Loss of Earning Capacity and The Self-Employed Plaintiff: What Damages Are Recoverable (IL 4th Dist. Case Note)

The plaintiff in Keiser-Long v. Owens, 2015 IL App (4th) 140612, a self-employed cattle buyer, sued for injuries she suffered in a car accident with the defendant.  The defendant admitted negligence and the parties went to trial on damages.

The defendant successfully moved for a directed verdict on plaintiff’s attempt to recover for lost earning capacity at trial and the Plaintiff appealed.

Reversing, the Fourth District appeals court expanded on the potential damages a personal injury claimant can recover where the plaintiff is self-employed and doesn’t draw a formal salary from the business she operates.

Illinois allows a plaintiff in a negligence suit to recover all damages that naturally flow from the commission of a tort.  Impaired earning capacity is a proper element of damages in a personal injury suit.  However, recovery is limited to loss that is reasonably certain to occur.  Lost earning capacity damages are measured by the difference between (a) the amount a plaintiff was capable of earning before her injury; and (b) the amount she is able to earn post-accident.

Lost earning capacity damages focus on an injured person’s ability to earn money instead of what she actually earned before an injury.  That said, a plaintiff pre- and post-accident earnings are relevant to a plaintiff’s damages computation.  ¶ 37.

Where a plaintiff is self-employed, a court can consider the plaintiff’s company’s diminution of profits as evidence of a plaintiff’s monetary damages where the plaintiff’s services are the dominant factor in producing profits.  By contrast, where a self-employed plaintiff’s involvement is passive and she relies on the work of others to make the company profitable, a profits reduction is not a proper damage element in a personal injury action.

The trial court granted the defendant’s motion for directed verdict since the plaintiff failed to present evidence that she lost income in the form of a salary or bonus from her cattle-buying business.

The appeals court reversed.  It noted that the plaintiff was solely responsible for her company’s profits and was the only one who travelled around the State visiting various cattle auctions and meeting with cattle sellers.  Plaintiff also offered expert testimony that she missed out on the chance to earn some $200,000/year in the years following the accident and that any company profits were labeled “retained earnings” and treated as the plaintiff’s personal retirement plan  ¶¶ 41-43.

The court held that since the plaintiff was the only one whose efforts dictated whether her cattle buying business was profitable or not, her business’s post-accident balance sheet was relevant to her recoverable damages.

The court also rejected the defendant’s argument that since plaintiff’s company was a C corporation (and not an S corp.1), profits and losses did not flow through to the plaintiff, the court should not have considered lost business income as an element of plaintiff’s damages.  The court found that any tax differences between C and S corporations were irrelevant since plaintiff was the cattle company for all intents and purposes.  As a result, any loss suffered by the company was tantamount to monetary loss suffered by the plaintiff.  ¶¶ 45-46.

The court’s final reason for reversing the trial court was a policy one.  Since the plaintiff’s corporation couldn’t sue the defendant, there was no potential for double recovery.  In addition, if the court prevented the plaintiff from recovering just because she didn’t earn a formal salary, this would operate as an unfair windfall for the defendant.  The end result is now the parties must have a retrial on the issue of plaintiff’s lost earning capacity.  ¶¶ 46-47.

Afterwords:

Owens provides a useful synopsis of when impaired earning capacity can be recovered in a personal injury suit.  In the context of a self-employed plaintiff, a plaintiff’s failure to draw a salary per se will not foreclose her from recovering damages; especially where the plaintiff – and not someone working for her – is the one mainly responsible for company profits.  In cases where the plaintiff is self-employed and is singularly responsible for a company’s profits, a loss in business income can be imputed to the defendant and awarded to the business-owner plaintiff.

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A C corporation is taxed at both the corporate level and at the shareholder level.  By contrast, an S corporation is not taxed at the corporate level; it’s only taxed at the shareholder individually. (This is colloquially termed “flow-through taxation.”)

Suit to Unmask Nasty Yelp! Reviewer Nixed by IL Court On First Amendment Grounds

With social media use apparently proliferating at breakneck speed, Brompton Building v. Yelp! Inc. (2013 IL App (1st) 120547-U)) is naturally post-worthy for its examination of whether hostile on-line reviews are actionable by the business recipients of the negative reviews.

A former tenant, “Diana Z.”, spewed some invective about an apartment management company where she questioned the management company’s business competence, integrity and people skills; especially as they related to billing and handling tenant rent payments.

The building owner (not the management company; by this time there was new management) sued Yelp!, the online review site, to unearth the reviewer’s identity through a Rule 224 petition for discovery so that it could later sue the reviewer for defamation and tortious interference with prospective economic advantage.  The court found the on-line review consisted of protected expressions of opinion and denied the petition for discovery. The plaintiff building owner appealed.

Result: Affirmed.

Rules/Reasoning:

Rule 224 allows a party to engage in discovery for the singular purpose of ascertaining the identity of one who may be responsible in damages.  The case law applying Rule 224 provides significant protection for anonymous individuals so that there private affairs aren’t intruded on.  The Rule’s mechanics: (1) the petition must be verified, (2) it must say why discovery is necessary, (3) it must be limited to determining the identity of someone who may be responsible in damages to the petitioner; and (4) there must be a court hearing to determine that the unidentified person is in fact possibly liable in damages to the petitioner.   ¶ 13.

The Rule 224 petition must set forth factual allegations sufficient to survive a Section 2-615 motion to dismiss (that is, does the proposed complaint state a cause of action?) in order to successfully seek pre-suit discovery.

In Illinois, defamation suits are defeated by the First Amendment to the US Constitution where the challenged statement isn’t factual (it’s an opinion, for instance) and the action is brought by (1) a public official, (2) a public figure, and (3) actions involving media defendants by private individuals.

