Illinois Consumer Fraud Act Applies To ‘Biz to Biz’ Insurance Dispute Says Fed. Court

In GoHealth, LLC v. Zoom Health, Inc., 2013 WL 6183024, the Northern District provides a detailed summary of the necessary Illinois pleading elements of some signature business torts in a diversity contract dispute involving the sale of insurance products.

Plaintiff and defendants entered into a written agreement where plaintiff would sell insurance product leads to defendants for a fee.  The defendants would in turn use the leads in peddling insurance products to its own customers.  The relationship soured and each side filed claims against each other.  Defendant’s counterclaims sounded in consumer fraud and common law fraud. Each side moved to dismiss.

The Court struck defendants’ fraud and negligent misrepresentation claims and upheld its consumer fraud and trade secrets counts.

Fraud Claim and Negligent Misrepresentation Claims

The Court dismissed the defendants’ common law fraud  and negligent misrepresentation claims.  An Illinois fraud plaintiff must allege a (i) knowingly false statement, (ii) intended to induce reliance in the plaintiff, (iii) reliance by the plaintiff and (iv) damages resulting from the reliance.

Negligent misrepresentation has the same elements as fraud except the plaintiff must allege a negligent or reckless (instead of intentional) false statement.  Federal specificity-in-pleading rules under Rule 9(b) don’t apply to a negligent misrepresentation claim. *9-10.

Defendants’ fraud count asserted that plaintiff falsely inflated defendants commission and renewal rates and misstated some sales projections.

The Court found that these two statements non-actionable as they involved future events (e.g. future sales and commissions projections).  Statements of future intent, opinions or of financial projections don’t equal fraud under the law.

The Court also rejected defendants’ argument that plaintiff was in business of providing information for the guidance of others in their business dealings – a key exception to the economic loss rule (this rule posits that you can’t recover in tort where a contract governs the parties’ relationship.)

The Court held that plaintiff was contractually obligated to provide sales leads and nothing else.  It wasn’t hired to provide sales projections or renewal forecasts – the bases for defendants’ fraud and negligent misrepresentation claims.  Any information provided by plaintiff in connection with the leads was peripheral to the contract’s core purpose.  *11.

Consumer Fraud Claims – Allowed

The court sustained defendants’ consumer fraud counterclaim. 815 ILCS 505/1 (the “Act”).  The consumer fraud count was based on plaintiff furnishing over 40,000 bogus and recycled sales leads to defendant instead of fresh leads.

Allowing the claim, the Court broadly construed the Act to encompass business-to-business relationships: “the protections of the Act are not limited to consumers”, but applies broadly to “persons”, including businesses. *12.

The court found the defendant was a “consumer” of plaintiff’s sales leads which constituted intangible property under the Act. (The Act applies to intangible property.)

The defendants’ claim that plaintiff supplied a high volume of duplicate leads also stated a deceptive act under the Act.   *12.

Afterword:

This case is post-worthy for its application of the consumer fraud statute to a purely business-to-business setting and its discussion of what constitutes “information” in the context of a negligent misrepresentation claim that will beat an economic loss rule challenge.

Summary Judgment Practice: When The Deposition Clashes With The Affidavit

 

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A summary judgment motion axiom posits that you can’t contradict prior sworn deposition testimony with a later affidavit in order to create a triable fact dispute. 

A crude example: if in a deposition you say “I didn’t suffer any monetary damages”, you can’t file an affidavit later in the lawsuit where you say “actually, come to think of it, I lost a million dollars” in order to defeat a summary judgment motion.  You’ll be bound to your earlier deposition testimony. 

Otherwise, anyone could contradict his earlier sworn testimony with impunity and undermine summary judgment’s entire evidence testing system.

Kuvedina, LLC v. Pai, 2013 WL 6499696 (N.D.Ill. 2013) examines summary judgment in the context of a conversion suit.

Facts:  Plaintiff management company hired defendant to provide consulting services to one of plaintiff’s clients.  The relationship between plaintiff and defendant soured and plaintiff fired defendant.  When defendant failed to return a company laptop, plaintiff sued in Federal court for conversion, asserting that defendant’s actions caused plaintiff to lose a large corporate client. 

Defendant moved for summary judgment and attached plaintiff’s owner’s deposition testimony as a supporting exhibit.  In the deposition, the owner gave vague, non-responsive answers and couldn’t pinpoint any evidence to support plaintiff’s money damages claim.

Result: Summary judgment entered for defendant on plaintiff’s conversion count. 

Rules/Reasoning:

Conversion is the wrongful possession of another’s property or any act that permanently or indefinitely deprives someone of the use and possession of his property.

To prove civil conversion in Illinois, a plaintiff must establish (1) a right to the property; (2) an absolute and unconditional right to the immediate possession of the property; (3) a demand for possession of the property; and (4) defendant’s wrongful and unauthorized assumed control, dominion or ownership over the property. *4. 

Money can be converted – but it must be a specific, identifiable fund (e.g. the $876 contained in defendant’s checking account at XYZ bank).  It can’t be a general obligation (“you didn’t paint my house like you promised, so you stole that $500 I gave you.)

Siding with defendant on the conversion count, the Court applied Illinois conversion case law which holds that voluntarily paid funds won’t support a conversion claim. 

