15-Year ‘Course of Dealing’ Clarifies Oral Agreement for Tax Sale Notices – IL First Dist.

The would-be tax deed buyer in Wheeler Financial, Inc. v. Law Publishing Co., 2018 IL App (1st) 171495 claimed the publisher defendant’s erroneous sale date in a required tax sale notice thwarted its purchase of a pricey Chicago property.

A jury found for the publisher defendant on the buyer’s breach of oral contract claim since the plaintiff failed to properly vet the draft “Take Notice” (the statutory notice provided by a tax deed applicant that gives notice to the owner) supplied by the defendant before publication. The plaintiff appealed.

Affirming the jury verdict, the First District discusses the nature of express versus implied contracts, the use of non-pattern jury instructions and when course of dealing evidence is admissible to explain the terms of an oral agreement.

Course of dealing – Generally

There was no formal written contract between the parties. But there was a 15-year business relationship where the plaintiff would send draft tax deed petition notices to the defendant who would in turn, publish the notices as required by the Illinois tax code. This decade-and-a-half course of dealing was the basis for jury verdict for the publisher defendant.

Section 223 of the Restatement (Second) of Contracts defines a course of dealing as a sequence of previous conduct between parties to an agreement “which is fairly regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.”

A course of dealing “gives meaning to or supplements or qualifies their agreement” and can be considered when determining the terms of an oral contract. Where contract terms are uncertain or doubtful and the parties have – by their conduct – placed a construction on the agreement that is reasonable, such a construction will be adopted by the court. [¶ ¶ 77-78]

Course of Dealing – The Evidence

Here, the course of dealing proof was found in both trial testimony and documents admitted in evidence.

At trial, current and former employees of the publisher defendant and plaintiff’s agent all testified it was the parties’ common practice for defendant to first provide draft Take Notices to plaintiff for its review and approval prior to publication. E-mails introduced in evidence at trial corroborated this practice.

In addition, plaintiff’s affiliated tax lien company’s own handbook contained a published policy of plaintiff reviewing all Take Notices for accuracy before the notices were published. [¶¶ 35, 83-85]

The appeals court agreed with the jury that the defendant sufficiently proved the parties course of dealing was that defendant would give plaintiff a chance to review the Take Notices before publication. And since the plaintiff failed to adhere to its contractual obligation to review and apprise the defendant of any notice errors, plaintiff could not win on its breach of contract claim. (This is because a breach of contract plaintiff’s prior material breach precludes it from recovering on a breach of contract claim.)

Jury Instructions and A Tacit Exculpatory Clause?

Since no Illinois pattern jury instruction defines “course of dealing,” the trial court instructed the jury based on Wald v. Chicago Shippers Ass’n’s (175 Ill.App.3d 607 (1988) statement that a prior course of dealing can define or qualify an uncertain oral agreement. [¶ 96] Since Wald accurately stated Illinois law on the essence and reach of course of dealing evidence, it was proper for the jury to consider the non-pattern jury instruction.

The court then rejected plaintiff’s argument that allowing the legal publisher to avoid liability was tantamount to creating an implied exculpatory clause. The plaintiff claimed that if the publisher could avoid liability for its erroneous notice date, the parties’ agreement was illusory since it allowed the defendant to breach with impunity.

The court disagreed. It held that the parties’ course of dealing created mutual obligations on the parties: plaintiff was obligated to review defendant’s Take Notices and advise of any errors while defendant was required to republish any corrected notices for free. These reciprocal duties placed enforceable obligations on the parties.

Afterwords:

Where specifics of an oral agreement are lacking, but the parties’ actions over time plainly recognize and validate a business relationship, a court will consider course of dealing evidence to give content to the arrangement.
Where course of dealing evidence establishes that a breach of contract plaintiff has assumed certain obligations, the plaintiff’s failure to perform those requirements will doom its breach of contract claim.

 

 

7th Cir. Addresses Guarantor Liability, Ratification Doctrine in Futures Trading Snafu

Straits Financial v. Ten Sleep Cattle, 2018 WL 328767 (N.D.Ill. 2018) examines some signature business litigation issues against the backdrop of a commodities futures and trading account dispute. Among them are the nature and scope of a guarantor’s liability, the ratification doctrine as applied to covert conduct and the reach of the Illinois consumer fraud statute.

