Category: Remedies

Real Estate Not Subject To Conversion Claim – IL 2nd Dist.

The Illinois Second District recently reversed a trial court’s imposition of a constructive trust and assessment of punitive damages in a conversion case involving the transfer of real property.

In In re Estate of Yanni, 2015 IL App (2d) 150108, the Public Guardian filed suit on behalf of a disabled property owner (the “Ward”) for conversion and undue influence seeking to recover real estate – the Ward’s home – from the Ward’s son who deeded the home to himself without the Ward’s permission.

The trial court imposed a constructive trust on the property, awarded damages of $150K (the amount the Ward had contributed to the home through the years) and assessed punitive damages against the defendant for wrongful conduct. Defendant appealed.

Reversing, the appeals court held that the trial court should have granted the defendant’s Section 2-615 motion to dismiss since a claim for conversion, by definition, only applies to personal property (i.e. something moveable); not to real estate.

The court first addressed the procedural impact of the defendant answering the complaint after his prior motion to dismiss was denied. Normally, where a party answers a complaint after a court denies his motion to dismiss, he waives any defects in the complaint.

An exception to this rule is where the complaint altogether fails to state a recognized cause of action. If this is the case, the complaint can be attacked at any time and by any means. This is so because “a complaint that fails to state a [recognized] cause of action cannot support a judgment.”

However, this exception allowing complaint attacks at any time doesn’t apply to an incomplete or deficiently pled complaint – such as where a complaint alleges only bare conclusions instead of specific facts in a fraud claim. For a defendant to challenge a complaint after he answers it, the complaint must fail to state a recognized theory of recovery.

Here, the trial court erred because it allowed a judgment for the guardian on a conversion claim where the subject of the action was real property.  In Illinois, there is no recognized cause of action for conversion of real property. A conversion claim only applies to personal property.

Conversion is the wrongful and unauthorized deprivation of personal property from the person entitled to its immediate possession. The conversion plaintiff’s right to possess the property must be “absolute” and “unconditional” and he must make a demand for possession as a precondition to suing for conversion. (¶¶ 20-21)

The court rejected the guardian’s argument that the complaint alleged the defendant’s conversion of funds instead of physical realty.  The court noted that in the complaint, the guardian requested that the home be returned to the Ward’s estate and the Ward be given immediate possession of it.

The court also pointed to the fact that the defendant didn’t receive any funds or sales proceeds from the transfer that could be attached by a conversion claim. All that was alleged was that the defendant deeded the house to himself and his wife without the Ward’s permission. Since there were no liquid funds traceable to the defendant’s conduct, a conversion claim wasn’t a cognizable theory of recovery.

Afterwords:

This case provides some useful reminders about the nature of conversion and the proper timing to attack a complaint.

Conversion only applies to personal property. In an action involving real estate – unless there are specific funds that can be tied to a transfer of the property – conversion is not the right theory of recovery.

In hindsight, if in the plaintiff guardian’s shoes, I think I’d pursue a constructive trust based on equitable claims like a declaratory judgment (that the defendant’s deeding the home to himself is invalid), unjust enrichment and a partition action.

 

Apparent Agency Binds Roofing Company to Acts of Third-Party Marketing Firm; Liable Under Illinois Wage Act – IL Court

In Thomas v. Weatherguard Construction Company, 2015 IL App (1st) 142785, the First District provides a thorough analysis of Illinois agency law as it applies to breach of contract claims for unpaid commissions. The court also discusses the parameters of the Illinois Wage Payment and Collection Act (“Wage Act”) and the universe of damages available under it.

The Plaintiff sued to recover about $50K in commissions from a company that repairs weather-damaged homes for customers signed up by the plaintiff.

The arrangement involved plaintiff soliciting business for the defendant by targeting homeowners who suffered weather damage to their homes. Once the homeowner’s insurer approved the repair work, defendant would do the repairs and get paid by the homeowner’s insurer.  The defendant would then pay plaintiff a 20% commission based on the total repair contract price on all deals originated by the plaintiff.

At trial, the defendant argued that plaintiff wasn’t its employee.  It claimed the plaintiff was employed by a third-party marketing company whom defendant contracted with to solicit repair orders for the defendant.

The trial court entered a money judgment for the plaintiff for less than $10,000 and denied plaintiff’s claims for attorneys’ fees under the Wage Act.  Both sides appealed.

Affirming, the appeals court discussed agency law, the elements of an enforceable oral contract, and recoverable damages under the Wage Act.

Agency Law Analysis

Under the apparent agency rule, a principal (here, the defendant) is bound by the authority it appears to give an agent.   Once a principal creates an appearance of authority, he cannot later deny that authority to an innocent third party who relies on the appearance of authority.

The apparent agency claimant must show (1) the principal acted in a manner that would lead a reasonable person to believe the individual at fault was an employee or agent of the principal; (2) the principal had knowledge of or acquiesced in the agent’s acts; (3) the injured party (here, the plaintiff) acted in reliance on the principal’s conduct.  But, someone dealing with an agent has to exercise reasonable diligence and prudence in determining the reach of an agent’s authority.  (¶¶ 48-49, 51)

Here, there were multiple earmarks of authority flowing from the defendant to the marketing company who hired the plaintiff.  The marketing firm used the defendant’s uniforms, logo, business cards, and shared defendant’s office space and staff.  Viewing these factors holistically, the First District agreed with the trial court that it was reasonable for the plaintiff to assume the marketing firm was affiliated with defendant and was authorized to hire the plaintiff on defendant’s behalf.  (¶ 50)

Breach of Oral Contract

Rejecting the defendant’s claim that the plaintiff’s commission contract was too uncertain, the court found there was an enforceable oral contract even though certain price terms were unclear.  An oral contract’s existence and terms are questions of fact and a trial court’s determination that an oral contract does or doesn’t exist is entitled to deference by the appeals court.  In addition, damages are an essential element of a breach of contract claim the failure to prove damages spells defeat for the breach of contract plaintiff.

