Filing Lawsuit Doesn’t Meet Conversion Suit ‘Demand for Possession’ Requirement – 7th Cir. (applying IL law)

Conversion, or civil theft, requires a plaintiff to make a demand for possession of the converted property before suing for its return.  This pre-suit demand’s purpose is to give a defendant the opportunity to return plaintiff’s property and avoid unnecessary litigation.

What constitutes a demand though?  The easiest case is where a plaintiff serves a written demand for return of property and the defendant refuses.  But what if the plaintiff doesn’t send a demand but instead files a lawsuit.  Is the act of filing the lawsuit equivalent to sending a demand?

The Seventh Circuit recently answered that with a “no” in Stevens v. Interactive Financial Advisors, Inc., 2016 WL 4056401 (N.D.Ill. 2016)

The plaintiff there sued his former brokerage firm for tortious interference with contract and conversion when the firm blocked plaintiff’s access to client data after he was fired.

The District Court granted summary judgment for defendant on the plaintiff’s tortious interference claim and a jury later found judgment for defendant on plaintiff’s conversion suit.

At the conversion trial, the jury submitted this question to the trial judge: “Can we consider [filing] the lawsuit a demand for property?”

The trial judge answered no: under Illinois law, filing a lawsuit doesn’t qualify as a demand for possession.  The jury entered judgment for the defendant and plaintiff appealed.

Affirming the jury verdict, the Seventh Circuit addressed whether impeding a plaintiff’s access to financial data can give rise to a conversion action in light of Illinois’s pre-suit demand for possession requirement and various Federal securities laws.

To prove conversion under Illinois law, a plaintiff must show (1) he has a right to personal property, (2) he has an absolute and unconditional right to immediate possession of the property, (3) he made a demand for possession, and (4) defendant wrongfully and without authorization assumed control, dominion, or ownership over the property.

The Court held that since the firm was bound by Federal securities laws that prohibiting it from disclosing nonpublic client information to third parties, coupled with plaintiff’s firing, the plaintiff could not show a right to immediate possession of the locked out client data.

The Seventh Circuit also agreed with the jury upheld the jury verdict on the insurance clients conversion suit based on the plaintiff’s failure to make a demand for possession.  The Court noted the plaintiff failed to demand the  return of his insurance client’s data before he sued.

And since Illinois courts have never held that the act of suing was a proxy for the required demand, the Seventh Circuit affirmed the jury verdict.

The Court also nixed the plaintiff’s “demand futility” argument: that a demand for possession would have been pointless given the circumstances of the given case. (Demand futility typically applies where the property has been sold or fundamentally damaged.)

The Seventh Circuit found that the jury properly considered the demand futility question and ruled against the plaintiff and there was no basis to reverse that finding.

Afterwords:

1/ A conversion plaintiff’s right to client data will not trump a Federal securities law protecting the data.  In addition, a pre-suit demand for possession is required to make out a conversion action unless the plaintiff can show that the demand is pointless or futile;

2/ Filing a lawsuit doesn’t dispense with the conversion tort’s demand for possession.

3/ A conversion plaintiff must make a demand for possession before suing even where the demand is likely pointless. Otherwise, the risk is too great that the lack of a demand will defeat the conversion claim.

 

Of Styx, Starbucks and A Drink Is Not A Beverage (??)

I remember being frantic one weeknight in the Fall of 1978. In a good way. My dad had picked me up from grade school (St. Thomas Aquinas – East Wichita, KS) in his Ice Blue Monte Carlo and together we trekked to David’s, the long shuttered department store in Wichita’s Parklane shopping mall. (I still recall the store’s ultra-catchy “D! A-V-I-D! Apostrophe S! – Come on into David’s!” ad jingle saturating local radio and television at the time.)

Nearing David’s and nearly hyperventilating with excitement, I was on the verge of buying my very first record album. Over the next few decades, I would accumulate well over a thousand records, cassettes, CDs and .mp3 singles. But Styx’s Pieces of Eight – the “Blue Collar Man” album, was my first record buy. And I do remember the event (to me it was an event given my life-long love of rock music and its history) like it was yesterday: the album’s plastic packaging, its glossy texture, the lemony smells of the store. All of it.

I had been on a mission to buy PoE ever since I heard “Renegade” on a Fourth Grade classmate’s K-Tel 8-track tape (showing my age alert!) a few weeks prior. The song was sandwiched between Amy Stewart’s “Knock on Wood” cover and Kansas’ “Point of No Return.” (That’s how much I listened to “Renegade” on my friend’s 8-track machine – I still remember – almost forty years later – the songs that both preceded and followed it with the same vividness as the song itself.)

