Secretary of State’s LLC File Detail Report Is Public Record – IL Court (A Deep Cut)

R&J Construction v. Javaras, 2011 WL 10069461, an unpublished and dated opinion, still holds practical value for its discussion of the judicial notice rule, breach of contract pleading requirements and a limited liability company member’s insulation from liability for corporate debts.

The plaintiff sold about $70K worth of construction materials to a concrete company associated with the individual defendant.  The concrete company’s legal name was WS Concrete, LLC, an Illinois limited liability company doing business under the assumed name, West Suburban Concrete.  Defendant was a member of the LLC and point-person who ordered supplies from the plaintiff.

The plaintiff sued the individual and did not name the LLC as a party defendant.

The trial court dismissed the complaint because the plaintiff failed to attach the written contract and there was no evidence the defendant assumed personal responsibility for the contract obligations.  The plaintiff appealed.

Result: Affirmed.

Reasons:

The Court first found the trial court correctly dismissed plaintiff’s suit for failure to attach the operative contract.

Code Section 2-606 requires a plaintiff to attach a written instrument (like a contract) to its pleading where the pleading is based on that instrument.  The exception is where the pleader can’t locate the instrument in which case it must file an affidavit stating the instrument is inaccessible.

Here, the plaintiff alleged a written contract but only attached a summary of various purchase orders and invoices to the complaint.  Since it failed to attach the contract, the appeals court found the complaint deficient and falling short of Section 2-606’s attached-instrument requirement.

The court next addressed whether the LLC File Detail Report (see above image), culled from the Illinois Secretary of State “cyberdrive” site was admissible on Defendant’s motion to dismiss.  In ruling the Report was admissible, the Court cited to case precedent finding that Secretary of State records are public records subject to judicial notice.  (Judicial notice applies to facts that are readily verifiable and not subject to reasonable dispute.)

Since the LLC Report plainly demonstrated the proper defendant was the LLC (as opposed to its member), and there was no evidence the individual defendant took on personal liability for plaintiff’s invoices, the trial court correctly dismissed the defendant.

Added support for the defendant’s dismissal came via the Illinois Limited Liability Company Act, 805 ILCS 180/1 et seq.  Section 10-10 of the LLC Act provides that an LLC’s contractual obligations belong solely to the LLC and that a member cannot be personally responsible for LLC contracts unless (1) the articles of organization provide for personal liability and (2) the member consents in writing.

The Court next addressed plaintiff’s agent of a disclosed principal argument.  The plaintiff asserted that since the individual defendant is the person who ordered plaintiff’s construction materials and it was unclear who the defendant represented, the defendant was responsible for plaintiff’s unpaid invoices.

The court rejected this argument.  It noted that under Illinois law, where an agent signs a contract by signing his own name and providing his own personal contact information (address, phone number, SS #, etc.) and fails to note his corporate affiliation, he (the agent) can be personally liable on a contract.  In this case, however, there was no documentation showing defendant ordering supplies in his own name.  All invoices attached to the plaintiff’s response brief (to the motion to dismiss) reflected the LLC’s assumed name – “West Suburban Concrete” – as the purchasing entity.

Afterwords:

(1) the case provides a useful analysis of common evidentiary issues that crop up in commercial litigation where a corporate agent enters into an agreement and the corporation is later dissolved;

(2) Both the LLC Act and agency law can insulate an individual LLC member from personal liability for corporate debts;

(3) Secretary of State corporate filings are public records subject to judicial notice.  This is good news for trial practitioners since it alleviates the logistical headache of having a Secretary of State agent give live or affidavit testimony on corporate records at trial.

 

 

‘It Ends When I Say So!’ – Automatically Renewing Contracts in Illinois

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My early experiences with automatic contract renewals weren’t warm and fuzzy ones.  Growing up, I recall Columbia House’s ageless pitchman Dick Clark breathlessly hawking “13 tapes for a dollar!” (or was it a penny?) offers across the pre-cable television airscape. I’d frantically sign up, the cassettes would soon arrive and – for a while, at least – Eureka! (this was pre-Nirvana of course.)

