Tag: release

Contractor’s Legal Malpractice Suit Can Go Forward In Case of (Alleged) Misfiled Mechanics’ Lien: IL 1st Dist.

Construction Systems, Inc. v. FagelHaber LLC, 2015 IL App (1st) 141700, dramatically illustrates the perilous consequences that can flow from a construction contract’s failure to identify the contracting parties and shows the importance of clarity when drafting releases intended to protect parties from future liability.

The plaintiff contractor sued its former law firm (the Firm) for failing to properly perfect a mechanics lien against a mortgage lender on commercial property.  The plaintiff alleged that because of the Firm’s lien perfection failure, the plaintiff was forced to settled its claim for about $1.3M less than the lien’s worth (about $3M). 

In the underlying lien case, the plaintiff and defendant Firm got into a fee dispute and the Firm withdrew.  The Firm turned over its file to the plaintiff after the plaintiff made a partial payment of the outstanding fees (owed to defendant Firm) and signed a release (the “Release”). The Release, which referenced “known and unknown” claims and contained “without limitation” verbiage, was signed by the plaintiff in 2004.  Plaintiff filed the current malpractice suit in 2009.

The trial court entered summary judgment for the Firm on the basis that the Release immunized the Firm from future claims.  Plaintiff appealed.

Held: Reversed

Rules/Reasons:

Reversing summary judgment for the Firm, the First District first applied the relevant rules governing written releases in Illinois.

– a release is a contract and is governed by contract law;

– a release will be enforced as written where it’s clearly worded

– the scope and effect of a release is controlled by the intention of the parties;

– the intention of the parties is divined by reference to the words of the release and a release won’t be construed to defeat a claim that was not contemplated by the parties when they signed it;

– A “general” release will not apply to specific claims where a party is unaware of other (specific) claims;

– Where one party to a release owes the other a fiduciary duty (e.g. lawyer-client), the party owing the fiduciary duty has the burden of showing that it disclosed all relevant information to the other party.

(¶¶ 25-28).

Here, the court gave the Release a cramped construction.  It held that it didn’t apply to the malpractice suit since that case wasn’t filed until 5 years after the Release was signed and there was no evidence that the plaintiff knew that the Firm possibly flubbed the lien filing when it (the plaintiff) signed the Release.  This lack of evidence on the parties’ intent raised a disputed fact question that required denial of summary judgment.

Next, the court turned to the Firm’s judicial estoppel argument – that the plaintiff couldn’t sue for malpractice since it obtained a benefit in the underlying lawsuit (a settlement payment of $1.8M from the competing lender) by claiming it was an original contractor and not a subcontractor.  Judicial estoppel applies where (1) a party takes two positions under oath, (2) in separate legal proceedings, (3) the party successfully maintained the first position and obtained a benefit from it; and (4) the two positions are inconsistent.  (¶ 37).

The issue was paramount to the underlying lien case because if the plaintiff was a subcontractor, it had to comply with the 90-day notice requirement of Section 24 of the Lien Act.  But if it was a general or original contractor, plaintiff was excused from the 90-day notice requirement.  Based on this factual uncertainty, the court found the plaintiff had a right to pursue alternative arguments to salvage something of its approximately $3M lien claim.

The court also agreed with the plaintiff that it could recover prejudgment interest on the legal malpractice claim.  Since that claim flowed from the underlying allegation that the Firm failed to perfect plaintiff’s lien, and since Section 21 of the Illinois Mechanics Lien Act allows for prejudgment interest (770 ILCS 60/21), the plaintiff could add the interest it would have recovered to the damage claim versus the Firm. (¶ 48).

Afterwords:

1/ A broad release can still be narrowly interpreted to encompass only those claims that were likely in the release parties’ contemplation.  If a claim hadn’t come to fruition at the time a release is signed, the releasing party can argue that an expansive release doesn’t cover that inchoate claim;

2/ Judicial estoppel requires more than alternative pleadings or arguments.  Instead, the litigant must take two wholly contradictory statements and obtain a benefit from doing so.  What’s a “benefit” is open to interpretation.  Here, the plaintiff received $1.8M on its lien claim in the earlier litigation.  Still, this wasn’t a benefit in relation to the value of its lien – which exceeded $3M;

3/ If the underlying claim – be it common law or statutory – provides for pre-judgment interest, then the later malpractice suit stemming from that underlying claim can include pre-judgment interest in the damages calculation.

