Federal Court Applies IL Tortious Interference Rules and the Statute of Frauds in Railcar Lease Dispute

trainThe Northern District of Illinois recently discussed the pleading and proof elements of tortious interference with contract and the promissory estoppel doctrine in a commercial railcar lease dispute. In Midwest Renewable Energy, LLC v. Marquis Energy-Wisconsin, LLC 2014 WL 4627921 (N.D. Ill. 2014), the plaintiff sublessor of railcars sued the sublessee for damages after the plaintiff’s lessor terminated a lease (“Master Lease”) for the same cars.  The sublessee moved for summary judgment.

Result: Motion granted.  Plaintiff’s tortious interference and promissory estoppel claims are defeated.

Q: Why?

A: After the railcar lessor terminated the Master Lease with the plaintiff and started dealing directly with the sublessee, the plaintiff sued it’s sublessee for tortious interference and promissory estoppel. Granting summary judgment for the sublessee , the Court enunciated the key tortious interference with contract elements under Illinois law.

Tortious Interference with Contract

A tortious interference with contract plaintiff must show (1) the existence of a valid and enforceable contract between the plaintiff and another, (2) the defendants’ awareness of the contract, (3) the defendants’ intentional and unjustified inducement of a breach of the contract, (4) subsequent breach of the contract caused by the defendants’ wrongful conduct, and (5) damagesIf a plaintiff fails to perform its contractual obligations, it can’t prove breach and its tortious interference claim will fail.

Here, the plaintiff’s tortious interference claim failed because it couldn’t show that its lessor breached the Master Lease. The plaintiff actually breached it by subletting it to defendant without the (Master) lessor’s knowledge and consent (the Master Lease required the lessor’s consent to any sublease or assignment) and also by failing to make several months’ of railcar lease payments.  Since the lessor was able to terminate the lease on plaintiff’s breach, the plaintiff failed to establish that the lessor breached – an essential tortious interference element.

Promissory Estoppel

Next, the Court rejected the plaintiff’s promissory estoppel count. Plaintiff predicated this claim on the defendant/sublessee’s promise to buy out plaintiff’s rights under the Master Lease.

Promissory estoppel is a doctrine under which the plaintiff may recover without the presence of a contract. To prove promissory estoppel, a plaintiff must show (1) defendant made n unambiguous promise to plaintiff, (2) plaintiff relied on such promise, (3) plaintiff’s reliance was expected and foreseeable by defendants, and (4) plaintiff relied on the promise to its detriment.  Aspirational negotiations or proposals don’t equate to a clear promise under the doctrine.

Plaintiff’s promissory estoppel claim failed because it couldn’t show a clear promise by the defendant to buy out plaintiff’s Master Lease rights. The evidence reflected that any lease buy-out talks were merely negotiations; not ironclad promises.

The promissory estoppel clam was also defeated by the statute of frauds – which requires certain contracts to be in writing.  Under Section 2A of the UCC, lease contracts for goods (like railcars) have to be in writing unless the total lease payments are less than $1,000.  810 ILCS 5/2A–201(1). Where the statute of frauds applies, to a contract, it also requires an assignment of the contract to be in writing and signed by the party being sued.

Here, since the statute of frauds applied to the Master Leases and well over $1,000 was at stake, any assignment from plaintiff to defendant of the Master Lease had to be in writing.  The Court rejected the plaintiff’s claim that several e-mail exchanges with the sublessee satisfied the statute’s writing requirement.  The Court found that since the none of the emails contained the contract parties, subject matter or price term of the supposed assignment agreement, the sporadic emails didn’t meet the writing requirement. (*5).

Take-aways: The case is post-worthy for its discussion of the key tortious interference with contract elements and how important it is for a plaintiff to show that it complied with the contract it is claiming was wrongfully interfered with. The case also provides good summary of promissory estoppel elements and cements the proposition that the statute of frauds will still apply to bar the claim if the subject matter is one that has to be in writing under the law.  Finally, this case amplifies the importance of careful lease drafting and review.  Parties to lease agreements – whether for real estate or tangible goods – should be cognizant of assignment and sublease provisions.  They almost always require the prime lessor’s knowledge and written consent.

