“I Just Work Here”: Service on Corporate “Employee” Not The Same As Service On Corporate “Agent” – IL Court

Route 31, LLC, v. Collision Centers of America, 2015 IL App (2d) 150344-U examines the law and facts that determine whether service of process on a corporation complies with Illinois law.

The plaintiff served its lawsuit on the defendant’s office manager and eventually won a default judgment.  About nine months later, the corporation moved to quash service and vacate the default judgment on the basis that service was defective.  The trial court denied the motion and the defendant appealed.

The corporate defendant argued that the court had no personal jurisdiction over it since the plaintiff improperly served the lawsuit. A judgment entered without personal jurisdiction can be challenged at any time.

  • Personal jurisdiction may be established either by service of process in accordance with statutory requirements or by a party’s voluntary submission to the court’s jurisdiction.
  • Strict compliance with the statutes governing the service of process is required before a court will acquire personal jurisdiction over the person served.
  • Where service of process is not obtained in accordance with the requirements of the statute authorizing service of process, it is invalid, no personal jurisdiction is acquired, and any default judgment rendered against a defendant is void.
  • Section 2–204 of the Code provides that a private corporation may be served by leaving a copy of the process with its registered agent or any officer or “agent” of the corporation found anywhere in the state or in any other manner permitted by law. 735 ILCS 5/2–204 (West 2012).
  • Substitute service of a corporation may be made by serving the Secretary of State. 805 ILCS 5/5.25(b)
  • A sheriff’s return of service is prima facie evidence of service, which can be set aside only by clear and satisfactory evidence.
  • However, when a corporation is sued, the sheriff’s return as to the fact of agency is not conclusive. Id.

(¶¶ 13-14)

Employee vs. Agent: “What’s the Difference?”

Employee status and agency are often used interchangeably in common parlance but the terms differ in the service of process context.  An employee is not always an “agent.”   Illinois cases have invalidated service of process on corporations where a plaintiff, in different cases, served a cashier and receptionist with process and neither understood what it was.

But at least one court (Megan v. L.B. Foster Co., 1 Ill.App.3d 1036, 1038 (1971), did find that “service upon an intelligent clerk of a company who acts as a receptionist and who understood the purport of the service of summons” was sufficient service on a corporate employee.

In Collision Centers, the plaintiff and defendant submitted warring affidavits.  The plaintiff’s process server testified that the summons recipient held herself out as the “office manager,” and acknowledged that she was authorized to accept service.  The office manager’s affidavit said just the opposite: she claimed to have no corporate responsibilities or authority to receive legal papers for her employer.

The court noted that under the process server’s affidavit, the office manager was akin to an agent – an “intelligent” company representative who appreciates the importance of the served summons.

Yet the defendant’s office manager swore she was only a garden-variety “employee” who lacked any corporate authority to accept service and lacked a basic understanding of the papers’ meaning.  In fact, the office manager stated in the affidavit that she was badgered into accepting the papers by the plaintiff’s process server.

The widely divergent affidavit testimony meant the court could only decide the service issue after an evidentiary hearing with live testimony.  Since plaintiff has the burden of proving proper corporate service and never requested an evidentiary hearing in the trial court, the trial court erred in denying defendant’s petition to quash service without first conducting a hearing.  As a result, the judgment against the corporation was reversed.

Afterwords:

This case highlights the importance of a civil suit plaintiff’s vigilance when serving a corporation.  If service on a registered agent of a corporation (something that is typically public record via a Secretary of State website) isn’t possible, the plaintiff should take pains to serve an officer of the corporation or at least a knowledgeable agent.  Unfortunately, in Illinois at least, this isn’t always possible on the first try since service must usually go through the County Sheriff in the first instance.

No Course of Dealing In Trucking Dispute – Attorneys’ Fees Language in Invoice Not Binding On Transport Co. (IL ND)

C&K Trucking, LLC v. AGL, LLC, 2015 WL 6756282, features a narcotic fact pattern and this legal issue: Can boilerplate “legalese” in an invoice create binding contract rights against the invoice recipient?

Whether the mere mention of this topic is sleep inducing will depend on the person.  But what I can say is that the question is a pertinent one from a commercial litigation standpoint since it continues to crop up pretty regularly in practice.

I’ve represented parties trying to enforce favorable invoice language while at other times, defended against one-sided invoice terms.  The main issue there, like in today’s featured case, is whether there was a meeting of the minds on the disputed invoice language.

The plaintiff transportation broker in C&K Trucking sued to recover damages for unpaid cargo brokerage services. The broker’s damages action was based on invoices that provided it could recover unpaid amounts in addition to interest and attorneys’ fees.

The problem was that the broker didn’t send its invoices until after it performed under a series of oral contracts with the trucking firm defendants.

The contracting chronology went like this: plaintiff broker verbally hired the defendant to transport cargo for the plaintiff’s clients.  Once the defendants delivered the cargo and was paid by the broker’s clients, the broker sent the defendants invoices that contained the disputed fee-shifting terms.

Defendants moved for summary judgment that the invoice attorneys’ fees provision weren’t enforceable since they (defendants) never agreed to fee-shifting at the outset.  The Northern District agreed and granted defendants’ summary judgment motion.  In doing so, the court relied on some fundamental contract formation principles and reiterated the quantum of evidence needed to survive a summary judgment motion.

In Federal court, the summary judgment movant must show the court that a trial is pointless – that there’s no disputed issue of fact. Once the movant meets this burden, the non-moving party must then show that the affidavits, depositions and admissions on file do in fact show there are “material” disputed facts that should be resolved at trial.

