ReMax Franchisor Defeats Tortious Interference Claim With Privilege Defense – IL 4th Dist.

The plaintiffs in Byram v. Danner, 2018 IL App (4th) 170058-U, sued after their planned purchase of a Remax real estate franchise imploded.  The plaintiffs missed an installment payment and the defendants responded by cancelling the agreement. Plaintiffs then filed a flurry of tort claims including fraud and tortious interference with contract.

Plaintiffs’ fraud count alleged the defendants lacked Remax authority to sell the franchise and hid this fact from the plaintiffs. The tortious interference claim asserted defendants bad-mouthed plaintiffs to certain agents, causing them to disassociate from plaintiffs.

The plaintiffs sought to recover their franchise fee, their first installment payment and unpaid commissions earned over a 16-month period. The trial court dismissed all of plaintiffs’ claims under Code Sections 2-615 and 2-619.  Plaintiffs appealed.

In finding the trial court properly jettisoned the fraud claim, the court noted that a valid cause of action for fraud requires (1) a false representation of material fact, (2) by a party who knows or believes it to be false, (3) with the intent to induce the plaintiff to act, (4) action by the plaintiff in reliance on the statement, and (5) injury to the plaintiff as a consequence of the reliance.

However, where a contractual provision negates one of the fraud elements, the fraud claim fails. Here, the underlying contract expressly conditioned defendants’ sale of the franchise on Remax accepting plaintiffs as a franchisee. This qualified language precluded plaintiffs from alleging that defendants misrepresented that they had authority from Remax to sell their franchise. (⁋ 43)

The appeals court also affirmed the trial court’s dismissal of plaintiffs’ tortious interference with prospective economic advantage claim.  To prevail on this theory, a plaintiff must plead and prove (1) his reasonable expectation of entering into a valid business relationship, (2) the defendant’s knowledge of the plaintiff’s expectancy, (3) purposeful interference by defendant that prevents plaintiff’s legitimate expectation from coming to fruition, and (4) damages to the plaintiff.

The ‘purposeful interference’ prong of the tort requires a showing of more than interference.  The plaintiff must also prove a defendant’s improper conduct done primarily to injure the plaintiff.  Where a defendant acts to protect or enhance his own business interests, he is privileged to act in a way that may collaterally harm another’s business expectancy.  Where a defendant invokes a privilege to interfere with a plaintiff’s business expectancy, the burden shifts to the plaintiff to show that the defendant’s conduct was unjustified or malicious.  (¶ 46)

The Court found defendants’ actions were done to protect the future success of their real estate franchise and listings.  Since plaintiffs failed to plead any specific facts showing defendants’ intent to financially harm the plaintiffs, dismissal of the tortious interference count was proper.

The Court reversed the dismissal of plaintiff’s breach of contract claims, however. This was because the affidavit filed in support of defendant’s Section 2-619 motion didn’t qualify as affirmative matter.  An affirmative matter is any defense other than a negation of the essential allegations of the plaintiff’s cause of action.  Affirmative matter is not evidence a defendant expects to contest an ultimate fact alleged in a complaint.

Here, defendants’ Section 2-619 affidavit effectively plaintiffs’ allegations were “not true:” that defendants didn’t owe plaintiffs any commissions.  The Court found that a motion affidavit that simply denies a complaint’s material facts does not constitute affirmative matter. (¶¶ 56-59)

Afterwords:

Byram provides a useful summary of the relevant guideposts and distinctions between section 2-615 and 2-619 motions to dismiss. Where a supporting affidavit merely disputes plaintiff’s factual allegations, it will equate to a denial of the plaintiff’s allegations. Such an affidavit will not constitute proper affirmative matter than wholly defeats a claim.

The case also provides value for its discussion of the Darwinian privilege defense to tortious interference. When a defendant acts to protect herself or her business, she can likely withstand a tortious interference claim by a competitor – even where that competitor is deprived of a remedy.

Texas Arbitration Provision Sounds Death Knell For Illinois Salesman’s Suit Against Former Employer – IL ND

(“Isn’t that remarkable…..”)

