Category: Civil Procedure

Business Broker Wins Contract Suit Against Accountant: Special Concurrence Chides Overuse of Adverbs in Briefs

APS v. Sorkin, 2023 IL App (1st) 211668-U considers some important issues that recur in breach of contract litigation and features an appellate judge urging lawyers to excise superfluous adverbs from their legal briefs.

The business broker plaintiff sued an accountant for damages after he sold his practice to a buyer introduced by the plaintiff during the term of a written agreement between the parties.

The plaintiff sought 10% of the sale fee plus attorneys’ fees. The trial court granted summary judgment for the plaintiff and the defendant appealed.

Affirming the judgment, the First District first noted that a party seeking to enforce a contract must prove it substantially complied with the material terms of an agreement. Conversely, a party who materially breaches a contract cannot recover damages from the non-breaching party.

The defendant argued that plaintiff breached the contract by refusing to request updated letters of intent (LOIs) from prospective buyers of the practice and by unilaterally terminating the contract.

The court rejected both arguments. It first noted that the subject contract gave plaintiff the exclusive right to market defendant’s accounting practice for a 90-day period with 15-day automatic renewal terms.

The contract did not require plaintiff to employ specific marketing techniques such as soliciting additional LOIs from prospects. It only obligated the plaintiff to facilitate the sale of the accounting business by marketing it and locating potential buyers. As a result, the Court found that plaintiff did not breach the agreement by refusing defendant’s request to obtain new LOIs from prospects. [¶ 25]

The Court also rejected the defendant’s claim that plaintiff breached by terminating the contract. Defendant cited language in the contract that apparently provided him with sole right to terminate. The Court noted that perpetual contracts or ones of indefinite duration are disfavored and terminable at the will of either party. Since the Court found that the contract did not give defendant an exclusive termination right, it held that the plaintiff did not breach by unilaterally ending the contract once the initial 90-day term expired. [¶ 27]

Defendant also claimed the contract was unenforceable under Section 10-30 of the Business Broker Act, 815 ILCS 307/10-30(a)(the “BBA”). The BBA, among other things, requires a business broker (like plaintiff) to provide a written disclosure document to a client at the time or before a client signs a contract for services.

Plaintiff’s agent signed an affidavit stating that he supplied defendant with the required disclosure document more than three months before the contract was signed. Since defendant did not oppose this affidavit, plaintiff’s testimony was taken as true by the Court when ruling on plaintiff’s summary judgment motion.

Next, the Court affirmed the trial court’s denial of the defendant’s motion for leave to amend his affirmative defenses.

Defendant sought to file amended affirmative defenses of Plaintiff’s material breach and failure to comply with the BBA. However, since the record evidence demonstrated that Plaintiff did not materially breach the contract by terminating it and Defendant did not challenge Plaintiff’s affidavit testimony that it provided the required BBA disclosure document, Defendant’s proposed defenses would not cure any pleading defects. [¶ 37]

Judge Hyman’s special concurrence (¶¶ 41-47) takes the litigants’ attorneys to task for peppering their briefs with intensifiers (adverbs or adjectives used to lend force or emphasis to a word’s meaning). He takes special aim at counsels’ overuse of the words “clearly”, “merely”, “woefully” and “certainly” (think “Plaintiffs have clearly failed to meet their burden of proof here”) and notes a Supreme Court Justice’s (Roberts), a celebrated novelist’s (Stephen King) and a prolific legal writing scholar’s (Brian Garner) mutual disdain for adverbs.

In Hyman’s view, the singled-out adverbs hamper rather than help an author’s prose and detract from her message.

Afterwords:

Sorkin’s case lessons include the contract law principle that a party’s termination of an indefinite contract is not a material breach unless the contract specifies that it can be terminated only for a specific reason or upon the happening of a described event.

The case also makes clear that unchallenged affidavit testimony in support of a summary judgment will be taken as true. A party opposing summary judgment must file counter-affidavits to contradict the movant’s version of events.

