Archives for January 2017

Plaintiff’s Damage Expert Barred in Tortious Interference Case Where Only Offering ‘Simple Math’ – IL Case Note

An auto body shop plaintiff sued an insurance company for tortious interference and consumer fraud.

The plaintiff in Knebel Autobody Center, Inc. v. Country Mutual Insurance Co., 2017 IL App (4th) 160379-U, claimed the defendant insurer intentionally prepared low-ball estimates to drive its policy holders and plaintiff’s potential customers to lower cost (“cut-rate”) competing body shops.  As a result, plaintiff claimed it lost a sizeable chunk of business.  The trial court granted the insurer’s motion for summary judgment and motion to bar plaintiff’s damages expert.

Result: Affirmed.

Reasons: The proverbial “put up or shut up” litigation moment,  summary judgment is a drastic means of disposing of a lawsuit.  The party moving for summary judgment has the initial burden of production and ultimate burden of persuasion.  A defendant moving for summary judgment can satisfy its burden of production either by (1) showing that some element of plaintiff’s cause of action must be resolved in defendant’s favor or (2) by demonstrating that plaintiff cannot produce evidence necessary to support plaintiff’s cause of action.  Once the defendant meets its burden of production, the burden shifts to the plaintiff who must then present a factual basis that arguably entitles it to a favorable judgment.

Under Illinois law, a consumer fraud plaintiff must prove damages and a tortious interference plaintiff must show that it lost specific customers as a result of a defendant’s purposeful interference.

Here, since the plaintiff failed to offer any evidence of lost customers stemming from the insurer’s acts, it failed to offer enough damages evidence to survive summary judgment on either its consumer fraud or tortious interference claims.

The court also affirmed the trial court’s barring the plaintiff’s damages expert.

In Illinois, expert testimony is admissible if the offered expert is qualified by knowledge, skill, training, or education and the testimony will assist the judge or jury in understanding the evidence.

Expert testimony is proper only where the subject matter is so arcane that only a person with skill or experience in a given area is able to form an opinion. However, “basic math” is common knowledge and does not require expert testimony. 

Illinois Evidence Rules 702 and 703 codify the expert witness admissibility standards.  Rule 702 provides that if “scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise.”

Rule 703 states that an expert’s opinion may be based on data perceived by or made known to the expert at or before the hearing. If the data is of a type reasonably relied upon by experts in a particular field, the underlying data supplied to the expert doesn’t have to be admissible in evidence.

Here, the plaintiff’s expert merely compared plaintiff’s loss of business from year to year and opined that the defendant’s conduct caused the drop in business.  Rejecting this testimony, the court noted that anyone, not just an expert, can calculate a plaintiff’s annual lost revenues.  Moreover, the plaintiff’s expert failed to account for other factors (i.e. demographic shifts, competing shops in the area, etc.) that may have contributed to plaintiff’s business losses.  As a result, the appeals court found the trial court properly barred plaintiff’s damages expert. (¶¶ 32-33)

Afterwords:

The case underscores the proposition that a tortious interference plaintiff must demonstrate a specific customer(s) stopped doing business with a plaintiff as a direct result of a defendant’s purposeful conduct.  A consumer fraud plaintiff also must prove actual damages resulting from a defendant’s deceptive act.

Another case lesson is that a trial court has wide discretion to allow or refuse expert testimony.  Expert testimony is not needed or allowed for simple math calculations.  If all a damages expert is going to do is compare a company’s earnings from one year to the next, the court will likely strike the expert’s testimony as unnecessary to assist the judge or jury in deciding a case.

 

Medical Device Maker Can Recover Lost Profits Against Double-Dipping Salesman – IL Fed. Court

A Federal court examines the pleading and proof elements of several business torts in a medical device company’s lawsuit against its former salesman and a rival firm.  The plaintiff sued when it learned its former employee was selling on the side for a competitor.

Granting summary judgment for most of the plaintiff’s claims, the Court in HSI v. Pappas, 2016 WL 5341804, dives deep into the various employer remedies where an employee surreptitiously works for a competing firm.

The Court upheld the plaintiff’s breach of fiduciary duty claim against the former salesman as well as its aiding and abetting (the breach) claim against the competitor.  In Illinois, a breach of fiduciary duty plaintiff must show (1) existence of a fiduciary duty, (2) the fiduciary duty was breached, and (3) the breach proximately caused plaintiff’s injury.  An employee owes his employer a duty of loyalty.  (Foodcomm Int’l v. Barry, 328 F.3d 300 (7th Cir. 2003).

A third party who aids and abets another’s breach of fiduciary duty can also be liable where the third party (1) knowingly participates in or (2) knowingly accepts the benefits resulting from a breach of fiduciary duty.encourages or induces someone’s breach of duty to his employer.

Since the plaintiff proved that the ex-salesman breached his duty of loyalty by secretly selling for the medical supply rival, the plaintiff sufficiently made out a breach of fiduciary duty claim against the salesman.  The plaintiff also produced evidence that the competitor knew the salesman was employed by the plaintiff and still reaped the benefits of his dual services.  The competitor’s agent admitted in his deposition that he knew the salesman was employed by plaintiff yet continued to make several sales calls with the plaintiff to customers of the competitor.  The court found these admissions sufficient evidence that the competitor encouraged the salesman’s breach of his duties to the plaintiff.

