Recovering Court Costs In Illinois Litigation – What’s Covered?

a-very-upset-aol-salesperson-just-called-us (photo credit: www.businessinsider.com)

 Huang v. CNA, 2012 Ill. App. 1st 1112243-U provided a useful discussion of recoverable court costs in the context of a malicious prosecution suit.

To prove malicious prosecution, a plaintiff must show (1) the commencement or continuance of a criminal or civil proceeding; (2) the proceeding terminated in the plaintiff’s favor; (3) absence of probable cause; (4) malice; and (5) damages.

If the defendant had probable cause to sue or to file criminal charges, regardless of whether the suit or charges was successful, this will completely defeat a malicious prosecution claim.

“Probable cause” in the context of dropped criminal charges means a state of facts that would lead a person of ordinary caution and prudence to believe – or to have a strong suspicion – that the person committed a crime.

The key inquiry is on the state of mind of the one commencing the prosecution, not the actual facts of the case or whether the accused was guilty or innocence, that determines probable cause. As long as there is a an “honest belief” that the accused is probably guilty of an offense, the probable cause standard is met (and a malicious prosecution claim will fail). ¶ 40.

Here, the evidence reflected the defendant’s probable cause for charging the plaintiff with trespassing: He refused to leave the premises after his employer fired him.  The Illinois Criminal Code defines trespassing as a person remaining on the land of another, after receiving notice from the owner or occupant to depart. 720 ILCS 5/21-3(a)(3).

Based on the evidence that the plaintiff was belligerent and insistent (on staying), the court found the defendant had a reasonable basis to charge the fired employee plaintiff. ¶¶ 42-45.

The next issue grappled with by the court concerned what costs could the defendant employer recover after defeating plaintiff’s claims. Code Section 5-108 and 109 (735 ILCS 5/5-108, 5-109) work in tandem to govern recoverable costs in litigation.

Code Section 5-109 allows the winning party to recover costs. Case law interprets Section 5-108’s “court costs”  to encompass filing fees, subpoena fees and statutory witness fees. While court costs are recoverable, “litigation costs” (e.g. photocopying, research costs, etc.) generally are not.

Supreme Court Rule 208(d) also gives the trial court discretion to tax deposition costs where the deposition is “necessarily used at trial.” But where a case is disposed of before trial (like on a motion for summary judgment or dismissal), deposition costs aren’t properly taxed to the losing party. ¶¶ 49-50.

Here, the court affirmed the filing fees and subpoena fees but reversed the cost award for defendant’s depositions. Since there was no trial, the defendant’s deposition costs shouldn’t have been assessed against the plaintiff.

Take-aways:

– To establish probable cause in a malicious prosecution case, a defendant only needs to show an objective, honest belief that the plaintiff committed a crime;

– Deposition costs can be recovered by a winning litigant but only where the deposition is necessarily and actually used at trial;

– If a case is disposed of on a summary judgment or dismissal motion, the winner only can recover court filing fees, service/sheriff fees and subpoena costs.

 

Unconscionability: Substantive and Procedural – Illinois Case Snapshot

The Case: Rosenbach v. NorStates Bank, 2014 IL App (2d) 131162-U

Facts Summary: Plaintiff LLC member who guaranteed commercial real estate loan sues the lender after lender makes (allegedly) unauthorized loan advances, declares a default against the LLC and seizes over $200,000 of the plaintiff’s personal funds that were pledged to induce the loan to the LLC.  Plaintiff’s claims are for breach of contract and a declaratory judgment action seeking ruling that the commercial guaranty is unconscionable under Illinois law.

Procedural History: Lender moves to dismiss on dual bases that (1) plaintiff’s injury is derivative of injury to the LLC borrower; and (2) commercial guaranty is not procedurally or substantively unconscionable.  Trial court grants motion and plaintiff appeals.

Result: Trial court’s dismissal upheld.  Lender wins, plaintiff LLC member/guarantor loses.

Operative Rules:

To defeat a guaranty claim, a guarantor must establish he suffered a direct injury as a result of a lender’s breach; as opposed to injury that is derivative of the injury suffered by the borrower.  So, if a corporate borrower is damaged due to a lender’s breach, the borrowing entity has a right to sue; not a constituent (individual) member of that borrower (e.g. an officer, shareholder, employee, etc.);

Illinois’ declaratory judgment statute allows a court to make binding declarations of rights in cases where the parties’ dispute has crystallized and they have reached an impasse.  The “dec action” plaintiff must show (1) a tangible legal interest in the subject of the suit; (2) a defendant with an opposing interest to plaintiff’s; and (3) an actual controversy between the parties. 735 ILCS 5/2-701(a);

Illinois recognizes (a) procedural unconscionability; and (b) substantive unconscionability.  The former means there is unfairness during the contract formation stage that deprives one of the parties of freedom of choice.  The latter (substantive unconscionability) looks to the terms of a contract and whether they are so one-sided that they oppress or unfairly burden an innocent party and show an imbalance in obligations among the contracting parties.

