Pontiac GTO Buyer Gets Only Paltry Damage Award Where He Can’t Prove Lost Profits Against Repair Shop – IL Court

Spagnoli v. Collision Centers of America, Inc., 2017 IL App (2d) 160606-U portrays a plaintiff’s Pyrrhic victory in a valuation dispute involving a 1966 Pontiac GTO.  

The plaintiff car enthusiast brought a flurry of tort claims against the repair shop defendant when it allegedly lost the car’s guts after plaintiff bought it on-line.

The trial court directed a verdict for the defendant on the bulk of plaintiff’s claims and awarded the plaintiff only $10,000 on its breach of contract claim – a mere fraction of what the plaintiff sought.

The Court first rejected plaintiff’s lost profits claim based on the amounts he expected to earn through the sale of car once it was repaired.

A plaintiff in a breach of contract action can recover lost profits where (1) it proves the loss with a reasonable degree of certainty; (2) the defendant’s wrongful act resulted in the loss, and (3) the profits were reasonably within the contemplation of the defendant at the time the contract was entered into.

Because lost profits are naturally prospective, they will always be uncertain to some extent and impossible to gauge with mathematical precision.  Still, a plaintiff’s damages evidence must afford a reasonable basis for the computation of damages and the defendant’s breach must be traceable to specific damages sustained by the plaintiff.  Where lost profits result from several causes, the plaintiff must show the defendant’s breach caused a specific (measurable) portion of the lost profits. [¶¶ 17-20]

Agreeing with the trial court, the appeals Court found the plaintiff failed to present sufficient proof of lost profits.  The court noted that the litigants’ competing experts both valued the GTO at $80,000 to $115,000 if fully restored to mint condition.  However, this required the VIN numbers on the vehicle motor and firewall to match and the engine to be intact.  Since the car in question lacked matching VIN numbers and its engine missing, the car could never be restored to a six-figures value range.

The Court also affirmed the directed verdict for defendant on plaintiff’s consumer fraud claim.  To make out  valid Consumer Fraud Act (CFA) claim under the Consumer Fraud Act a plaintiff must prove: (1) a deceptive act or unfair practice occurred, (2) the defendant intended for the plaintiff to rely on the deception, (3) the deception occurred in the course of conduct involving trade or commerce, (4) the plaintiff sustained actual damages, and (5) the damages were proximately cause by the defendant’s deceptive act or unfair conduct. A CFA violation can be based on an innocent or negligent misrepresentation.

Since the plaintiff presented no evidence that the repair shop made a misrepresentation or that defendant intended that plaintiff rely on any misrepresentation, plaintiff did not offer a viable CFA claim.

Bullet-points:

  • A plaintiff in a breach of contract case is the burdened party: it must show that it is more likely than not that the parties entered into an enforceable contract – one that contains an offer, acceptance and consideration – that plaintiff substantially performed its obligations, that defendant breached and that plaintiff suffered money damages flowing from the defendant’s breach.
  • In the context of lost profits damages, this case amply illustrates the evidentiary hurdles faced by a plaintiff.  Not only must the plaintiff prove that the lost profits were within the reasonable contemplation of the parties, he must also establish which profits he lost specifically attributable to the defendant’s conduct.
  • In consumer fraud litigation, the plaintiff typically must prove a defendant’s factual misstatement.  Without evidence of a defendant’s misrepresentation, the plaintiff likely won’t be able to meet its burden of proof on the CFA’s deceptive act or unfair practice element.

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.

 

 

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.