A disputed fact is material where it might affect the outcome of the suit. But a metaphysical doubt isn’t enough. If the evidence doesn’t show a true factual dispute, a summary judgment will be granted.

To establish the formation of a valid contract in Illinois, the plaintiff must prove there was an offer, an acceptance and valuable consideration.  The plaintiff must also establish that the contract’s main terms were definite and certain.

Any one-sided attempt to change terms of a contract by sending an invoice with additional terms that were never discussed by the parties will normally fail to create an enforceable contract. 

An exception to this applies where there is a course of dealing between the parties.  A course of dealing is defined as a continuous relationship between parties over time that, based on the parties’ conduct, reflects a mutual understanding of each party’s rights and duties concerning a particular transaction.  A course of dealing under contract law can inform or qualify written contract language.

In this case, the plaintiff argued that the defendants’ years-long pattern of accepting and paying plaintiff’s invoices established a course of dealing and evinced defendant’s implied acceptance of the invoice contents.  The court rejected this argument since there was no evidence that defendants ever paid the plaintiff’s attorneys’ fees through the life of the verbal contracts.  The court also pointed to the fact that defendants disputed many of plaintiff’s invoices as additional proof that there was no tacit acknowledgement by defendants that it was responsible for plaintiff’s attorneys’ fees.

Afterwords:

The key lesson from the factually unsexy C&K Trucking case is that boilerplate fee-shifting invoice terms sent after the contract is performed generally aren’t enforceable. There must be a meeting of the minds at the contract formation stage to allow fee-shifting.

A course of dealing based on the parties’ past conduct can sometimes serve as a proxy for explicit contract terms or a party’s acceptance of those terms.  However, where the parties’ prior transactions do not clearly show mutual assent to disputed language, the breach of contract plaintiff cannot rely on the course of dealing rule to prove a defendant’s implied acceptance.

 

 

 

Hotel Titan Escapes Multi-Million Dollar Fla. Judgment Where No Joint Venture in Breach of Contract Case

In today’s featured case, the plaintiff construction firm contracted with a vacation resort operator in the Bahamas partly owned by a Marriott hotel subsidiary. When the resort  breached the contract, the plaintiff sued and won a $7.5M default judgment in a Bahamas court. When that judgment proved uncollectable, the plaintiff sued to enforce the judgment in Florida state court against Marriott – arguing it was responsible for the judgment since it was part of a joint venture that owned the resort company.  The jury ruled in favor of the plaintiff and against Marriott who then appealed.

Reversing the judgment, the Florida appeals court first noted that under Florida law, a joint venture is an association of persons or legal entities to carry out a single enterprise for profit.

In addition to proving the single enterprise for profit, the joint venture plaintiff must demonstrate (i) a community of interest in the performance of the common purpose, (ii) joint control or right to control the venture; (iii) a joint proprietary interest in the subject matter of the venture; (4) the right to share in the profits; and (5) a duty to share in any losses that may be sustained.

All elements must be established. If only one is absent, there’s no joint venture – even if the parties intended to form a joint venture from the outset.

The formation of a corporation almost always signals there is no joint venture. This is because joint ventures generally follow partnership law which follows a different set of rules than do corporations. So, by definition, corporate shareholders cannot be joint venturers by definition.

Otherwise, a plaintiff could “have it both ways” and claim that a given business entity was both a corporation and a joint venture. This would defeat the liability-limiting function of the corporate form.

A hallmark of joint control in a joint venture context is mutual agency: the ability of one joint venturer to bind another concerning the venture’s subject matter.  The reverse is also true: where one party cannot bind the other, there is no joint venture.

Here, none of the alleged joint venturers had legal authority to bind the others within the scope of the joint venture. The plaintiff failed to offer any evidence of joint control over either the subject of the venture or the other venturers’ conduct.

There was also no proof that one joint venture participant could bind the others. Since Marriott was only a minority shareholder in the resort enterprise, the court found it didn’t exercise enough control over the defaulted resort to subject it (Marriott) to liability for the resort’s breach of contract.

The court also ruled in Marriott’s favor on the plaintiff’s fraudulent inducement claim premised on Marriott’s failure to disclose the resort’s precarious economic status in order to  entice the plaintiff to contract with the resort.

Under Florida law, a fraud in the inducement claim predicated on a failure to disclose material information requires a plaintiff to prove a defendant had a duty to disclose information. A duty to disclose can be found (1) where there is a fiduciary duty among parties; or (2) where a party partially discloses certain facts such that he should have to divulge the rest of the related facts known to it.

Here, neither situation applied. Marriott owed no fiduciary duty to the plaintiff and didn’t transmit incomplete information to the plaintiff that could saddle the hotel chain with a duty to disclose.

Take-aways:

A big economic victory for Marriott. Clearly the plaintiff was trying to fasten liability to a deep-pocketed defendant several layers removed from the breaching party. The case shows how strictly some courts will scrutinize a joint venture claim. If there is no joint control or mutual agency, there is no joint venture. Period.

The case also solidifies business tort axiom that a fraudulent inducement by silence claim will only prevail if there is a duty to disclose – which almost always requires the finding of a fiduciary relationship. In situations like here, where there is a high-dollar contract between sophisticated commercial entities, it will usually be impossible to prove a fiduciary relationship.

Source: Marriott International, Inc. v. American Bridge Bahamas, Ltd., 2015 WL 8936529