The plaintiff brokerage firm sued a Wyoming cattle rancher and his company to recover an approximate $170K deficit in the defendants’ trading account. (The defendants previously opened a non-discretionary account with plaintiff for the purpose of locking in future livestock prices.)

The ranch owner counter-sued, alleging a rogue trader of plaintiff made unauthorized trades with defendants’ money over a three-month period.  Defendants counter-sued for consumer fraud, breach of fiduciary duty and conversion. After a seven-day bench trial, the court entered a money judgment for the defendants and the plaintiff appealed.

In substantially affirming the trial court, the Seventh Circuit first tackled the plaintiff’s breach of guaranty claim.  In Illinois, guarantees are strictly construed and a guarantor’s liability cannot extend beyond that which he has agreed to accept.  A proverbial favorite of the law, a guarantor is given the benefit of any doubts concerning a contract’s enforceability.  A guarantor’s liability is discharged if there is a “material change” in the business dealings between the parties and an increase in risk undertaken by a guarantor.

Here, the speculative trading account (the one where the broker made multiple unauthorized trades) differed vastly in form and substance from the non-discretionary account.

Since the two trading accounts differed in purpose and practice, the Court held that it would materially alter the guarantor’s risk if he was penalized for the plaintiff’s broker’s fraudulent trading spree.  As a result, the Seventh Circuit affirmed the trial judge’s ruling for the defendant on the guarantee claim.

The Court then rejected plaintiff’s ratification argument: that defendants’ authorized the illegal churned trades by not timely objecting to them
An Illinois agency axiom posits that a person does not have an obligation to repudiate an illegal transaction until he has actual knowledge of all material facts involved in the transaction. Restatement (Third) of Agency, s. 4.06.

Illinois law also allows a fraud victim to seek relief as long as he renounces the fraud promptly after discovering it. A party attempting to undo a fraudulent transaction is excused from strict formalism, too.

Here, the ranch owner defendant immediately contacted the plaintiff’s broker when he learned of the improper trades and demanded the return of all money in the non-discretionary trading account. This, according to the Court, was a timely and sufficient attempt to soften the impact of the fraudulent trading.

The Court affirmed the trial court’s attorneys’ fees award to the defendants on its consumer fraud counterclaim. The Illinois Consumer Fraud Act, 815 ILCS 505/10a(c)(the “CFA”) allows a court to assess attorneys’ fees against the losing party.

The plaintiff argued that the trial judge errored by awarding attorneys’ fees expended by defendants in both CFA and non-CFA claims. Plaintiff contended  the trial judge should have limited his fee award strictly to the CFA claim.

Rejecting this argument, the Seventh Circuit noted that under Illinois law, where statutory fraud (which allow for fees) and common law (which don’t) claims arise from the same operative facts and involve the same evidence at trial, a court can award all fees; even ones involved in prosecuting or defending non-fee claims. And since facts tending to prove fraudulent trading “were woven throughout [the] case and the work done to develop those facts [could] not be neatly separated by claim,” the District court had discretion to allow defendants’ attorneys’ fees claim incurred in all of its counterclaims and defenses.

The Court then reversed the trial judge’s holding that the defendants failed to mitigate their damages by not reading plaintiff’s trading statements or asking about his accounts.  A breach of contract or tort plaintiff normally cannot stand idly by and allow an injury to fester without making reasonable efforts to avoid further loss.

But here, since the plaintiff’s broker committed fraud – an intentional tort – any “contributory negligence” resulting from defendant not reading the mailed statements wasn’t a valid defense to the rogue broker’s fraudulent conduct.

Afterwords:

This case shows the length a court will go to make sure a fraud perpetrator doesn’t benefit from his improper conduct.  Even if a fraud victim is arguably negligent in allowing the fraud to happen or in responding to it, the court will excuse the negligence in order to affix liability to the fraudster.

This case also illustrates how guarantors are favorites of the law and an increase in a guarantor’s risk or a marked change in business dealings between a creditor and a guarantor’s principal will absolve a guarantor from liability.

Finally, Ten Sleep shows that a prevailing party can get attorneys’ fees on mixed fee and non-fee claims where the same core of operative facts underlie them.

Earned Bonus Is Proper Subject of Employee’s Wage Payment Claim; Reliance on Employer Pre-Hiring Statements Is Reasonable – IL ND

After leaving a lucrative banking position in Florida for a Chicago consulting gig, Simpson v. Saggezza’s (2018 WL 3753431 (N.D.Ill. 2018) plaintiff soon learned the Illinois job markedly differed from what was advertised.

