of any deficiencies, malfunctions or
mechanical defects on the Property or to any improvements thereon” and that Buyer 1 makes no
representation or warranty to plaintiff concerning the Property’s condition, zoning or suitability
for its intended use.
Despite this broad Rider’s language, the contract still required Buyer 1 to disclose known material
latent defects.
Four months after plaintiff moved in, the patio collapsed and plaintiff sued the defendant
homebuilder. The trial court found for defendant at trial on the basis that Buyer 1’s implied
warranty waiver extended to the plaintiff. Plaintiff appealed.
Result: Reversed:
Rules/Reasoning:
The appeals court found that the earlier implied warranty of habitability waiver did not bind the
plaintiff. The court’s reasoning:
– the implied warranty of habitability is a creature of public policy that aims to protect innocent
purchasers of new houses who discover latent defects in their homes;

– the implied warranty of habitability recognizes that the purchaser, who is generally not
knowledgeable in construction practices, has to rely n the integrity and the skill of the builder-
vendor, whose business is home building;
– it (the implied warranty of habitability) applies not only to builder-vendors, but also to
subcontractors and developer-vendors;
– subsequent home buyers can be protected by the implied warranty of habitability. This is because a
“subsequent purchaser is like the initial purchaser in that neither is knowledgeable in construction
practice and must rely on the expertise of the person who built the home to a substantial degree.”
– the warranty of habitability exists independently of a contract between the builder and twice-
removed buyer and extends only to “latent defects which manifest themselves within a reasonable
time after the purchase of the house.”
– despite the strong public policy reason behind the implied warranty of habitability, a “knowing
disclaimer” of the warranty doesn’t violate Illinois public policy;
– one who seeks to benefit from a disclaimer has the weighty burden of establishing that the
disclaimer is (1) conspicuous, (2) fully disclosed (along with its consequences) to the buyer, and (3)
mutually agreed on by the parties.
(¶¶ 23-25).
With these principles in mind, the court found that Buyer 1’s waiver of the implied warranty of
habitability was valid as it appeared prominently in the sales materials and recited the waiver’s
impact of the Seller’s rights.
The court then considered whether Buyer 1’s waiver of the implied warranty was binding on
plaintiff – a subsequent purchaser who lacked knowledge of the earlier waiver.
Finding that Buyer 1’s waiver did not bind plaintiff, the court noted there was no agreement
between plaintiff and defendant and the waiver of the implied warranty of habitability never was
brought to plaintiff’s attention.
The court held that an implied warranty of habitability can only be waived where it’s done so
“knowingly.” Here, the plaintiff wasn’t party to Buyer 1’s waiver and testified she wasn’t aware
of the waiver when she (plaintiff) bought the house. Since defendants didn’t refute plaintiff’s