 

 

Fitness Formula Club’s Contractual Release Defeats Member’s Personal Training Mishap (The ‘The Beach is That-A-Way’ Post)

photoQPIRV5P7

This one’s just in time for the annual blizzard of new gym memberships and personal training sign-ups each January seems to bring.  Cox v. US Fitness, LLC d/b/a Fitness Formula Club, 2013 IL App (1st) 122442, examines whether a gym (FFC) membership agreement’s liability release is enforceable against a gym patron who sued after she broke her wrist while attempting an exercise during a personal training session.  The answer: “yes.”

Facts

Plaintiff signed an FFC membership agreement which contained a broad release which immunized the gym from any personal injury claims by a member associated with any equipment, exercises, classes, advisory services or the facility generally.  The plaintiff signed the release but didn’t read it or ask questions about it.  Plaintiff also signed a second personal training contract  but couldn’t locate or produce that contract in discovery.  Plaintiff fell and broke her wrist during a personal training session and sued FFC’s corporate parent and the personal trainer for negligence.  She alleged the defendants improperly instructed plaintiff, neglected to implement safety measures, and failed to adequately monitor or supervise plaintiff’s exercises.  The trial court granted defendants’ summary  judgment motion based on the expansive language of the release.

 Held: Affirmed

 Why?

Affirming the trial court (and finding for defendants), the Court applied a slew of black-letter contractual release rules and summary judgment burden-shifting principles.  Cox’s key rules:

–  Illinois allows parties to contract away their liability for negligence;

–  While exculpatory clauses which insulate someone from his own negligence aren’t favored, they are still enforceable if specific and conspicuous;

–  The precise occurrence doesn’t have to be contemplated by the parties at the time of contracting for the release language to be upheld;

–  The injury must fall within the scope of possible dangers which ordinarily accompany a given activity (like fitness training, e.g.) to be considered in the parties’ reasonable contemplation;

–  The key inquiry is whether plaintiff knew or should have known the accident was a risk encompassed by the release; not whether plaintiff foresaw the exact act of negligence alleged;

–  Where a defendant supports its summary judgment motion with admissible evidence, the burden shifts to the plaintiff to present a factual basis arguably entitling her to judgment (the burden shifting rule);

–  Where a summary judgment movant bases his motion on affirmative matter – like a release – and attaches that release to its motion, the burden shifts back to the respondent/plaintiff to show that the release is void or inapplicable;

–  Procedural unconscionability applies where a weaker party is deprived of a meaningful choice in entering a contract with a stronger party such as where the release language is hidden or where the weaker party is prevented from reading it or can’t comprehend it;

– A contract won’t be voided on public policy grounds unless it is clearly contrary to statutes or court decisions which pronounce the State’s public policy.

Cox, ¶¶. 14, 26-27, 32, 36.

The Court held that the FFC release was broad enough to encompass plaintiff’s personal training session injury.  By its plain text, the release applied to equipment and fitness advisory services which clearly included personal training session injuries.  This broad language made it (or should have made it) plainly foreseeable that the plaintiff could get injured while training. Cox, ¶ 17.  In fact, that’s the whole purpose for having personal trainee’s sign releases before engaging in strenuous athletic activity.

The court also discarded plaintiff’s argument that the later personal training contract – which plaintiff couldn’t locate – modified the membership agreement and created a question of fact to survive summary judgment.  The Court held that it was plaintiff’s summary judgment burden to produce a specimen copy of the second contract.  Since plaintiff failed to do so, it couldn’t create a fact question on whether the missing personal training contract modified the FFC contract’s release.

Rejecting plaintiff’s procedural unconscionability (plaintiff claimed she didn’t see the release language) argument, the Court noted that the release was easily located and in large bold-face letters.  The Court held that plaintiff adduced no evidence that the release language was obscure or that  defendants hid the language from the plaintiff.  In fact, the evidence showed that defendant’s membership agent specifically asked plaintiff to read the liability release before signing the contract.  Cox, ¶¶ 32-33.

