Archives for August 2013

Illinois Business Records: Getting Them In at Trial

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I’ve learned from painful experience to always have evidentiary foundation and authenticity considerations at the forefront of my trial preparation plan. 

I’ve also found that having a working knowledge of Illinois Supreme Court Rule 236 (SCR 236), as well as Federal and Illinois Evidence Rules 803(6) and 902(11) (hearsay exception and self-authentication rules for business records, respectively) is essential to preparing for and proving my client’s breach of contract case at trial.

Bank of America v. Land, 2013 IL App (5th) 120283 serves as a good case law illustration of the business records rule.  

The plaintiff bank sued to foreclose a mortgage and later moved for summary judgment.  The bank supported its summary judgment motion with a bank officer’s affidavit who testified that she reviewed the bank’s books and records of the mortgage holders, reviewed the borrowers’ payment history and certified a payment history attached to the affidavit. Land, ¶ 5. 

The trial court granted the bank’s motion awarding it money damages of over $100,000 and a judgment of foreclosure.  Land, ¶ 6.  Defendant appealed.

Result: Trial Court affirmed.  The bank’s supporting affidavit meets the requirements of SCR 236.

Reasoning:  The defendant’s chief argument on appeal was that the bank officer’s supporting affidavit was inadmissible hearsay since the underlying mortgage didn’t originate with the plaintiff and because the affidavit relied on a third party’s (another mortgage company) loan records. 

The Court rejected the argument and held that the affidavit met the requirements of SCR 236, which codifies the hearsay exception for business records (a link to the Rule’s text follows this post).

SCR 236 provides that any record of a monetary transaction is admissible as evidence of that transaction if the record is made in the regular course of business and the business’s regular practice was to make a record of a transaction at or near the time of the transaction;

– The rationale for the rule is that business records exist to aid in the proper transaction of business and so records are “useless for that purpose unless accurate.” 

– Lack of personal knowledge by the maker may affect the evidence’s weight, but not its admissibility;

A third party’s records can also be admitted where that third party is authorized to generate the record on behalf of the offering party.

¶ 13.

Applying these rules, the Court found that plaintiff satisfied SCR 236 requirements where the affiant/bank officer testified

(i) that she was familiar with the bank’s business records creation and maintenance practices,

(ii) that the records pertaining to the defendants were made at or near the time of the occurrences giving rise to the records,

(iii) were made by individuals with personal knowledge of the information contained in the business record, and

(iv) the records were kept in the regular course of the bank’s business.  ¶ 13.

Take-aways: Illinois litigants now have a slew of evidence rules – SCR 236, IRE 803(6), IRE 902(11) – at their disposal that streamline the process of getting business records into evidence at trial and eliminate many of the logistical and hearsay headaches that trial practice formerly entailed.  

The case underscores the importance of knowing the rules for business record admissions at trial and on summary judgment.  A key holding of Land is that the business records relied on can be those of a third party; as long as the witness can testify to her familiarity with the records and can establish that the third party records were integral to the witness’s business.  This obviously obviates the need to subpoena a third party to testify concerning the third-party records.

 

7th Circuit Bounces Chicago Bull’s Legend’s Defamation Suit

Freepress_art_160_20080307145114In Pippen v. NBCUniversal Media, the 7th Circuit upheld the District Court’s dismissal of former hoops diety Scottie Pippen’s false light defamation complaint. Pippen sued NBC after several internet media outlets falsely reported that he filed for bankruptcy protection. The Northern District dismissed his claims on the basis that he failed to prove that the online media accounts were defamatory on their face and also couldn’t show actual malice by the defendant. The Seventh Circuit affirmed.

Reasoning: The two species of defamation (basically, a false statement published to a third party that is harmful) are: (1) defamation per quod – which requires a plaintiff to show that false statements caused him financial harm; and (2) defamation per se – statements so harmful on their face that damages to the plaintiff recipient are presumed (no proof of money injury is required).  Per se defamation includes false statements that plaintiff committed a criminal act, has a loathsome disease, lacks competence or integrity in his profession or false statements which impede a plaintiff in the pursuit of his trade or profession.  Bryson v. News America Publications, Inc., 174 Ill.2d 77 (1996).

Rejecting Pippen’s per se defamation claim, the Seventh Circuit held that a false media account of a personal bankruptcy was not equivalent to an outright false accusation that Pippen lacked ability in his trade or was somehow immoral.  NBCUniversal, p. 3.  Pippen’s post-NBA career includes public speaking appearances, product endorsements and working as a television basketball analyst.  A media report that he filed bankruptcy does not impugn his ability to carry out these jobs.  Id., p. 4.

The Court also found that Pippen’s defamation per quod claim failed.  While Pippen’s allegations of lost product endorsements and speaking engagement opportunities did satisfy the special damages pleading requirement for per quod defamation, his claim was defeated because he couldn’t show actual malice

Since Pippen is a public figure, he must show (i) defendant’s knowledge of falsity; or (ii) its reckless disregard for the truth of the published statement.  Id., p. 5; New York Times Co. v. Sullivan, 376 U.S. 254, 279-80 (1964).  The Court looked to U.S. Supreme Court precedent in rejecting Pippen’s argument that a failure to investigate whether he truly filed bankruptcy was enough to show a reckless disregard for the truth.  NBCUniversal, p. 6; Harte-Hanks Communications, Inc. v. Connaughton, 491 U.S. 657, 688 (1989).  The Court also discarded Pippen’s claim that the media outlets’ failure to retract the bankruptcy report after Pippen e-mailed them that he didn’t file bankruptcy demonstrated actual malice: a determination made at the time of publication.