Filed Under: Mechanics Lien/Construction Law Tagged With: bim, construction law, disclaimer, fattah, implied
warranty of habitability, latent defects, subsequent purchaser, waiver
testimony, it failed to prove plaintiff knowingly bought the property subject to Buyer 1’s waiver
of the implied warranty. As a result, the waiver didn’t bind the plaintiff.
(¶¶ 28-31)
Take-aways:
1/ The implied warranty of habitability extends to subsequent home purchaser for latent (not
overt) defects;
2/ A disclaimer or waiver of an implied warranty offered by a prior buyer won’t bind a subsequent
buyer where that later buyer offers evidence that she lacked knowledge of the disclaimer or
waiver and that the disclaimer’s importance wasn’t pointed out to her.
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No Future Damages Allowed in Wage Payment
and Collection Act Claim – IL 2d Dist.
Eakins v. Hanna Cylinders, LLC, 2015 IL App (2d) 140944 is the third in a trio of recent Illinois
Wage Payment and Collection Act, 820 ILCS 115/1 et seq., (“Wage Act”) cases that address an
employee’s rights to recover future damages after an employer prematurely terminates a multi-
year contract.
(The other two cases – Majmundar v. House of Spices (India), Inc., 2013 IL App (1st) 130292 and
Elsener v. Brown, 2013 IL App (2d) 120209 are summarized here and here.)
The Eakins plaintiff sued after he was fired 14 months into a 24-month contract to serve as a plant
manager for the industrial company defendant. The employment contract was silent on grounds
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for termination. The plaintiff sought as damages, compensation for the ten month remaining on
the employment contract under a breach of contract theory and he joined a Wage Act claim. The
trial court entered summary judgment for the defendant on both claims and the plaintiff
appealed.
Held: Breach of contract judgment reversed; Wage Act judgment for employer affirmed.
Q: Why?
A: The appeals court reversed the breach of contract judgment for the defendant employer. In
Illinois, an employment agreement with no fixed duration can be ended at the will of either party.
The contract here was clearly for a fixed term, 24 months, and so wasn’t at will. By firing the
plaintiff 14 months into the contract term, the defendant breached.
The court rejected defendant’s argument that the plaintiff’s failure to meet certain performance
metrics (e.g. keep costs down, grow market share, meet sales quotas, etc.) justified defendant’s
premature termination of the plaintiff. The court found that since the contract didn’t specify poor
performance (as opposed to outright failure to perform – e.g. by not showing up to work) as a
ground for contractual cancellation, the defendant breached by firing plaintiff before the 24
months was up.
Otherwise, according to the court, any employer could transmute a fixed-term contract into an at-
will one by claiming the employee didn’t meet the employer’s performance requirements. The
court remanded to the lower court so it could decide plaintiff’s money damages. (¶¶ 23-29).
The court did affirm judgment for the defendant on the Wage Act claim though. Looking to
Majmundar for guidance, the court held that unpaid future compensations coming due under an
untimely ended employment contract doesn’t qualify as “final compensation” under the Wage
Act. The reason for this is that once an employee is fired, he no longer performs any services for
the employer. So the employer isn’t receiving anything of value from the employee to support an
obligation to make future payments. (¶¶ 31-32).
Take-aways:
Where a contract is for a fixed term and doesn’t provide for “for cause” firing or otherwise spell
out grounds for termination, the contract will be enforced as written in the employee’s favor and
his failure to meet an employer’s subjective work standards won’t constitute a basis for nullifying
the contract;

Filed Under: Contract Law, Employment Law Tagged With: at-will, breach of contract, damages, early
termination, fixed term, future payments, Wage Payment and Collection Act
Future payments due under a fixed-term contract aren’t considered final compensation under the
Wage Act since there is no reciprocal exchange (services for wages) once an employee is fired;
Procedurally, the case makes clear that the denial of a summary judgment motion is appealable so
long as there are cross-motions for summary judgment filed and the disposition of those motions
resolves all issues in a given case.

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Ten-Year Statute of Limitations Applies to Demand
Promissory Note: Three-Year ‘SOL’ For Negotiable
Instruments Does Not
Advanced Credit, Inc. v. Linares, 2012 IL App (1st) 121574-U is a fairly recent case illustration of what
happens when two statutes of limitation with widely varying time lengths potentially govern the
same case.
The defendant in Linares signed a promissory note in 2002 that was payable to the defendant “upon
demand.”
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The plaintiff payee of the note made a demand for payment in 2004 which the defendant ignored.
Plaintiff sued six years later (in 2010) to recover on the note and sought interest, fees and costs.
Defendant moved to dismiss on the basis that the three-year limitations period governing negotiable
instruments time-barred the complaint. (See 810 ILCS 5/3-104, 3-118.) The plaintiff argued that the
ten-year time to sue on demand promissory notes (735 ILCS 5/13-206) applied and so the suit was
timely. The trial court agreed with the defendant and dismissed the suit. The plaintiff payee
appealed.
Held: Reversed. The ten-year statute, not the three-year one, applies to the demand promissory note.
Rules/Reasoning:
A note that is “payable on demand” is a demand note and is due and payable immediately upon
execution. 810 ILCS 5/3-108. A claim against the maker of a demand note accrues on the date the
note is issued.
Code Section 13-206 provides for a ten-year limitations period for promissory notes and for demand
notes. Under this statute, a demand note plaintiff is barred if the note maker pays no note interest or
principal for a period of 10 continuous years and no demand is made during that time.
Uniform Commercial Code Section 3-118(g) applies a 3-year limitations period for actions based on,
among other things, negotiable instruments (example: a check).
Section 3-104(a) of the UCC defines a negotiable instrument as
(i) an unconditional promise or order to pay a fixed amount of money;
(ii) that’s payable to order or to bearer at the time it (the instrument) is issued or first comes into
possession of a holder;
(iii) is payable on demand or at a definite time; and
(iv) doesn’t state any other undertakings or instructions other than the payment of money.
Where two limitations period govern the same subject matter, the more specific one applies. Here,
since Code Section 13-206 specifically references “demand promissory notes” and UCC Section 3-104
doesn’t, the 10-year statute of limitations (“SOL”) governs.