Lastly, Sorkin solidifies the proposition that the denial of an amendment to a pleading is proper where it’s clear that a proposed, amended pleading will not cure a defect in an earlier pleading.

 

‘Zestimates’ Are Estimates; Not Fraud – 7th Circuit

The Seventh Circuit recently affirmed the Illinois Northern District’s Rule 12(b)(6) dismissal of class action plaintiffs’ fraudand deceptive practices claims against the owners of the Zillow.com online real estate valuation site.

The lower court in Patel v. Zillow, Inc. found the plaintiffs failed to sufficiently allege colorable consumer fraud and deceptive trade practices claims based mainly on the site’s “Zestimate” feature – an algorithm-based property estimator program.

The plaintiffs alleged Zillow scared off would-be buyers by undervaluing properties.  When Zillow refused plaintiffs request to remove the low-ball estimates, plaintiffs sued under various Illinois consumer statutes.  

Plaintiffs first alleged Zillow violated the Illinois Real Estate Appraiser Licensing Act, 225 ILCS 458/1 et. seq. (the “Licensing Act”) by performing appraisals without a license.  In their fraud and deceptive practices complaint counts, plaintiffs alleged Zillow used distorted property value estimates to tamp down true property values and engaged in false advertising by giving preferential listing treatment to sponsoring real estate brokers and lenders.

The Seventh Circuit affirmed dismissal of the plaintiffs’ Licensing Act claim on the ground that the Licensing Act doesn’t provide for a private cause of action.  Instead, the statute is replete with administrative enforcement provisions (fines of up to $25K) and criminal penalties (Class A misdemeanor for first offense; Class 4 felony for subsequent ones) for violations.  Since there was no express or implied private right of action for the Licensing Act violation, that claim failed. [3]

Jettisoning the plaintiffs’ statutory Deceptive Trade PracticesAct and Consumer Fraud Act claims (815 ILCS 510/1 et seq.; 815 ILCS 505/1 et seq., respectively), the Seventh Circuit agreed with the lower court that Zestimates were not actionable statements of fact likely to confuse consumers.

Instead, like its name suggests (‘estimate’ is “built in”), a Zestimate is simply estimates of a property’s value.    This point is confirmed by Zillow’s disclaimer-laden site that makes clear it is only a “starting point” for determining property values.  

Expanding on the deceptive practices and consumer fraud claim deficits, the Court disagreed with plaintiffs’ thesis that removing faulty valuations would improve the algorithm’s overall accuracy.  The Court noted that if Zillow was forced to remove estimates each time someone disagreed with a published value, it would “skew distribution,” dilute the site’s utility and either unfairly benefit or penalize buyers or sellers; depending on whether the retracted data was accurate. [4]

Turning to plaintiffs’ false advertising component of its claims, the Seventh Circuit held that all web and print publications rely on ad revenue to finance operations.  The mere fact that Zillow sold ad space didn’t transmute property estimates into verifiable (therefore, actionable) factual assertions.  Zestimates are estimates: “Zillow is outside the scope of the trade practices act.” [5]

Afterwords

The Seventh Circuit’s Zillow opinion cements the proposition that an actionable deceptive trade practices and consumer fraud claim requires a defendant’s assertion of a verifiable fact to be actionable.  

The case also confirms where a statute – like the Licensing Act – sets out a diffuse administrative and criminal enforcement scheme, a court will not imply a private right of action based on a statutory violation.

 

Landlord’s Double-Rent Holdover Claim Barred by Res Judicata – A Deep Cut (IL 2012)

A commercial lease dispute sets the backdrop for an appeals court’s nuanced discussion of statutory holdover damages and when res judicata and claim-splitting defeat a second lawsuit involving similar facts to and subject matter of an earlier case.

For many years, the tenant in Degrazia v. Levato operated “Jimbo’s” – a sports bar set in the shadow of U.S. Cellular Field (nka Guaranteed Rate Field) and perennial favorite watering hole for Chicago White Sox fans.

