Tag: Statute of Limitations

Shocking! The Company That Owes You $ Dissolved: The Illinois Corporate ‘Survival’ Statute

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The Illinois corporate “survival” statute, 805 ILCS 5/12.80, allows a plaintiff to sue a dissolved corporation for up to five years after the corporation’s existence ends.  So, if a corporation was dissolved on April 29, 2014, a plaintiff who had a claim against the corporation prior to April 29, 2014, has through April 29, 2019 to file suit against that dissolved corporation. 

Any recovery would attach to corporate (as opposed to individual shareholder) assets.  And because the survival act is a legislative creation, its timing requirements are strictly construed and only relaxed in limited circumstances. 

The five-year claims period tries to strike a balance between protecting injured plaintiffs and setting a definite chronological end point for a dissolved corporation’s liability.

Michigan Indiana Condominium Association v. Michigan Place, LLC, 2014 IL App (1st) 123764 presents a recent example of a court’s rigid application of and the harsh results flowing from the five-year corporate survival period in a construction dispute involving various contractors.

In 2011, the plaintiff sued the general contractor for latent defects nine years after construction was complete.  The general contractor in turn filed third-party contribution claims against two masonry subcontractors in 2012.  Both subcontractor defendants were long defunct.  One subcontractor dissolved in 2003; the other, in 2006. 

The subcontractors moved to dismiss the general contractor’s claims under Code Section 2-619, arguing that the claims were time-barred since they were filed (in 2012) after the five-year survival period expired.  The trial court agreed and dismissed the contractor’s third-party claims.

Held: Affirmed.

In upholding the trial court’s dismissal of the general contractor’s third-party complaint, the First District stated the governing corporate law principles: 

– A corporation only exists under the express laws of the State in which it was created; 

– The right to sue a dissolved corporation (and the right of a dissolved corporation to sue) is limited to the time established by the legislature;

 – Corporation dissolution has the same legal effect as the death of a natural person;

 – Corporate survival actions are based on the legislative determination that corporate creditors should be able to sue a dissolved corporation and apply any corporate property to the debt;

 – Once the five-year survival period lapses, the corporation’s “life” also ends and no lawsuit can be filed against the corporation after the survival period expires;

– A dissolved corporation can be served with process through the Illinois Secretary of State (805 ILCS 5/1.01)

(¶¶ 12-13).

In certain situations, courts have relaxed the five-year survival period for public policy reasons.  Key exceptions to the five-year rule concern (1) actions involving minor plaintiffs; and (2) where there is an element of corporate misconduct and resulting unfairness.  (¶¶ 18-21).

  Here, since neither exception applied, the Court held that the survival act’s plain language dictated dismissal of the contractor’s third-party complaint.

 The Court recognized that barring the contractor’s claims was harsh since the contractor’s right to sue expired before it even knew it had claims against the defunct subcontractors. 

Yet because the statutory language was clear, the Court held that it was required to strictly apply the five-year survival rule and time-bar the contractor’s third-party action. (¶¶ 22-23). 

To bolster its decision, the Court noted that in legal and medical malpractice cases, courts strictly apply statutory repose periods (4 years for medical malpractice; 6 years for legal malpractice) that often doom injured plaintiff’s cases.  (¶ 24).  This gave the Court added precedential support for its rejection of the contractor’s third-party claims. 

Take-away: This case presents a good summary of the philosophical underpinnings and statement of the law governing actions by and against dissolved corporations.

Michigan Place also underscores that extending or relaxing a repose or survival period is a legislative (not a judicial) function.

BMW Dealership Defeats Fraud Suit On Statute of Limitations Grounds (ND IL)

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Occasionally, I’ll have a case that appears to be governed by two or more conflicting statutes of limitations.  For example, one statute will give a plaintiff four years to file suit while an apparently equally applicable one compresses the time to sue to two years.  As plaintiff, I usually (not always) argue for the longer limitations period to apply, while as defendant, I want the shortened time span (so I can move to dismiss the too-late complaint).  

