Archives for October 2014

Chicago News Reporter’s Defamation and Intrusion on Seclusion Suit Against Rival Networked Tossed (IL First District)

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(Photo credit: Google images (visited 10.29.14); Associated Press)

The First District recently weighed in on the nature and scope of defamation law and the false light and intrusion on seclusion civil claims in a case involving a well-known Chicago newscaster.

In Jacobson v. CBS Broadcasting, Inc., 2014 IL App (1st) 132480, the plaintiff – a former NBC television reporter – sued rival network CBS when it aired a video of her at the backyard swimming pool of a person of interest in a high-profile missing persons’ case the plaintiff was covering.

CBS showed a video it secretly took of the plaintiff while she was visiting the house of Craig Stebic – whose wife Lisa went missing in 2007 and who hasn’t resurfaced to this day.  The case garnered daily local and national news coverage for several weeks and was a staple of Nancy Grace’s nightly CNN show.

At the height of the case’s notoriety, plaintiff went to the Stebic house to discuss the case. While there, she was videotaped by a neighbor and CBS reporter. Sensing some salacious television fare (my conjecture), CBS aired the tape and plaintiff was shortly fired by NBC for violating journalistic ethics rules (a lapse in judgment, according to network honchos).

The plaintiff sued Chicago’s CBS station, claiming that the tape and broadcast violated her right to privacy, was defamatory, and led to her firing by NBC. The plaintiff specifically alleged that the videotape placed her in a false light and tried to portray her as “an adulteress and an unethical reporter.”

The trial court granted summary judgment for CBS and plaintiff appealed.

Held: Affirmed.

Reasons:

Plaintiff’s claims failed because she was a public figure, failed to prove actual malice by CBS and lacked a reasonable expectation of privacy at a backyard swimming pool.

Defamation Count: Plaintiff is a ‘Limited Public Figure’

The Court found that plaintiff was a public figure under defamation law who must show “actual malice” to win a defamation suit.  Two types of public figures include (1) a general purpose public figure, and (2) a limited purpose public figure.  When someone “thrust [herself] to the forefront of a particular public controversy, she becomes a limited public figure for matters associated with the given controversy. ¶¶ 29-31.

The Court agreed with the trial judge that plaintiff was a limited purpose public figure since she was enmeshed with a controversial news story that attracted national attention.  Plaintiff clearly injected herself into the teeth of the drama by frequenting the Stebic residence, participating in public vigils and urging the public to come forward with any information about Lisa Stebic’s whereabouts.

The Court also found that plaintiff failed to show “actual malice” by CBS. To defeat summary judgment in a defamation count, the public figure plaintiff must show actual malice: that defendant (1) published (i.e. wrote or said) the defamatory falsehood either with knowledge that it was false, or (2) with a reckless disregard to its truth.  Reckless disregard means that the defendant had a “high degree of awareness” that the statement was probably false or “entertain[ed] serious doubts as to its truth.”  Where the defamatory content is implied (rather than overt), the plaintiff has to show the defendant was subjectively aware of the implied meaning, or at least recklessly disregarded the implied meaning.

The crux of plaintiff’s defamation suit was the video’s juxtaposed images: plaintiff in her swimsuit cross-cut against a shirtless Craig Stebic.  Plaintiff claimed the video implied a sexual relationship between the two.

The court held this wasn’t enough to establish express or implied malice.  There were too many non-defamatory alternatives to plaintiff’s interpretation of the video – especially since plaintiff’s children and other people were in the backyard at the same time.  The Court also declined to imply actual malice by CBS just because it was locked in a fierce ratings battle with NBC at the time of taping. ¶¶ 37, 41-42.

Take-aways: (1) A limited purpose public figure must meet heightened actual malice standard to state a defamation case; (2) intrusion on seclusion tort is difficult to win where the location of an alleged private or secluded site is easily viewed or accessed by third parties.