Among other things, the plaintiff discovered that the company’s pre-hiring revenue projections were off as were the plaintiff’s promised job duties, performance goals and bonus structure.

When plaintiff complained, the Illinois employer responded by firing him. Plaintiff sued the defendants – the employer and a company decision maker – for unpaid bonus money under the Illinois Wage Payment and Collection Act, 820 ILCS 115/1, et. seq. (IWPCA) and for other common law claims. Defendants moved to dismiss all claims.

In denying the bulk of the defendants’ motion, the Court discussed the nature and reach of earned bonus liability under the IWPCA in the context of a motion to dismiss.

The IWPCA defines payments as including wages, salaries, earned commissions and earned bonuses pursuant to an employment contract.  820 ILCS 115/12. An earned bonus is defined as “compensation given in addition to the required compensation for services performed.”  Il. Admin. Code, Title 56, s. 300.500.

The IWPCA allows an earned bonus claim only where an employer makes an unequivocal promise; a discretionary or contingent promise isn’t enough.  So as long as the plaintiff alleges both an employer’s unambiguous promise to pay a bonus and the plaintiff’s satisfactory performance of the parties’ agreement, the plaintiff can make out a successful IWPCA claim for an unpaid earned bonus.

Here, the plaintiff sufficiently alleged a meeting of the minds on the bonus issue – the defendant-employer unequivocally promised a $25,000 bonus if plaintiff met a specific sales goal – and that the plaintiff met the goal.

The court then partially granted the employer’s motion to dismiss the plaintiff’s statutory and common law retaliation claims.

IWPCA Section 14(c) prevents an employer from firing an employee in retaliation for the employee lodging a complaint against the employer for unpaid compensation. 820 ILCS 115/14(c).  Since the plaintiff alleged both an agreement for earned bonus payments and that he was fired for requesting payment, this was enough to survive a motion to dismiss.

The court did, however, dismiss plaintiff’s common law retaliatory discharge claim.  To prevail on this claim, a plaintiff must allege (1) he was terminated, (2) in retaliation for plaintiff’s conduct, and (3) the discharge violates a clearly mandated public policy.

The Court rejected the plaintiff’s argument that an IWPCA violation was enough to trigger Illinois public policy concerns. The court held that to invoke the public policy prong of the retaliation tort, the dispute “must strike at the heart of a citizen’s social rights, duties and responsibilities.”  And since the Court viewed an IWPCA money dispute to a private, economic matter between employer and employee, the employer’s alleged IWPCA violation didn’t implicate public policy.

Lastly, the Court denied the defendant’s motion to dismiss plaintiff’s fraud in the inducement claim.  In this count, plaintiff alleged he quit his former Florida job in reliance on factual misstatements made by the defendant about its fiscal health, among other things.

To sufficiently plead fraudulent inducement, a plaintiff must allege (1) a false statement of material fact, (2) known or believed to be false by the person making it, (3) an intent to induce the other party to act, (4) action by the other party in reliance on the truth of the statement, and (5) damage to the plaintiff resulting from the reliance.  To be actionable, a factual statement must involve a past or present fact; expression of opinions, expectations or future contingencies cannot support a fraudulent inducement claim.

Where there is a disparity in knowledge or access to knowledge between  two parties, the fraudulent inducement plaintiff can justifiably rely on a representation of fact even if he could have discovered the information’s falsity upon further investigation.

While the defendant argued that the predicate fraud statements were non-actionable embellishments or puffery, the court disagreed.  It found that plaintiff’s allegations that defendant made factually false statements about the defendant’s financial state and the plaintiff’s job opportunities were specific enough to state a claim.

The court noted that plaintiff alleged the defendants supplied plaintiff with specific financial figures based on historical financial data as part of their pre-hiring pitch to the plaintiff. Taken in totality, the information was specific and current enough to support a fraud claim.

Afterwords:

Earned bonuses are covered by IWPCA; discretionary or conditional bonuses are not;

The common law retaliation tort has teeth. It’s not enough to assert a statutory violation to implicate the public policy element.  A private payment dispute between an employer and employee – even if it involves a statutory violation – won’t rise to the level of a public policy issue;

An employer’s false representations of a company’s financial status can underlie a plaintiff’s fraud claim since financial data supplied to a prospective hire is information an employer should readily have under its control and at its disposal.