The Plaintiff in Brne v. Inspired eLearning, 2017 WL 4263995, worked in sales for the corporate publisher defendant.  His employment contract called for arbitration in San Antonio, Texas.

When defendant failed to pay plaintiff his earned commissions, plaintiff sued in Federal court in his home state of Illinois under the Illinois Wage Payment and Collection Act, 820 ILCS 115/1 (“IWPCA”). Defendant moved for venue-based dismissal under Rule 12(b)(3)

The Illinois Northern District granted defendant’s motion and required the plaintiff to arbitrate in Texas.  A Rule 12(b)(3) motion is the proper vehicle to dismiss a case filed in the wrong venue. Once a defendant challenges the plaintiff’s venue choice, the burden shifts to the plaintiff to establish it filed in the proper district.  When plaintiff’s chosen venue is improper, the Court “shall dismiss [the case], or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought.” 28 U.S.C. § 1406(a).

Upholding the Texas arbitration clause, the Illinois Federal court noted the liberal federal policy favoring arbitration agreements except when to do so would violate general contract enforceability rules (e.g. when arbitration agreement is the product of fraud, coercion, duress, etc.)

The Court then turned to plaintiff’s argument that the arbitration agreement was substantively unconscionable.  An agreement is substantively unconscionable where it is so one-sided, it “shocks the conscience” for a court to enforce the terms.

The plaintiff claimed the arbitration agreement’s cost-sharing provision and absence of fee-shifting rendered it substantively unconscionable.

Cost Sharing Provision

Under Texas and Illinois law, a party seeking to invalidate an arbitration agreement on the ground that arbitration is prohibitively expensive must provide individualized evidence to show it will likely be saddled with excessive costs during the course of the arbitration and is financially incapable of meeting those costs.  The fact that sharing arbitration costs might cut in to a plaintiff’s recovery isn’t enough: without specific evidence that clearly demonstrates arbitration is cost-prohibitive, a court will not strike down an arbitration cost-sharing provision as substantively unconscionable.  Since plaintiff failed to offer competent evidence that he was unable to shoulder half of the arbitration costs, his substantive unconscionability argument failed

Fee-Shifting Waiver

The plaintiff’s fee-shifting waiver argument fared better.  Plaintiff asserted  then argued that the arbitration agreement’s provision that each side pays their own fees deprived Plaintiff of his rights under the IWPCA (see above) which, among other things, allows a successful plaintiff to recover her attorneys’ fees. 820 ILCS 115/14.

The Court noted that contractual provisions against fee-shifting are not per se unconscionable and that the party challenging such a term must demonstrate concrete economic harm if it has to pay its own lawyer fees.  The court also noted that both Illinois and Texas courts look favorably on arbitration and that arbitration fee-shifting waivers are unconscionable only when they contradict a statute’s mandatory fee-shifting rights and the statute is central to the arbitrated dispute.

The court analogized the IWPCA to other states’ fee-shifting statutes and found the IWPCA’s attorneys’ fees section integral to the statute’s aim of protecting workers from getting stiffed by their employers.  The court then observed that IWPCA’s attorney’s fees provision encouraged non-breaching employees to pursue their rights against employers.  In view of the importance of the IWPCA’s attorneys’ fees provision, the Court ruled that the arbitration clause’s fee-shifting waiver clashed materially with the IWPCA and was substantively unconscionable.

However, since the arbitration agreement contained a severability clause (i.e. any provisions that were void, could be excised from the arbitration contract), the Court severed the fee-shifting waiver term and enforced the balance of the arbitration agreement.  As a result, plaintiff must still arbitrate against his ex-employer in Texas (and cannot litigate in Illinois).

Afterwords:

This case lies at the confluence of freedom of contract, the strong judicial policy favoring arbitration and when an arbitration clause conflicts with statutory fee-shifting language.  The court nullified the arbitration provision requiring each side to pay its own fees since that term clashed directly with opposing language in the Illinois Wage Payment and Collection Act.  Still, the court enforced the parties’ arbitration agreement – minus the fee provision.

The case also provides a useful synopsis of venue-based motions to dismiss in Federal court.