Serving the Elusive Tenant: The Illinois Forcible Statute’s ‘Posting’ Rules

In Equity Residential v. Nasolo, 364 Ill.App.3d 26 (1st Dist. 2006), the Court held that four unsuccessful Sheriff service attempts over a six-day period didn’t qualify as “due and diligent inquiry” under the service by posting section of the Illinois forcible statute.

Vacating the possession order, the Court stated the key service of process rules:

service of process has  two purposes: (1) to give a defendant notice that his rights are about to be affected by the plaintiff’s action; and (2) to allow a court to exercise jurisdiction over the person whose rights are to be affected by the litigation;

– constructive notice (like posting or publication) is only allowed where personal service of summons can’t be had and there are no other options”;

– the posting notice statute’s due and diligent inquiry standards require more than superficial efforts at locating a defendant;

– a plaintiff must make as comprehensive an effort as possible to locate a defendant including checking with neighbors, making inquiry into court records and investigating employment information before claiming that he can’t locate a defendant after due or diligent inquiry;

– where a defendant hasn’t been served with process, the court has no jurisdiction over him and any judgment entered is void and can be attacked at any time;

– a defendant’s actual knowledge that a suit is pending is not equivalent to service of summons and doesn’t relieve a plaintiff of his burden of vesting a court with jurisdiction over a defendant;

where a defendant files a sworn affidavit that challenges plaintiff’s location and service efforts, the court should hold an evidentiary hearing on whether plaintiff has met its burden for establishing grounds for constructive service;

Nasolo, 364 Ill.App. 3d at 33-35

Applying these rules, the Court doubted whether four service attempts was enough to show the landlord made a  due or diligent inquiry into the tenant’s location or current residence address. 735 ILCS 5/9-107.

The Court held that the tenant was entitled to an evidentiary hearing since she filed an affidavit that challenged the landlord’s diligence in trying to locate the tenant. This affidavit led the Court to vacate the possession order and remanded the case for an evidentiary hearing on the thoroughness of the plaintiff’s service attempts.

Bank of New York v. Smith (2013 IL App (1st) 120398-U) is a more recent case on the constructive service issue. There, the First District held that the tenant was entitled to an evidentiary hearing on whether she could have been located by the landlord.  

The tenant filed an affidavit that contained her sworn testimony that she wasn’t dodging service, that she always answered the door when someone knocked and that she was regularly on the premises.

This was enough to get the tenant an evidentiary hearing on whether the landlord exhausted all normal service channels before it posted. 

Take-aways:

Synthesizing Nasolo and Bank of New York, four unsuccessful attempts are not enough to justify posting while six tries are borderline.

These cases also show that if a tenant files an affidavit, the Court must hold an evidentiary hearing on whether the landlord met the statutory diligence standards.

To avoid a possible motion to quash or vacate a possession order, I at a minimum try to personally serve the tenant through both the Sheriff and a process server before filing my posting affidavit.

In difficult cases (where a tenant is blatantly dodging service), I have my process server available to give testimony and let the judge decide whether we carried our burden of establishing proof of service on the tenant.

No Delay Damages Clause Not Valid Due to Owner’s Intentional Conduct – TX Supreme Court

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The key question facing the Texas Supreme Court in Zachry Construction v. Port of Houston, 2014 WL 4472616 (TX 2014) was whether a contract’s no-delay-damages (NDD) term can be relied on by a party who intentionally prevents the other side’s performance.  The answer: “no.”

The contract involved a $63M contract to construct a wharf big enough to hold two 1600 foot-long ships; each about the size of five football fields.  The time to complete the project was 2 years but the municipality insisted that part of the project be done within 9 months.

The contract’s NDD provision insulated the defendant municipality  from liability resulting from construction delays; even for missed deadlines caused by the defendant’s negligence, breach of contract or “other fault.”

To accommodate the defendant’s compressed time schedule, the plaintiff advised defendant that plaintiff would have to build a “cutoff wall”, which would allow the plaintiff  to work and still stay dry ( since water surrounded the project). After initially agreeing, the municipality changed course and refused to permit the needed cutoff wall.  As a result, the project ended up taking 4.5 years – some 2.5 years longer than provided for in the contract.

Plaintiff sued claiming about $30M in delay damages resulting from the defendant’s refusal to accommodate the plaintiff’s request to build the cutoff wall. A jury agreed and after a three-week trial, awarded nearly $19M in damages to the plaintiff. The appeals court reversed; it said the NDD clause immunized the defendant. It then awarded the defendant nearly $11M in attorneys’ fees incurred in litigating plaintiff’s case. The Texas Supreme Court reversed.

Reasons:

A contractor generally has the right to recover delay damages but contracting parties are free to modify or excise a delay damages provision by agreement.  Some recognized exceptions to the enforcement of NDD clauses include (1) where a delay isn’t intended or contemplated by the parties; (2) the NDD term results from fraud, misrepresentation or bad faith on the party seeking the term’s benefit; (3) the delay is so long that it’s tantamount to an abandonment of the contract; (4) where the delay results from active interference or intentional conduct of the owner; and (5) where the party seeking the benefit of the NDD term engages in “arbitrary and capricious” conduct.