But once the novelty wore off, I continued to receive tapes along the lines of Kansas’ Point of Know Return (Kerry Livgren anyone?) or Loverboy’s Get Lucky (remember Mike Reno??) for the next several months even though I never ordered them!  [My favorite Kansas songs you ask? (humor me), those would be “What’s On My Mind,” “Portrait,” “Miracles Out of Nowhere,” and “Hold On” (from the post-Steve Walsh era)]  

Then there was that never-ending People magazine subscription.  The time and energy I spent trying to extricate myself from that vice-grip subscription definitely did not justify my fleeting moments of guilty-pleasure fluff-reading. The culprit in both examples: automatically renewing contracts.

The Illinois Automatic Contract Renewal Act, 815 ILCS 601/1 et seq. (the “Act”), is the legislature’s attempt to protect unwitting consumers from being locked into long-term contracts against their will.

The Act only applies to consumer (not business-to-business contracts) entered into after January 1, 2005.  The Act provides that if a contract is subject to automatic renewal, the renewal clause must be clear and conspicuous manner.  815 ILCS 601/10. In addition to the B2B exclusion, the Act also doesn’t apply to contracts involving banks, savings and loan associations or credit unions. 815 ILCS 601/20(c), (d).

 The caselaw interpreting the Act does not specifically define “clear and conspicuous”.  To give content to the clear and conspicuous requirement, courts look to other statutes for guidance.  The Uniform Commercial Code (UCC) defines “conspicuous” as “so written, displayed, or presented that a reasonable person against which it is to operate ought to have noticed it.”  810 ILCS 5/1-201(10). 

In the case of a warranty, the court looks to (a) how many times a customer was made aware of the notice, (b) whether it was on the front or the back of the page, (c) whether the language was emphasized in some way (d) whether the notice was set off from the rest of the document so as to draw attention to it; and (e) font size. 

The Seventh Circuit’s clear and conspicuous calculus includes: whether a reasonable person would notice it; how many times a customer was made aware of the notice; whether it was on the front or back of the page; whether the language was emphasized in some way; whether the notice was set off from the rest of the document so as to draw attention to it; and font size.

The issue is not whether the disclaimer (or renewal term) could have been more conspicuous, but whether the term is presented in a manner to draw attention to it.

Illinois courts have enforced contract disclaimers that appear in ALLCAPS, bold-faced and unambiguous and where the term is set apart from the rest of the contract’s text. 

Section 10 of the Act requires a contract party to send written notice of automatic renewal and the consumer’s cancellation rights where (a) the contract’s terms is 12 months or more and (b) the renewal period exceeds one month. The renewal notice must be given within 30-60 days before the contract’s expiration.

Example: If a contract automatically renews on 12/1/13, and the cancellation deadline is 11/1/13 – notice must be issued no earlier than 9/1/13 and no later than 10/1/13.

As for remedies, an Act violation gives rise to a private cause of action under the Consumer Fraud Act.  815 ILCS 601/15.  This is significant because the Consumer Fraud Act provides for prevailing-party attorneys’ fees.  The Act does  provide a safe harbor to a business that violates the Act and takes documented corrective actions.  815 ILCS 601/10(c).

The take-away:  If you’re a business entering into a contract with a consumer, and the contract automatically renews, the caselaw suggests that for the renewal term to be clear and conspicuous, and therefore enforceable, the provision: (1) should not be hidden amid boilerplate legalese,  (2) should be in a type size at least as large (if not larger than) the surrounding language, (3) the term should be in ALLCAPS and preferably in bold type face and (4) should appear on the first page or otherwise set apart from the rest of the contract.

 

Snow Plower’s Quantum Meruit Claim Fails; Dissent Takes Rule 23 Publishing Standards to Task – IL 1st Dist.

In Snow & Ice, Inc. v. MPR Management, 2017 IL App (1st) 151706-U, a snow removal company brought breach of contract and quantum meruit claims against a property manager and several property owners for unpaid services.

