Tag: election of remedies

Election of Remedies vs. Alternative Pleading In Illinois

The election of remedies doctrine clashes with Illinois alternative pleading rules in Evashank v. Miller Brewing Company, 2013 IL App (1st) 112987-U, a case involving a dispute over a misread beer promotional ticket.

The plaintiff was given a promotional sticker at the Coach’s Corner bar that plaintiff thought read “win a million dollars”.  It actually said “this summer I want to win a million dollars.”  When the plaintiff tried to claim his big bucks prize, the bar and promotional staff said no and plaintiff sued the beer company and promotional group for fraud and breach of contract. 

Before trial, the court made the plaintiff to choose whether he was going to pursue his fraud or breach of contract claims against the bar.  Plaintiff chose the latter.  The court found for the tavern and plaintiff appealed.

Result: Reversed in part.

Election of Remedies

The election of remedies doctrine applies where a plaintiff elects inconsistent remedies for the same injury.  The rule provides that the prosecution of one remedy to judgment bars a second action stemming from the same transaction based on an inconsistent theory.  The prototypical example: a plaintiff can’t seek to recover breach of contract damages while at the same time  (or later) try to rescind that same contract.  The remedies are inconsistent.

Illinois courts confine the election of remedies rule to situations where (1) double compensation for the plaintiff is threatened, (2) defendant has been misled by the plaintiff’s conduct in choosing one remedy over another, or (3) where res judicata applies (final judgment on the merits, same parties, same cause of action). 

The election of remedies rule bars a plaintiff from recovering on one theory in a case and then later seeking a different remedy in a second case based on the same facts (as the first case). ¶¶ 50-51

But Illinois law does permit alternative pleading.  Code Sections 2-604 and 2-613 allow a plaintiff to plead inconsistent theories of recovery and allege contradictory facts at the pleading stage.  A plaintiff can also go to trial on inconsistent claims (e.g. fraud and breach of contract).  The proofs at that trial will determine which theory, if any, the plaintiff can recover on.  ¶¶47-49.

Here, there was only one case.  Plaintiff didn’t try to first recover on fraud and then, in a second action, try to recover for breach of contract.  While fraud and breach of contract have different pleading and proof elements and proving one (breach of contract) normally prevents proof of the other (fraud), a plaintiff can still proceed to trial on both legal theories; he just can’t recover damages on both. 

Since plaintiff should have been allowed to take both his breach of contract and fraud counts to trial, the trial court mistakenly made plaintiff choose his remedy at the pre-trial stage.  And while the First District viewed the plaintiff’s fraud claim as weak, it still reversed the dismissal of that count because the trial court misapplied the election of remedies rule.

The Breach of Contract Claim

The trial court properly directed verdict against plaintiff on the breach of contract count.  There was no meeting of the minds or consideration.  The plaintiff admitted he paid nothing for the “million dollar sticker” and had no expectation of winning a million dollars when he visited the bar.  This precluded a finding that there was an enforceable agreement.  The sticker was misread; plain and simple.  There was no enforceable contract.  ¶¶ 49-52.

Afterwords:

A case that features a deep analysis of some finer procedural points in a “fun” fact pattern.  Some key take-aways include:

1/ An absence of a meeting of minds will prevent enforcement of a contract; especially in the promotional setting;

2/ An advertisement or promotional “offer” is generally construed as an invitation to make an offer – not an offer that invites acceptance.

3/ While Illinois permits alternative pleading, it doesn’t allow recovery on inconsistent remedies (e.g. a plaintiff can’t recover for breach of contract while at same time seek rescission of the contract.);

4/ A plaintiff can’t recover for both fraud and breach of contract (he must choose one or the other), but he doesn’t have to make this choice until after trial.

 

Company Exec Who Bilked His Employer Hit With Multi-Million Salary Forfeiture Judgment

expensereport03The First District affirmed an almost $10M bench trial judgment in favor of a publishing company against one of its former officers in ICD v. Gittlitz, 2014 IL App (1st) 133277.

