Month: August 2015

Fire Alarm Contract Doesn’t Create Implied Warranty Claim – IL ND

Two titans of their respective industries went head-to-head in Allstate Indemnity Company v. ADT, LLC, 2015 WL 3798715 (N.D.Ill. 2015), a dispute over an alarm company’s responsibility for fire damage to its homeowner customer.

After a 2013 house fire decimated its insured’s home to the tune of about $1.4M in damages, the plaintiff home insurer (Allstate) sued ADT, the home smoke and fire alarm installer, for negligence, breach of contract and consumer fraud for failing to complete smoke detector repairs it was hired to complete about 7 months before the fire.

The Northern District, in Allstate Indemnity Company v. ADT LLC, 2015 WL 3798715, *2 (N.D.Ill. June 17, 2015), granted ADT’s motion to dismiss the complaint with prejudice and in doing so, addressed some important issues involving contract interpretation, exculpatory provisions and damage limitations in home security contracts.

The 2007 alarm contract (the “Alarm Contract”) was for an initial three-year term and was automatically renewed for 30-day increments unless terminated in writing. The Alarm Contract contained a limited warranty and a waiver clause that provided that the alarm company was not an insurer against damage to the insured home.

Other than some basic warranties, ADT’s contract disclaimed consequential or incidental damages.

The court rejected the insurer’s argument that the contract’s damage waiver was unenforceable. In Illinois, an exculpatory clause or damage waiver is enforceable unless it is unconscionable or violates public policy. Since there were no public policy concerns implicated, the alarm contract damage waiver was upheld and defeated Allstate’s claims.

Allstate also lost its breach of implied warranty claim.  Illinois doesn’t recognize an implied warranty in service contracts. The only settings where a court recognizes an implied warranty is in (1) contracts involving the sale of goods, (2) contracts involving residential property construction (where the implied warranty of habitability attaches) and (3) construction contracts – where Illinois recognizes an implied warranty of performance in a good, workmanlike manner.

Since the Alarm Contract didn’t involve the sale of goods and wasn’t a construction contract, Allstate’s implied warranty claim failed.

Lastly, the court discarded Allstate’s consumer fraud claim.  The Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA), 815 ILCS 505/2 broadly prohibits unfair methods of competition and unfair or deceptive acts.  But where a consumer fraud claim simply duplicates a breach of contract claim, the consumer fraud count is redundant and should be stricken.

A plaintiff can’t “dress up” a garden-variety contract claim as one sounding in fraud.  Here, since Allstate repackaged its breach of contract suit and labeled it as a consumer fraud claim, the court dismissed Allstate’s ICFA claim.

Key take-aways:

1/ A clear waiver provision in a service contract will be enforced as written; even if it puts some financially harsh consequences on the plaintiff;

2/ Service contracts won’t give rise to an implied warranty claim in Illinois;

3/ A breach of contract does not equate to consumer fraud.  A repackaged breach of contract claim that is appended with a consumer fraud label will be dismissed as redundant (to the parallel breach of contract claim).

Reference: http://law.justia.com/cases/federal/district-courts/illinois/ilndce/1:2014cv09494/303656/21/

Talent Agency’s Implied In Law Contract Claim Survives Dismissal In Suit For TV Commercial Services

untitled

Karen Stavins Enteprises, Inc. v. Community College District No. 508, 2015 IŁ App (1st) 150356 stands as a recent example of a plaintiff suing in quasi-contract – specifically, under an implied-in-law contract theory – to recover the reasonable value of unpaid acting services rendered in connection with a television commercial.

The plaintiff, a well-known Chicago talent agency, sued the City Colleges of Chicago’s corporate parent (“City Colleges”) when it failed to pay for the services of nine actors (just over $13K) booked by the plaintiff who starred in a commercial promoting the benefits of a City Colleges education.

The trial court dismissed the agency’s complaint on City Colleges’ Section 2-615 motion.  Plaintiff appealed.

Held: reversed.

Reasons:

City Colleges argued that the plaintiff’s claim failed because it didn’t comply with the procurement standards set forth in the Illinois Public Community College Act, 110 ILCS 805/3-27.1 – a statute that delineates specific requirements for a party entering a contract with a public educational entity.

Reversing the trial court’s dismissal, the appeals court first attacked City Colleges’ motion to dismiss on procedural grounds, noting that a Section 2-615 motion cannot be supported by affidavit or based on facts not contained within a complaint’s four-corners. 

Since City Colleges supported its motion with its agent’s affidavit testifying to some background facts concerning the creation of the commercial, the affidavit should have been excluded from consideration by the trial court.  (¶ 5).

Turning to the merits, the First District provides a useful primer on the salient rules governing implied in law contracts (“ILC”).

In Illinois, an ILC is not an express contract.  Instead, as the name suggests, it’s an implied promise by a recipient of services or goods to pay for them. 

An ILC presupposes that no actual agreement exists between parties, but the court imposes a duty to pay a reasonable value of the services in order to prevent unjust enrichment.  ILC’s “essence” is where a defendant voluntarily accepts a benefit from a plaintiff and fails to pay the plaintiff.

No ILC claim will lie, however, where there is an express contract (including a contract implied in fact) between the parties.  To state a valid ILC claim, a plaintiff must plead and prove specific facts that support the conclusion that a plaintiff conferred a benefit on a defendant who unjustly retained the benefit in violation of basic principles of fairness and good conscience.  Put another way, the plaintiff must establish he supplied valuable services to a defendant under circumstances where it’s unjust for the defendant to retain them without paying a reasonable value for the services.  (¶ 7).

Applying the operative ILC rules, the court found the talent agency plaintiff sufficiently pled that it booked actors to perform TV commercial services for City Colleges, that the actors weren’t working for free, and City Colleges’ refusal to pay.  Under Illinois pleading rules, this was enough of an ILC claim to survive City Colleges’ motion to dismiss.

Afterwords:

I’ve experienced how difficult it is to comply with a government entity’s (like a school, e.g.) byzantine contractual requirements.  Typically, you must follow the procurement rules to the letter or else risk case dismissal – usually for a failure to contract with an authorized party or to not adhere to the government’s contract award policies.  The practical problem I see is that your client usually won’t even know of the procurement policies until after a default and it’s time to sue.

Stavins provides a useful summary of the implied-in-law contract claim and illustrates how it can serve as a valuable fall-back or Plan B claim in situations where a contract formation defect precludes a breach of express contract action.

The important take-away is that a party who enters a business relationship with a unit of government can still recover for the reasonable value of its services even where it fails to strictly comply with the government contract award policies and procedures.