The Illinois Supreme Court Clarifies Limitations Period for CRLTO Claims

(Originally posted in 2009)

Landis v. Marc Realty, L.L.C., 235 Ill. 2d 1 (Ill. 2009)

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In this case, we defended Marc Realty, a landlord accused of violating the Chicago Residential Landlord Tenant Ordinance (“CRLTO”).  Over four years after quitting an apartment, tenant sought penalties under the CRLTO for landlord’s alleged failure timely to return the security deposit.  In the trial court, we successfully moved to dismiss the complaint on grounds that it was not timely filed, because a 2-year statute of limitations applies to penalties sought under the CRLTO. The First District Appellate Court affirmed, in an unpublished opinion. Plaintiffs then filed a Petition for Leave to Appeal to the Illinois Supreme Court.  In their appeal to the Illinois Supreme Court, Plaintiffs asked the Court to find that a five- or ten-year statute of limitations of limitations applied to their claim.

 We filed an opposition brief, and presented oral argument to the Illinois Supreme Court on November 12, 2008.

On May 21, 2009, the Court filed an Opinion upholding the finding of the First District Appellate Court that a two-year statute of limitations applies to penalties sought under the Chicago RLTO.

 In this case, we defended Marc Realty, a landlord accused of violating the Chicago Residential Landlord Tenant Ordinance (“CRLTO”).  Over four years after quitting an apartment, tenant sought penalties under the CRLTO for landlord’s alleged failure timely to return the security deposit.  In the trial court, we successfully moved to dismiss the complaint on grounds that it was not timely filed, because a 2-year statute of limitations applies to penalties sought under the CRLTO. The First District Appellate Court affirmed, in an unpublished opinion. Plaintiffs then filed a Petition for Leave to Appeal to the Illinois Supreme Court.  In their appeal to the Illinois Supreme Court, Plaintiffs asked the Court to find that a five- or ten-year statute of limitations of limitations applied to their claim.

We filed an opposition brief, and presented oral argument to the Illinois Supreme Court on November 12, 2008.  On May 21, 2009, the Court filed an Opinion upholding the finding of the First District Appellate Court that a two-year statute of limitations applies to penalties sought under the Chicago RLTO.

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Everything You Wanted to Know About Liquidated Damages, But Were Afraid to Ask

(Originally Posted on

 

Wednesday, February 12, 2014 (2)

Everybody remembers liquidated damages from law school.  The parties to a contract agree, at the outset, that damages flowing from a breach will be hard to ascertain.  Accordingly, to avoid a costly fight in the future, they agree to a dollar amount of “liquidated damages” as their best (good faith) “guesstimate” of what the actual damages will be.  Then, when a breach occurs, somebody gets that amount, without a lot of fuss.  Simple, right?  Wrong.  What you don’t know about liquidated damages could, in the context of a real property sale (and escrow), cost you big money.

Suppose that you are the seller of real property.  Suppose further that the sale is closed while a contingency (such as a rezoning) is pending that could substantially increase the value of the property.  Suppose finally that the parties agree to escrow part of the sale consideration, to be returned to buyer in the event the contingency is not realized.  The parties pick a date that appears to permit ample time for the contingency to be definitively  realized — or not.  They think, “If the contingency hasn’t happened by such date, then it seems certain that it won’t be realized at all.”

But they are wrong.  The contingency is realized a few weeks after after the specified date has passed.  Buyer demands the escrow amount.  Seller objects, pointing out that buyer got the (long-term) value of the contingency, albeit subject to a short (and immaterial) delay.  Seller further points out that buyer has not suffered any quantifiable damage from the delay.

Who gets the escrow?  More to the point, does buyer get the escrow because it may be properly construed as “liquidated damages” for seller’s breach?

That is what the trial court found in GK Development, Inc. et al. v. Iowa Malls Financing Corp., Case No. 06 CH 03427, a case that is now on appeal and fully briefed in the First District Appellate Court (as Appeal 1-11-2802).

In our opening brief and reply brief, we argued that to be enforceable under Illinois law, liquidated damages must be a good-faith prediction of damages that might flow from a breach, and not be punitive in nature.  We argued that forfeiture of the escrowed amount might make sense for a complete failure of the contingency, but forfeiture of the escrow could not be justified as a reasonable prediction of damages from a short delay.  Buyer contended that the trial court’s ruling was entitled to deference on appeal, because it was necessarily based on findings of fact.

We believe that Illnois courts do not enforce “liquidated damages” that are not reasonably connected to actual damages.  We further believe that an escrow amount established in respect of the complete failure of a contingency cannot be awarded as “liquidated damages” for mere delay.  Suffice it to say here that more details will follow, when the First District decides the issues presented.