There is no defamation for “loose, figurative language” that no person could reasonably believe states a fact. Whether something is sufficiently fact-based to underlie a defamation claim involves looking at (1) whether the statement has a readily understood and precise meaning, (2) whether the statement can be verified, and (3) whether its social or literary context signals that it is factual.  ¶ 20.

Illinois courts also espouse a policy of protecting site defendants like Yelp! from a potential torrent of lawsuits by recipients of negative postings.  In addition, the Federal Communications Decency Act (47 U.S.C. § 230) usually insulates a website like Yelp! from liability for publishing third party comments.

Here, the plaintiff failed to allege actionable defamation against Yelp!  While the court conceded that Diana Z.’s statement that the property manager was a liar and illegally charging tenants were factual on their face, when considered in context – the plaintiff couched her rant in hyperbolic speech – the statements were (protected) expressions of opinion. ¶¶ 29-30.

Since the plaintiff couldn’t make out an actual defamation claim against the anonymous Yelp! reviewer, its petition for discovery was properly denied.

Take-aways:

This is but one of many lawsuits involving vitriolic on-line criticism of businesses. In Illinois, the law is clear that to get a court to order a website operator to unveil an anonymous reviewer’s identity, the plaintiff must make a prima facie showing that the review is defamatory or had a tendency to cause third parties to dissociate from it and take their business elsewhere. Failing that, the court will deny a petition for discovery and the plaintiff will be left without a defendant or a remedy.

Online Merchant Has No Duty to Protect Victims From Criminal Acts – Seventh Circuit 8.12.14

armslistThe Seventh Circuit recently examined the nature and scope of the legal duty owed by an Internet retailer to prevent a criminal attack on a third party.  In Vesely v. Armslist, LLC, (http://docs.justia.com/cases/federal/appellate-courts/ca7/13-3505/13-3505-2014-08-12.pdf) the plaintiff filed a wrongful death suit on behalf of his sister who was murdered by someone who purchased a handgun on Armslist.com (http://www.armslist.com), an electronic “firearms marketplace” that brokers gun sales between private parties.

The assailant (now serving a life sentence and not party to the civil suit) bought a gun off of Armslist from a private seller in Seattle, Washington.  He later shot the plaintiff’s sister after she spurned his (the gun buyer’s) advances.  Plaintiff sued the website operator, alleging wrongful death (predicated on negligence), statutory survival and a family expense claims.  All of plaintiff’s claims were premised on the allegation that the defendant had a duty to protect third parties from the criminal acts of users of the website.  The District court found there was no duty and granted the defendant’s motion to dismiss (12(b)(6) motion)).  The plaintiff appealed.

Held: Affirmed.  Gun selling site owes no duty to control the conduct of on-line purchasers.

Reasons:

The website operator didn’t owe the plaintiff a duty to protect third parties from the criminal acts of gun buyers.  In Illinois, the essential negligence elements are a duty of care owed by a defendant to the plaintiff, violation of that duty and an injury resulting from the violation.  Breach of duty and proximate cause are fact questions for a jury while the existence of a duty is a matter of law for the court to decide.

A private individual normally doesn’t owe a duty to affirmatively protect another from a criminal attack unless there is a ‘special relationship’ between the parties.  The four categories of special relationships are: (1) common-carrier and passenger (i.e. a train); (2) innkeeper and guest (i.e. hotel); (3) custodian-ward; and (4) business invitor and invitee.  (Armslist, p. 5).

Aside from the special relationship duty rule, courts can find a legal duty on public policy grounds.  The public policy factors that inform the court’s duty calculus are (1) reasonable foreseeability of the injury; (2) likelihood of the injury; (3) the magnitude of the burden of guarding against the injury; and (4) the consequences of placing the burden (of guarding against the injury) on the defendant. (p. 6).

A defendant also has a duty to refrain from “affirmative conduct” that creates a risk of injury to others and from actively assisting someone’s wrongful act.  But where the act that causes harm is criminal conduct (like the murder, here), there must be a special relationship for liability to attach. (p. 6).

The Court found the Armslist web operator had no legal duty to the plaintiff or his sister.  Since the operative act was a crime – a shooting – the special relationship rule applied.  The Court made a distinction between actively assisting gun buyers’ to commit crimes and simply serving as conduit for on-line gun purchases.  Since the defendant merely enabled consumers to use its site to buy guns, this didn’t equate to actively encouraging the buyers to commit illegal acts.  (p. 7).  And since there is no special relationship involving on-line merchants and consumers, there was no duty as a matter of law.

To bolster its holding, the Seventh Circuit noted that the Armslist site is a legal service and that the site contains profuse disclaimers that require the user’s acknowledgement that the defendant isn’t responsible for looking into whether parties to the on-line transaction have legal capacity to buy and sell guns.  Armslist’s standard terms also require the gun advertiser to certify that he/she will obey all applicable gun laws and will consult the ATF with firearms questions. (p. 2).  In light of these disclaimers and because there was no special relationship between Armslist and any of its users’ future crime victims, plaintiff was unable to establish that the defendant website operator owed a legal duty.

Afterwords:

A victory for on-line merchants who traffic in dangerous things and a corresponding  loss for gun control advocates.  The Court refused to saddle a classified advertising site with a legal duty to unknown third parties.  The Court enforced the defendant’s clear disclaimers that emphasized that it was not vetting either the gun seller’s or buyer’s qualifications for gun purchases or any red flags in their personal histories.

The Court solidifies the negligence law proposition that the existence and reach of a duty has limits – especially in the Internet sales context. If there is no recognized special relationship, there is no legal duty to protect against intervening criminal acts.