The ‘Procuring Cause’ Rule – Ill. Appeals Court Weighs In

The First District recently applied the ‘procuring cause’ doctrine to award the plaintiff real estate broker a money judgment based on a reasonable brokerage commission in Jameson Real Estate, LLC v. Ahmed, 2018 IL App (1st) 171534.

The broker provided the defendant with specifics concerning an “off market” car wash business and the land it sat on. The plaintiff later gave defendant a written brokerage contract for the sale of the car wash business and property that provided for a 5% sales commission.  The defendant never signed the contract.

After many months of negotiations, defendant orally informed plaintiff he no longer wished to buy the property and stopped communicating with plaintiff.

When plaintiff later learned that defendant bought the property behind plaintiff’s back, plaintiff sued to recover his 5% commission. The trial court directed a verdict for defendant on plaintiff’s express contract claims but entered judgment for plaintiff on his quantum meruit complaint count.  The money judgment was for an amount that was congruent with what a typical buyer’s broker – splitting a commission with a selling broker – would earn in a comparable commercial sale.

Quantum meruit, which means “as much as he deserves” provides a broker plaintiff with a cause of action to recover the reasonable value of services rendered but where no express contract exists between the parties.

A quantum meruit plaintiff must plead and prove (1) it performed a service to the benefit of a defendant, (2) that it did not perform the service gratuitously, (3) the defendant accepted the plaintiff’s service, and (4) no written contract exists to prescribe payment for the service.

The fine-line distinction between quantum meruit and unjust enrichment is that in the former, the measure of recovery is the reasonable value of work and material furnished, while in the unjust enrichment setting, the focus is on the benefit received and retained as a result of the improvement provided.  [¶ 61]

In the real estate setting, a quantum meruit commission recovery can be based on either a percentage of the sales price or the amount a buyer saved by excising a broker’s fee from a given transaction. [¶ 64]

Where a real estate broker brings parties together who ultimately consummate a real estate sale, the broker is treated as the procuring cause of the completed deal. In such a case, the broker is entitled to a reasonable commission shown by the evidence. A broker can be deemed a procuring cause where he demonstrates he was involved in negotiations and in disseminating property information which leads to a completed sale. [¶ 69]

The appeals court found the trial court’s quantum meruit award of $50,000, which equaled the seller’s broker commission and which two witnesses testified was a reasonable purchaser’s broker commission, was supported by the evidence. (Note – this judgment amount was less than half of what the broker sought in his breach of express contract claim – based on the unsigned 5% commission agreement.)

The Court rejected defendant’s ‘unclean hands’ defense premised on plaintiff’s failure to publicly list the property (so he could purchase it himself) and his lag time in asserting his commission rights.

The unclean hands doctrine prevents a party from taking advantage of its own wrong.  It prevents a plaintiff from obtaining legal relief where he is guilty of misconduct in connection with the subject matter of the litigation.  For misconduct to preclude recovery, it must rise to the level of fraud or bad faith. In addition, the misconduct must be directly aimed at the party against whom relief is sought.  Conduct geared towards a third party, no matter how egregious, generally won’t support an unclean hands defense.

Here, the defendant’s allegation that the plaintiff failed to publicly list the property, even if true, wasn’t directed at the defendant.  If anything, the failure to list negatively impacted the non-party property owner, not the defendant.

Afterwords:

In the real estate broker setting, procuring cause doctrine provides a viable fall-back theory of recovery in the absence of a definite, enforceable contract.

Where a broker offers witness testimony of a customary broker commission for a similar property sale, this can serve as a sufficient evidentiary basis for a procuring cause/quantum meruit recovery.

 

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.