Lawsuit 1 – the 2006 Eviction Case

In 2006, plaintiff filed an eviction lawsuit when the lease expired and defendants refused to leave.  In addition to possession of the premises, the plaintiffs also sought to recover use and occupancy damages equal to double the monthly rent due under the lease through the eviction date.

The trial court granted plaintiff’s summary judgment motion in the 2006 eviction suit and struck defendant’s affirmative defense that plaintiff went back on an oral promise to renew the lease.  Defendant appealed and the trial court’s eviction order was affirmed.

Lawsuit 2 – the 2007 Damages Case

Plaintiffs filed a second lawsuit in 2007; this time for breach of lease.  In this second action, plaintiffs sought to recover statutory holdover damages under Section 9-202 of the Forcible Entry and Detainer Act (the “FED Act”).  The court granted defendant’s summary judgment motion on the basis that plaintiff’s second lawsuit was barred by res judicata and the policy against claim-splitting.  The plaintiffs appealed.

Rules and Reasoning

For res judicata to foreclose a second lawsuit, three elements must be present:  (1) a final judgment on the merits rendered by a court of competent jurisdiction; (2) an identity of
causes of action; and (3) an identity of the parties or their privies.

Illinois courts also hew to the rule against splitting claims or causes of action. Under the claim-splitting rule, where a cause of action is entire and indivisible, a plaintiff cannot divide it by bringing separate lawsuits.  A plaintiff cannot sue for part of a claim in one action and then sue for the rest of the claim in a second suit.  Like res judicata, the claim-splitting rule aims to foster finality and protect litigants from multiple lawsuits.

The First District held that the trial court’s order in the 2006 lawsuit granting plaintiffs’ motion for summary judgment was a final order only on the issue of possession but not on plaintiff’s attorneys’ fees since the court expressly granted plaintiffs leave to file a fee petition.  And since there was no final order entered on plaintiff’s attorneys’ fees in the 2006 case, plaintiffs could seek the same fees in the 2007 lawsuit.

The Court did, however, affirm summary judgment for the tenants on plaintiffs’ statutory holdover claim.  FED Act Section 9-202 provides that a tenant who willfully holds over after a lease expires is liable for double rent. 735 ILCS 5/9-202.

The Plaintiffs sought the same double rent in both the 2006 (eviction) and 2007 (damages) lawsuit and requested these damages in their summary judgment motion filed in the 2006 case.  The eviction judge in that 2006 case only allowed plaintiffs to recover statutory use and occupancy instead of statutory holdover rent.  The First District held that the use and occupancy order was final.  And since plaintiffs never appealed or challenged the use and occupancy order in the 2006 case, plaintiff’s 2007 Lawsuit was defeated by res judicata.

The Court also rejected plaintiffs’ argument that the forcible court (in the 2006 Lawsuit) was limited to ordering possession and unable to award statutory holdover damages.  It found that FED Act Section 9-106 expressly allows a landlord to join a rent claim and FED Sections 9-201 and 9-202 respectively allow a plaintiff to recover use and occupancy and holdover damages.  As a result, the First District found there was nothing that prevented the 2006 eviction case judge from awarding holdover rent if plaintiffs were able to show that defendants willfully held over after the lease expired.

Afterwords:

There is scant case law on Illinois’ holdover statute.  While an action for possession under the FED Act is, in theory, a limited, summary proceeding directed solely to the question of possession, the FED Act sections that allow a plaintiff to join a rent claim, to recover use and occupancy payments in addition to double holdover rent give shrewd lessee lawyer’s enough of an opening to argue issue or claim preclusion.

This case demonstrates that the best pleadings practice is for the landlord to join its double-rent claims in the eviction case and put the burden on the tenant to argue the holdover damages claim is beyond the scope of a FED action.  Otherwise, there is a real risk that the failure to join a holdover claim in the possession action will prevent holdover damages in a later lawsuit.