Tag: 2-619 motion

Secretary of State’s LLC File Detail Report Is Public Record – IL Court (A Deep Cut)

R&J Construction v. Javaras, 2011 WL 10069461, an unpublished and dated opinion, still holds practical value for its discussion of the judicial notice rule, breach of contract pleading requirements and a limited liability company member’s insulation from liability for corporate debts.

The plaintiff sold about $70K worth of construction materials to a concrete company associated with the individual defendant.  The concrete company’s legal name was WS Concrete, LLC, an Illinois limited liability company doing business under the assumed name, West Suburban Concrete.  Defendant was a member of the LLC and point-person who ordered supplies from the plaintiff.

The plaintiff sued the individual and did not name the LLC as a party defendant.

The trial court dismissed the complaint because the plaintiff failed to attach the written contract and there was no evidence the defendant assumed personal responsibility for the contract obligations.  The plaintiff appealed.

Result: Affirmed.

Reasons:

The Court first found the trial court correctly dismissed plaintiff’s suit for failure to attach the operative contract.

Code Section 2-606 requires a plaintiff to attach a written instrument (like a contract) to its pleading where the pleading is based on that instrument.  The exception is where the pleader can’t locate the instrument in which case it must file an affidavit stating the instrument is inaccessible.

Here, the plaintiff alleged a written contract but only attached a summary of various purchase orders and invoices to the complaint.  Since it failed to attach the contract, the appeals court found the complaint deficient and falling short of Section 2-606’s attached-instrument requirement.

The court next addressed whether the LLC File Detail Report (see above image), culled from the Illinois Secretary of State “cyberdrive” site was admissible on Defendant’s motion to dismiss.  In ruling the Report was admissible, the Court cited to case precedent finding that Secretary of State records are public records subject to judicial notice.  (Judicial notice applies to facts that are readily verifiable and not subject to reasonable dispute.)

Since the LLC Report plainly demonstrated the proper defendant was the LLC (as opposed to its member), and there was no evidence the individual defendant took on personal liability for plaintiff’s invoices, the trial court correctly dismissed the defendant.

Added support for the defendant’s dismissal came via the Illinois Limited Liability Company Act, 805 ILCS 180/1 et seq.  Section 10-10 of the LLC Act provides that an LLC’s contractual obligations belong solely to the LLC and that a member cannot be personally responsible for LLC contracts unless (1) the articles of organization provide for personal liability and (2) the member consents in writing.

The Court next addressed plaintiff’s agent of a disclosed principal argument.  The plaintiff asserted that since the individual defendant is the person who ordered plaintiff’s construction materials and it was unclear who the defendant represented, the defendant was responsible for plaintiff’s unpaid invoices.

The court rejected this argument.  It noted that under Illinois law, where an agent signs a contract by signing his own name and providing his own personal contact information (address, phone number, SS #, etc.) and fails to note his corporate affiliation, he (the agent) can be personally liable on a contract.  In this case, however, there was no documentation showing defendant ordering supplies in his own name.  All invoices attached to the plaintiff’s response brief (to the motion to dismiss) reflected the LLC’s assumed name – “West Suburban Concrete” – as the purchasing entity.

Afterwords:

(1) the case provides a useful analysis of common evidentiary issues that crop up in commercial litigation where a corporate agent enters into an agreement and the corporation is later dissolved;

(2) Both the LLC Act and agency law can insulate an individual LLC member from personal liability for corporate debts;

(3) Secretary of State corporate filings are public records subject to judicial notice.  This is good news for trial practitioners since it alleviates the logistical headache of having a Secretary of State agent give live or affidavit testimony on corporate records at trial.

 

 

Fraud Suit Dismissed Where Prior Corporate Dissolution Claim Pending Between Parties – IL Court

Illinois courts aim to foster efficiency and finality in litigation. One way they accomplish this is by protecting people from repetitive lawsuits and requiring plaintiffs to bring all their claims in a single case.  Consolidation of claims is encouraged while piecemeal “claim splitting” is discouraged.

Code Section 2-619(a)(3) is a statutory attempt to streamline litigation. This section that allows for dismissal of a case where there is another action pending between the same parties for the same cause.

Schact v. Lome, 2016 IL App(1st) 141931 provides a recent case illustration of this section in the context of an aborted medical partnership.

The defendant originally filed suit in 2010 against two of his former medical partners to void their attempt to dissolve a medical corporation operated by them. The parties litigated that case for over three years before the plaintiffs (who were the defendants in the 2010 case) filed suit in 2013 for fraud.

The 2013 fraud action alleged the defendant fraudulently induced the plaintiffs to agree to a distribution of the medical corporation’s assets knowing that he (defendant) was going to challenge the corporate dissolution.

According to the plaintiffs, the defendant received almost $50,000 in cash on top of some corporate equipment based on his promise to end the 2010 litigation. Plaintiffs claimed the defendant hoodwinked them into agreeing to the money and property disbursements based on the defendant’s assurance he would dismiss the prior lawsuit.

The trial court dismissed the fraud action based on the same parties, same cause rule.  Affirming dismissal, the appeals court provided content to the “same cause” element of a Section 2-619 motion to dismiss.

  • Illinois Code Section 2-619(a)(3) is a procedural device aimed at avoiding duplicative litigation. It applies where there is a pending case involving the same parties for the same cause.
  • Lawsuits present the same cause when the relief sought is “based on substantially the same set of facts”;
  • The salient inquiry is whether both cases arise from the same transaction or occurrence, not whether the two lawsuits have identical causes of action or legal theories;
  • If the relief requested in each lawsuit relies on substantially the same facts, the “same cause” is met and can present grounds for dismissal.

(¶¶ 35-36)

In finding the same cause test met, the Court noted the 2010 dissolution action and the 2013 fraud suit were “inextricably intertwined.” Both cases involved a challenge to the plaintiffs’ earlier attempted breakup of the medical corporation.  Both cases also centered on the defendant’s conduct in agreeing to a distribution of the corporate assets while at the same time contesting those distributions.  Another commonality between the two suits was the damages claimed by the plaintiffs in the fraud action equaled the defense costs they incurred in the 2010 dissolution action. (¶ 37).

Since both lawsuits involved the same underlying facts, had similar issues and were based on the same conduct by the parties, the 2013 fraud action was properly dismissed since the 2010 dissolution action was still pending when the fraud case was filed.

Take-aways:

Once again, considerations of judicial economy win out over opposing claims that two lawsuits are different enough to proceed on separate tracks.

Schact gives a broad reading to a somewhat nebulous basis for dismissal.  The case stresses that the legal theories advanced in two lawsuits don’t have to be identical to trigger the same cause element of Section 2-619.

Schact’s lesson is clear: Where two lawsuits between the same parties share common issues and stem from substantially similar facts, a defendant will have a strong argument that the later-filed case should be dismissed under the same cause Code section.