Articles Posted in Business Litigation

Trade secrets can be among the most valuable assets of any business. Laws in Illinois and on the federal level have long protected trade secrets.

Before 1995, the protection of trade secrets was based on the common law as defined by the Restatement of Torts. Illinois has adopted the Illinois Trade Secrets Act, 765 ILCS 1065/1, et seq.

The Illinois Trade Secrets Act is modeled on the Uniform Trade Secrets Act. There are many instances in which the Illinois Trade Secrets Act could be utilized.

Continue reading

A new law in Illinois prohibits employers from entering into noncompete contracts with employees who earn $13 per hour or less. The Illinois Freedom to Work Act (Public Act 099-0860) became effective on Jan. 1, 2017. The law makes it illegal for an Illinois employer to enter into a “covenant not to compete” contract with any of its “low-wage employees.”

The term “covenant not to compete” is defined to extend to any agreement restricting a covered employee from the following:

  • Working for another employer for a specified period of time.
  • Working in a specified geographic area.
  • Performing other “similar” work for another employer.

Any contract with a “low-wage employee” who contains any covenant not to compete is “illegal and void.” The act is limited to agreements entered into after the effective date of Jan. 1, 2017. The act comes out of the movement to curb employers from locking lower-level employees into unfair noncompeting contracts.

Continue reading

In a federal court of appeals, the Federal Rule of Civil Procedure 9(b) was addressed by the Seventh Circuit Court of Appeals in Chicago regarding the specificity required in complaints. On Sept. 1, 2016, the U.S. Court of Appeals for the Seventh Circuit in Chicago affirmed dismissal of the amended complaint pursuant to the particularity requirement of Federal Rule of Civil Procedure 9(b).

In this case, a nurse alleged that a number of practices at the Acacia Mental Health Clinic where she worked were not medically necessary. The allegations were that the clinic required patients to see multiple practitioners before receiving medications; required patients to undergo mandatory drug screenings at each visit; and required patients to come to the clinic in-person in order to receive a prescription or speak to a doctor. It was also alleged that the clinic misused a billing code.  This was the only claim the Seventh Circuit permitted to go forward. In dismissing the majority of the complaint, Seventh Circuit began with a robust discussion of the importance of Rule 9(b) in screening out a baseless False Claims Act (FCA).

“Rule 9 requires heightened pleading standards because of the stigmatic injury that potentially results from allegations of fraud. We have observed, moreover, that fraud is frequently charged irresponsibly by people who have suffered a loss and want to find someone to blame for it. The requirement that fraud be pleaded with particularity compels the plaintiff to provide enough detail to enable the defendant to repose swiftly and effectively if the claim is groundless. It also forces the plaintiff to conduct a careful pretrial investigation and thus operates as a screen against spurious fraud claims.”

Continue reading

The 1st District Appellate Court has reversed in part, vacated in part and remanded a decision by a Cook County judge in a case involving the use of trust money and investments.

Arie Zweig was the trustee of the Arie Zweig Self Declaration of Trust dated June 28, 1990. He used $2 million from the trust for an equity investment in a partnership supporting an ambulatory surgical center called Bedford Med. Bedford Med was operated by Bedford Med LLC. He said he was induced to invest by Nadar Bozorgi, Mandan Garahati and Guita Bozorgi Griffiths, acting as the Bozorgi Limited Partnership.

Zweig claimed that the Bozorgi defendants represented to him that the value of the Bedford Med operation was appraised at $21 million and that permanent financing had been secured. Zweig also claimed that the Bozorgi defendants maintained that they invested more than $5 million in the project, that the real estate had been already leased or was about to be finalized and that the investment would be used as equity and for working capital, generating an annual profit of 15-20%.

Continue reading

Generally the law in Illinois states that a guarantor is entitled to assert the same defenses that would be available to the principal obligor. W.W. Merck White Lead Co. v. McGahey, 159 Ill.App. 418 (1st Dist. 1911).

“Under Illinois law, ‘the liability of a guarantor is limited by and is no greater than that of the principal debtor and . . . if no recovery could be had against the principal debtor, the guarantor would also be absolved of liability.’ ‘Although the language of a guaranty agreement ultimately determines a specific guarantor’s liability, the general rule is that discharge, satisfaction or extinction of the principal obligation also ends the liability of the guarantor.’” Riley Acquisitions v. Drexler, 408 Ill.App.3d 392, 402 (1st Dist. 2011), quoting Edens Plaza Bank v. Demos, 277 Ill.App.3d 207, 209 (1st Dist. 1995).

In the Riley case, the guarantors were two joint obligations to the bank. The bank released one of the obligors. The other obligor was a dissolved corporation. Under the applicable state law, the five-year post-dissolution time period for collecting against the dissolved corporation had expired.