Illinois Credit Agreements Act and the Unclean Hands Defense – No Writing = Difficulty Defeating Breach of Guaranty Claim

handsAmerican Chartered Bank v. Cameron. 2014 IL App (1st) 132231-U, an unpublished First District case, glaringly illustrates the difficulty of defeating a lender’s breach of guaranty claim when the defenses are based on the lender’s oral promises.  The case also sheds light on the nature of the borrower-lender relationship and the contours of the unclean hands defense in the context of a breach of contract action.

The defendant guaranteed a commercial loan made to a business that defendant invested in. After the borrower defaulted, the plaintiff sued the corporate borrower and guarantor defendant and won summary judgment of nearly $150K. The guarantor appealed arguing the guaranty wasn’t enforceable.

Held: summary judgment for the bank affirmed. Defendant’s defenses are defeated by the Illinois Credit Agreements Act 815 ILCs 160/1, et seq. (ICAA) and the express language of the guaranty.

Reasons:

The Court rejected the guarantor’s defense based on the clear guaranty language that specified the bank didn’t have to first proceed against the loan collateral (the bank could immediately go after the guarantor).  The guaranty also had a non-reliance clause: the guarantor waived his reliance on verbal statements by the bank’s agents.

The ICAA also trumped the defenses.  The ICAA prevents a debtor (here, the guarantor) from suing or defending a suit under a “credit agreement” unless it’s in writing and signed by both creditor and debtor” 815 ILCS 160/2.

The ICAA defines a “credit agreement” as an agreement to lend money, extend credit or to delay or forbear repayment of money that is not for consumer (personal, family or household) purposes and that doesn’t involve credit cards. 815 ILCS 160/1(1).  ICAA Section 3(3) negates any claims based on a creditor’s promise to modify, amend or forbear from enforcing a credit agreement.  815 ILCS 160/3

Illinois courts construe the ICAA broadly and describe it as a strengthened Statute of Frauds (740 ILCS 80/0.01 et seq.) that bars all actions at all related to a credit agreement.  The ICAA case law makes clear that the statute prevents a borrower from alleging he relied on any oral statements of a lender.

Here, the guarantor’s claim that the bank agent made verbal misstatements to induce the execution of the guaranty was clearly governed and defeated by the ICAA.  The court also found the ICAA negated the defendant’s argument that the bank officer orally modified the guaranty terms.(¶¶ 33-35).

The defendant’s “unclean hands” defense also failed.  This defense, which posits that a litigant can’t take advantage of his own wrongful conduct, was premised on the claim that the bank breached a fiduciary duty to inform the defendant of the bank’s intention to enforce the guaranty if there was a loan default.  The Court rejected this defense for two reasons: first, the lender-borrower relationship is not a fiduciary one as a matter of law.  Additionally, unclean hands defense only applies in equity cases: it doesn’t affect legal (actions at law) claims. (¶¶ 38-40)

The other argument raised and rejected by the guarantor was that since he successfully opened a confessed judgment in favor of the bank, this was tantamount to a summary judgment-defeating fact question claimed that since the trial court found that he satisfied the standard for opening a confessed judgment under Rule 276, this was tantamount to a summary judgment-defeating fact question.

Afterwords:

Cameron illustrates the expansive applicability of the ICAA and how that statute will bar almost all claims and defenses related to a promise to lend money.  The case also clarifies that the unclean hands defense will only apply in an equitable case (e.g. an injunction, declaratory judgment suit, etc.); not in a garden-variety breach of contract claim for money damages.  Procedurally, the case’s lesson is that opening a confessed judgment involves different evidentiary standards than does showing a fact question sufficient to defeat a summary judgment motion.

 

 

All About Charging Orders – When the Judgment Debtor Is an LLC Member

ChargeGetting a judgment against an LLC member can trigger a high-anxiety response.  That’s because the normal post-judgment collection rules set out in Code Section 2-1402 and Supreme Court Rule 277  don’t cleanly apply.  