PoE did not disappoint. Besides the mighty “Renegade,” some other choice PoE cuts include “Queen of Spades”, “Great White Hope,” and the title track. The aforementioned “Blue Collar Man,” still a rock radio staple and one of the most prominent in the Styx catalog, is yet another of PoE’s high-octane offerings. And so Styx became my favorite band. And I wore PoE out; listening to it on all days and at all hours.

Fast forward to the early 1980s and I was introduced to heavier fare like Maiden, Priest and Dio. My interest in Styx waned. I suspected, and peer pressure confirmed, that the band just wasn’t metal enough. A year or two later a classmate’s older brother played Into the Void’s  menacing, atonal intro and I was hooked. Black Sabbath would become my all-time metal gods. Styx and bands like it were relegated to afterthought status.

But not before 1981’s Paradise Theater and one of its top tracks, “Too Much Time on My Hands” burst into the pop music consciousness. An FM stalwart and iconic Early MTV offering, the song’s vaguely disco-tinged beat and electro-hand claps still trigger nostalgia pangs. I remember roller skating (!!) to the song at Skate East and Traxx – two venerable Wichita roller skating venues that long ago succumbed to the wrecking ball and internal detonations.

In the song, Tommy Shaw, the diminutive lead guitarist and Alabaman (I think), laments the perils of idle time and fair-weather compadres (“I got! dozens of friends and the fun never ends, that is as long as I’m buying…”) and even sprinkles in an incongruous Commander-in-Chief aspiration. (“Is it any wonder I’m not the President?“) So memorable is Too Much‘s video that even Jimmy Fallon, erstwhile SNL castmember and current Tonight Show host, gushed over it and did a verbatim sendup of the song with actor Paul “I Love You Man” Rudd.

I mention all this because today’s featured case – Forouzesh v. Starbucks Corp., (unfairly or not) reminds me of someone who clearly had…..tick tick tick (you guessed it)…. too much time on his hands.

The plaintiff, on his own and on behalf of all California residents who purchased a Starbucks cold drink in the past decade, sued the Seattle coffee titan for systemic fraud. He claimed Starbucks misrepresented the amount of fluid ounces in its cold drink offerings. Specifically, he claimed the coffee giant lied on its on-line menu about the amount of liquid in its drinks by underfilling its cups and adding ice to make the cups appear full. The plaintiff brought various common law and statutory fraud and breach of warranty claims in his lawsuit.

The California District Court dismissed the suit on Starbucks’ Rule 12(b)(6) motion. The Court noted that under Rule 8(a), a complaint must give a defendant fair notice of what a claim is and its basis. The complaint must meet a “plausibility standard” in which a complaint’s factual allegations are enough to raise a right to relief above the speculative level. A plaintiff must do more than simply allege labels, conclusions and a “formulaic recitation” of the elements of a given cause of action.

An action for fraud is subject to a more exacting pleading standard. Rule 9(b) requires a fraud plaintiff to allege underlying fraud facts with sharper specificity, including the time, place, persons involved, and content of the false statement.

Rejecting the plaintiff’s statutory consumer fraud and unfair competition claims, the Court found that a “reasonable consumer” would not likely be deceived by Starbucks’ website description of its cold drink measurements. Indeed, the Court held “but as young children learn, they can increase the amount of beverage they receive if they order “no ice.” Ouch?

And since young children could figure out that more ice means less liquid, the Court concluded that a reasonable consumer would not be deceived by Starbucks’ stated fluid ounce stats. Added support for the Court’s holding lay in the fact that Starbucks’ cold drink containers are clear. A consumer can clearly see that a given drink consists of both ice and liquid. If a consumer wants more liquid, he can simply order with “no ice.”

The Court’s finding of no deception also doomed the plaintiff’s common law fraud claims. It held that since a reasonable consumer would comprehend that Starbucks’ cold drinks contain both ice and liquid, the plaintiff could not establish either a misrepresentation by Starbucks or plaintiff’s justifiable reliance on it – two required fraud elements.

Lastly, the Court rejected the plaintiff’s state law breach of warranty claims. The Court found that Starbucks did not specifically state that its cold drinks contained a specific amount of liquid. All the coffee maker said – via its web page – was that it offered cold drinks for sale in various cup sizes (12 oz – Tall; 16 oz. – Grande, 24 oz. – Venti). Absent any specific allegations that Starbucks expressly or impliedly warranted that its cold drinks contained a specific amount of liquid, the plaintiff couldn’t make out a valid breach of warranty claim.

