Collateral Attack on Order Nixing Attempt to Enforce $700K Settlement Offer Fails – IL 1st Dist.

The First District appeals court recently examined the collateral attack doctrine – which immunizes a court’s judgment from challenge in a separate judicial proceeding – in a case flowing from failed settlement talks.

The defendants in Tielke v. Auto Owners Insurance Company, 2019 IL App(1st) 181756, four years after a 2013 personal injury suit was filed, made an eve-of-trial verbal offer to settle for $700,000.

The plaintiff’s counsel verbally accepted the offer the next day before trial started.  Defendants’ counsel responded by saying “offer withdrawn.”

After plaintiff’s motion to enforce the settlement offer was denied by the personal injury case trial judge, the case proceeded to trial. Plaintiff was awarded less than half of the withdrawn $700,000 offer.  The trial judge told the plaintiff’s counsel he should file a breach of contract action at a later date.

A few weeks later, plaintiff did just that: it filed a separate breach of contract action to recover the difference between the withdrawn offer and the personal injury case judgment (about $400,000). The theory was that defendant breached an enforceable agreement to settle the personal injury suit.

The trial court dismissed the breach of contract action on defendant’s Section 2-619 motion.  The basis for the motion was that the breach of contract suit was an improper collateral attack on an order (the one denying the motion to enforce settlement) entered in the 2013 personal injury suit.

Affirming, the First District held that under the collateral attack doctrine, a court’s final judgment can only be attacked through direct appeal or a post-judgment motion to reconsider or to vacate the judgment.  735 ILCS 5/2-1203, 2-1301, 2-1401, etc.

The collateral attack rule bars later lawsuits that would effectively modify a former adjudication in another lawsuit. Both final and interlocutory (non-final) orders are immune from collateral attack. [¶31]

The appeals court found that by filing a separate breach of contract action, the plaintiff was trying to end-run the order denying her motion to enforce the settlement agreement in the 2013 personal injury suit.  Plaintiff failed to either move to reconsider the denial of her motion to enforce the settlement (which she could have done under Code Section 2-1203) or file a notice of appeal (pursuant to Rule 303).

By failing to file a motion to vacate the personal injury case court’s order denying the settlement motion or to appeal from the order, plaintiff failed to preserve the issue (whether the motion to enforce was properly denied) for review.  This precluded a later challenge to the order in subsequent litigation.

The court also rejected plaintiff’s argument premised on the personal injury case judge’s erroneous advice: that the plaintiff should proceed with the trial and later file a breach of contract action. The appeals court cited Illinois Supreme Court precedent that held “a party should not be excused from following rules intended to preserve issues for review by relying on a trial court’s erroneous belief.” [¶ 43], citing to Bonhomme v. St. James, 2012 IL 112393, 26 (2012).

Afterwords:

Tielke illustrates in sharp relief how crucial it is for litigants to properly preserve issues for review and to exhaust all avenues to challenge a trial court’s order.  Here, the plaintiff should have either moved to reconsider the personal injury judge’s denial of the motion to enforce the oral settlement agreement or directly appealed the order. In the same case.

Instead, by following the trial court’s flawed advice and filing a subsequent lawsuit, the plaintiff’s claim was barred by the collateral attack doctrine.

 

 

New Lessor’s Vie for Radio Station Tenant’s Past-Due Rent Squelched – IL First Dist.

Soon after buying the commercial premises, the new landlord in 1002 E. 87th Street, LLC v. Midway Broadcasting Corporation, 2018 IL App (1st) 171691 started giving the radio station static over past-due rent that was owed to the prior landlord.

The defendant’s silence in response spoke volumes and the dispute swelled to an irreconcilable impasse.

The plaintiff sued to recover about $70K in past-due rent. The tenant then turned the tables on the landlord, filing a wave of defenses and counterclaims and a motion to dismiss plaintiff’s suit. The trial court dismissed plaintiff’s suit for lack of standing and plaintiff appealed.

