Plaintiff’s Damage Expert Barred in Tortious Interference Case Where Only Offering ‘Simple Math’ – IL Case Note

An auto body shop plaintiff sued an insurance company for tortious interference and consumer fraud.

The plaintiff in Knebel Autobody Center, Inc. v. Country Mutual Insurance Co., 2017 IL App (4th) 160379-U, claimed the defendant insurer intentionally prepared low-ball estimates to drive its policy holders and plaintiff’s potential customers to lower cost (“cut-rate”) competing body shops.  As a result, plaintiff claimed it lost a sizeable chunk of business.  The trial court granted the insurer’s motion for summary judgment and motion to bar plaintiff’s damages expert.

Result: Affirmed.

Reasons: The proverbial “put up or shut up” litigation moment,  summary judgment is a drastic means of disposing of a lawsuit.  The party moving for summary judgment has the initial burden of production and ultimate burden of persuasion.  A defendant moving for summary judgment can satisfy its burden of production either by (1) showing that some element of plaintiff’s cause of action must be resolved in defendant’s favor or (2) by demonstrating that plaintiff cannot produce evidence necessary to support plaintiff’s cause of action.  Once the defendant meets its burden of production, the burden shifts to the plaintiff who must then present a factual basis that arguably entitles it to a favorable judgment.

Under Illinois law, a consumer fraud plaintiff must prove damages and a tortious interference plaintiff must show that it lost specific customers as a result of a defendant’s purposeful interference.

Here, since the plaintiff failed to offer any evidence of lost customers stemming from the insurer’s acts, it failed to offer enough damages evidence to survive summary judgment on either its consumer fraud or tortious interference claims.

The court also affirmed the trial court’s barring the plaintiff’s damages expert.

In Illinois, expert testimony is admissible if the offered expert is qualified by knowledge, skill, training, or education and the testimony will assist the judge or jury in understanding the evidence.

Expert testimony is proper only where the subject matter is so arcane that only a person with skill or experience in a given area is able to form an opinion. However, “basic math” is common knowledge and does not require expert testimony. 

Illinois Evidence Rules 702 and 703 codify the expert witness admissibility standards.  Rule 702 provides that if “scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise.”

Rule 703 states that an expert’s opinion may be based on data perceived by or made known to the expert at or before the hearing. If the data is of a type reasonably relied upon by experts in a particular field, the underlying data supplied to the expert doesn’t have to be admissible in evidence.

Here, the plaintiff’s expert merely compared plaintiff’s loss of business from year to year and opined that the defendant’s conduct caused the drop in business.  Rejecting this testimony, the court noted that anyone, not just an expert, can calculate a plaintiff’s annual lost revenues.  Moreover, the plaintiff’s expert failed to account for other factors (i.e. demographic shifts, competing shops in the area, etc.) that may have contributed to plaintiff’s business losses.  As a result, the appeals court found the trial court properly barred plaintiff’s damages expert. (¶¶ 32-33)

Afterwords:

The case underscores the proposition that a tortious interference plaintiff must demonstrate a specific customer(s) stopped doing business with a plaintiff as a direct result of a defendant’s purposeful conduct.  A consumer fraud plaintiff also must prove actual damages resulting from a defendant’s deceptive act.

Another case lesson is that a trial court has wide discretion to allow or refuse expert testimony.  Expert testimony is not needed or allowed for simple math calculations.  If all a damages expert is going to do is compare a company’s earnings from one year to the next, the court will likely strike the expert’s testimony as unnecessary to assist the judge or jury in deciding a case.

 

Medical Device Maker Can Recover Lost Profits Against Double-Dipping Salesman – IL Fed. Court

A Federal court examines the pleading and proof elements of several business torts in a medical device company’s lawsuit against its former salesman and a rival firm.  The plaintiff sued when it learned its former employee was selling on the side for a competitor.

Granting summary judgment for most of the plaintiff’s claims, the Court in HSI v. Pappas, 2016 WL 5341804, dives deep into the various employer remedies where an employee surreptitiously works for a competing firm.

The Court upheld the plaintiff’s breach of fiduciary duty claim against the former salesman as well as its aiding and abetting (the breach) claim against the competitor.  In Illinois, a breach of fiduciary duty plaintiff must show (1) existence of a fiduciary duty, (2) the fiduciary duty was breached, and (3) the breach proximately caused plaintiff’s injury.  An employee owes his employer a duty of loyalty.  (Foodcomm Int’l v. Barry, 328 F.3d 300 (7th Cir. 2003).

A third party who aids and abets another’s breach of fiduciary duty can also be liable where the third party (1) knowingly participates in or (2) knowingly accepts the benefits resulting from a breach of fiduciary duty.encourages or induces someone’s breach of duty to his employer.

Since the plaintiff proved that the ex-salesman breached his duty of loyalty by secretly selling for the medical supply rival, the plaintiff sufficiently made out a breach of fiduciary duty claim against the salesman.  The plaintiff also produced evidence that the competitor knew the salesman was employed by the plaintiff and still reaped the benefits of his dual services.  The competitor’s agent admitted in his deposition that he knew the salesman was employed by plaintiff yet continued to make several sales calls with the plaintiff to customers of the competitor.  The court found these admissions sufficient evidence that the competitor encouraged the salesman’s breach of his duties to the plaintiff.

The plaintiff also produced evidence that the competitor knew the salesman was employed by the plaintiff and still profited from his dual services.  The competitor’s representative admitted in his deposition knowing the salesman was employed by plaintiff yet still made several sales calls with the salesman to some of the competitor’s customers.  The court found this admission sufficient evidence that the competitor encouraged the salesman’s breach of his duties to the plaintiff.