Afterwords: The plaintiffs’ failed fraud suit against Starbucks illustrates that while Federal pleading standards normally more relaxed than their State court counterparts, this isn’t so with fraud claims.

The plaintiff’s failure to pin a specific misstatement concerning Starbucks’ cold drink contents doomed his claims. The court also gives teeth to the reasonable consumer standard that applies to state law consumer protection statutes. Since the plaintiff was unable to show a reasonable consumer would have been deceived by Starbucks’ published cold drink measurements, the plaintiff’s unfair competition and consumer fraud actions failed.

Oh, and to bring things full-circle, I suppose I should report that neither Renegade norBlue Collar Man nor Too Much Time on My Hands is my favorite Styx tune. That honor goes to “Castle Walls” – the second or third song on Side 2 of 1977’s Grand Illusion album. Give it a listen. It’ll definitely cure what ails ya.

Indy Skyline Photo Spat At Heart Of 7th Circuit’s Gloss on Affirmative Defenses, Res Judicata and Fed. Pleading Amendments – Bell v. Taylor (Part I)

Litigation over pictures of the Indianapolis skyline form the backdrop for the Seventh Circuit’s recent examination of the elements of a proper affirmative defense under Federal pleading rules and the concept of ‘finality’ for res judicata purposes in Bell v. Taylor.

There, several small businesses infringed plaintiff’s copyrights in two photographs of downtown Indianapolis: one taken at night, the other in daytime.  The defendants – an insurance company, a realtor, and a computer repair firm – all used at least one the plaintiff’s photos on company websites.  When the plaintiff couldn’t prove damages, the District Court granted summary judgment for the defendants and later dismissed a second lawsuit filed by the plaintiff against one of the defendants based on the same facts.  The plaintiff appealed.

The Seventh Circuit affirmed summary judgment of the first lawsuit and dismissal of the second action on both procedural and substantive grounds.

Turning to the claims against the computer company defendant, the court noted that the defendant denied using the plaintiff’s daytime photo.  The defendant used only the nighttime photo.  The plaintiff argued that the defendant failed to comply with Rule 8(b) by not asserting facts to support its denial that it used plaintiff’s daytime photo.

Rejecting this argument, the court noted that a proper affirmative defense limits or excuses a defendant’s liability even where the plaintiff establishes a prima facie case.  If the facts that underlie an affirmative defense are proven true, they will defeat the plaintiff’s claim even if all of the complaint allegations are true.  A defendant’s contesting a plaintiff’s factual allegation is not an affirmative defense.  It is instead a simple denial.  Since the computer defendant denied it used the daytime photo, there was no affirmative matter involved and the defendant didn’t have to comply with Rule 8’s pleading requirements.

The Seventh Circuit also affirmed the denial of the plaintiff’s attempt to amend his complaint several months after pleadings closed.  In Federal court, the right to amend pleadings is broad but not absolute.  Where allowing an amendment would result in undue delay or prejudice to the opposing party, a court has discretion to refuse a request to amend a complaint.  FRCP 15(a)(2).  Here, the Court agreed with the lower court that the plaintiff showed a lack of diligence by waiting until well after the amending pleadings deadline passed.  The plaintiff’s failure to timely seek leave to amend its complaint supported the court’s denial of its motion.

The Court also affirmed the District Court’s dismissal of the plaintiff’s second lawsuit on res judicata grounds.  When the District Court entered summary judgment for defendants on plaintiff’s copyright and state law claims (conversion, unfair competition), plaintiff’s equitable relief claims (declaratory judgment and injunctive relief) were pending.  Because of this, the summary judgment order wasn’t final for purposes of appeal.  (Plaintiff could only appeal final orders – and until the court disposed of the equitable claims, the summary judgment order wasn’t final and appealable.)

Still, finality for res judicata purposes is different from appellate finality.  An order can be final and have preclusive effect under res judicata or collateral estoppel even where other claims remain.  This was the case here as plaintiff’s sole claim against the computer company defendant was for copyright infringement.  The pending equitable claims were directed to other defendants.  So the District Court’s summary judgment order on plaintiff’s copyright infringement claims was final as to the computer defendant.  This finality triggered res judicata and barred the plaintiff’s second lawsuit on the same facts.

Afterwords:

The case’s academic value lies in its thorough summary of the pleading requirements for affirmative defenses and the factors guiding a court when determining whether to permit amendments to pleadings.  The case also stresses that finality for appeal purposes is not the same as for res judicata or collateral estoppel.  If an order disposes of a plaintiff’s claims against one but not all defendants, the order is still final as to that defendant and the plaintiff will be precluded from later filing a second lawsuit against that earlier victorious defendant.