The Cox Court also shot down plaintiff’s argument premised on the Physical Fitness Services Act (815 ILCS 645/10) which, among other things, voids false advertising in fitness contracts.  The Court noted there was no evidence of fraudulent conduct by the defendants and that as a result, FFC’s release didn’t violate the statute.  Cox, ¶ 35.   The plaintiff also lost on her public policy argument: that enforcing the release against her violated public policy.  The Court ruled that no Illinois statute or case provides that a gym membership agreement’s release violates Illinois public policy.  Cox, ¶¶ 35-36.

Afterword: Release language in a gym contract will be enforced as written so long as there’s equal bargaining power between gym and member and the release language is clear and conspicuous.  A release will be construed broadly if its language permits it and the release doesn’t have to spell out every possible injury to be valid.  Its’ enough that the claimed injury has some connection to and falls within the scope of the claims being released.  Cox also illustrates that a summary judgment respondent can’t use a missing document to create a fact question where it’s in that person’s power to obtain the missing document.

 

Exculpatory Clauses in Illinois – The ‘Uneven Bargaining Position’ Issue

Spears v. Ass’n of Illinois Electric Cooperatives, 2013 IL App (4th) 120289 summarizes the general rules and exceptions that govern exculpatory clauses in Illinois.  In the case, the plaintiff college student who signed up for a utility “pole climbing” class the defendant – a non-profit entity – offered through plaintiff’s college.  Before she took the class, plaintiff signed a release that immunized the defendant from all claims and injuries that could result from the class. 

The plaintiff sustained a serious knee injury while descending a utility pole and sued the defendant for negligence.  The defendant moved for summary judgment based on the release. The trial court denied the summary judgment motion and found there was a disparity in bargaining power. 

The appeals court reversed finding there were unresolved fact issues as to whether there was a disparity in bargaining power between the student and school.

Exculpatory Provisions: General Rules

In Illinois, parties may contractually release liability for their own negligence.  Spears, ¶ 24.  Liability release contracts are not favored and are strictly construed against the released party because these contracts pit two public policy interests against each other: (1) a person should be liable for his negligent conduct vs. (2) contracting parties should be free to contract as they see fit.  Id.

A release of liability will be enforced in Illinois if (1) the terms are clear, explicit and precise; (2) the release encompasses the activity, circumstance or situations involved in the contract; (3) it is not against public policy; and (4) there is nothing in the “social relationship” which weighs against upholding the release.  ¶ 25.

The ‘Social Relationship’ and Disparity of Bargaining  Power Exceptions

Several social relationships can lead a court to invalidate an exculpatory clause.  These include: (1) employer-employee; (2) common carrier/innkeeper/public utility – member of public; and (3) bailor-bailee relationships.   

Besides these special relationships, a “disparity of bargaining power” between the contracting parties can work to defeat a liability waiver.  On this point, the key focus is whether the plaintiff had freedom of choice as to whether to sign the release.  ¶ 26.

The disparity in bargaining power factors a court considers include (1) the sophistication of the contracting parties; (2) whether plaintiff was or should have been aware of the risks involved in the activity; (3) whether plaintiff was under economic or other compulsion (was it a “take-it-or-leave-it” situation?); and (4) whether the plaintiff had a reasonable alternative. ¶ 27.

The over-arching question which Spears refused to answer was whether there was a disparity of bargaining power between an educator and a student such that exculpatory releases in school-student contracts are always void.  The Court said it was up to the legislature (not the courts) to decide the question. ¶ 36. 

Generally, if a plaintiff is free to forgo the activity and he can realistically locate a alternative service provider, the release will be upheld.  In determining whether the plaintiff was free to abstain from the class, the Court considered (1) the plaintiff’s monetary and time investment in the activity; (2) whether the plaintiff’s completion of the pole climbing class was essential for future employment; (3) whether plaintiff could have obtained the same or similar instruction elsewhere; (4) would refusing to take the pole climbing class detrimentally impact plaintiff’ employment prospects?; and (5) would plaintiff’s financial aid, grants or scholarship be imperiled if she opted out of the class?  ¶ 39. 

Epilogue:

Spears common-sense take-away is that if the person signing the release had a meaningful choice as to whether to sign it or not, the release will most likely be enforced absent a special-relationship between the parties where a stronger party is trying to take advantage of a weaker one.