Archives for September 2014

“But I Did Stay At A Holiday Inn Last Night!”: Unauthorized Practice of Law By Corporate Reps In IL

brady bunchIn Rohr Burg Motors, Inc. v. Kulbarsh, 2014 IL App (1st) 131664, the First District expands on the rule requiring a corporation to be represented by counsel in litigation.

The plaintiff car dealer filed a pro se (i.e. not through an attorney) complaint seeking return of a car the defendant retained after promising to return it to the dealer in exchange for a refund. 

When the dealer’s check bounced, plaintiff kept the car and wouldn’t give it up.  The dealer sued to get the car back.

The check did eventually clear and was cashed by the defendant within a week.  Still, the defendant argued that the dealership committed fraud by submitting a bad check and filed defenses and counterclaims based on the original bounced check.

Representing A Corporation Through a Non-Lawyer – The Rules and Consequences

Upholding summary judgment for the car dealer, the Court first rejected the plaintiff’s argument that the dealer’s complaint was void since a nonattorney filed it. 

The Illinois Attorney Act, 705 ILCS 205/1, plainly provides that “no person shall be permitted to practice as an attorney within this State without having….obtained a license for that purpose….”

Because of this, a corporation’s complaint filed by a non lawyer would normally be void.  This so-called “nullity rule” aims to foster the policy of deterring the unauthorized practice of law. 

The  reason for the rule in the corporate context is that a corporate representative’s interests will often be at odds with the corporate entity’s.  A corporation can, however, defend itself through an officer in a small claims case (a case that seeks damages under $10k). See Supreme Court Rule 282.

The Court here found that sanctions for a corporation’s unauthorized practice of law should be proportionate to the gravity of the violation.  A blanket rule that voids all nonlawyer corporate court filings should be applied only where it furthers the purposes of protecting the public and the integrity of the court system.

The factors a court considers in determining whether to sanction a corporation that acts through a nonattorney include: (1) whether the conduct was done with knowledge that it was improper, (2) whether the corporation acted diligently and promptly in correcting the mistake by obtaining counsel, (3) whether the nonattorney’s participation is minimal or substantial; and (4) whether the participation results in prejudice to the opposing party.  (¶¶ 39-44).

Applying these rules, the Court found that the car dealer’s filing a complaint through its nonlawyer director wasn’t egregious enough to warrant invalidating all of the plaintiff’s filings.  The Court noted there was no evidence the corporate agent intentionally filed suit without an attorney and that within two months of the complaint filing, the plaintiff hired an attorney to represent it in the lawsuit.

Finally, the court found that defendant wasn’t prejudiced by the filing of a complaint by a nonlawyer.  The complaint sufficiently apprised the defendant of the nature of plaintiff’s claims.

Take-aways: Corporate representation by a non-attorney won’t always void the litigation.  The Court will tie any sanction to the seriousness of the unauthorized practice of law violation.  If the mistake is corrected or is only a technical one, it won’t doom the pro se corporation’s filings.

  

Corporate Officer Liability Under The Illinois Wage Payment And Collection Act

The Illinois’ Wage Payment and Collection Act, 820 ILCS 115/1 et seq. (the “Act”) provides some strong recourse to an employee who isn’t paid by his employer.

Not only can a corporate employer be liable to the employee claimant, but so can individual corporate officers in some cases. See Act, ss. 2, 13.  In addition, Act Section 14 outlaws retaliation against an employee who makes a claims under the Act.

Section 5 of the Act requires an employer to pay a separated employee final compensation no later than the next regularly scheduled payday. 

The Act defines “employer” variously as (1) any individual or business entity that acts directly or indirectly in the interest of an employer in relation to an employee and (2) as an officer of a corporation or agents of an employer who knowingly permit the employer to violate the Act.   820 ILCS 115/2, 13.

Act Section 2 binds an employer not only for its own failure to pay employee wages but also for violations committed by its agents (i.e. supervisors).  

 Section 13 imposes personal liability on an officer or agent of an employer who knowingly permits an Act violation. 

Section 13 liability applies only to corporate “decision-makers” who occupy supervisory positions at a company and have a role in setting work policy and can dictate rate of pay and working conditions.