Filed Under: Civil Procedure, Contract Law Tagged With: Article 3, check, demand note, Negotiable instrument,
promissory note, statute of limitation, ten-year, three-year, UCC
The Note accrual date was 2004 when the plaintiff made demand for payment. Since the plaintiff
sued in 2010 – some six years later – it was within the 10-year limitations period for demand
promissory notes under Section 13-206.
Afterwords:
A pretty straightforward application of conflicting limitations period rules. The ten-year period for
demand notes more specifically applied over the UCC’s three-year catchall provision.
When defending a promissory note case, I look for earmarks of negotiability (payable to order, at
specific time, for specific amount) so I can argue the shorter three-year limitations period (of 3-118)
applies. When representing the note plaintiff/payee, I try to show the 10-year SOL applies and
particularly look for any reference to “on demand” or “upon demand” in the text of the note. This
language will signal that a demand note is involved and mean the longer SOL governs.

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Rule 103(b): Plaintiff’s Year-Long Delay In Serving
Lawsuit Merits Dismissal For Lack of Diligence –
IL 1st Dist.
Illinois Supreme Court Rule 103(b) requires a plaintiff to exercise diligence in serving a defendant.
The rule is based on the principle that litigation should have an end date and should not drag on
interminably. The rule also increases the probability that suits will be resolved when the underlying
facts are fresh in the minds of the parties and witnesses and lessens the chance that trials will be
tainted by stale evidence or faded memories.
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Mular v. Ingram, 2015 IL App (1st) 142439 serves as a harsh and recent example of the consequences of
a plaintiff failing to make active efforts to sue a defendant.
The plaintiff was injured at the defendant’s home in July 2010 and sued in July 2012 – just before the
two-year statute of limitations period for personal injuries ran. 735 ILCS 5/13-202 (two-year
limitations period for personal injuries). Over the next several months, the plaintiff issued multiple
summonses that had the wrong address. The case was also dismissed for several weeks before it
was reinstated by the plaintiff. Finally, nearly three years after the occurrence and almost a year after
the limitations period expired, plaintiff served the defendant.
The trial court dismissed the plaintiff’s suit with prejudice for lack of diligence in serving the
defendant under SCR 103(b).
Holding: Affirmed
Rules/Reasons:
Rule 103(b) aims to protect a defendant from unnecessary delay in service of process. The rule is
designed to give a defendant a fair opportunity to investigate the nature of a plaintiff’s claims.
The rule doesn’t specify a specific amount of time for a defendant to be served and the trial court
has wide discretion in considering a Rule 103(b) motion.
Once a defendant makes an initial showing that the plaintiff wasn’t diligent in effecting service,
the burden shifts to the plaintiff to oppose this. The reasonable diligence standard is an objective
one and doesn’t involve an examination of whether the plaintiff intentionally delayed service. In
addition, a defendant doesn’t have to show that he was prejudiced by the delay in service;
although prejudice to the defendant is a factor considered by the court.
Multiple factors guide the court’s analysis on a Rule 103(b) motion. These include: (i) the length
of time it took to serve the defendant; (ii) plaintiff’s efforts to obtain service; (iii) whether plaintiff
knew of defendant’s whereabouts; (iv) whether the defendant’s whereabouts could be easily
obtained; (v) whether defendant was actually aware of the suit; (vi) whether the defendant was
actually served; and (vii) any special circumstances that justify a service delay.
While the time period during which a case is voluntarily dismissed (non-suited) by a plaintiff is not
calculated when assessing whether a plaintiff was reasonably diligent in obtaining service, the time
where a case is involuntarily dismissed (such as on a dismissal for want of prosecution (DWP) is
included in the reasonable diligence calculus.