Procedural unconscionability factors include whether each party had a chance to understand the terms of the contract, whether key terms were hidden amid “a maze of fine print” and any other circumstances surrounding contract formation.

¶¶ 20-28, 31-35

Application:

Plaintiff’s claimed injuries in the breach of guaranty count were purely derivative of the LLC borrower’s.  The extent of plaintiff’s liability to the lender defendant was tied directly to the borrowing entity’s liability to the lender defendant.  There were no facts pled that showed plaintiff would have any different (in nature or amount) liability to defendant than the underlying corporate borrower.

The court held that loss of a guarantor’s investment is a derivative injury, not a direct one.  As a result, plaintiff’s claims were defeated since he failed to plead a direct (as opposed to flow-through) injury as the result of any lender conduct.

The plaintiff’s unconscionability arguments also failed.  The plaintiff only made conclusory allegations that the guaranty was a pre-printed document, drafted by the lender who had a superior bargaining stance compared to the plaintiff.  These blanket allegations weren’t enough though to show a defect during the formation and execution of the guaranty.

The court also held that even if the guaranty was procedurally unconscionable, the plaintiff would still have to show sustantive unconscionability – that the guaranty terms were inordinately one-sided in favor of the lender (and against the plaintiff) that no court could fairly enforce the guaranty.

Here, the court allowed that the guaranty definitely did favor the lender and the lender was probably in a stronger contracting position than the plaintiff.  Still, the terms weren’t so one-sided that the court should abstain from enforcing them.  In rejecting the plaintiff’s substantive unconscionability argument, the court also cited the fact that the guaranty terms weren’t hidden or hard to understand or any unfair surprise.

Afterwords:

Individual guarantor of a corporate borrower must show separate and distinct injury from the corporate borrower to have standing to sue a lender for breach;

A sophisticated borrower will likely need to show both procedural (formation defects) and substantive unconscionability (unfair or one-sided contract terms) to free himself from a contract he willingly signed.

Contractor Can Recover for Extra Work Under Time & Materials Contract – IL

untitled (photo credit: www.anp.com; google images (12.19.14)

 

 

 

This article highlights the importance of using proper terminology and clearly defining payment obligations in written construction agreements.

In Schmoldt & Daniels Masonry v. 723 S. Neil, LLC, 2014 IL App (4th) 140102-U, the court discusses the difference between a time-and-materials contract and a lump sum contract and examines what a contractor must show to recover “extras” from a property owner.

A masonry contractor plaintiff and the owner defendant signed a contract that required the plaintiff to complete masonry work on a time and material (T&M) basis “not to exceed $80,000.” Plaintiff sued after the owner failed to pay about $75,000 in extras.

After a bench trial, the court granted a money judgment to the masonry contractor for the full amount of the extras and the owner appealed.

Held: judgment affirmed.

Reasons:

The court agreed with the plaintiff’s testimony that the $80,000 cap was only an estimate and contingent on the owner performing preliminary masonry work.

In a lump-sum contract, the contractor assumes the risk that the job will go over budget. In a T&M contract, the parties share the risk.  A T&M contract can be open-ended (no price limit) or capped (it can’t exceed a stated amount).  Under basic Illinois contract law, where contract terms are clear and unambiguous, they will be enforced as written.

A contract is ambiguous where its terms are reasonably susceptible to more than one meaning.  But just because parties disagree on the meaning of certain contract terms doesn’t make the contract ambiguous.

A contractor seeking to recover additional payment for extra work must establish

  • that the work was outside the scope of the contract;
  • the extra items were ordered by the owner;
  •  the owner agreed to pay for the extra work – either by words or conduct;
  • the extras were not furnished by the contractor voluntarily; and
  •  the extras weren’t rendered necessary due to any fault of the contractor.

(¶¶ 23-24, 31).

The Court agreed that the contract was ambiguous. The “not to exceed $80,000” language could plausibly refer both to the specific Scope of Work items as well as to additional items stated in the architectural plans and owner-requested items.

Based on the ambiguity, the Court allowed the parties to testify concerning their intent in negotiating and consummating the $80,000 price term.

The Court found the plaintiff’s testimony that the $80,000 wasn’t a firm price cap more credible than the owner’s opposing testimony.

Affirming the extras damages award, the court found the plaintiff established all elements for recoverable extras: that  plaintiff performed extra work at the owner’s request, the owner tacitly agreed to pay, and the extras weren’t performed gratuitously and due to any fault of the contractor. ¶¶ 32-34.

Take-aways:

Where a writing has two or more equally plausible meanings, a court will find it ambiguous and allow the parties to testify as to the writing’s intended meaning.

 The case also illustrates the importance of precision in drafting.  If the contractual intent is to cap costs no matter what, the parties should so.  

The case also states the simple five-part test for a contractor proving up its claim for extras.