A corporate officer can defend a personal liability Act claim by asserting he relied on corporate financial documents in failing to pay or “shorting” an employee.

Section 14 is the Act’s anti-retaliation section.  It provides that an employee can recover damages where an employer “unlawfully retaliates” him. 820 ILCS 115/14(c). 

Unlawful retaliation means simply that an employer fired or discriminated against an employee who complained that he hasn’t been paid.

A claimant can show retaliation under the Act where he makes a demand for unpaid compensation and is fired in response. 

Afterwords: Collection and employment litigators should have a working knowledge of the various sections of the Act given its prevalence in the published case law.

 

 

Illinois Partnership Law, Exclusive Remedy Provisions and Federal Judgment on the Pleadings Standards (IL ND)

Allied Waste Transportation v. Bellemead Development Corp., 2014 WL 4414510 (ND.Ill. 2014), examines the reach of liability under a decades-old partnership agreement for millions of dollars in environmental clean-up costs.

The plaintiff and defendant were partners in an entity that ran a landfill in suburban Chicago. The partnership agreement gave each party 50-50 responsibility for paying litigation costs and any fines levied against the  partnership.  If either party failed to pay under this cost-sharing section, the paying party would have his partnership share increased while the non-payer’s share would correspondingly lessen.

After plaintiff paid about $125M to end several years of environmental litigation filed by State and local governments related to the landfill, it sued for damages under CERCLA (the Federal environmental statute) and for breach of the  partnership contract.  The defendants counter-sued for breach of the partnership agreement’s indemnification provision – the section that required either partner to indemnify the other for litigation costs incurred in defending a lawsuit.

Defendants moved for judgment on the pleadings on all claims on the dual grounds that the partnership agreement’s share adjustment section was the exclusive remedy for a partnership violation and that plaintiff’s suit was premature since it failed to first seek a formal accounting.

Held: Defendants’ motion for judgment on the pleadings denied.

Reasons:

The Court held that the defendants failed to meet their burden of establishing that the plaintiff could never state a valid breach of partnership or a statutory CERCLA Claim.

A party can move for judgment on the pleadings after pleadings are closed. FRCP 12(c). The same standards that govern a Rule 12(b)(6) motion govern judgment on the pleadings motions.  A Court views allegations in the light most favorable to the non-moving party and the motion will be granted where it appears beyond a doubt that the non-movant cannot prove any set of facts sufficient to support his claim for relief.  On a judgment on the pleadings motion, the Court considers only the complaint, answer and any exhibits.

Applying these standards, the Court held that the plaintiff made out both a CERCLA claim and a cause of action for breach of the partnership agreement.  

On the breach of partnership agreement count, the Court found that the agreement’s profit and loss adjustment section was not an exclusive remedy. In Illinois, limitation of remedy provisions are enforceable but they aren’t favored. Contracting parties are not required to put all potential remedies in a document in order to make those remedies available, and providing for one specific remedy won’t always preclude another remedy.  Also, a contract doesn’t have to use the word “exclusive” for a remedy to be deemed exclusive. Instead, the remedy will be found exclusive where the contract text warrants such a finding. (*4-5).

Here, the interest adjustment section that the plaintiff argued was the exclusive remedy only applied to situations where the partnership needed an infusion of extra capital and one partner didn’t timely contribute his share. There was no language, in either the adjustment section or in the partnership agreement as a whole, to justify a finding that an increase or reduction in partnership interest was the sole remedy for a breach. (*6).

The Court also rejected defendant argument that a formal accounting was a required precursor to a partnership suit by the plaintiff. In Illinois, the general rule is that one partner can’t sue another until there has been a settlement of partnership affairs via an accounting.  An exception to this rule is where a partner’s claim can be decided without a full review of the partnership accounts.  Also, see 805 ILCS 206/405 (partner can sue partnership or a co-partner with or without an accounting) (**6-7).

Here, since the amount plaintiff paid for the environmental clean-up costs was easily calculable (as was the defendants’ share of the costs), no accounting was necessary as a precondition to plaintiff’s suit.

Afterwords: If contracting parties intend for there to be an exclusive remedy for a breach – they should say as much.  This case also makes clear that a formal accounting isn’t always required first before a partner can sue another partner or the partnership entity; especially if the suing partner can easily compute his damages.