Finally, the Court reaffirmed Illinois’ single publication rule, codified in 740 ILCS 165/1 (the Uniform Single Publication Act), ruling that defamation is “complete” at the time of the first publication and that subsequent repostings or publications do not trigger fresh libel (written defamation) claims.  NBCUniversal, p. 6.  Applying the single-publication rule to digital publications, the Court looked to other States’ precedents and adopted the policy argument that the rule should apply to online publishers.  Otherwise, the Court wrote, it would give rise to a never-ending multiplicity of suits against online media sources  exposing them to “potentially limitless liability.”  Id., p. 8.  On this point, the court shot down Pippen’s assertion that the single-publication rule shouldn’t apply to online media since they can easily retract erroneous information (with a click of a button). 

On the republication issue (defendant republishes a defamatory story) the Court did imply that if the defendant took an affirmative, independent action that republished a defamatory story, this could give rise to a defamation claim.  However, here, the Seventh Circuit (sitting in diversity) predicted that Illinois’ highest court wouldn’t deem the “passive maintenance of a web site” a republication for libel purposes.  Id., p. 9.

Conclusion: Apparently, one of the prices of fame (I wouldn’t know !) is that it’s hard for a public figure to state a defamation case against a printed or digital media source.  The case illustrates how high a proof burden the actual malice standard is for a celebrity/public figure plaintiff.  It surprises me that if a defamation plaintiff proves to a defendant that a defendant’s statement is false and the defendant fails to retract it (i.e. keeps it on the website), this will not show knowledge of falsity.  It seems to beg the question as to what conduct of a defendant does satisfy the knowledge of falsity or reckless disregard actual malice standard.  Lastly, the Court’s single-publication holding should be welcome news to Internet media sources since it protects them from potentially non-stop defamation claims with each day that a false story persists giving rise   to a fresh limitations period.

Link to opinion:

 http://www.isba.org/cases/7thcircuit/2013/08/21/pippenvnbcuniversalmediallc

 

Successor Corporation Can’t Enforce Expired Restrictive Covenants

 

Stericycle, Inc. v. Carney, 2013 WL 3671288 (N.D.Ill. 2013) is post-worthy for its useful  gloss on the enforceability of restrictive covenants, Federal pleading requirements and a purchasing corporation’s standing to assert the restrictive covenant rights of its predecessor.

Facts:  In 2007 and 2008, defendant signed employment agreements (the “SEI Agreements”) with SEI, his former employer.  The SEI Agreements contained 2-year non-disclosure and non-solicitation provisions. Plaintiff Stericycle acquired SEI in 2009 as part of a stock purchase. 

Defendant later signed separate employment agreements (the “Stericycle Agreements”) in 2009 and 2011.  In late 2011, defendant resigned and within a month went to work for a competitor in the waste management business. Plaintiff then filed suit to enforce the SEI Agreements and the Stericycle Agreements.

Disposition: Plaintiff’s claims dismissed.  The Court granted the defendants’ 12(b)(6) motion to dismiss plaintiff breach of contract claims based on the SEI Agreements with prejudice (claims can’t be refiled) and the Stericycle Agreements without prejudice (claims can be refiled).

Reasoning: The Court dismissed the SEI Agreements because there the two-year restrictive covenants contained in them expired by their terms.  The record demonstrated that that defendant stopped working for SEI in January 2009 and didn’t begin working for his current employer, an SEI competitor, until October 2011 – well past the two-year restrictive period. 

But putting aside the expiration of the contractual two-year restrictions, the Court did hold that the plaintiff – the successor entity – had standing to enforce the SEI Agreements.  That’s because they expressly provided that their restrictive covenants were enforceable by SEI’s successors and assigns.  And since plaintiff was a successor to SEI, plaintiff had standing to sue on the SEI Agreements. 

 The Court also struck plaintiff’s claims which alleged defendant’s breach of the Stericycle Agreements.  The Court found plaintiff’s allegations too conclusory – even under Federal notice pleading rules – to allege that defendant breached the Stericycle Agreements’ non-disclosure terms.  

Plaintiff pled no facts to plausibly suggest that  defendant violated the non-disclosure provisions. The Court also held that to adequately plead breach of a non-compete covenant, the plaintiff must do more than simply say that defendant’s current position is similar to his former position at plaintiff. 

On the issue of whether the Stericycle Agreements’ were enforceable, the Northern Disrtrict stated it couldn’t decide this based only on the complaint’s allegations. 

It cited basic Illinois rules on restrictive covenants: (1) a restrictive covenant will be upheld if it’s a reasonable restraint and supported by consideration; and (2) will be found reasonable only where (a) it’s no greater than necessary to protect the employer’s legitimate business interest; (b) it doesn’t impose an undue hardship on the employee; and (c) the restriction doesn’t injure the public.  

The Court found there were too many fact questions – such as the covenants’ geographic reach and what business interest plaintiff was trying to protect – that couldn’t be resolved on a  bare complaint (i.e. without any discovery) and declined to find the Stericycle Agreements’ restrictions unreasonable.  

 Take-aways:

(1) The Federal notice pleading standard has some teeth: Plaintiff must do more than regurgitate a cause of action’s elements and must also allege specific facts in support of a given claim;

(2) A successor corporation can enforce a restrictive covenant contained in a predecessor’s employment contract where that contract provides that it’s enforceable by a successor or assignee; and

(3) whether a restrictive covenant is reasonable (and enforceability) will most likely not be decided only on a complaint before discovery is taken.