Continue reading

The Illinois Appellate Court has ruled in a dispute regarding who should inherit a home in Highland Park, Ill. Although a trust instrument stated the house was part of the trust, there was no separate, formal documentation showing that a transfer of the house had been placed in the trust. The court In re Estate of Mendelson considered whether the house was properly transferred into the trust. The court noted that it could “find no Illinois authority on point.”

The Illinois Appellate Court held that the house was a part of the trust because it was described in it although there was no recorded deed transferring the real estate to the trust.

In the Mendelson case, the chain of title to the house was complex. In 2005, Diane Mendelson executed the deed that placed title to the house in joint tenancy with herself and her son. The deed was never recorded because she enjoyed a property tax benefit as the sole title owner of the property.

Continue reading

The Illinois Appellate Court for the First District recently reviewed a case regarding the piercing of a corporate veil. Piercing the corporate veil is a practice in which a lawyer will prove that the corporation that would otherwise protect its shareowners from personal liability is really a façade or fiction that allows for the “piercing” of that veil to recover from the true owners. The appeals panel reversed a trial court’s decision that dismissed plaintiffs’ claim in a case involving whether the plaintiffs were employees or independent contractors.

Piercing the corporate veil is not a cause of action but instead a “means of imposing liability in an underlying cause of action.”

A firmly established corporate entity stands on its own unless its corporate veil is pierced for different reasons. In many cases, once a party obtains a judgment against a corporation, the party then may attempt to pierce the corporate veil of liability protection and hold the dominant shareholders responsible for the corporate judgment.

Continue reading

The Neck & Back Clinic in Chicago was providing physical rehabilitation services to patients. In 1998, the clinic signed a series of leases for exterior building wall space to advertise its services. The clinic leased that advertising space through a company called Travisign, operated by David Travis. The Neck & Back Clinic alleged that Travis “represented that he was authorized to lease certain walls for advertising and that he had secured the requisite permits to place advertisements on the designated walls.”

However, in 2009, the clinic was notified that it had violated the Chicago Municipal Code by putting up advertisements without the proper city permits. The clinic was fined $3,000 and received another notice of violation. The clinic filed suit against Travis claiming breach of contract and fraud.

Travis and the clinic filed motions for summary judgment claiming that the other had failed to live up to its contractual obligations. The Circuit Court judge granted summary judgment in favor of the clinic finding that “Travis never secured the proper permits” and that he “did not perform his contractual obligations.” The Circuit Court judge awarded more than $10,000 in damages to the clinic. After dismissing a secondary claim against another party, Travis appealed.

Continue reading

The U.S. Court of Appeals for the 7th Circuit in Chicago has affirmed a decision by the U.S. district judge who refused to reopen a default judgment. Kyler Moje, a hockey player on the Danville Dashers of the Federal Hockey League, lost an eye to high-sticking during a game against the Akwesasne Warriors. Moje sued Oakley Inc., which made the visor that Moje blamed for offering inadequate protection to his face and eyes. But Moje also sued the Federal Hockey League itself.

Rather than notifying its liability insurer, the Federal Hockey League hired a lawyer based in Syracuse, New York, John LoFaro. A month after the lawsuit started in the U.S. District Court, Oakley’s attorney called Dan Kirnan, the Federal Hockey League president, to ask why it did not file an answer to the complaint filed against it. Kirnan in turn contacted LoFaro, the League attorney. LoFaro told Kirnan that he had filed an answer to the complaint. LoFaro sent the league what he claimed to be a copy of that answer.

However, the court’s docket did not reflect any such court filing made on behalf of the defendants. Moje asked the court to enter a default judgment. LoFaro did not respond to the default motion nor the court entry of the default judgment. The court permitted Moje to claim damages. Four months after the lawsuit was begun, the U.S. District Court entered a final judgment of $800,000 for the damages suffered by Moje against the Federal Hockey League.

Continue reading

In 1986, Nina Willoughby operated a small business in which she sold retail clothes in a rented store. That year, she and Louis Fideli took out a $315,000 loan and purchased the store with other properties. The store property was kept solely in Fideli’s name. However, in 2003, Willoughby missed several mortgage payments; in 2004, the bank sued and foreclosed on her shop.

Fideli made Willoughby co-owner and then sole owner of the property after which she received a loan of $577,000 from the refinancing. John Heffron helped Willoughby with the transaction. Fideli received no compensation for transferring the property to Willoughby. The property was valued at $1.2 million in a loan application.

In June 2006, Fideli filed a lawsuit against Willoughby claiming that she had promised to repay him 50% interest in the property once she had avoided the foreclosure action. He charged her with unjust enrichment.

Continue reading