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

The First District of Illinois recently considered whether a new landlord for commercial premises has standing to sue a tenant for unpaid rent accruing before the new landlord’s purchase of premises.

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 some 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.

In the commercial lease milieu, a landlord has standing to sue for unpaid rent and where a landlord conveys property by warranty deeds without reserving any rights, he/she also conveys the leases for the property 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. The right to recover those rentals remains with the original landlord. [⁋ 17]

The Court wasn’t receptive to the plaintiff’s arguments that 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.

Law Firm Not An Employment Agency – Can Recover In Quantum Meruit For Negotiating Personal Services Contract (IL Law)

 

Todd W. Musburger, Ltd. v. Meier, 394 Ill.App.3d 781 (1st 2009), while dated, is still post-worthy for its in-depth discussion of a lawyer’s quantum meruit recovery  from a client after the client fires the lawyer under a contingent fee contract.

The defendant radio personality had previously hired the plaintiff law firm under a multi-year written contract to serve as the defendant’s exclusive agent in negotiating defendant’s radio and television contracts.  That contingent fee contract called for the defendant to pay plaintiff 5% of the gross amount of any contract consummated by the plaintiff.

Plaintiff claimed that after the fee agreement was verbally renewed, the plaintiff spent about 200 hours over a one-year period negotiating the renewal of defendant’s radio contract with the WLS (AM 890) station and shopping defendant to competing stations.

Plaintiff alleged that its aggressive negotiation efforts culminated in a $12M/10-year contract offer from WLS; an offer rejected by defendant.  Plaintiff would have received $600,000 under the parties’ contingency contract if the defendant accepted the station’s offer re-upped there.

After it was fired by the defendant, the firm sued to recover for the value of its pre-termination work on the defendant’s behalf.

At trial, a jury awarded damages to the plaintiff of about $70K and the defendant appealed.

Held: Affirmed:

Q: Why?

A:  The court stated the operative rules governing attorney-client relationships and an attorney’s entitlement to recover fees:

a client may discharge her attorney at any time, with or without cause;

–  when a client fires an attorney who was representing the client on contingency, the contingent-fee contract ceases to exist and is no longer operative;

– a discharged attorney may be compensated for the services rendered before the termination of the contingent fee contract on a quantum meruit basis;

– Quantum meruit is based on the implied promise of a recipient of services to pay for valuable services because otherwise the recipient would be unjustly enriched.”

– in quantum meruit recovery, the former client is liable for the reasonable value of the services received during the attorney’s employment.

–  an attorney’s quantum meruit recovery can be barred if an attorney has engaged in illegal conduct;

– just because a client doesn’t receive tangible benefits from a lawyer’s services, doesn’t mean a lawyer can’t recover  in quantum meruit.

The court affirmed the jury verdict and rejected all of defendant’s arguments on appeal.

The court first rejected defendant’s argument that plaintiff was prevented from recovering since it wasn’t licensed as a private employment agency under the Illinois Private Employment Agency Act 225 ILCS 515/11

The court found that plaintiff – a law firm – didn’t meet the statutory definition of “employment agency” since the plaintiff was hired to draft and negotiate on-air talent contracts.  It wasn’t a recruiter or job placement firm.

Next, the court affirmed the trial court’s barring defendant’s retained expert, a lawyer, from testifying that plaintiff shouldn’t have been allowed quantum meruit recovery and that plaintiff breached its fiduciary duties to the defendant.

In Illinois, the decision to admit or bar expert testimony is within the sound discretion of the trial court and the trial court’s ruling will not be reversed absent an abuse of that discretion.

Expert testimony is admissible if the proffered expert is qualified by knowledge, skill, experience, training, or education, and the testimony will assist the trier of fact in understanding the evidence.  But – “expert testimony as to legal conclusions that will determine the outcome of the case is inadmissible.”

Here, the trial court properly barred the defendant’s expert’s quantum meruit opinions since they invaded the province of the trial court.  It’s an axiom that the trial court decides legal issues while the jury decides factual ones.  The defendant’s excluded testimony that plaintiff wasn’t entitled to quantum meruit recovery was a pure legal conclusion.

The court upheld the jury’s quantum meruit damages award.  The court cited the voluminous trial testimony (over 100 pages in the record), offered in chronological detail, where plaintiff discussed the nature and difficulty of the contract negotiations carried out on defendant’s behalf, the money and degree of responsibility involved, and the time and labor required  Plaintiff’s testimony was supported by a radio station executive who had first-hand knowledge of the negotiations.

Afterwords:

  • This case provides a useful summary of quantum meruit in a fairly convoluted and interesting fact pattern involving high-level personal services contracts;
  • A law firm isn’t a job placement agency under the Illinois Private Employment Agency Act and so doesn’t have to be licensed to recover for employment contract negotiations;
  • A lawyer can recover for pre-termination services where he can support and quantify the services either through documentary or testimonial evidence.