Texas follows the near-universal damages rule that a party can’t insulate itself from liability its own intentional conduct.  This is an offshoot of the general contract law principle that provisions that protect a party from its deliberate, wrongful conduct are generally void as against public policy.  Otherwise, a contracting party could purposefully injure another with impunity.  This principle applies with equal force to vulnerable individuals and to large corporations (plaintiff is a large construction company).

Here, the Court found that the municipality unreasonably refused to accept the plaintiff’s request to construct the cutoff wall. The Court viewed the defendant’s stubbornness on this point as “arbitrary and capricious” and made it impossible for the plaintiff to timely complete the job. The net result was the court refused to enforce the NDD clause against the plaintiff and reinstated the $19M delay damages jury verdict.  The court also re-entered a $1.3M damage award for the plaintiff relating to certain funds held back by the defendant as liquidated damages. (The contract allowed the defendant to deduct $20K per day as liquidated damages for each day the project was delayed.)

Afterwords: Freedom of contract has limits. Even a large construction company like plaintiff is protected from arbitrary conduct that prevents its timely contractual performance. This case presents vivid illustration of a  court extending the tort law principle that a party can’t insulate itself from intentional conduct to the breach of contract setting. The case upholds the common sense rule that any contractual provision that allows a contracting party to intentionally prevent the other from performing incentivizes wrongful conduct and clearly violates public policy.

 

Illinois Evidence and Business Records: Injured Worker’s Insurance Claim Properly Admitted At Trial

 

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The plaintiff filed a wrongful discharge suit against his employer when he was fired after he lodged a workers’ comp claim for a work-related injury.  A jury sided with the plaintiff and awarded him about $4.2M including some $3.6M in punitive damages. The employer appealed on the basis that the court allowed some damaging documents into evidence at trial.

Affirming the jury verdict, the court in Holland v. Schwan’s Home Service, Inc., 2013 IL App (5th) 110560 answered some important questions concerning the reach of the attorney-client privilege, the contours of the work-product doctrine and the application of the business records hearsay exception to an insurance claim file.

The plaintiff’s insurance claim file ( the “Claim File”), a document authored by both the defendant’s insurer and its third-party claims administrator, was a key piece of evidence relied on by the plaintiff at trial.  The employer argued that the file (which contained some damaging admissions by the employer and the administrator) was privileged and should have been excluded at trial.

The Fifth District disagreed and stated the applicable evidence rules that controlled the Claim File’s admission:

business records are admitted into evidence as an exception to the hearsay rule under Supreme Court Rule 236 and the Illinois Evidence Rule 803(6) (see earlier posts for foundation requirements) ;

– the rationale for allowing out-of-court business documents (e.g. invoices, ledgers, etc.) into evidence is the belief that businesses are motivated to keep accurate records;

– because accurate record-keeping is so crucial, business records are cloaked with a level of trustworthiness that doesn’t apply to non-business records;

– a document made in anticipation of litigation is not admissible as a hearsay exception since it doesn’t contain the built-in level of trustworthiness that ordinary business records do;

– the “in anticipation of litigation” rule doesn’t apply where the challenged document is sought to be introduced against the party that prepared it (as opposed to being used in support of a summary judgment motion, for example)

– an employee’s statement is admissible against his corporate employer where (a) it’s made during the existence of the employment relationship; and (b) concerns a matter within the scope of the employment;

statements made by a party’s agent about a matter within the scope of his agency are binding on the principal;

The attorney-client privilege (A/C Privilege) is designed to promote and encourage open dialogue between an attorney and client;

– the A/C Privilege extends to communications between an insured and its insurer where statements made to an insurer are relayed to an attorney for the protection or defense of the insured;

– where a communication is made to an insurer for the dominant purpose of transmitting the information to an attorney for the protection of the insured’s interest, the insurer-insured privilege applies;

the work-product doctrine offers separate and distinct protection from the A/C Privilege;

– work-product means material prepared by or for a party in preparation for trial and discloses the theories, mental impressions or litigation plans of the attorney;

– relevant information that doesn’t disclose an attorney’s “conceptual data” is freely discoverable.

(¶¶ 186-206); SCR 201(b)(2)

Under these guideposts, the Fifth District found that the Claim File was properly admitted in evidence at trial over the defendant’s A-C privilege, work-product and “in anticipation of litigation” objections.

First, there was no record that the Claim File was prepared for the “dominant purpose” of transmitting it to an attorney in order to protect the insured’s interests.  Instead, it was a general business record that consisted of basic information about the plaintiff’s medical condition.

The court found that the plain text of the Claim File and accompanying notes from the adjuster showed that the File was made in the regular course of the insurer’s business and wasn’t created for the purpose of defending the plaintiff’s retaliatory discharge claim.  As a result, no attorney-client or work-product protection attached to the Claim File. (¶¶ 201-202).

Take-aways: the attorney-client privilege applies to insurer-insured communications.  Especially if the main purpose of those communications is to protect the insured in a potential lawsuit.  In addition, a document prepared in the regular course of business, by definition, will almost always not be protected as a document prepared in anticipation of litigation.  Also, a document that doesn’t contain mental impressions or legal theories and strategy will likely be viewed as a general business record and won’t garner attorney-client or work-product doctrine protection.