Section 30-20 of the LLC Act (805 ILCS 180/30-20) states that a creditor’s exclusive remedy is to obtain a “charging order” against the LLC member’s “distributional interest.”  Illinois cases describe  Section 30-20 as a special remedy designed to allow a creditor of an LLC member to realize the value of the debtor’s distributional interest in the LLC and also protect both the LLC’s ability to function and the other members’ LLC interests.

The LLC Act defines “distributional interest” as a “member’s interest in distributions by the limited liability company.”  A distributional interest is not salary, wages, draws or reimbursement. To reach an LLC member’s wages, for example, a creditor should still utilize a third-party citation on the LLC and seek a turnover of any wages to be paid to the debtor.

To obtain a charging order, the creditor files an application or motion with the Court (“Motion for Charging Order”) and requests a charging order on the LLC member’s interest in the LLC.  The Motion is served on the debtor by regular mail and the creditor does not have to name the LLC as a party defendant. 

The court also isn’t required to have jurisdiction over the LLC for a charging order to issue against the member-debtor.  See, Bank of America, N.A. v. Freed, 1-11-0749 et al., 2012 WL 6725894 (Ill. App. Ct. Dec. 28, 2012) (LLC is not a necessary party to creditor’s charging order application).

The charging order impresses a lien (a hold) on the debtor’s LLC interest and any distributions coming due to the debtor can be paid to the creditor.  The lien on the distribution can also be foreclosed by the creditor filing a petition to foreclose the lien.  The debtor’s LLC interest can then be sold by the Sheriff or a private property – much like with any other asset sale.  Any sale proceeds the debtor’s distributional interest garners can be applied to the judgment amount.

To summarize, then, an LLC member’s judgment creditor should follow this four-step enforcement process: (1) file a motion for a charging order against the LLC member’s distributional interest; (2) serve the charging order on the LLC’s manager and registered agent (so they know to forward the distribution to the creditor), (3) (if the debtor doesn’t redeem and the judgment isn’t satisfied after turnover of the distribution) file a motion to foreclose the charging order (appoint someone to evaluate and sell the distributional interest); and (4) schedule either a public or private sale of the debtor’s distributional interest.  I also serve a third-party citation directly on the LLC and ask for a turnover order on any wages, draws or other payments (that aren’t distributions) to the debtor.

Post-Judgment Statutory Changes

Effective January 1, 2012, several statutes that govern Illinois judgment enforcement practice took effect.  The key statutory change as it relates to enforcing judgments against LLC members is Code Section 12-112.5.  This Section speaks directly to the charging order remedy and provides:

Sec. 12-112.5. Charging orders. If a statute or case requires or permits a judgment creditor to use the remedy of a charging order, said remedy may be brought and obtained by serving any of the various enforcement procedures set forth within this Article XII or by serving a citation pursuant to Section 2-1402. If the court does not otherwise have jurisdiction of the parties, the law relating to the type of enforcement served shall be used to determine issues ancillary to the entry of a charging order such as jurisdiction, liens, and priority of liens.

The comments to revised Section 5-112.5 make it clear that while a charging order is still the exclusive remedy for a creditor to impress a lien on an LLC member’s distributional interest, the creditor can use citation/supplementary proceedings under Code Section 2-1402 and Rule 277 to obtain that charging order in the first place.

Going forward, and in light of Section 112.5 and until there are more published cases that more thoroughly examine the interplay between Section 112.5 with LLC Section 30/20, judgment creditors of an LLC member should (1) serve a citation on the debtor, (2) serve a third-party citation on the LLC (via its registered agent or manager); and (3) file a motion for a charging order against the debtor’s LLC interest.

Once the charging order enters, the creditor can either receive distributions until the judgment is satisfied or try to more quickly monetize the debtor’s LLC distribution by filing a petition to foreclose the charging order lien.  A foreclosure sale buyer of the distributional interest will have rights to future distributions but does not get to exercise voting rights or make LLC business decisions.