Archives for November 2013

Court Rejects Neighboring Property Owners’ Due Process Claim to Prevent ‘Wolf Point’ Construction in River North Area (Chicago)

I thought I was gonna have to dust off my 18,000-pound crimson-covered Laurence Tribe Constitutional Law book from 1993 Fall semester for this one.   

Seriously though, when I see a case that discusses substantive and procedural due process issues refers to Federal and State Constitutional amendments, my PTSD flashbacks to 1L are triggered.  

In Residences at Riverbend Condominium Association v. City of Chicago, 2013 WL 6080685 (N.D.Ill. 2013), the Northern District dismissed the plaintiff condominium association’s lawsuit to prevent the City from enforcing a zoning ordinance change that would allow a large-scale construction project to commence in Chicago’s River North neighborhood. 

The basis for the Rule 12(b)(6) dismissal: plaintiff failed to allege a protectable due process property interest in preventing the construction project.

Facts: The lawsuit involves Wolf Point – land on the north bank of the Chicago river near the Merchandise Mart which has been vacant for about 40 years. 

In 2013, the City approved a zoning variance that allows the site’s owners to construct a three-building mixed use development on the site.  The plaintiffs, adjoining land owners, sued to bar the development; citing increased pedestrian and vehicular traffic in the area, plus the project’s unbearable strain on city infrastructure.

The plaintiffs also claimed they weren’t properly notified of the zoning change or given a meaningful chance to oppose it as required under the law.  The Court granted defendant’s motion to dismiss with prejudice.

Rules/Reasoning:

A due process claimant must establish a legitimate property interest.  U.S. Const. Amend XIV; Ill. Const. of 1970, art. I, s. 2 (and cases interpreting them).  

He must show he was deprived of life, liberty or property without sufficient procedural or substantive government safeguards. 

A due process clause property interest means an entitlement or benefit that the state can’t tamper with or remove.  *2-3.  A mere expectation or hope, though, doesn’t rise to the level of a due process property right.  *4.

The Court held that the plaintiffs lacked a property interest in Wolf Point.  They don’t own the land and any interest they have in receiving statutory notice of the zoning change isn’t a right of constitutional dimension.

The Court also found that zoning challenges based on a state’s failure to follow its own notice procedures should be brought in state not Federal Court.  *4.

The Northern District also noted that under Illinois law, a property owner’s rights to light, air, or certain property values – while certainly desirable – still don’t merit constitutional protection. property interest. *4. 

And since the plaintiffs don’t own the Wolf Point property and at most, only alleged a right to statutory zoning change notice, the plaintiffs failed to allege a colorable right to prevent the City from enforcing the amended zoning rule.

Take-away: A valid constitutional due process claim must go beyond speculation or unilateral expectation.  Instead, the interest being sued on must constitute an entitlement or benefit that the government has no discretion to remove or reduce.  

But all may not be lost for the plaintiffs: the Riverbend court suggests that plaintiffs may be able to seek administrative review in the Circuit Court to overturn the amended zoning ordinance.

 

 

LLC Members Not Liable On Void Judgment Entered Against LLC

Downs v. Rosenthal, 2013 IL App (1st) 121406, features an in-depth analysis of the difference between corporate vs. individual liability, the nature of post-judgment proceedings, and appellate procedure.

Facts

Plaintiff sued defendant LLC and its individual members (the Members) for breach of fiduciary duty, breach of contract and a declaratory judgment that plaintiff was a 2.5% stakeholder in the LLC.  The trial court entered a money judgment against the LLC and Members jointly and severally.  The LLC defendant appealed the judgment but the Members did not.

The First District reversed and vacated the judgment, finding that plaintiff wasn’t an owner of the LLC and so wasn’t entitled to a share of the LLC’s profits.  But since the Members didn’t appeal the judgment, plaintiff instituted supplementary proceedings against them.  The trial court quashed the citations because the appeals court reversed the plaintiff’s judgment. Plaintiff appealed.

Held: trial court affirmed.  The voided judgment against the LLC is not enforceable against the Members.

Rules:

The LLC appealed – but the Members didn’t – the trial court’s ruling that plaintiff was entitled to 2.5% of the LLC’s profits over several years.  Usually, a nonappealing defendant can’t benefit from the efforts of an appealing defendant.   ¶ 20.

But the defendant that doesn’t appeal can benefit from a co-defendant’s successful appeal where there is an “interdependence of rights” among them that would make it unfair to allow a judgment to stand against the no appealing defendants. ¶¶ 20, 24.

The plaintiff’s right to the LLC profits was entirely dependent on his ownership interest in the LLC.  Since the appeals court found that plaintiff was not an owner of the LLC, plaintiff wasn’t entitled to any LLC profits.

In Illinois, an LLC is a separate entity from its constituent members and an LLC member or manager is not personally liable for a judgment against the LLC. 805 ILCS 180/10-10(a).  Once the judgment against the LLC was overturned, there was nothing to bind the Members: the Court found it was unfair to allow the plaintiff to enforce the vacated judgment against the Members.   ¶24.