Filed Under: Civil Procedure Tagged With: 103(b), construction negligence, diligence, four-year limitations,
Service of process, Statute of Limitations, summons
Where a plaintiff isn’t diligent but the defendant is still served before the statute of limitations period
runs out, a Rule 103(b) motion can be granted without prejudice. Where the defendant is served after
the statute runs, the plaintiff’s case can be dismissed with prejudice.
¶¶ 22-24.
Under these guideposts, the court found the plaintiff exhibited a lack of diligence. She repeatedly
put wrong addresses on the various summonses when her own complaint correctly listed the
defendant’s address. Also, the plaintiff didn’t serve the defendant until nearly three years after the
underlying incident and almost a year after the two-year limitations period ran for personal injury
suits. In addition, the plaintiff’s case was dismissed for want of prosecution for over five weeks
during the time preceding service on the defendant.
The plaintiff’s argument that the four-year statute of limitations for construction-related claims (735
ILCS 13-214) also failed. By its terms, the construction negligence statute only applies to activities
related to the “design, planning, supervision, observation or management of a construction project.”
Defendant fit none of these categories; she was a landowner only. With no allegation that the
defendant participated in the actual construction or design of the home, the plaintiff couldn’t rely on
the four-year limitations period to sustain her claim.
Take-aways:
There’s no chronological litmus test for determining whether a plaintiff was reasonably diligent in
getting service. Where a defendant’s location is no mystery and several months elapse from suit to
service, the plaintiff runs the risk of having his case dismissed. This is especially true if the
defendant isn’t served with the lawsuit until after the applicable statute of limitations expires.
The other lesson from the case is that the two-year, not the four-year, limitations period governs
personal injury suits against landowners. If the landowner defendant wasn’t involved in the
construction or design of the accident site, he won’t be subject to the longer construction negligence
limitations period.
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“Never Ending”(?) Contract Still Definite Enough
to Be Enforced – 7th Circuit
Burford v. Accounting Practice Sales, Inc. 2015 WL2261108 (7th Cir. 2015), deftly handles some
tricky and recurring contract interpretation and enforcement issues that arise where a business
agreement lacks a clear end date.
In the case, the plaintiff sued defendant for terminating a written year-to-year (and automatically
renewing) contract for the plaintiff to market defendant’s accounting practice sales services in
various states throughout the Southern U.S. The agreement provided that the defendant could not
terminate the contract “unless it is violated by [plaintiff].” The district court found this language
signaled an indefinite (and therefore, at-will) contract and granted summary judgment for the
defendant. The plaintiff appealed.
Held: Reversed.
Q: How Come?
A: Because in Illinois, indefinite contracts – contracts with no objective termination date – aren’t
favored but can still be enforced in certain cases. This is because parties should be free to order
their business affairs as they see fit and unless there is fraud, duress or undue influence, a written
contract should be enforced as written.
Parties can get around indefinite duration provisions by specifically spelling out grounds for
termination of a contract. A contract that lacks a fixed duration and that can only be cancelled for
a specific event or “for cause” can be enforced and won’t be treated as an at-will contract (one that
can be ended at any time for any reason) so long as the event or cause can be objectively gauged.
Here, the contract language negated its at-will character. It could only be terminated if the
plaintiff breached (“unless” he violated it). Otherwise, the contract kept renewing every year.
The court found this termination provision specific enough to be enforceable by the plaintiff.
Since there was no evidence that the plaintiff breached the contract – defendant unilaterally
ended the contract – summary judgment for the defendant was improper.

