Archives for July 2013

Those Slippery People: Six (6) Failed Service Attempts Not Enough For Service by Special Order of Court (IL Law)

warning_slippery

Code Section 2-203.1, titled “Service by Special Order of Court” allows a plaintiff to request service by alternative or “comparable” means when faced with an elusive defendant.  735 ILCS 5/2-203.1.  The statute requires a supporting affidavit that details the specific attempts made to locate a defendant and permits the court to authorize service in a manner that complies with due process.  Id. 

I usually file Section 2-203.1 motions in cases involving high-rise condominium defendants (typically in mechanics’ lien actions).  Some of these condos are impenetrable fortresses it seems; which makes it next to impossible to serve a building resident.  I support the motion with an affidavit of a special process server who details the efforts he made (including dates, times, locations, methods) to serve the defendant. 

If the court grants the motion, I tell the process-server to leave a copy of the summons and complaint with the defendant’s doorman (where a condo is involved) or by leaving process on defendant’s porch or posting on the front door (in case of a house) while also mailing the process to the defendant’s home and place of business (if known).  

But how many times do you have to try to serve a defendant directly before alternate service methods can be employed?  

In Sutton v. Ekong, 2013 IL App (1st) 121975 , the First District vacated a trial court default judgment and held that six unsuccessful service attempts was insufficient to merit service by special order of court. 

The reason: the personal injury plaintiff made no attempt to serve defendant at his easily discoverable business address prior to filing his 2-203.1 motion. 

After his sixth failed attempt, the plaintiff served defendant through the Illinois Secretary of State pursuant to Section 10-301 of the Illinois Vehicle Code: the section that governs serving non-resident defendants.  Ekong, at ¶ 6; 625 ILCS 5/10-301.  

A plaintiff who seeks to invoke special order of court service under Code Section 2-203.1 must strictly comply with that section and a failure to do so results in improper service. 

 The record demonstrated that Defendant’s business address was “easily obtainable” and “in the phone book.”  (¶¶ 21-22).  Evidence of the defendant’s easily found work address was the fact that plaintiff served a citation to discover assets on the defendant at the work address. (¶ 23). 

The First District held that the plaintiff failed to perform the type of search or investigation “an earnest person” trying to serve a defendant would make and should have tried to serve defendant at his business address before seeking alternative service methods. 

The Court distinguished In re Marriage of Schmitt (http://caselaw.findlaw.com/il-court-of-appeals/1123974.html) a divorce case where a plaintiff was allowed to employ alternate service methods after eleven (11) unsuccessful attempts.  (¶ 24).

But here, the Court found that since there was no basis to justify service through the Secretary of State, the trial court never properly acquired jurisdiction over the defendant.  Accordingly, the default judgment is void from its inception.

Take-aways: I feel the plaintiff’s pain on this one.  Slippery defendants can be nightmares to serve through normal channels.  But this case’s lesson is clear: plaintiffs should make thorough and meaningful efforts to investigate a defendant’s whereabouts and try to serve him not only at his home but also his business address. 

Service through the Secretary of State or through comparable methods really should be a last resort.  Where a defendant’s residence or business address is readily obtainable through rudimentary investigation, service by special order of court isn’t warranted and any default judgment based on such service will likely be vacated.

 

Integration Clause, Justifiable Reliance and Limited Guaranties: IL Basics

The limited guarantor won big in Ringgold Capital IV, LLC v. Finley, 2013 IL App (1st) 121702, a case that vividly captures how important it is for a lender to correctly document a loan.

After a borrower defaulted on the underlying loan, the plaintiff sued to foreclose its mortgage and on the guaranty.

The trial court dismissed the guaranty claim since it contained the wrong date (it had a superseded payment date) that mistakenly wasn’t changed to reflect the continued loan closing date.  Plaintiff lender appealed. 

Holding: Circuit court affirmed.  All counts pled against the limited guarantor were properly dismissed with prejudice.

Reasoning/Rules:   Siding with the guarantor, the appeals Court espoused the governing guaranty rules:

a guarantor’s liability is determined from the text of the guaranty contract;

– A guarantor is a favorite of the law and when construing his liability, the court gives the guarantor the benefit of any doubts that arise from the contract language;

– A court will not increase a guarantor’s liability beyond the precise words of the contract;

– where a guaranty is clearly worded, it must be construed according to its plan language;

– an integration clause or merger clause in an unambiguous guaranty will preclude the introduction of parol evidence to alter or interpret the contract.

( ¶¶ 16, 19, 25)

Applying these rules, the First District rejected lender’s argument that the guaranty was ambiguous since it referred to “related loan documents.”

The court found the guaranty unambiguous based on its plain text. (¶¶ 20-24). 

The Court found the integration clause preventef plaintiff’s attempt to introduce outside evidence to change or explain the guaranty’s text. (¶¶ 27-28).

Next, the Court rejected plaintiff’s fraud in the inducement counts.  That claim fell short because defendant’s alleged representations about guaranteeing the borrower’s obligations spoke to future events and future intentions aren’t actionable fraud. (¶ 38). 

Plaintiff also failed to allege justifiable reliance (another fraud in the inducement element) on any words or acts of the limited guarantor since the lender drafted the limited guaranty and its terms were freely negotiated by both parties’ counsel. (¶ 39). 

Take-away

Ringgold shows that if a document is unambiguous and specific – in terms of date and amount – and contains an integration clause, the court will enforce it to the letter and disallow any attempts to change or explain its terms. 

The case also embodies a cautionary tale for lenders involved in a loan that doesn’t close as originally planned.  In such a case, it is paramount for a lender to ensure that all guaranties reflect any new loan dates.

Third Party Corporation Can Enforce Non-Compete After Stock Purchase

ThyssenKrupp Elevator Corporation v. Hubbard, 2013 WL 3242380 (M.D. Fla 2013) considers whether a company that buys the assets of another can enforce the purchased company’s non-compete agreements. 

The defendant was an elevator salesman for a company that was bought by the plaintiff. an elevator company.  The defendant previously signed a non-disclosure (involving intellectual property), non-solicitation and non-compete provision. 

Soon after plaintiff acquired his employer, defendant resigned and joined one of plaintiff’s competitors. Plaintiff sued, claiming a breach of the restrictive covenants. 

Defendant moved to dismiss on the ground that plaintiff wasn’t a party to the employment contract that contained the restrictive covenants.

The Court denied the motion to dismiss.  Citing a 2008 Florida Federal case (Johnson Controls, Inc. v. Rumore, 2008 WL 203575) and Florida’s Business Corporation Act, the court held that where there was a 100% merger or stock transfer, the surviving company (here, plaintiff) assumed all rights and obligations of the predecessor,  including rights under  the challenged non-compete agreement.  *2, Fla. Stat. § 607.1106 (surviving corporation of a merger shall have all the rights, privileges, immunities and powers, and shall be subject to all the duties and liabilities of the merged corporation). 

Here, in light of plaintiff’s stock purchase of defendant’s former employer, plaintiff was a “surviving corporation” and could sue to enforce defendant’s non-compete  

Take-aways:

A third party can enforce employee restrictive covenants where there is an asset purchase by the third party;

Employees should press for terms in their employment contracts that clarify only their direct employer (and not an acquiring company) can hold them to restrictive covenants.