Cab Passenger Fares Aren’t “Wages” Under IL Wage Payment and Collection Act – 7th Circuit

The salient question considered by the Seventh Circuit in Enger v. Chicago Carriage Cab Corp., 2016 WL 106878 (7th Cir. 2016) was whether “wages” under the Illinois Wage Payment and Collection Act, 820 ILCS 115/1 et seq. (the “Act”) encompasses “indirect wages” – monies paid an employee by third parties (i.e. as opposed to money paid directly from an employer).

The answer: No, it does not.

The plaintiffs, current and former Chicago cab drivers over a ten-year time frame sued various cab companies alleging Wage Act violations and unjust enrichment.

The plaintiffs alleged the companies violated the Act by misclassifying them as independent contractors instead of employees. The plaintiffs argued that the cab companies requirement that the driver plaintiffs pay daily or weekly shift fees (basically, a lease payment giving the drivers the right to operate the cabs) and other operating expenses, the companies violated the Act.

Affirming the district court’s motion to dismiss, the Seventh Circuit gave a cramped construction to the term wages under the Act examined the content and reach of the Act as applied to claims that

The Act gives employees a cause of action for payment of earned wages. “Wages” is defined by the Act as compensation owed an employee by an employer pursuant to an employment contract.

While the Seventh Circuit agreed with the drivers that there was at least an implied contract between them and the cab companies, those companies did not pay wages to the drivers as the term is defined by the Act.

This was because there was no obligation for the cab company to pay anything to the driver. The cab driver-cab company relationship was a reciprocal one: the driver paid a license fee to the company and then collected fares and tips from passengers.  No money was paid directly from the company to the driver.

The Court found that for the Act to apply to the drivers claims, it would have to expand the statutory definition of wages to include “indirect compensation:” compensation from someone other than the employer. Since there was no published case law on this issue, the Seventh Circuit refused to expand the Act’s definition of wages to include non-employer payments.

For support, the Court noted that Illinois’ Minimum Wage Law specifically defines wages to include gratuities in addition to compensation owed a plaintiff by reason of his employment. Since the legislature could have broadened the Act’s wages definition to include indirect compensation (like tips, etc.) but chose not to, the Court limited wages under the Act to payments directly from an employer to employee.

The Court also rejected the drivers’ argument that they received wages under the Act since drivers are often paid by the cab company when a passenger pays a fare via credit card. In this credit card scenario, the court found that the cab company simply acted as an intermediary that facilitated the credit card transaction. The company did not assume role of wage paying employer just because its credit card processor was used to handle some passenger credit card payments.

The driver’s unjust enrichment claim – that the cab companies were unjustly enriched by the drivers’ shift fees – also fell short.  Since there was an implied contract between the drivers and cab companies, unjust enrichment didn’t apply since an express or implied contract negates an unjust enrichment claim.

Afterwords:

This case clarifies that recoverable wages under Illinois’ Wage Act must flow directly from an employer to an employee.  Payments from third-party sources (like cab passengers) aren’t covered by the Wage Act.

Enger also serves as latest in a long line of cases that emphasize that an unjust enrichment can’t co-exist with an express or implied (as was the case here) contract governs the parties’ relationship.

 

Feelin’ Minnesota? Most Likely (Court Pierces Corporate Veil of Copyright Trolling Firm To Reach Lawyer’s Personal Assets)

After being widely lambasted for its heavy-handed and ethically ambiguous (challenged?) BitTorrent litigation tactics over the past few years, an incarnation of the infamous Prenda law firm was recently hit with a piercing the corporate veil judgment by a Minnesota state court.

In Guava, LLC v. Merkel, 2015 WL 4877851 (Minn. 2015), the plaintiff pornographic film producer, represented by the Alpha, LLC law firm (“Alpha”), filed a civil conspiracy suit and state wiretapping claim against various defendants whom plaintiff claimed illegally downloaded adult films owned by the plaintiff.

Alpha’s lone member is Minnesota attorney and Prenda alum Paul Hansmeier, who has garnered some negative press of his own both for his copyright trolling efforts and his more recent ADA violation suits against small businesses.  In October 2015, the Supreme Court of Minnesota instituted formal disciplinary proceedings against Hansmeier for various lawyer misconduct charges.

The Alpha firm’s litigation strategy in the Guava case followed the familiar script of issuing a subpoena blitz against some 300 internet service providers (ISPs) to learn the identity of the movie downloaders.  Many of the ISP customers fought back with motions to quash the subpoenas.

After assessing monetary sanctions against Alpha for bad faith conduct – trying to extract settlements from the ISP customers with no real intent to litigate – the trial court entered a money judgment against Alpha for the subpoena respondents and John Doe defendants.

Through post-judgment discovery, the subpoena defendants learned that Hansmeier had transferred over $150,000 from Alpha, defunding it in the process.

The judgment creditor defendants then moved to amend the judgment to add Hansmeier individually under a piercing the corporate veil theory. After the trial court granted the motion, Alpha and Hansmeier appealed.

Held: Affirmed

Rules/Reasoning:

In Minnesota, a district court has jurisdiction to take actions to enforce a judgment when the judgment is uncollectable and where refusing to amend a judgment would be inequitable.

