Federal Court Gives Illinois Primer on Personal Property Torts

The plaintiff in Peco Pallet, Inc. v. Northwest Pallet Supply Co., 2016 WL 5405107 sued a recycling company under various theories after their once harmonious business relationship imploded.

The plaintiff, a wooden pallet manufacturer, instituted a program where it offered to pay pallet recyclers like defendant a specific amount per returned pallet.  When the plaintiff announced it was going to cut the per-pallet payment rate, the defendant recycler balked and refused to return several thousand of plaintiff’s pallets.  The plaintiff sued and the defendant filed counterclaims.

In partially dismissing and sustaining the parties’ various claims, the Court offers a useful refresher on both some common and uncommon legal theories that apply to personal property.

Replevin and Detinue

The Illinois replevin statute, 735 ILCS 5/19-101, allows a plaintiff to try to recover goods wrongfully detained by a defendant.  The statute employs a two-step process involving an initial hearing and a subsequent trial.

Once a replevin suit is filed, the court holds a hearing to determine whether to issue a replevin order.  If at the hearing the plaintiff shows he most likely has a superior right to possession of the disputed property and is likely to prevail at trial, the court enters an order of replevin which requires the defendant release the plaintiff’s property pending the trial.  If the plaintiff later wins at trial, he can recover money damages attributable to the defendant’s wrongful detention of the property.

Closely related to replevin, a detinue claim also seeks the recovery of personal property and damages for its wrongful detention.  Unlike replevin however, there is no preliminary hearing in a detinue case pending final judgment.  Possession remains with the defendant until final judgment.

Since the purpose of the replevin and detinue remedies is the return of personal property, where a defendant returns plaintiff its property, the claims are moot.  Here, since the defendant returned the 17,000 pallets that were subjects of the replevin suit, the Court found that the replevin and detinue claims pertaining to the returned pallets were moot.

The court did allow, however, plaintiff to go forward on its detinue claim for damages related to defendant’s failure to account for some 30,000 pallets.

Conversion

A conversion plaintiff must prove (1) a right to property at issue, (2) an absolute and unconditional right to immediate possession of the property, (3) a demand for possession, and (4) that defendant wrongfully and without authorization, assumed control, dominion or ownership over the property.

The essence of conversion is wrongful deprivation, not wrongful acquisition.  This means that even where a defendant initially possesses property lawfully, if that possession later becomes unauthorized, the plaintiff will have a conversion claim.

Here, the plaintiff alleged that it owned the pallets, that it demanded their return and defendant’s refusal to return them.  These allegations were sufficient to plead a cause of action for conversion.

 

Negligence

The Court also sustained the plaintiff’s negligence claim against the motion to dismiss.  In Illinois, a negligence action arising from a bailment requires allegations of (1) an express or implied agreement to create a bailment, (2) delivery of property to the bailee in good condition, (3) bailee’s acceptance of the property, and (4) bailee’s failure to return the property or its returning the property in damaged condition.

The plaintiff sufficiently alleged an implied bailment – that defendant accepted the pallets and failed to return some of the pallets while returning others in a compromised state.  These allegations were enough for the negligence count to survive.

Promissory Estoppel

The Court found that the defendant sufficiently pled an alternative promissory estoppel counterclaim.  Promissory estoppel applies where defendant makes a promise that the plaintiff relies on to its detriment.  The pleading elements of promissory estoppel are (1) an unambiguous promise, (2) plaintiff’s reliance on the promise, (3) plaintiff’s reliance was expected and foreseeable by defendant, (4) plaintiff relied on the promise to its detriment.

A promissory estoppel claim can’t co-exist with a breach of express contract claim: it only applies where there is no contractual consideration.  Here, the defendant/counter-plaintiff alleged there was no express contract.  Instead, it claimed that plaintiff’s promise to pay anyone who returned the pallets motivated defendant to return thousands of them.  The court viewed these allegations as factual enough for a colorable promissory estoppel claim.

Tortious Interference with Contract and Business Expectancy

The court dismissed the defendant’s tortious interference counterclaims.  Each tort requires a plaintiff to point to defendant’s conduct directed at a third party that results in a breach of a contract.  Here, the defendant’s counterclaim focused on plaintiff’s own actions in unilaterally raising prices and altering terms of its earlier pallet return program.  Since defendant didn’t allege any conduct by the plaintiff aimed at a third party (someone other than counter-claimant, e.g.), the tortious interference claims failed.

Take-aways:

1/ Conversion action can be based on defendant’s possession that was initially lawful but that later becomes wrongful;

2/ A Promissory estoppel claim can provide a viable fall-back remedy when there is no express contract;

3/ Tortious interference claim must allege defendant’s conduct directed toward a third party (someone other than plaintiff);

4/Where personal property is wrongfully detained and ultimately returned, the property owner can still have valid detinue claim for damages.

Paralegal Fees Can Be Tacked On to Attorney Fees Sanctions Award – IL First Dist.