The First District also rejected plaintiff’s res judicata (“a thing already judged”)argument – that the judgment which the Members didn’t appeal was final and so the Members were barred from challenging plaintiff’s attempt to collect on the judgment.

Res judicata, or claim preclusion, attempts to foster closure and finality in litigation.  The doctrine applies where there are successive causes of action and it bars a second action between parties after a previous final judgment on the merits.  It requires (1) a final judgment on the merits; (2) identity of causes of actions; and (3) identical parties in both actions. ¶ 25.

Here, the Court found that plaintiff’s enforcement proceedings were “supplementary” to the underlying judgment and were not, by definition, a second cause of action.  There was only a single action – plaintiff’s lawsuit.  As a result, the Court found that the Members could properly attack the plaintiff’s post-judgment efforts once the appeals court vacated the judgment against the LLC.  ¶ 26.

Take-aways: A defendant that doesn’t appeal a judgment can still benefit from a co-defendant’s successful appeal where there is an interdependence of rights between the two defendants.

However, Downs shows that it’s a perilous practice for one defendant not to appeal a money judgment when his co-defendant does appeal.  In Downs, while the LLC members ended up winning, they ran the risk of having to answer for a judgment that was entered against another party (LLC) and ultimately overturned.

Downs also illustrates that a judgment creditor’s collection proceedings aren’t viewed as separate claims for res judicata purposes.

 

 

 

 

Harvester of Sorrow? (IL Fed. Court Tackles Computer Fraud Case

tape recorder (photo credit: Google Images: www.strangehistory.net)

Fidlar Technologies v. LPS Real Estate Data Solutions, Inc., 2013 WL 5973938 (C.D.Ill. 2013), a high-tech diversity suit, examines internet data “harvesting” and whether it gives rise to Computer Fraud and Abuse Act, 18 U.S.C. § 1030 (CFAA) and common law tort liability. 

The plaintiff developed a computer program that allowed recorder of deeds’ offices from around the country to provide users with public access to real estate records for a fee.  The defendant software company developed a data harvester program that bypassed plaintiff’s protective controls and then captured the real estate data without paying fees.

When plaintiff found out, it brought CFAA claims and state law trespass to chattels claims against the defendant.  Defendant moved to dismiss plaintiff’s claims.

Held: Defendant’s motion to dismiss denied.

Reasons:

The CFAA provides a civil cause of action to a plaintiff injured by computer fraud or hacking.  A CFAA “transmission claim” prohibits a defendant from knowingly transmitting a program (such as a data harvester) without authorization that causes damage to a protected computer.  A CFAA plaintiff must show loss of at least $5,000 in any one-year period.  18 U.S.C. §§ 1030(a), (c).

The Court found that plaintiff sufficiently pled damage, loss and intent under Federal notice pleading rules.  Plaintiff’s claim that defendant’s harvesting activity compromised plaintiff’s software satisfied the CFAA’s damage definition – since it alleged an impact to the “integrity” of the software.  18 U.S.C. 1030(e)(8)(CFAA damage definition). 

Plaintiffs also adequately pled loss of at least $5,000 under the CFAA: plaintiff claimed it spent over $80,000 investigating the extent of defendant’s invasion of plaintiff’s software and in making software repairs and adjustments to prevent further service interruptions.  ¶¶ 7-8; 18 U.S.C. 1030(e)(11)(loss definition).  

Lastly, the Court found the plaintiff’s intentional conduct allegations – that defendant’s intentionally and without permission, used plaintiff’s software – were sufficient under FRCP 8’s “short plain statement” strictures.  ¶ 6.

The Court also sustained (in part) the plaintiff’s trespass to chattel claims.  Trespass to chattel – a sparingly used tort occasionally applied to cyberspace lawsuits – provides a remedy where a defendant intentionally interferes with the plaintiff’s personal property and causes harm to it.  ¶ 9. 

The plaintiff’s trespass to chattel claim based on its computer data wasn’t actionable since electronic public data isn’t physical or private property owned by the plaintiff.  

But plaintiff did make out a trespass to chattels claim with respect to its computer servers.  The servers were sufficiently tangible (or physical) to underlie a trespass to chattels claim.  Plaintiff’s claim that defendant accessed the servers and impaired the servers’ quality, condition and value adequately met the Federal notice pleading standard. ¶¶ 10-11.

Defendant’s Counterclaim

Defendant’s injunctive relief and tortious interference claims were rejected.  The court found that plaintiff’s conduct was privileged under the “honest advice” privilege and the First Amendment Petition Clause.  

The latter privilege applied since the counties with whom plaintiff dealt were all government agencies.  Plaintiff’s statements to the counties concerning the defendant’s unauthorized data mining were protected “petitions” to those counties: plaintiff asked the counties to cut off defendant’s access to plaintiff’s software.  ¶¶ 14-17.

Afterwords:

– Computer Fraud plaintiffs can satisfy notice pleading standards by alleging plausible facts of intent, damage and loss exceeding $5,000;

– Trespass to chattels tort applies to physical computer hardware and servers but not to computer data;

A business competitor has some latitude to make disparaging statements about a competitor where the statements are substantially true, opinions and not facts or are privileged.