In Belsky v. Fields Imports, Inc., 2013 WL 5819232 (N.D.Ill. 2013), the Northern District methodically analyzes which of two seemingly applicable (and conflicting) limitations periods (is it 10 years or 4 years?) applies to a breach of contract suit involving a defective motor vehicle.

Facts:

Plaintiff sued a car dealership and warranty service administrator for breach of various written agreements generated in connection with plaintiff’s purchase of a BMW.  Plaintiff bought the  car in 2005 and bought the service contract – which provided for repair and replacement of specified car parts – in 2009.  Plaintiff alleged that in 2012 she noticed that the car had a defective engine bolt.  When the defendants failed to provide warranty coverage for the bolt problem, plaintiff sued under state law breach of contract theories.  Defendants’ filed separate Rule 12(b)(6) motions to dismiss plaintiff’s complaint.  The court granted the motion and dismissed all counts of plaintiff’s complaint with prejudice.

Q: Why?

A: Plaintiff’s breach of contract claims against the dealership failed for two reasons: (1) the claims were time-barred; and (2) plaintiff failed to allege which part of the sales contract the dealer breached.  The court held that the four-year limitations period set forth in Uniform Commercial Code (“UCC”) Section 2-725 (810 ILCS 5/2-725) governed the plaintiff’s sales contract count. 

The UCC applies to “sales” transactions involving “goods” and Section 2-725 simply provides that “an action for breach of any contract for sale must be commenced within 4 years after the cause of action accrued“.  Belsky, *3, 810 ILCS 5/2-725(1).   There is also no “discovery rule”: the four year time limit applies regardless of whether the plaintiff lacked knowledge of the breach.  810 ILCS 5/2-725(2). 

Plaintiff argued that Illinois’ ten-year limitation period for written contract applied.  See 735 ILCS 5/13-206.  But the Court sided with defendants and applied the shorter four-year limitations period.  It held that the BMW, a car, clearly met the UCC’s definition of “goods” (a “thing” that was “moveable” at contract inception) and involved a “sale” (passing of title from seller to buyer for a price).  *3 (UCC Section 2-105(1)(goods definition); UCC Section 2-106(1)(sale def.). 

In addition, Code Section 13-206 (the ten-year statute for written contracts) expressly exempts claims under UCC Section 2-725 (the four-year rule) from its scope.  Section 13-206’s lead-in provides “except as provided in Section 2-725 of the Uniform Commercial Code…”.   Applying the four-year limitation, the Court held that the plaintiff’s breach of contract claims were three years too late and dismissed the case.  *3.

In dismissing the plaintiff’s service contract claims, the Court relied on agency law.  It held that the dealer entered into the contract on behalf of a disclosed principal (the warranty administrator).  Black letter agency rules dictate that an agent (here, the dealer) of a disclosed principal (the administrator) isn’t liable on contracts entered into for its principal.  *7.   The Court also dismissed the plaintiff’s service contract claim against the administrator because like the sales contract, the service contract also specifically excluded engine bolt defects from its coverage.  *9-10.

Take-aways: Where two conflicting limitations periods potentially control, the one that more specifically matches the facts will govern.  A contract for the sale of a “good” (like a car) will trigger the UCC’s four-year time span rather than the ten-year rule for written contracts. 

Also, a contractual disclaimer, if easy to read and find, will be upheld.  

NM Supreme Court Reinstates Legal Malpractice Claim After Firm Blows Statute

walterwhiteAfter another weekend of binge-watching Walter, Hank, Skyler and crew, I definitely have the Land of Enchantment on the brain.  How could I not after watching – no, strike that, after Devouring.  Like a Rabid, Foaming-At-The-Mouth Animal! Seasons 4-5 of ABQ-based Breaking Bad over an eye-searing three-day period (with little more than a sporadic water break).  An aside: do friends and family have interventions for Netflix addiction?  Just curious.  My friend wants to know (cough).   I also concede that I’m way way late to the party on this, but the stories are true: Br/Ba is an absolute TV masterpiece.  That’s why today’s featured case is geographically appealing to me.  Not only that, but its subject matter is interesting and its lessons, both cautionary and profound.