The defendant engaged in a multi-year course of fraudulent conduct against his employer by issuing bogus expense reports and writing himself  company checks for “advances” that he wasn’t entitled to.  After lodging criminal embezzlement charges, the plaintiff brought civil claims.

The plaintiff sued for compensatory and punitive damages under breach of fiduciary duty and fraud theories.  It also asserted a specific performance claim seeking the defendant’s turn over of his stock shares.

The defendant countered that the plaintiff gave up much of its claims by signing an earlier written release (the “Release”) after the plaintiff first encountered the defendants’ fraudulent conduct. The defendant also claimed the plaintiff was unjustly enriched by retaining certain profits the defendant claimed he was owed.

The trial court found for the plaintiff on all claims and rejected the defenses and counterclaims.

Upholding the hefty money judgment, which included a $2M punitive damage award, the Court answered some important questions on the proper measure of damages for a corporate officer’s breach of fiduciary duty and the circumstances that justify voiding a written release of claims.

The court synthesized this patchwork of legal principles during its analysis:

– Corporate shareholders owe fiduciary duties of loyalty to both the corporation and the other shareholders;

– Where an agent breaches a fiduciary duty to a principal, the damage award is within the court’s equitable discretion;

– The complete forfeiture of salary during the time the fiduciary was breaching his duty to the corporation is a proper damage measure in cases of intentional misconduct;

– The purpose of the salary forfeiture remedy is to deprive the wrongdoer of his gains from his breach of duty and to deter disloyalty;

-Punitive damages are also awarded at the court’s discretion and can only be nullified if they are the result of passion, partiality or corruption;

– A 3:1 ratio (punitive damages to compensatory damages) is recognized as an acceptable (“not excessive”) figure;

– When parties who stand in a fiduciary relationship to each other sign a release that settles or gives up potential claims, the release can be undone if one party withholds material facts surrounding the signing of the release;

– A release will not include claims that weren’t in the parties’ contemplation

(¶¶ 54-77).

The defendant’s several-year campaign of blatant fraud as evidenced in part by the defendant’s guilty plea in the criminal case justified the court ordering the defendant’s wholesale forfeiture of his salary during the operative time span (about $7M).

The court also held that the $2M in punitive damages bore a reasonable relationship to the $1.2M in phony checks cashed by the defendant. The punitive award fell below a 2:1 ratio and so was acceptable under the law.

The court ruled that the Release was voidable by the plaintiff since two corporate shareholders testified that they signed the Release based on the plaintiff’s promise that his fraud against the company was brief.

The court also affirmed summary judgment on the specific performance claim through which the plaintiff sought to compel performance stock repurchase provisions of a shareholders agreement.

The court rejected the defendant’s election of remedies doctrine noting that it only applies to prevent double recovery where a plaintiff seeks inconsistent remedies for the same cause of action.

Normally, a plaintiff can’t recover damages for breach of contract and also obtain specific performance of that same contract. He must choose on or the other. Here, though, election of remedies didn’t apply: plaintiff’s money damages were predicated on the defendant’s fraudulent conduct while the specific performance order related solely to the stock repurchase agreement. ¶¶ 78-80.

Take-aways:

(1) Complete forfeiture of an executive’s compensation is a proper damage remedy where the executive intentionally violates fiduciary duties to the corporation;

(2) A release won’t encompass claims that weren’t in the parties’ contemplation – especially where one party is a fiduciary who hoodwinks the other;

(3) A 3:1 punitive damage:actual damage ratio is generally acceptable and won’t be overturned as excessive.

Brannen v. Siefert: A (Legal Malpractice) Case Study (Ill. First Dist.)

image

The Featured Case: Brannen v. Siefert, 2013 IL App (1st) 122067, ¶ 52 (11.19.13)

 

The Facts: Plaintiffs – a land trustee and trust beneficiary – sued the Underlying Defendants, an attorney and his wife, for breach of a written real estate contract for the purchase of a home owned by the plaintiffs.  The strangely worded contract, drafted by Underlying Defendants, called for staggered payments of interest and principle over a several-year period to be credited towards the home’s purchase price.