The Court agreed with the trial court that plaintiff sufficiently established an oral contract for defendant to pay plaintiff a 20% commission on the net proceeds (not gross) earned by the defendant on a given home repair job. (¶¶ 55-59)

The Wage Act

Part II of this post examines the court’s analysis of whether the Wage Act’s 2011 amendments that provide for attorneys’ fees and interest provisions apply retroactively (plaintiff filed suit in 2007).

Afterwords:

Agency law issues come up all the time in my practice.  In the breach of contract setting, the key question usually is whether an individual or entity has actual or apparent authority to act on behalf of a solvent or “deeper pocketed” defendant (usually a corporation or LLC).  Cases like Thomas show how risky it is for defendants to allow unrelated third parties to use a corporate defendant’s trade dress (logo, e.g.), facilities, staff or name on marketing materials.

A clear lesson from the case is that if a company does let an intermediary use the company’s brand and brand trappings, the company should at least have indemnification and hold-harmless agreements in place so the company has some recourse against the middleman if a plaintiff sues the company for the middleman’s conduct.

 

Loss of Earning Capacity and The Self-Employed Plaintiff: What Damages Are Recoverable (IL 4th Dist. Case Note)

The plaintiff in Keiser-Long v. Owens, 2015 IL App (4th) 140612, a self-employed cattle buyer, sued for injuries she suffered in a car accident with the defendant.  The defendant admitted negligence and the parties went to trial on damages.

The defendant successfully moved for a directed verdict on plaintiff’s attempt to recover for lost earning capacity at trial and the Plaintiff appealed.

Reversing, the Fourth District appeals court expanded on the potential damages a personal injury claimant can recover where the plaintiff is self-employed and doesn’t draw a formal salary from the business she operates.

Illinois allows a plaintiff in a negligence suit to recover all damages that naturally flow from the commission of a tort.  Impaired earning capacity is a proper element of damages in a personal injury suit.  However, recovery is limited to loss that is reasonably certain to occur.  Lost earning capacity damages are measured by the difference between (a) the amount a plaintiff was capable of earning before her injury; and (b) the amount she is able to earn post-accident.

Lost earning capacity damages focus on an injured person’s ability to earn money instead of what she actually earned before an injury.  That said, a plaintiff pre- and post-accident earnings are relevant to a plaintiff’s damages computation.  ¶ 37.

Where a plaintiff is self-employed, a court can consider the plaintiff’s company’s diminution of profits as evidence of a plaintiff’s monetary damages where the plaintiff’s services are the dominant factor in producing profits.  By contrast, where a self-employed plaintiff’s involvement is passive and she relies on the work of others to make the company profitable, a profits reduction is not a proper damage element in a personal injury action.

The trial court granted the defendant’s motion for directed verdict since the plaintiff failed to present evidence that she lost income in the form of a salary or bonus from her cattle-buying business.

The appeals court reversed.  It noted that the plaintiff was solely responsible for her company’s profits and was the only one who travelled around the State visiting various cattle auctions and meeting with cattle sellers.  Plaintiff also offered expert testimony that she missed out on the chance to earn some $200,000/year in the years following the accident and that any company profits were labeled “retained earnings” and treated as the plaintiff’s personal retirement plan  ¶¶ 41-43.

The court held that since the plaintiff was the only one whose efforts dictated whether her cattle buying business was profitable or not, her business’s post-accident balance sheet was relevant to her recoverable damages.

The court also rejected the defendant’s argument that since plaintiff’s company was a C corporation (and not an S corp.1), profits and losses did not flow through to the plaintiff, the court should not have considered lost business income as an element of plaintiff’s damages.  The court found that any tax differences between C and S corporations were irrelevant since plaintiff was the cattle company for all intents and purposes.  As a result, any loss suffered by the company was tantamount to monetary loss suffered by the plaintiff.  ¶¶ 45-46.

The court’s final reason for reversing the trial court was a policy one.  Since the plaintiff’s corporation couldn’t sue the defendant, there was no potential for double recovery.  In addition, if the court prevented the plaintiff from recovering just because she didn’t earn a formal salary, this would operate as an unfair windfall for the defendant.  The end result is now the parties must have a retrial on the issue of plaintiff’s lost earning capacity.  ¶¶ 46-47.

Afterwords:

Owens provides a useful synopsis of when impaired earning capacity can be recovered in a personal injury suit.  In the context of a self-employed plaintiff, a plaintiff’s failure to draw a salary per se will not foreclose her from recovering damages; especially where the plaintiff – and not someone working for her – is the one mainly responsible for company profits.  In cases where the plaintiff is self-employed and is singularly responsible for a company’s profits, a loss in business income can be imputed to the defendant and awarded to the business-owner plaintiff.

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1  A C corporation is taxed at both the corporate level and at the shareholder level.  By contrast, an S corporation is not taxed at the corporate level; it’s only taxed at the shareholder individually. (This is colloquially termed “flow-through taxation.”)