Affirming the trial court, the appeals court examined the doctrine of standing in the context of a Code Section 2-619 motion filed in a lease dispute. The Court amplified its lease law analysis with a recitation of the applicable rules governing attorneys’ fees provisions.

Lack of standing is an affirmative defense under Code Section 2-619(a)(9). Standing requires a plaintiff to have an interest in a given lawsuit and its potential outcome. The defendant claiming a lack of standing has the burden of proving the defense.

Where a landlord conveys property by warranty deed without reserving any rights, it also conveys the property’s leases and the right to receive unaccrued rent. However, the new landlord does not have a right to recover rent that came due before it owned the property. That right remains the original landlord’s. [⁋ 17]

The Court squelched plaintiff’s arguments it was entitled to recover past-due rent owed to the prior landlord.  The court distinguished this case’s underlying facts from a recent case – A.M. Realty Western v. MSMC Realty, LLC, 2012 IL App (1st) 121183 – where a landlord sold a building and was still able to sue for rent that accrued during its tenure as building owner.  Midway Broadcasting’s facts plainly differ since the plaintiff was suing to recover rents that came due before plaintiff became the premises landlord.

Another factor weighing against the plaintiff landlord was Illinois’ venerable body of case law that holds that rent in arrears is not assignable. This is because past-due rent is viewed as a chose in action and not an incident of the real estate that passes from a seller to a buyer. And since there was no evidence in the record establishing that the prior landlord intended to assign its right to collect unpaid rents, plaintiff’s argument that the previous landlord assigned to it the right to collect defendant’s delinquent rent, missed the mark.

In a sort of reverse “you can’t transmit what you haven’t got” maxim, the plaintiff here had no legal basis to assert a past-due rent claim against the tenant since all unpaid rent came due during the prior landlord’s tenure.  Since that former landlord never assigned its right to collect rents, the plaintiff’s claim fell on deaf ears.

Next, the Court affirmed the tenant’s prevailing-party attorneys’ fees award and signaled that to “prevail” in a case, a party must win on a significant issue in the case. Like most leases, the operative one here provided that the winning party could recover its attorneys’ fees.  Illinois follows the American Rule – each side pays its own fees unless there is a contractual fee-shifting provision or an operative statute that gives the prevailing party the right to recover its fees.  Contractual attorneys’ fees provisions are strictly construed and appeals courts rarely overturn fee awards unless the trial court abuses its discretion.

In the context of attorneys’ fees disputes, a litigant is a prevailing party where it is successful on any significant issue in the action and receives a judgment in his/her favor or obtains affirmative recovery.  A litigant can still be a prevailing party even where it does not succeed on all claims in a given lawsuit. Courts can declare that neither side is a prevailing party where each side wins and loses on different claims. However, a “small victory” on a peripheral issue in a case normally won’t confer prevailing party status for purposes of a fee award.  [¶ 36]

The Court rejected the lessor’s claim that it was the prevailing party since the court entered an agreed use and occupancy award.  Use and occupancy awards are usually granted in lease disputes since “a lessee’s obligation to pay rent continues as a matter of law, even though the lessee may ultimately establish a right to *** obtain relief.”  [¶ 32].  Because of the somewhat routine nature of use and occupancy orders, the court declined to find the landlord a prevailing party on this issue.

Afterwords:

I found this case post-worthy since it deals with an issue I see with increasing frequency: what are a successor landlord’s rights to prior accruing rents from a tenant?  In hindsight, precision in lease drafting would be a great equalizer.  However, clear lease language is often absent and it’s left to the litigants and court to try to divine the parties’ intent.

The case and others like it make clear that rents accruing before a landlord purchases a building normally belong the predecessor owner.  Absent an agreement between the former and current lessors or a clear lease provision that expressly provides that a new owner can sue for accrued rents, the new landlord won’t have standing to sue for accrued unpaid rent.

The case also makes it clear that small victories (here, an inconsequential dismissal of one of many counterclaims) in the context of larger lawsuit, won’t translate to prevailing party status for that “winner” and won’t give a hook for attorneys’ fees.