The Court found that since plaintiff freely paid defendant almost $40,000 without protest,  plaintiff couldn’t show conversion as to those funds. *4.

The court did side with the plaintiff on its breach of contract, tortious interference, and fraud claims. In its summary judgment motion, defendant pointed to a factual clash between plaintiff’s owner’s earlier deposition and later affidavit testimony.

In his deposition, the plaintiff’s owner couldn’t substantiate any money damages when asked.  Yet, in his later affidavit – filed in response to defendant’s summary judgment motion – he calculated damages of over $500,000 based on defendant’s conduct.

In sustaining plaintiff’s claims, the court stated that all summary judgment evidence – be it interrogatories, depositions, or affidavits – is to some extent self-serving.  The question is a matter of degree.  

Here, the Court found that while plaintiff’s affidavit was self-serving, there were still too many factual disputes in connection with plaintiff’s contract, tortious interference and fraud claims that couldn’t be resolved on a summary judgment motion.   *5.

Take-away: Kuvedina presents a good discussion of how differing deposition versus affidavit testimony impacts the court’s summary judgment calculus and that voluntary payments by a plaintiff are unlikely to support a conversion claim.  

The case also clarifies that summary judgment movant must argue and show more than that the opponent’s evidence is self-serving to win the motion.  The moving party must show that the self-serving evidence fails to raise a genuine issue of disputed material fact. 

 

 

 

 

Employee Handbooks: Are They Enforceable Contract Rights?

imagesWhen I hear the perks enjoyed by some corporate employees – the flex time, the telecommuting, bosses who live and work in other states, getting to “work” from home about 310 days a year in jammies, etc. – I can’t help but be a bit mystified and envious.  “I know I went to Starbucks 18 times today and watched early 90s Dallas Cowboys telecasts on a continuous YouTube loop, but, I was working.  Honest!”  Good thing I’m not jealous (cough).  Or projecting (cough cough).

Now add a corporate Home Sale Buyout Program (the Home Sale Program) to the list of fringe amenities I’ve neither heard of nor experienced.  That’s what’s involved in Carpenter v. Sirva Relocation, LLC, 2013 WL 6454253 (N.D.Ill. 2013), a Northern District case where a transferred Office Depot employee sued her employer and its relocation company for not honoring promised relocation benefits.

Facts:

The plaintiff agreed to move to another state to assume a manager position and sought relocation from her employer.

Office Depot offered a three-pronged program that included facilitating the employee’s home sale, providing moving expenses and an additional lump sum payment.  The relocation program was administered by a third-party relocation company -an Office Depot independent contractor.

A salient feature of the relocation package was that if the employee’s house didn’t sell after 90 days market time, The employer would buy the home based on a contractual pricing formula.

After plaintiff accepted the transfer and moved out of state,  The Office Depot told plaintiff that it couldn’t buy plaintiff’s Chicago home since it was a Co-op – a property type outside the scope of the relocation program.

Plaintiff brought contract and tort claims against Office Depot and its independent relocation contractor.  Both defendants moved for summary judgment on all claims.

Held: Plaintiff’s breach of contract claim against Office Depot survives summary judgment.  Plaintiffs’ claims against moving contractor don’t.

Why?

The Court denied Office Depot’s summary judgment motion on plaintiff’s breach of contract claim.

Plaintiff’s claim was premised on an email and written benefits guide that summarized the relocation benefits.  The guide contained profuse boilerplate disclaimers.

An Illinois breach of contract plaintiff must show (1) the existence of a valid contract, (2) substantial performance by the plaintiff, (3) breach by the defendant, and (4) resulting damages.

For an employee handbook to create enforceable contract rights, (1) the handbook must contain a clear promise such that the employee believes an offer has been made, (2) it must be disseminated to the employee such that the employee reasonably believes the handbook consists of an offer, and (3) the employee must accept the offer by starting or continuing to work after he sees the policy/handbook statement.  

An employment contract disclaimer – if clear and direct – is a defense to a breach of contract suit based on an employee handbook.  *5.

Applying these rules, the Court held that the plaintiff offered sufficient breach of contract evidence to defeat Office Depot’s summary judgment motion.  The Court found the e-mail attachment that sketched out the Relocation program was clear and definite enough to support a colorable contract claim.

The plaintiff also offered evidence that she never saw the benefits guide that contained the co-op disclaimer.  She also showed that she accepted the job transfer in reliance on Office Depot’s email that didn’t mention the co-op exclusion.  Taken together, this was enough for plaintiff to go to trial on her breach of contract claim.  *5-6.

The Court did sustain the relocation contractor’s summary judgment motion.  There was no direct contact between plaintiff and the contractor as all talks flowed through Office Depot.

The plaintiff also didn’t show she was a third-party beneficiary of the subcontract agreement between Office Depot and the moving company: there was nothing in the subcontract that reflected an intent to benefit the plaintiff.*6.

Take-aways: Employer handbooks and published policies can create enforceable contract rights if they are specific enough for a reasonable reader to infer that an offer or promise has been made.

The case also solidifies contract law axiom that there must be privity – a connection – between two parties to give rise to contract rights.  Here, since there was no direct contact between plaintiff and the relocation company, the plaintiff couldn’t state a breach of contract claim against the company.