The Case and Facts:  Encinias v. Whitener Law Firm (Sept. 12, 2013)

http://www.nmcompcomm.us/nmcases/nmsc/slips/SC33,874.pdf

Plaintiff high school student was injured in 2004 when he was badly beaten by a group of students on property adjacent to the school.  Plaintiff hired defendant law firm (Firm) in 2006 to file a personal injury suit against the defendant school district for failure to protect plaintiff and to properly respond to the attack.  The Firm failed to file suit before the two-year statute of limitations ran in October 2006.  Sometime in 2008, after plaintiff made several queries concerning the case’s status, the Firm informed plaintiff that it missed the filing deadline.  Plaintiff then sued for legal malpractice.

Disposition: The Supreme Court reversed lower court rulings for the Firm and reinstated the plaintiff’s claim.

Reasoning:

Legal Malpractice Claim

Plaintiff’s legal malpractice claim asserted that because of the Firm’s failure to timely file suit, plaintiff’s claims against the school district are forever lost.  To plead legal malpractice in New Mexico, the plaintiff must show: (1) the employment of the defendant attorney; (2) the defendant attorney’s neglect of a reasonable duty; and (3) the negligence resulted in and was the proximate cause of loss to the client.  The NM Supreme Court focused on element three: loss to the plaintiff/client.

A NM legal malpractice plaintiff must prove loss by showing by a preponderance of the evidence that he or she would have won the underlying claim but for the attorney’s negligence. Richardson v. Glass, 1992-NMSC-046, ¶ 10.  The Firm argued that since the plaintiff’s suit would be defeated by sovereign immunity doctrine, plaintiff would have lost even if his complaint was timely filed.

The Supreme Court rejected this argument and found a triable fact question as to whether the school district waived sovereign immunity under New Mexico’s premises liability principles reflected in its tort claims statute.  Section 41-4-6(A);  ¶¶ 8-9.  The Court focused on an assistant principal’s affidavit testimony that the location of the fight was a known “hot zone” for fighting students.  This genuine issue of fact regarding the school’s knowledge of a dangerous condition on or near the school, meant that plaintiff could prevail in the underlying case and defeated summary judgment.  ¶ 13.

The Misrepresentation claim

Plaintiff alleged the Firm misrepresented that (a) no work had been done on the case and (b) the limitations period expired.  The Firm didn’t tell plaintiff until Spring 2008 that the statute ran, when there was evidence the Firm knew this in July 2007.  ¶ 21.  The Court rejected the lower courts finding that despite the Firm’s withholding information, plaintiff still didn’t sustain actual damages.

NM law permits intentional tort plaintiffs to recover nominal and punitive damages and plaintiff pled punitive damages against the Firm in his misrepresentation count.  Pointing out that the Firm specifically (and erroneously) assured the Plaintiff in October 2006 that the statute of limitations had not run and that the Firm was actively working the case, it was reasonable for plaintiff to rely on the Firm’s representations.

The Court held that the Firm’s failure to disclose that no work had been done damaged plaintiff’s ability to pursue his case against the school district.  Id., ¶¶22-23.  The Court noted record evidence that the Firm’s withholding case information (that it wasn’t working on the case and later, that the statute expired) from plaintiff made it difficult for plaintiff to collect supporting evidence in the underlying case.  Id.  And since a NM intentional tort claim doesn’t require actual damages, plaintiff established a material question of fact on his misrepresentation claim against the Firm.

Lessons: Practitioners should be cognizant and hyper-vigilant as to filing deadlines.  An undercurrent of the Court’s ruling is that the Firm not only failed to timely file, they repeatedly failed to keep the plaintiff informed of the case status.

The case also shows that actual damages aren’t required in New Mexico to state a colorable misrepresentation claim and that if a plaintiff pleads nominal or punitive damages, his claim can survive summary judgment.