Exculpatory Clauses in Illinois – The ‘Uneven Bargaining Position’ Issue

Spears v. Ass’n of Illinois Electric Cooperatives, 2013 IL App (4th) 120289 summarizes the general rules and exceptions that govern exculpatory clauses in Illinois.  In the case, the plaintiff college student who signed up for a utility “pole climbing” class the defendant – a non-profit entity – offered through plaintiff’s college.  Before she took the class, plaintiff signed a release that immunized the defendant from all claims and injuries that could result from the class. 

The plaintiff sustained a serious knee injury while descending a utility pole and sued the defendant for negligence.  The defendant moved for summary judgment based on the release. The trial court denied the summary judgment motion and found there was a disparity in bargaining power. 

The appeals court reversed finding there were unresolved fact issues as to whether there was a disparity in bargaining power between the student and school.

Exculpatory Provisions: General Rules

In Illinois, parties may contractually release liability for their own negligence.  Spears, ¶ 24.  Liability release contracts are not favored and are strictly construed against the released party because these contracts pit two public policy interests against each other: (1) a person should be liable for his negligent conduct vs. (2) contracting parties should be free to contract as they see fit.  Id.

A release of liability will be enforced in Illinois if (1) the terms are clear, explicit and precise; (2) the release encompasses the activity, circumstance or situations involved in the contract; (3) it is not against public policy; and (4) there is nothing in the “social relationship” which weighs against upholding the release.  ¶ 25.

The ‘Social Relationship’ and Disparity of Bargaining  Power Exceptions

Several social relationships can lead a court to invalidate an exculpatory clause.  These include: (1) employer-employee; (2) common carrier/innkeeper/public utility – member of public; and (3) bailor-bailee relationships.   

Besides these special relationships, a “disparity of bargaining power” between the contracting parties can work to defeat a liability waiver.  On this point, the key focus is whether the plaintiff had freedom of choice as to whether to sign the release.  ¶ 26.

The disparity in bargaining power factors a court considers include (1) the sophistication of the contracting parties; (2) whether plaintiff was or should have been aware of the risks involved in the activity; (3) whether plaintiff was under economic or other compulsion (was it a “take-it-or-leave-it” situation?); and (4) whether the plaintiff had a reasonable alternative. ¶ 27.

The over-arching question which Spears refused to answer was whether there was a disparity of bargaining power between an educator and a student such that exculpatory releases in school-student contracts are always void.  The Court said it was up to the legislature (not the courts) to decide the question. ¶ 36. 

Generally, if a plaintiff is free to forgo the activity and he can realistically locate a alternative service provider, the release will be upheld.  In determining whether the plaintiff was free to abstain from the class, the Court considered (1) the plaintiff’s monetary and time investment in the activity; (2) whether the plaintiff’s completion of the pole climbing class was essential for future employment; (3) whether plaintiff could have obtained the same or similar instruction elsewhere; (4) would refusing to take the pole climbing class detrimentally impact plaintiff’ employment prospects?; and (5) would plaintiff’s financial aid, grants or scholarship be imperiled if she opted out of the class?  ¶ 39. 

Epilogue:

Spears common-sense take-away is that if the person signing the release had a meaningful choice as to whether to sign it or not, the release will most likely be enforced absent a special-relationship between the parties where a stronger party is trying to take advantage of a weaker one.

Collecting Post-Judgment Attorneys’ Fees in Illinois

Collecting a judgment against sophisticated corporate and individual debtors can be a time-consuming and futile exercise. Post-judgment enforcement proceedings can drag on for months (sometimes years), often generating astronomical attorneys’ fees and expenses.

Tobias v. Lake Forest Partners, LLC, 402 Ill.App.3d 484 (1st Dist. 2010) addresses some tricky questions involving competing money judgment priority and when post-judgment attorneys’ fees can be recovered.  There, two judgment creditors – one in Illinois, the other in Florida – got judgments totalling nearly $5 million against common defendants.  

The Illinois judgment – eight days “older” than the Florida one – stemmed from a loan agreement that provided that the plaintiff could recover “all costs of collection” in the event of a breach. 

The Florida creditor registered its judgment in Illinois and intervened in the Illinois post-judgment proceedings started by the Illinois creditor.  Before the Florida creditor intervened, however, the Illinois judgment creditor served a third party citation on a corporation (the “Respondent”) to discover if the Respondent had any assets of one of the judgment debtors.  

When the Respondent answered that it was holding approximately $340,000 in judgment debtor assets, the Illinois post-judgment judge divvied up the debtor’s assets and ordered Respondent to disburse $87,000 to plaintiff “as full satisfaction” of plaintiff’s judgment, $126,000 to the Florida creditor and $126,000 back to the defendant.  The court denied the Illinois creditor’s request for over two years’ worth of attorneys’ fees incurred in trying to enforce the judgment.

The Illinois creditor appealed, arguing that the trial court should have given its (the Illinois creditor) claim for post-judgment attorneys’ fees priority over the later Florida judgment.  

The Appeals court affirmed the trial court’s disposition of the judgment debtor’s assets.  