The majority affirmed dismissal of the plaintiff’s claims and in dissent, Judge Hyman gives a scathing critique of Rule 23, which provides standards for publishing (or not) opinions, including the rule’s penchant for quiet minority voices on an appeals court.

Plaintiff sued to recover about $90K for snow removal services it supplied to nine separate properties managed by the property manager defendant.  After nonsuiting the management company, the plaintiff proceeded against the property owners on breach of contract and quantum meruit claims.

The trial court granted the nine property owners’ motion to dismiss on the basis there was no privity of contract between plaintiff and the owners.  The court dismissed the quantum meruit suit because an express contract between the plaintiff and property manager governed the parties’ relationship and a quantum meruit claim can’t co-exist with a breach of express contract action.

Affirming the Section 2-615 dismissal of the breach of contract claims, the appeals court rejected the plaintiff’s claim that the management company contracted with plaintiff on behalf of the property owner defendants.  In Illinois, agency is a question of fact, but the plaintiff still must plead facts which, if proved, could establish an agency relationship.

A conclusory allegation of a principal-agent relationship between property manager and owners is not sufficient to survive a motion to dismiss.  Since the plaintiff only alleged the bare conclusion that the property owners were responsible for the management company’s contract, the First District affirmed dismissal of plaintiff’s breach of contract claims.

The Court also affirmed the dismissal of the plaintiff’s quantum meruit claims against the owners.  A quantum meruit plaintiff must plead (1) that it performed a service to defendant’s benefit, (2) it did not perform the service gratuitously, (3) defendant accepted the service, and (4) no contract existed to prescribe payment for the service.  Quantum meruit is based on an implied promise by a recipient of services or goods to pay for something of value which it received.  (¶¶ 17-18).

Since the properties involved in the lawsuit were commercial (meaning, either vacant or leased), the Court refused to infer that the owners wanted the property plowed.  It noted that if the property was vacant, plaintiff would have to plead facts to show that the owner wanted plaintiff to clear snow from his/her property.  If leased, the plaintiff needed facts tending to show that the owner/lessor (as opposed to the tenant) implicitly agreed to pay for the plaintiff’s plowing services.  As plaintiff’s complaint was bereft of facts sufficient to establish the owners knew of and impliedly agreed to pay plaintiff for its services, the quantum meruit claim failed.

If leased, the plaintiff needed facts tending to show that the owner/lessor (as opposed to the tenant) implicitly agreed to pay for the plaintiff’s plowing services.  As plaintiff’s complaint was bereft of facts sufficient to establish the owners knew of and impliedly agreed to pay plaintiff for its services, the quantum meruit claim failed.

In dissent, Judge Hyman agreed that the plaintiff’s breach of contract claim was properly dismissed but found that the plaintiff did plead enough facts to sustain a quantum meruit claim.  Hyman’s dissent’s true value, though, lies in its in-depth criticism of Illinois Supreme Court Rule 23’s publication guidelines.

Rule 23 provides for an opinion’s publication only where a majority of the panel deems a decision one that “establishes a new rule of law or modifies, explains, or criticizes an existing rule of law” or “resolves, creates, or avoids an apparent conflict of authority within the Appellate Court.” Sup. Ct. R. 23(a).

Hyman’s thesis is that these standards are too arbitrary and the Rule should be changed so that just one justice, instead of a majority of the panel, is all that’s needed to have a decision published.  Hyman then espouses the benefits of dissents and special concurrences; they perform the valuable functions of clarifying, questioning and developing the law.

In its current configuration, Rule 23 arbitrarily allows a majority of judges to squelch lone dissenters and effectively silence criticism.  Judge Hyman advocates for Illinois to follow multiple other courts’ lead and adopt a “one justice” rule (a single judge’s request warrants publication).  By implementing the one justice rule, minority voices on an appeals panel won’t so easily be squelched and will foster legal discourse and allow the competing views to “hone legal theory,

By implementing the one justice rule, minority voices on an appeals panel won’t so easily be squelched and will foster legal discourse and allow the competing views to “hone legal theory, concept and rule.”