Filed Under: Contract Law Tagged With: APS, Automatic renewal, burford, indefinite contract, material breach,
perpetual, seventh circuit, year-to-year
Policy concerns also supported the court’s decision. It noted that if the defendant was allowed to
freely terminate the contract like it did here, it would deprive the plaintiff of the economic basis
of his bargain. Meaning the plaintiff could spend a lot of time and money developing and
marketing the defendant’s brand and then once terminated, he could be replaced by someone who
could capitalize on all his work.
Conversely, the defendant would suffer if the plaintiff could escape the contract with impunity
since the plaintiff could leverage the good will and relationships he fostered over a several-year
period and take that good will to another company or use it himself and against the defendant.
The defendant was protected from this contingency by inserting a one-year non-compete and by
allowing for “good cause” termination; defined as poor sales performance.
Since the parties contracted around the indefinite duration problem by allowing for termination
only if the plaintiff violated the contract, it wasn’t an at-will contract.
Afterwords:
1/ The case gives a good illustration of the problems that arise where parties don’t specify when
and in what situation a contract ends. By taking some pains at the outset to make clear when a
contract starts and ends, and establishing what constitutes a breach of “cause” for termination, the
contract participants can likely avoid future litigation when one side decides to walk away;
2/ Substantively, the case amplifies that a contract lacking an objective termination date will be
treated as at-will contract and can be terminated by any party at any time;
3/ If a contract can be terminated for a single specified reason, this will likely make the contract
enforceable even though the contract lacks an objective termination date.

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Legal Malpractice Claims: Elements and Damages:
Illinois Case Snippets (2015)
May 29, 2015 by PaulP (Edit)
Two First District cases – one published, the other not – decided some eight days apart in April
2015, provide good capsule summaries of the pleading and proof elements of a legal malpractice
claim in Illinois, the nature and reach of the attorney-client relationship (“A-C Relationship”) and
the universe of possible damages that a plaintiff can recover in legal malpractice suits.
The plaintiff in Tuckaway Development, LLC v. Schain, Burney, Ross & Citron, Ltd., 2015 IL App
(1st) 140621-U asked for over $1M but was awarded just over $1,000 in a case involving a late-
recorded mortgage in connection with a related real estate deal. Meriturn Partners, LLC v. Banner
and Witcoff, Ltd.’s plaintiff (2015 IL App (1st) 131883) fared much better. There, a jury awarded
the private equity firm plaintiff a cool $6M in a case involving an intellectual property lawyer’s
misguided advice concerning patents owned by a waste disposal company the plaintiff planned to
invest in.
Here are some key legal malpractice points distilled from the two cases:
1/ To win a legal malpractice suit, a plaintiff must prove the existence of an A-C Relationship;
2/ An A-C Relationship requires both the attorney and client to consent to the relationship’s