A classic example of an equitable remedy that a court can apply to amend an unsatisfied money judgment is piercing the corporate veil. A Minnesota court will pierce the corporate veil where (1) a judgment debtor is the alter ego of another person or entity and (2) where there is fraud.

The alter ego analysis looks at a medley of factors including, among others, whether the judgment debtor was sufficiently capitalized, whether corporate formalities were followed, payment or nonpayment of dividends, and whether the dominant shareholder siphoned funds from an entity to avoid paying the entity’s debts.

The fraud piercing factor considers whether an individual has used the corporate form to gain an undeserved advantage. The party trying to pierce the corporate veil doesn’t have to show actual (read: intentional) fraud but must instead show the corporate entity operated as a constructive fraud on the judgment creditor.

Here, the defendants established both piercing prongs. The evidence clearly showed Alpha was used to further Hansmeier’s personal purposes, there was a disregard for basic corporate formalities and the firm was insufficiently and deliberately undercapitalized.

The court also found that it would be fundamentally unfair for Hansmeier to escape judgment here; noting that Hansmeier emptied Alpha’s bank accounts after it became clear that defendants were trying to enforce the money judgment against the Alpha firm.

Afterword:

While a Minnesota state court ruling won’t bind other jurisdictions, the case is post-worthy The case lesson is clear: if a court (at least in Minnesota) sees suspicious emptying of corporate assets when it’s about to enter a money judgment, it has equitable authority to modify a judgment so that it binds any individual who is siphoning the corporate assets.

The case is also significant because it breaks from states like Illinois that specify that piercing the corporate veil is not available in post-judgment proceedings. In Illinois and other states, a judgment creditor like the Guava defendants would have to file a separate lawsuit to pierce the corporate veil.  This obviously would entail spending time and money trying to attach assets that likely would be dissipated by case’s end.  The court here avoided what it viewed as an unfair result simply by amending the money judgment to add Hansmeier as a judgment debtor even though he was never a party to the lawsuit.

Implied-in-Law Contracts Versus Express Contracts: “Black Letter” Basics

Tsitiridis v. Mahmoud, 2015 IL App (1st) 141599-U pits a taxi medallion owner against a medallion manager in a breach of contract dispute.  Plaintiff pled both express and implied contract theories against the medallion manager based on an oral, year-to-year contract where the plaintiff licensed the medallions to the defendant (who used them in his fleet of cabs) for a monthly fee.  Under the agreement, the defendant also assumed responsibility for all its drivers’ traffic and parking violations and related fines.

When the defendant failed to pay its drivers’ traffic fines, plaintiff covered them by paying the city of Chicago about $60K.  Plaintiff then sued the defendant for reimbursement.

After the trial court dismissed the complaint on the defendant’s motion, the medallion owner plaintiff appealed.

The First District partially agreed and disagreed with the trial court. In doing so, it highlighted the chief differences between express and implied-in-law contracts and the importance of a plaintiff differentiating between the two theories in its Complaint.

A valid contract in Illinois requires an offer, acceptance and consideration (a reciprocal promise or some exchange of value between the parties).

While the medallion contract involved in this case seemed factually unorthodox since it was a verbal, year-to-year contract, the plaintiff alleged that in the cab business, it was an “industry standard” agreement.  Plaintiff alleged that the agreement was a classic quid pro quo: plaintiff licensed the medallions to the defendant who then used the medallions in its fleet of cabs in exchange for a monthly fee to the plaintiff.

Despite the lack of a written agreement, the court noted that in some cases, “industry standards” can explain facially incomplete contracts and save an agreement that would normally be dismissed by a court as indefinite.

The plaintiff’s complaint allegations that the oral medallion contract was standard in the taxicab industry was enough to allege a colorable breach of express contract claim. As a result, the trial court’s dismissal of the breach of oral contract Complaint count was reversed.

The court did affirm dismissal of the implied contract claims, though.   It voiced the differences between implied-in-law and implied-in-fact contracts.

An implied-in-law contract or quasi-contract arises by implication and does not depend on an actual agreement.   It is based on equitable concerns that no one should be able to unjustly enrich himself at another’s expense.

Implied-in-fact contracts, by contrast, are express contracts.  The court looks to the parties’ conduct (instead of the contract’s language) and whether the conduct is congruent with a mutual meeting of the minds concerning the pled contract terms.  If there is a match between alleged contract terms and the acts of the parties, the court will find an implied-in-fact contract exists.

Illinois law is also clear that an implied-in-law contract cannot co-exist with an express contract claim.  They are mutually exclusive.  While Illinois does allow a plaintiff to plead conflicting claims in the alternative, a plaintiff cannot allege a breach of express contract claim and an implied-in-law contract one in the same complaint.

Since the plaintiff here incorporated the same breach of express contract allegations into his implied-in-law contract count, the two counts were facially conflicting and the implied-in-law count had to be dismissed.

Take-away:

Like quantum meruit and unjust enrichment, Implied-in-law contract can serve as a viable fallback theory if there is some factual defect in a breach of express contract action.

However, while Illinois law allows alternative pleading, plaintiffs should take pains to make sure they don’t incorporate their implied contract facts into their express contract ones. If they do, they risk dismissal.

This case also has value for its clarifying the rule that industry standards can sometimes inform a contract’s meaning and supply the necessary “gap fillers” to sustain an otherwise too indefinite breach of contract complaint count.