With liability against the individual and corporate defendants established, the Court turned its attention to plaintiff’s damages.  Plaintiff sought over $400K in damages which included all amounts plaintiff paid to the defendant during his 10-month employment tenure, the amounts paid by the competitor to the defendant during his time with plaintiff as well as lost profits

An employee who breaches his fiduciary duties to an employer generally must forfeit compensation he receives from the employer.  The breaching employee must also disgorge any profits he gains that flow from the breach.

This is because under basic agency law, an agent is entitled to compensation only on the “due and faithful performance of all his duties to his principal.”  The forfeiture rule is equitable and based on public policy considerations.

Since the evidence was clear that the defendant failed to perform his employment duties in good faith, the Court allowed the plaintiff to recoup the nearly $180K in compensation it paid the defendant.

The plaintiff was not allowed to recover this amount from the competitor, however.  The Court held that since the payments to the salesman never came into the competitor’s possession, plaintiff would get a windfall if it could recover the same $180K from the competitor.

The Court also allowed the plaintiff to recover its lost profits from both the individual and corporate defendants.  In Illinois, lost profits are inherently speculative but are allowable where the evidence affords a reasonable basis for their computation, and the profits can be traced with reasonable certainty to the defendant’s wrongful conduct.

Since the corporate defendant didn’t challenge plaintiff’s projected profits proof, the Court credited this evidence and entered summary judgment for the plaintiff.

Take-aways:

This case serves as a vivid cautionary tale as to what lies ahead for double-dealing employees.  Not only can the employer claw back compensation paid to the employee but it can also impute lost profits damages to the new employer/competitor where it induces a breach or willingly accepts the financial fruits of the breach.

The case also cements proposition that lost profits are intrinsically speculative and that mathematical certainty isn’t required to prove them.

 

Substantial Performance of Asset Purchase Agreement Wins the Day in Pancake House Spat

pancakes-155793_960_720The Second District affirmed summary judgment for the plaintiff pancake house (“Restaurant”) seller in a breach of contract action against the Restaurant’s buyer and current operator.  Siding with the seller, the court discussed the contours of the substantial performance doctrine and what kind of evidence a plaintiff must supply to win summary judgment in a contract dispute.

The plaintiff in El and Be, Inc. v. Husain, 2016 IL App (2d) 150011-U, sold the Restaurant for about $500K pursuant to an Asset Purchase Agreement (APA).   The defendant failed to pay the agreed purchase price when it learned the plaintiff had several unpaid vendor bills, utility debts and a lien lawsuit was filed in Texas against Restaurant equipment by a secured creditor of the plaintiff.  The plaintiff sued for breach of contract to recover the APA purchase price and the defendant counterclaimed for fraud and breach of the APA.  The trial court entered summary judgment for the plaintiff on its claims as well as defendants’ counterclaims.

Affirming summary judgment for the plaintiff, the Second District framed the salient issue as whether the plaintiff substantially performed its APA obligations.

Perfect performance isn’t required to enforce a contract.  Instead, a plaintiff must show he substantially performed.  Substantial performance is hard to define and is a fact-based inquiry.  In deciding whether substantial performance has occurred, a court considers whether a defendant received and enjoyed the benefits of the plaintiff’s performance.  Substantial performance allows a plaintiff to win a breach of contract suit; especially where his performance is done in reliance on the parties’ contract.

The court found that the defendant Restaurant buyer clearly benefitted from the plaintiff’s performance.  The buyer gained the Restaurant assets and goodwill and operated the Restaurant continuously for over a year before plaintiff sued to enforce the APA.  The defendant’s operation of the Restaurant during this pre-suit period was a tangible benefit flowing to the defendant from the plaintiff’s APA performance.  (¶¶ 25-27).

Next, the Court rejected the defendant’s fraud counterclaim – premised on plaintiff’s failure to disclose outstanding debts prior to the Restaurant sale.  The defendant claimed this omission exposed the defendant to a future lien foreclosure action and a possible money judgment by plaintiff’s creditors.

In Illinois, a fraud plaintiff must establish (1) a false statement of material fact, (2) the statement maker’s knowledge or belief that the statement was false; (3) an intention to induce the plaintiff to act based on the statement, (4) reasonable reliance on the truth of the statement by the plaintiff, and (5) damage to the plaintiff resulting from the reliance.  A fraud claimant must also prove damages (monetary loss, e.g.) with reasonable certainty.  While mathematical precision isn’t required, fraud damages that are speculative or hypothetical won’t support a fraud suit.

Here, since the defendant made only generalized allegations of possible damages and could not point to actual damages evidence – such as having to defend a lien foreclosure suit or a money judgment – the fraud claim failed.  On summary judgment, a litigant must offer evidence to support its claims.  The defendant’s failure to produce measurable damages evidence stemming from plaintiff’s pre-sale omissions doomed the fraud claim.  (¶¶ 33-36)

Afterwords:

El and Be, Inc. cements the proposition that perfect performance isn’t required to enforce a contract.  Instead, a breach of contract plaintiff must show substantial performance – that he performed to such a level that the defendant enjoyed tangible benefits from the performance.  Where a contract defendant clearly reaps monetary awards from a plaintiff’s contractual duties, the substantial performance standard is met.

The case also makes clear that fraud must be pled and proven with acute specificity and that vague assertions of damages without factual back-up won’t survive summary judgment.