formation;
3/ That consent (to the formation of an A-C Relationship) can be express (by words) or implied (by
conduct);
4/ A client can’t unilaterally create an A-C Relationship and his subjective belief that such a
relationship exists isn’t enough to bind the attorney;
5/ Where an attorney knows a person is relying on his services or advice, an A-C Relationship
exists;
6/ In some cases, third-party non-clients can establish that an attorney owes contractual duties to
them (the third parties);
7/ An attorney’s obligations can extend to third-party non-clients where they are intended
beneficiaries of the attorneys’ services;
8/ The measure of damages in an attorney malpractice suit are those damages that would put
plaintiff in a position he would have been in had the attorney not been negligent;
9/ Legal malpractice damages present a question for a jury and that damage assessment is entitled
to great deference;
10/ Absent evidence that the jury failed to follow the law, considered erroneous evidence or that
the verdict was the result of passion or prejudice, an appeals court can’t negate the verdict.
Tuckaway, ¶¶ 28-30; Meriturn, ¶¶ 10, 18.
In Meriturn, the court ruled that the IP lawyer’s duties extended to third party investors even
though he never signed a contract with them. The key evidence supporting the finding included
testimony and e-mails that showed that the lawyer knew that outside investors were relying on his
patent opinions and also illustrated some direct communications between the lawyer and the
(non-client) third party investors.
The lawyer’s failure to limit the scope of his representation to the plaintiff investment firm made
it easy for the court to find the lawyer’s fiduciary duties extended beyond his immediate client,
the plaintiff.
The court also upheld the jury’s $6M damage verdict in Meriturn against the plaintiff’s claim that

Filed Under: Business Torts Tagged With: attorney-client relationship, damages, legal malpractice, lost profits,
Meriturn, new business rule, third parties
it was too low (the plaintiff sought over $23M,) While the plaintiff sought lost profits (profits lost
as a result of the investment going bad due to the bad patent advice), those damages were
foreclosed by the “new business” rule.
Since the plaintiff’s investment in the waste disposal company was a new venture for both the
plaintiff and the company, any claimed lost profits were purely speculative and couldn’t be
recovered.
Tuckaway’s paltry damages sum awarded to the plaintiff was also supported by the evidence.
There, the lawyer defendant offered uncontested expert testimony that the property that was
subject of the late mortgage recording was worth next to nothing since it was already encumbered
by a prior mortgage.
As a result, the jury’s damage amount – some 800 times less than was claimed by the plaintiff –
was supported by the evidence.
Take-aways:
1/ An attorney who doesn’t clearly define and limit the scope of his representation can find
himself owing duties to third party “strangers” to his attorney-client agreement;
2/ A jury is given wide latitude in fashioning damage awards. Unless there is obvious error or
where it’s clear they considered improper evidence, their damage assessment will be sustained.

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Law Firm Isn’t An Employment Agency – Can
Recover In Quantum Meruit For Negotiating
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Personal Services Contract (IL Law)
May 28, 2015 by PaulP (Edit)

Todd W. Musburger, Ltd. v. Meier, 394 Ill.App.3d 781 (1st 2009), while dated, is still post-worthy for its
in-depth discussion of a lawyer’s quantum meruit recovery from a client after the client fires the
lawyer under a contingent fee contract.
The defendant radio personality had previously hired the plaintiff law firm under a multi-year
written contract to serve as the defendant’s exclusive agent in negotiating defendant’s radio and
television contracts. That contingent fee contract called for the defendant to pay plaintiff 5% of the
gross amount of any contract consummated by the plaintiff.
Plaintiff claimed that after the fee agreement was verbally renewed, the plaintiff spent about 200
hours over a one-year period negotiating the renewal of defendant’s radio contract with the WLS
(AM 890) station and shopping defendant to competing stations.
Plaintiff alleged that its aggressive negotiation efforts culminated in a $12M/10-year contract offer
from WLS; an offer rejected by defendant. Plaintiff would have received $600,000 under the parties’
contingency contract if the defendant accepted the station’s offer re-upped there.
After it was fired by the defendant, the firm sued to recover for the value of its pre-termination work
on the defendant’s behalf.
At trial, a jury awarded damages to the plaintiff of about $70K and the defendant appealed.
Held: Affirmed:
Q: Why?
A: The court stated the operative rules governing attorney-client relationships and an attorney’s
entitlement to recover fees:
– a client may discharge her attorney at any time, with or without cause;
– when a client fires an attorney who was representing the client on contingency, the contingent-
fee contract ceases to exist and is no longer operative;

Paul Porvaznik – Chicago Business Lawyer

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