The plaintiff also produced evidence that the competitor knew the salesman was employed by the plaintiff and still profited from his dual services.  The competitor’s representative admitted in his deposition knowing the salesman was employed by plaintiff yet still made several sales calls with the salesman to some of the competitor’s customers.  The court found this admission sufficient evidence that the competitor encouraged the salesman’s breach of his duties to the plaintiff.

With liability against the individual and corporate defendants established, the Court turned its attention to plaintiff’s damages.  Plaintiff sought over $400K in damages which included all amounts plaintiff paid to the defendant during his 10-month employment tenure, the amounts paid by the competitor to the defendant during his time with plaintiff as well as lost profits

An employee who breaches his fiduciary duties to an employer generally must forfeit compensation he receives from the employer.  The breaching employee must also disgorge any profits he gains that flow from the breach.

This is because under basic agency law, an agent is entitled to compensation only on the “due and faithful performance of all his duties to his principal.”  The forfeiture rule is equitable and based on public policy considerations.

Since the evidence was clear that the defendant failed to perform his employment duties in good faith, the Court allowed the plaintiff to recoup the nearly $180K in compensation it paid the defendant.

The plaintiff was not allowed to recover this amount from the competitor, however.  The Court held that since the payments to the salesman never came into the competitor’s possession, plaintiff would get a windfall if it could recover the same $180K from the competitor.

The Court also allowed the plaintiff to recover its lost profits from both the individual and corporate defendants.  In Illinois, lost profits are inherently speculative but are allowable where the evidence affords a reasonable basis for their computation, and the profits can be traced with reasonable certainty to the defendant’s wrongful conduct.

Since the corporate defendant didn’t challenge plaintiff’s projected profits proof, the Court credited this evidence and entered summary judgment for the plaintiff.

Take-aways:

This case serves as a vivid cautionary tale as to what lies ahead for double-dealing employees.  Not only can the employer claw back compensation paid to the employee but it can also impute lost profits damages to the new employer/competitor where it induces a breach or willingly accepts the financial fruits of the breach.

The case also cements proposition that lost profits are intrinsically speculative and that mathematical certainty isn’t required to prove them.

 

‘Original Writing’ Rule and Handwriting Evidence: Working Through the ‘Did Not!, Did So!’ Impasse

I once represented a commercial landlord in a case where the entire dispute hinged on whether a defendant signed a lease guaranty.  We said it did; the tenant said the opposite. Further complicating things was the fact that the lease was more than ten years old and no one saw the tenant sign the lease.  We ultimately settled on the day of trial so we never got to test whether the court would accept our circumstantial signature evidence.

Multiple legal authorities applied to the dispute.  The first admissibility hurdle we faced came via the best evidence or “original writing” rule.  This venerable doctrine adopts a preference that the original of a writing be produced when the contents of that writing are at issue.  Illinois Evidence Rule 1002; Jones v. Consolidation Coal Co., 174 Ill.App.3d 38 (1988).

To introduce secondary evidence of a writing, a party must first prove prior existence of the original, its loss, destruction or unavailability; authenticity of the substitute and his own diligence in attempting to procure the original.

The best evidence rule isn’t inviolable, though.  Illinois Evidence Rule 1003 provides that a duplicate is admissible to the same extent as an original unless (1) a genuine question is raised as to the authenticity of the original or (2) in the circumstances it would be unfair to admit the duplicate in lieu of the original.

Evidence Rule 1004 goes further and states that an original writing is not required and other evidence of a writing (or recording, or photograph) is admissible if (1) the original was lost or destroyed (but not in bad faith) (2) the original cannot be obtained via subpoena or other judicial process; (3) the original is in opponent’s possession and the opponent knew that the original would be needed at trial; or (4) the disputed document involves a collateral issue that is removed from the case’s controlling question.

Code Section 8-1501 also figured prominently in our lease guaranty dispute.  This statute (735 ILCS 5/8-1501) allows a court or jury to compare disputed signatures with known signatures and make a credibility determination as to whether a given defendant signed a contract.

While there is sparse case law interpreting this statute, 1601 South Michigan Partners v. Measuron, 271 Ill.App.3d 415 (1st Dist. 1995) stands as an interesting (though dated) case discussion of what evidence a court looks at when deciding whether a plaintiff met its burden of proving a defendant signed a contract.

In that case, also a lease dispute, the plaintiff attempted to offer the lease into evidence at trial over defendant/tenant’s objection.  The tenant claimed he never signed the lease and the plaintiff admitted not seeing the tenant sign it.  At trial, the landlord asked the court to compare the lease signature to the tenant’s admitted signature on a prior rent check.

The trial court directed a verdict for the tenant on the basis that the court was not a handwriting expert and not in a position to judge the genuineness of the lease.

Reversing, the appeals court held the plaintiff-landlord should have been allowed to introduce “lay” (non-expert) testimony that the tenant signed the lease.  Since there was evidence at trial that the tenant occupied the premises and plaintiff’s agent testified that he signed the lease and gave it to the tenant to sign, there was enough evidence to submit the signature authenticity question to the judge.

Since it was more likely than not that the tenant signed the lease based on the evidence at trial, the appeals court held that expert handwriting testimony wasn’t required and the trial court should have compared the disputed lease signature to the tenant’s signed rent check under Code Section 8-1501.

Take-aways:

In our case, we had offered multiple known signatures of the lease guarantors into evidence – including pleadings and discovery verifications filed in the case.  There was also no dispute that the defendant occupied the commercial space for several years.

Taken together, I believe this circumstantial proof of the guarantors’ signatures should have allowed the Court to compare the guaranty against defendants’ admitted signature samples and find in our favor.