Tag: Rule 191

Court Weighs In On Constructive Fraud in Contractor Lien Dispute, Summary Judgment Burdens – IL First Dist.

The First District affirmed partial summary judgment for a restaurant tenant in a contractor’s mechanics lien claim in MEP Construction, LLC v. Truco MP, LLC, 2019 IL App (1st) 180539.

The contractor sued to foreclose its $250,000-plus mechanics lien for unpaid construction management services furnished under a written contract between the contractor and restaurant lessee.

The lessee moved for summary judgment arguing the contractor completed only about $120,000 worth of work and so the lien was doubly inflated.  The lessee further contended that the majority of the liened work was done by plaintiff’s sub-contractors; not the plaintiff. The trial court sided with the lessee and found the plaintiff’s lien constructively fraudulent.

Affirming, the appeals court first restated the familiar, governing summary judgment standards and the contours of constructive fraud in the mechanics’ lien context.

The “put up or shut up” litigation moment – summary judgment requires the opposing party to come forward with evidence that supports its skeletal pleadings allegations.

Statements in an affidavit opposing summary judgment based on information and belief or that are unsupported conclusions, opinions or speculation are insufficient to raise a genuine issue of material fact.

Section 7 of the Illinois mechanics lien act (770 ILCS 60/7) provides that no lien shall be defeated due to an error or overcharging unless the overcharge (or error) is “made with intent to defraud.” Section 7 aims to protect the honest lien claimant who makes a mistake rather than the dishonest claimant who makes a knowingly false statement. Benign mistakes are OK; purposeful lien inflation is not.
An intent to defraud can be inferred from “documents containing overstated lien amounts combined with additional evidence.” The additional evidence or “plus factor” requires more than a bare overcharge on a document: there must be additional evidence at play before a court invalidates a lien as constructively fraudulent.

Affirming the trial court’s constructive fraud ruling, the First District pointed to plaintiff’s president’s sworn statement which indicated plaintiff only performed a fraction of the liened work and that the majority of the lien was from subcontractors who dealt directly with the lessee. Critical to the court’s conclusion was that the plaintiff did not have contractual relationships with its supposed sub-contractors.

Looking to Illinois lien law case precedent, the Court noted that lien overstatements of 38%, 82% and 79% – all substantially less than the more than 100% overstatement here – were all deemed constructively fraudulent by other courts. [⁋ 17]

The Court also affirmed the lower court’s denial of the contractor’s motion for more discovery. (The contractor argued summary judgment was premature absent additional discovery.) Illinois Supreme Court Rule 191(b) allows a party opposing summary judgment to file an affidavit stating that material facts are known only to persons whose affidavits can’t be obtained due to hostility or otherwise. The failure to file a 191(b) motion precludes that party from trying to reverse a summary judgment after-the-fact on the basis of denied discovery. [⁋ 20]

Here, the contractor’s failure to seek additional time to take discovery before responding to the lessee’s summary judgment motion doomed its argument that the court entered judgment for the lessee too soon.

Take-aways:

Constructive fraud requires more than a simple math error. Instead, there must be a substantial overcharge coupled with other evidence. Here, that consisted of the fact the contractor neither performed much of the underlying services nor had contractual relationships with the various subcontractors supposedly working under it.

The case also solidifies the proposition that while there is no magic lien inflation percentage that is per se fraudulent, an overstatement of more than 100% meets the threshold.

Procedurally, the case lesson is for a summary judgment respondent to timely move for more discovery under Rule 191(b) and to specifically identify the material evidence the summary judgment respondent needs to unearth in the requested discovery.

LinkedIn Connection Requests Don’t Violate Insurance Salesman’s Noncompete – IL Court

The First District recently considered whether an insurance salesman’s generic LinkedIn invites to some former co-workers violated non-compete provisions in his employment contract.

The plaintiff in Bankers Life v. American Senior Benefits employed the defendant for over a decade as a sales manager.  During his employment, plaintiff signed an employment agreement that contained a 24-month noncompete term that covered a specific geographic area (Rhode Island).  Plaintiff sued when it learned the defendant sent some LinkedIn connection requests to some former colleagues.

The court granted the defendant’s summary judgment motion on the basis that the plaintiff failed to offer any evidence that the defendant breached the noncompete by trying to induce three of plaintiff’s employees to join defendant’s new agency.  Plaintiff appealed.

Plaintiff argued that the LinkedIn requests were veiled, if not blatant, attempts to circumvent the noncompete by inviting former co-workers to join a competitor.