The Court first held that under the Illinois wage deduction statute – 735 ILCS 5/12-801 et seq., a judgment creditor can attach only 15% of a debtor’s gross wages.  Once a third-party citation is served, it impresses a lien on the debtor’s nonexempt personal property in the third party’s possession up to the judgment amount 735 ILCS 5/2-1402(a), (m).  And since Respondent was holding the debtor’s wages, the Court found that the Illinois and Florida creditors could collectively attach only 15% of the wages. 

On the subject of post-judgment fees, the court squarely held that unless the creditor’s post-judgment claim for attorneys’ fees is reduced to judgment (that is, assigned a specific dollar value), those fees could not lien the debtor’s property (here, wages) in Respondent’s possession. 

The Court made it clear that no claim can achieve lien status until the claim has been reduced to an enforceable judgment.  Since the plaintiff’s counsel never had his attorneys’ fees converted to a specific dollar amount, the fees could not trump the Florida creditor – even though the Illinois judgment predated the Florida one.

Afterwords:

The lesson for creditor’s counsel is clear: when an underlying contract or judgment provides that post-judgment attorneys’ fees can be added to the judgment amount, creditor’s counsel should document its fees and present a petition so that the fee amount can be liquidated (reduced to a specific sum). 

Once that happens, the fees can be added to the judgment amount and can take priority over a competing creditor’s claim. 

‘Your Check Bounced Like a Superball®!’ – Bad Check Laws in Illinois – Civil Liability

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(photo credit: www.sportsunlimitedinc.com)

The civil provisions of the Illinois Deceptive Practices Act, 720 ILCS 5/17-1 (a criminal statute), govern situations where a defendant issues bad checks with intent to defraud.  Section 5/17-1(B) provides:

(B) Bad checks.

A person commits a deceptive practice when:

(1) With intent to obtain control over property or to pay for property, labor or services of another,….he or she issues or delivers a check or other order upon a real or fictitious depository for the payment of money, knowing that it will not be paid by the depository. The [court] may infer that the defendant knows that the check or other order will not be paid by the depository and that the defendant has acted with intent to defraud when the defendant fails to have sufficient funds or credit with the depository when the check or other order is issued or delivered, or when such check or other order is presented for payment and dishonored on each of 2 occasions at least 7 days apart. In this paragraph (B)(1), “property” includes rental property (real or personal).

(2) He or she issues or delivers a check or other order upon a real or fictitious depository in an amount exceeding $150 in payment of an amount owed on any credit transaction for property, labor or services, or in payment of the entire amount owed on any credit transaction for property, labor or services, knowing that it will not be paid by the depository, and thereafter fails to provide funds or credit with the depository in the face amount of the check or order within 7 days of receiving actual notice from the depository or payee of the dishonor of the check or order.

The caselaw distills a civil bad check claim to the following elements: a plaintiff (the party to whom an NSF check was given) must show: (1) that defendant delivered a check to obtain services, labor and property of another, (2) that defendants knew the checks would not be honored, (3) that defendants acted with intent to defraud and (4) the defendants failed to pay on demand.

The corporate officer who signs a bad checks can also be individually liable under the Act.  This is an offshoot of the active participation rule: a corporate officer is liable for torts in which he actively participates.

Once a bad check claimant shows these elements, the Deceptive Practices Act’s civil liability provisions kick in.  Section 17-1(E) provides:

Civil liability. A person who issues a check or order to a payee in violation of paragraph (B)(1) and who fails to pay the amount of the check or order to the payee within 30 days following either delivery and acceptance by the addressee of a written demand both by certified mail and by first class mail to the person’s last known address or attempted delivery of a written demand sent both by certified mail and by first class mail to the person’s last known address and the demand by certified mail is returned to the sender with a notation that delivery was refused or unclaimed shall be liable to the payee….for, in addition to the amount owing upon such check or order, damages of treble the amount so owing, but in no case less than $100 nor more than $1,500, plus attorney’s fees and court costs.

An action under this subsection (E) may be brought in small claims court or in any other appropriate court. As part of the written demand required by this subsection (E), the plaintiff shall provide written notice to the defendant of the fact that prior to the hearing of any action under this subsection (E), the defendant may tender to the plaintiff and the plaintiff shall accept, as satisfaction of the claim, an amount of money equal to the sum of the amount of the check and the incurred court costs, including the cost of service of process, and attorney’s fees

So, if you are civilly prosecuting an NSF check case for a client, you should (a) be on the lookout for the check being returned twice in a 7-day period; and (b) send the 30-day demand by certified and regular mail.  Once the 30-day period elapses, you can file suit in Law Division ($30K and higher), Muni ($10,000-$30,000) or Muni small claims (under $10,000) and recover the face amount of the check plus up to $1,500 for each returned check and attorneys’ fees and costs.

For the less litigious, there’s Section 3-806 of the Uniform Commercial Code (810 ILCS 5/3-806). This statute governs “non litigated” bad check collections.  Under this section, the aggrieved party can recover the amount of the check, and the greater of $25 or reasonable costs, expenses, and attorneys’ fees incurred in collecting on the bad check.  However, to recover more than $25, the check recipient must  provide 30-days notice by certified mail to the party that delivered the bad check and give that party an opportunity to cure by making good on the check.