The Underlying Defendants quickly breached and plaintiffs hired an attorney (the Former Attorneys) to collect the amounts owed under the contract.

The Former Attorneys (a solo practitioner and his professional corporation), unbeknownst to plaintiffs, declared a forfeiture of the contract by written notice to Underlying Defendants.  Several months later, the Underlying Defendants moved out.  At the time they vacated the property, the Underlying Defendants owed plaintiff about $150,000 and hadn’t made any payments for over two years.

The Underlying Case

Displeased with Former Attorneys’ performance, plaintiffs hired substitute counsel who filed a breach of contract suit against Underlying Defendants to recover past and future payments owed under the real estate contract.  The Underlying Defendants successfully moved to dismiss the lawsuit based on the Former Attorneys prior forfeiture notice.  The court found that the Underlying Defendants’ forfeiture remedy foreclosed a damages action by the plaintiffs.  The plaintiffs then sued the Former Attorneys for legal malpractice.

The Malpractice Suit

The thrust of plaintiff’s malpractice suit was that the Former Attorneys committed professional negligence by giving up plaintiffs’ contract rights without first consulting them and by failing to explain the legal effect of that remedial choice.  The Former Attorneys argued they did explain how a forfeiture would impact plaintiffs’ rights and that cancelling the contract was the proper remedy since plaintiffs’ primary goal was to retake the property; not recover damages.

After a trial, a jury entered judgment against the Former Attorneys for $199,500 and they appealed.

Held: Affirmed.  

Rules/Reasoning:

In Illinois, a legal malpractice plaintiff must establish: (1) an attorney owed the plaintiff’s a duty arising from the attorney-client relationship; (2) the attorney breached that duty; (3) the attorney’s breach of duty proximately caused actual damages to the plaintiff.  Expert testimony is usually required to prove that an attorney breached his professional duties to his client.  ¶ 45, 61. 

A legal malpractice plaintiff must prove not only that he would have won the underlying case but that the underlying defendant was solvent enough to pay a judgment.  But the required solvency showing isn’t stringent: the plaintiff doesn’t have to prove a  defendant’s net worth but only needs to show the defendant’s ability to at least partially pay a judgment. ¶ 63.

The jury found the plaintiffs’ expert more believable than the Former Attorneys’.  Plaintiffs’ expert testified that contractual forfeiture was the wrong remedy since under the Illinois Forcible Entry and Detainer Act (the “Forcible Act”) a contract seller like plaintiffs can sue for both possession and money damages.  735 ILCS 5/9-102(a)(5), 9-209 (plaintiff can sue for possession and damages).  The plaintiffs’ expert also testified that by declaring a forfeiture – when both Illinois law and the subject real estate contract allowed multiple remedies – the Former Attorneys prevented the plaintiffs from recovering nearly $150,000 in money damages.  ¶¶ 46-49.

The Court also found that plaintiffs established the Underlying Defendants’ solvency.  The trial evidence demonstrated that the Underlying Defendants could at least partially pay a judgment based on their income and other assets.  ¶ 65.  Because the plaintiffs proved each element of their legal malpractice case, the First District affirmed the jury verdict for the plaintiffs.

Take-aways: (1) To win the legal malpractice ‘case within the case’, a malpractice plaintiff must prove he would have won the underlying case but doesn’t have to precisely prove the malpractice defendant’s net worth. It is enough to show that the defendant has a source of income and is able of paying all or part of a judgment; (2) The Forcible Act provides for possession and money damages to a contract home seller where a buyer breaches an installment sales contract; and (3) the forfeiture remedy should be exercised with extreme caution.  That’s because if you nullify a contract, it can bar a later action to recover money damages for breach of contract.