Aside from its trenchant discussion of the constructive fraud rule in mechanics lien litigation, the Illinois First District in Father & Sons Home Improvement II, Inc. v. Stuart, 2016 IL App (1st) 143666 clarified that a paralegal’s time and services can be added to a claim for attorneys’ fees as a sanction against a losing party who files false pleadings.

In an earlier post, I discussed how the lien claimant in this case lost its lien foreclosure suit for misstating the completion of work date and inflating the monetary value of work and materials it affixed to the subject site.  The property owner and a lender defendant filed a fee petition and sanctions motion, respectively.

Examining the lender’s motion for Rule 137 sanctions, the Court stated some black-letter rules that govern fee petitions:

  • Under Rule 137, a party can recover attorneys’ fees incurred as a result of a sanctionable pleading or paper (one filed without an objectively reasonable legal basis);
  • Typically, “overhead” expenses aren’t compensable in a fee motion.  The theory is that overhead costs are already built into an attorneys’ hourly rate;
  •   Overhead includes telephone charges, in-house delivery charges, photocopying, check processing, and in-house paralegal and secretarial services;
  • However, when a paralegal performs a specialized legal task that would normally be performed by an attorney, the paralegal’s fees are recoverable since those services would not be considered overhead.

The Court found that the lender’s paralegals performed myriad services that would normally be done by an attorney – namely, researching the title history of the subject property and preparing a memorandum summarizing the title history.  By contrast, a paralegal’s general administrative tasks were disallowed by the court and could not be sought in the sanctions motion.

Afterwords:

When preparing a fee petition, the prevailing party should also include paralegal time and services; especially if they involve researching real estate land records and summarizing a title history.  While the line separating legal services (which are recoverable) and administrative or overhead expenses (which aren’t) is blurry, Father & Sons stands for the proposition that a fee petition or Rule 137 sanctions motion can be augmented by paralegal fees where the paralegal performs specialized work that contains an element of legal analysis.

 

Anticipatory Repudiation: Illinois Court Examines Doctrine in Real Estate Distpute

The home sellers’ failure to plead the buyers’ anticipatory repudiation of a real estate contract spelled defeat in Kelly v. Orrico, 2014 IL App (2d)  130002, a recent Second District case. 

In Kelly, the plaintiffs and defendants – who happened to be friends and neighbors (they lived on the same street) – entered into a real estate contract for plaintiffs to sell their house to the defendants for $1.2M.  

When defendants couldn’t sell their home, plaintiffs contracted with another buyer.  That buyer defaulted and plaintiffs eventually sold the house for $200,000 less than the contract price with the defendants.

Plaintiff sued defendants for breach of the real estate sales contract seeking to recover the $200,000 difference between the contract price with defendants ($1.2M) and the sales price to the new buyer ($1M). 

After a bench trial, the court ruled that the defendants anticipatorily repudiated the real estate sales contract and awarded plaintiffs damages of $150,000 (the $200K difference in the underlying contract price and the sales price to the new buyer minus the $50,000 earnest money plaintiffs kept after the first buyer defaulted).  Defendants appealed.

Held: Reversed.

Rules/Reasoning:

Anticipatory repudiation denotes a “party’s clear manifestation of its intent not to perform under a contract.”  The party claiming anticipatory repudiation must show more than an “ambiguous implication” of nonperformance. He has to demonstrate the other party made it very clear he won’t perform.  (¶¶ 29-30).

Here, plaintiffs didn’t plead anticipatory repudiation; they only alleged breach of contract.  This was a mistake because any proof at trial that the defendants repudiated the contract didn’t help the plaintiffs since an anticipatory repudiation claim was absent from the complaint. 

While Code Section 2-616(c) allows a party to amend pleadings at any time (even after judgment) to conform the pleadings to the proofs, plaintiff never filed a motion to amend their complaint to allege anticipatory repudiation.

The plaintiffs didn’t substantively prove anticipatory repudiation either.  The Court described anticipatory repudiation as a doctrine not to be taken lightly and where one repudiates a contract – by clearly indicating that he won’t perform – the other party to the contract is excused from performing or he may perform and seek damages for breach. 

The Court found that the defendants actions indicated, at most, ambivalence as to whether they would buy plaintiffs’ house. 

The plaintiffs offered no proof at trial that defendants tried to terminate the contract or indicated they wouldn’t proceed to closing.  Significantly, the Court found that defendants’ failure to respond to plaintiffs’ attorney’s letter declaring defendants in default didn’t constitute a clear manifestation of intent not to buy plaintiffs’ home.  (¶30).

Take-aways:

This case illustrates anticipatory repudiation’s strict pleading and proof elements.

The case’s procedural lesson here is clear: a litigant should move to amend his pleadings when the proofs at trial don’t match up.  Here, it wouldn’t have made a difference though.  The Court found defendants’ actions weren’t definite enough to rise to the level of a clear-cut intention not to proceed to closing.