Archives for November 2016

Broken Promises In Medical Services Agreement Don’t Equal Fraud – IL Court

An Illinois appeals court recently examined the promissory fraud rule in a medical services contract dispute.

The key principle distilled from the court’s unpublished analysis in Advocate Health and Hospitals Corp. v. Cardwell, 2016 IL App (4th) 150312-U is that where fraud claims are based on false promises of future conduct, the claims will fail.

The plaintiff hospital there sued a former staff doctor for breaching a multi-year written services contract. When the doctor prematurely resigned to join a hospital in another state, the plaintiff sued him to recover about $250,000 advanced to the doctor at the contract’s outset.

The doctor counterclaimed, alleging the hospital fraudulently induced him to sign the contract. He claimed the hospital broke promises to elevate him to a Director position and allow him to develop a new perinatology practice group at the hospital.  Since the promises were false, the doctor claimed, the underlying services contract was void.

Siding with the hospital (it granted the hospital’s summary judgment motion), the Court discussed when a defendant’s fraudulent inducement can nullify a written contract.

In Illinois, to establish fraud in the inducement, a plaintiff must show (1) a false statement of material fact, (2) defendant’s knowledge the statement was false, (3) defendant’s intent to induce the plaintiff’s reliance on the statement, (4) plaintiff’s reasonable reliance on the truth of the statement, and (5) damages resulting from reliance on the statement.

A critical qualification is that the fraud must be based on a misstatement of existing fact; not a future one.  Fraud in the inducement goes beyond a simple breaking of a promise or a prediction that doesn’t come to pass.

Here, the Court found that the hospital’s pre-contract statements all involved future events. The promise of a Directorship for the doctor was merely aspirational. It wasn’t a false statement of present fact.   The Court also determined that the hospital’s representations to the doctor about the development of a perinatology program spoke to a hoped-for future event.

Since the entirety of the doctor’s fraud counterclaim rested on the hospital’s promises of future conduct/events, the Court entered summary judgment against the doctor on his fraud in the inducement counter-claim.

Afterwords:

This is another case that sharply illustrates how difficult it is to prove fraud in the inducement; especially where the alleged misstatements refer to contingent events that may or may not happen.  While a broken promise may be a breach of contract, it isn’t fraud.

For a misstatement to be actionable fraud, it has to involve an actual, present state of affairs. Anything prospective/future in nature will likely be swallowed up by the promissory fraud rule.

Photographer’s Subjective Belief Of Photos’ Value Not Enough to Show Copyright Damages – Seventh Cir. (Deconstructing Bell v. Taylor – Part II)


In Bell v. Taylor, the Seventh Circuit homes in on the photographer plaintiff’s dearth of damages evidence in his copyright suit about two photographs he took of the Indianapolis skyline.

A copyright owner can recover actual damages suffered as a result of infringement and any profits accruing to the infringer.  To establish an infringer’s profits, the plaintiff must show only the infringer’s gross revenue.  The infringer is then required to prove his “deductible expenses and elements of profit attributable to factors other than the copyrighted work.”  17 U.S.C. § 504(b).

Actual damages in the copyright context usually mean loss in fair market value of the infringed work (here, the two photos), measured by profits lost by the copyright holder due to the infringement.  Evidence of prior sales of the infringed work(s) can satisfy the plaintiff’s actual damages burden but his subjective belief as to the fair market value of a photo isn’t enough to prove damages.

The plaintiff failed to prove actual damages since all he offered was his unsupported subjective belief of what the photos were worth.  He was unable to attribute any lost profits to himself or any profits gained by the infringing defendants.  The plaintiff also couldn’t show that any of the infringing defendants attracted more clients by using the plaintiff’s skyscraper photos.

Afterwords:

While the plaintiff was able to establish ownership in the copyrighted photos as well as infringement (he unquestionably took the photos and copyrighted them and all defendants admitted using one or both of them), the lack of damages evidence doomed his claims.  The plaintiff’s unadorned opinion of the photos’ monetary value was insufficient to meet his copyright infringement damages burden.

To survive summary judgment, the plaintiff likely would have had to proven that the defendants gained increased web traffic as a direct result of using the photos and that the increased traffic translated into measurable profits for the defendants.  Since the plaintiff couldn’t do this, he couldn’t establish copyright infringement damages to the extent his claims would beat a summary judgment motion.

Missing “Course Of Dealing” Evidence Dooms Wedding Dress Seller on Summary Judgment – IL ND

In a Memorandum Opinion and Order that quotes Neil Sedaka and Taylor Swift in its footnotes, the District Court in House of Brides, Inc. v. Angelo, 2016 WL 698093 (N.D.Ill. 2016), examines the quantity and quality of evidence required to win a summary judgment motion. 

The plaintiff sold wedding clothes on-line and in retail stores and the defendant was the plaintiff’s main supplier.  The plaintiff sued the dress maker in state court for breach of contract claiming many of the dresses were defective or shipped later than promised. 

After it removed the case to Federal court, the defendant counter-sued the plaintiff for unpaid invoices. The defendant moved for summary judgment on its counterclaims as well as on plaintiff’s claims.

Partly siding with the defendant, the court discussed some common Uniform Commercial Code (UCC) claims and defenses and the required elements of a summary judgment affidavit.

The UCC governs contracts for the sale of goods and wedding dresses constitute goods under the UCC.  A seller who delivers accepted goods to a buyer can sue the buyer for the price of the goods accepted along with incidental damages where a buyer fails to pay for the goods.  810 ILCS 5/2-709.

In a goods contract, written contract terms can be explained or supplemented by a “course of performance, course of dealing, or usage of trade.” However, written terms cannot be contradicted by evidence of a prior agreement or an oral agreement made at the same time as the written one by the parties.

Here, the plaintiff argued that the course of dealing showed that defendant routinely accepted late payments and so defendant’s “net 30” invoice language was excused.

The court rejected this argument.  It held that avoiding the 30-day payment deadline was a material change that would have to be in writing since the Statute of Frauds governs contracts for the sale of goods exceeding $500 and the dresses involved in this suit easily eclipsed that value.

The court also rejected the plaintiff’s set-off defense against the defendant’s breach of contract counterclaim since a set-off must relate to the same contract being sued on (the court’s example: a seafood buyer can’t set off the price of frogs’ legs because the seller previously sent bad fish in a previous order)

Next, the court struck the plaintiff’s affidavit in support of its breach of implied warranty of merchantability claim on the basis of hearsay. 

In Federal court, an affidavit in support of or opposing summary judgment must be based on personal knowledge, show the witness’s competence and constitute admissible evidence.  Conclusory statements or affidavit testimony based on hearsay is inadmissible on summary judgment.  

The plaintiff’s affidavit testimony that there were dress defects that required refunds was too vague to survive defendant’s summary judgment motion.  This was because no employee stated that he/she personally issued any refunds or had first-hand knowledge of any dress defects that warranted a refund. 

What’s more, the seller failed to offer any authenticated business records that showed either the claimed dress defects or the refund amounts.  Without admissible evidence, the plaintiff seller failed to challenge the defendant’s breach of contract claim and the court awarded summary judgment to the defendant.

Afterwords:

1/ This case shows importance of furnishing admissible evidence when challenging summary judgment;

2/ Hearsay evidence in a summary judgment affidavit will be rejected;

3/ Course of performance or course of dealing can augment or explain written contract terms but cannot contradict them;

4/ A set-off defense must pertain to contract being sued on instead of a separate agreement;