The First District affirmed summary judgment for the defendant.  For support, it looked to cases in other jurisdictions that considered if social media overtures can violate employee restrictive covenants.  The Court noted that a majority of these cases hold that passive social media postings (LinkedIn and Facebook, mainly) don’t go far enough to violate a noncompete.

The cases that have found that social media breached noncompete obligations involve clear statements of solicitation by the departed employee where he directly tries to sign up a former client or colleague. Since all the defendant did in this case was send generic LinkedIn messages, they didn’t rise to the level of an actionable solicitation.

The Court also rejected the plaintiff’s argument that summary judgment was premature and that the plaintiff should have the opportunity to take more discovery on this issue.  Illinois Rule 191 allows a summary judgment opponent to stave off judgment while it takes written and oral discovery to assemble evidence to oppose the motion.  But the plaintiff must show a “minimum level of information” showing a defendant is possibly liable before initiating a lawsuit or making a defendant submit to discovery requests.

Since the plaintiff failed to produce any evidence the defendant solicited any of plaintiff’s employees in the prohibited Rhode Island area, summary judgment for the defendant was proper.

Afterwords:

LinkedIn generic invites that don’t specifically ask someone to sever his/her relationship with current employer don’t go far enough to constitute improper solicitation;

Summary judgment is “put up or shut up moment;” the party opposing summary judgment must offer evidence that raises a question of material fact that can only be decided after a trial on the merits.

 

Computer-Generated Business Records and Summary Judgment Affidavits – IL Law

bizrecordsIn US National Bank v. Avdic, 2014 IL App (1st) 121759-U, the First District provides a detailed analysis of both the evidentiary foundation requirements for computer-generated business records and the requirements of a valid summary judgment affidavit.

The plaintiff lender filed a foreclosure suit against the borrower defendant and moved for summary judgment.  The lender supported its motion with the affidavit of a bank officer who attached sworn copies of key loan documents, the promissory note and a computer-generated payment history for the defendant borrower’s account.

The defendant moved to strike the bank’s affidavit on the basis that it failed to lay a sufficient foundation for the attached loan and payment records and didn’t establish that the bank employee who signed the affidavit had first-hand knowledge of the defendant’s payment history.  The trial court entered summary judgment for the lender and denied the borrower’s motion to strike the affidavit.  The borrower appealed.

Result: Trial court affirmed. Plaintiff-lender wins.

Q: How Come?

A: The lender’s summary judgment affidavit complied with Illinois Supreme Court Rule 191 – the rule that governs summary judgment affidavits.  Rule 191 requires affidavit to state specific facts and to be based on personal knowledge instead of conclusions or guess-work.  Affidavits are substitutes for live trial testimony and because of that, must pass a stringent test for admission in evidence.  US Bank, ¶¶ 22-25.

To lay a foundation for admitting business records as a hearsay exception, the party must show that the records were (1) made in the regular course of business; and (2) at or near the time of the event or occurrence.  Rule 803(6) and Supreme Court Rule 236 work in tandem to codify the business records exception to the hearsay rule.  US Bank, ¶¶ 24-26.

Where computer-generated records are involved, the proponent must demonstrate (1) that the computer equipment is standard equipment, (2) the computerized entries were made in the regular course of business (3) at or reasonably near in time to the events recorded and (4) that the sources of information, the method of data entry and preparation are all trustworthy.  US Bank, ¶26.

The Court found that the lender’s affidavit met the relevant Rule 191 criteria.  The bank officer testified that she was familiar with the lender’s business practices, records and its manner of inputting, tracking and generating payment information.  She also testified in detail what steps the bank takes when creating, storing and printing loan and payment records.  The officer also said she reviewed the loan file, promissory note and related documents.  She also attached the key loan documents to the affidavit. ¶¶ 30-31.

The affidavit also met the admissibility standards for computer-generated payment records.  The bank officer described the computer software used by the bank to create and print out loan payment histories and testified that the software program used was standard and customary in the banking industry.  The officer even said that the computer equipment was periodically checked for accuracy. ¶¶ 29-30.

The court also found there was no requirement that the officer have first-hand knowledge of the borrower’s account or that she (the officer) personally made the payment entries into the bank’s computer for the affidavit to conform to Rule 191’s requirements.  Under Rule 236 and Illinois Evidence Rule 803(6), a lack of personal knowledge can affect the weight given to testimony; but it won’t bar that testimony outright.

Take-aways:  To get computer business records into evidence on summary judgment, the mo any should itemize each foundational requirement for those records.  A business entity plaintiff especially should establish that the person signing a summary judgment affidavit is familiar with the business’s record-keeping and billing processes and can testify to any unique billing and payment software used by the business.