 

 

 

 

 

Integration Clause Bars Trader’s Commission Claims Against Financial Firm

Integration clauses – also called “merger” clauses – are staples of commercial contracts in diffuse business settings.  The Northern District of Illinois recently found that an integration clause in a compensation agreement defeated a futures trader’s claims for unpaid commissions in Colagrossi v. UBS Securities, LLC, 2014 WL 2515131 (N.D.Ill. 2014).
The plaintiff alleged that in 2005, he and his then employer entered into an oral agreement for commission payments earned on foreign futures transactions.  When that employer was absorbed by another entity in 2006, the plaintiff signed a written employment agreement with the new company –  one that contained an integration clause.  The agreement was silent on the oral futures deal that plaintiff cut with his ex-employer. Plaintiff’s successor employer then folded into a third entity.  Plaintiff signed a second employment agreement in 2007 with the new (“third”) employer.  That agreement also contained an integration clause and made no mention of the 2005 oral commission arrangement.
After he was fired, the plaintiff sued his new employer for unpaid commissions and bonuses totaling about $2M in total.  He filed counts for breach of oral contract and a claim under the Illinois Wage Payment and Collection Act.  The defendant moved for summary judgment on plaintiff’s claims.
 Ruling: Motion granted.  Summary judgment for defendant.  Plaintiff’s claims dismissed.
 Q: Why?
 A:  Both written employment agreements (the one he signed in 2005 with defendant’s predecessor and the one he signed with defendant in 2006) contained integration clauses that provided that the agreement stated the entire terms of the parties’ agreement and superseded all prior verbal agreements or representations touching on the plaintiff’s employment. 
    
In Illinois, where contracting parties include a contractual integration clause (i.e., a clause stating that the written agreement is complete and final and reflects the entire understanding of the parties), they are manifesting their intent to protect themselves against after-the-fact changes to the contract.  The purpose of an integration clause is to establish that negotiations leading up to a written contract are not the agreement and to also guard against a party to the agreement trying to alter the contract’s meaning by trying to explain his state of mind when the contract was signed.
 Here, both written employment agreements contained an integration clause that stated the parties’ entire agreement was reduced to writing and that also precluded plaintiff’s attempt to rely on oral promises that pre-dated the contracts’ execution.  The clauses broadly applied to bar reliance on oral agreements relating to the “subject matter” of the contracts.  Since plaintiff’s oral contract claim for commissions  went to the heart of the employment agreements’ purpose, the oral agreement was defeated by each contract’s integration clause. (*4-5).
The Court also rejected the plaintiff’s claim for bonus payments that was premised on the Illinois Wage Payment and Collection Act, 820 ILCS 115/1 (the Wage Act).  The Wage Act applies broadly to wages, salaries, commissions and bonuses; so long as they are based on an employment agreement (written or oral).  820 ILCS 115/2 (http://paulporvaznik.com/the-illinois-wage-payment-and-collection-act-some-basics/697).  Here, the plaintiff’s Wage Act claim was not only defeated by the two integration clauses (one in each employment contract) but also because an employer’s past practice of paying bonuses isn’t enough to make out a viable Wage Act count. (*6-7); Carroll v. Merrill Lynch, 2011 WL 1838563 *17 (N.D.Ill. May 13, 2011) (granting summary judgment to employer on employee’s Wage Act claim because “past practice itself is not enough to support a wage claim”); Stark v. PPM America, Inc., 354 F.3d 666, 672 (7th Cir.2004)(same).
Take-aways: Integration clauses will be enforced as written.  If they are broad and clearly-worded, the clauses will defeat a party’s attempt to modify the plain text of a contract.  The case is also noteworthy for its discussion of the Wage Act.  While the Wage Act’s scope is broad, this case clearly illustrates that a claim based on the Act must allege more than an employer’s past practice or course of conduct in making bonus payments.  Instead, there must be an express agreement – written or oral – to support an employee’s claim under the Act.