In the meantime, if you are selling real property subject to an escrow, be sure that the contract carefully defines the nature of the escrow, to ensure that the escrow amount cannot be construed as a Draconian penalty — in the guise of liquidated damages – for an inconsequential delay. 

If you have a related — or unrelated — concern or need advice concern an appeal please call Kent Maynard at 312 423 6586.

UPDATE as of November 10, 2013:

The Fourth Division of the First District Appellate Court heard oral argument in this case on September 5, 2013. You can listen to a recording of the argument by clicking HERE.

We will share a copy of the Court’s decision when it is handed down.

-KM

UPDATE as of December 22, 2013:

Last week the First District Appellate Court issued its Opinion in GK Development, Inc. et al. v. Iowa Malls Financing Corp.; Appeal 11-2802. The Court reversed the trial court’s finding that a forfeiture of $4.3 million placed in escrow was justified as an award of liquidated damages for breach of contract — an award that we sucessfully contended was an unenforceable penalty for a transitory and inconsequential breach. A copy of the Opinion, which will be published by the First District, can be viewed HERE. It would be an understatement to say that we were heartened by the Court’s closely-reasoned Opinion, which comes just in time for the holidays.

Further UPDATE as of February 10, 2014:

The Chicago Daily Law Bulletin published an article about the First District’s December 22, 2013 decision on its front page on February 10, 2014. It can be viewed HERE. Unfortunately, the article appears to overlook a footnote in the Opinion. That footnote states, in pertinent part, “. . . it appears that Buyer did not suffer any ‘lost’ rent as the 20-plus-year lease was merely pushed back 91 days. Buyer will still receive the entire profit anticipated from the 20-year lease.” There is, as the Court noted, no lost rent — only, at most, a delayed onset of increased rent.

-KM

Further UPDATE as of March 10, 2014:

Will this litigation never end? On February 24, 2014 Appellees (Buyer) filed a Petition for Leave to Appeal to the Illinois Supreme Court. It can be viewed HERE. The PLA invokes Adam Smith and Milton Friedman to argue that Illinois should abandon the Second Restatement approach to enforcement of liquidated damages, as summarized in the Jameson case. Today we filed on behalf of Seller an Answer wherein we point out that it was only after the First District found that the trial court’s award of “liquidated damages” did not pass muster under Jameson that Buyer first complained that Jameson was “outmoded” and “paternalistic.” Our Answer can be viewed HERE.

We will report as to how the Illinois Supreme Court rules on the PLA in due course.

Further UPDATE as of October 21, 2015:

The PLA was denied ages ago and the case remanded to the trial court.

In its December 2013 Order, the First District remanded the consolidated appeal to the Circuit Court for a determination of two issues: first, whether Buyer suffered any cognizable damage from the 91-day delay in permitting the Hy-Vee leasehold at issue; and second, whether Seller could prove an entitlement to attorney’s fees.

Almost two years later, the process of litigating those two remanded issues has yet to begin. Why is that so? Because Buyer took the position that Buyer’s claim in a related case that was previously pending  should be litigated in the remanded proceeding. When that seemed unlikely, Buyer “re-filed” its so-called “Parking Lot Claims” in a new action (hereinafter “the Parking Lot Case”), and then successfully moved to transfer the case to the same docket as the remanded case. After that claim was dismissed, Buyer appealed and moved to stay the remanded case pending the appeal. The trial court agreed to stay the remanded action in deference to the appeal of the separately filed action. We appealed, on grounds set forth in our opening brief which can be viewed HERE.

Appellee’s brief can be viewed HERE. Our Reply can be viewed HERE.

We will report on the First District’s response to our appeal of the stay order as soon as a decision is handed down.

 

Further UPDATE as of June 28, 2016:

First, the First District Appellate Court affirmed the circuit court’s stay of the remanded, post-appeal action pending a decision in the appeal of Buyer’s separate, “re-filed” Parking Lot Claims. The Court’s decision can be viewed HERE.

Second, thereafter the First District Appellate Court AFFIRMED the trial court’s dismissal of the “re-filed” Parking Lot Claims, in a separate re-filed action. The Court relied on Illinois Supreme Court Rule 273 to affirm. Its Opinion can be viewed. HERE.

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First District Upholds Judge Mitchell in Tujetsch v. Pusateri, et al.; App Ct. No 11-01965

 (Originally Posted in July 2012)

In 2006, Mary Tujetsch, the purchaser of a dental practice, brought a civil action against our client, Dr. Todd Pusateri.  In a three-count  amended complaint, Tujetsch alleged that she had not received all the “active patients” she bargained  for in the purchase.

The parties’ asset purchase agreement recited that the practice had approximately 1,200 “active patients,” as reported by First Pacific Corporation dental practice management software.  Tujetsch alleged that she had not received that number of “active patients” because a review of patient charts conducted months after the sale suggested that some patients had moved, declined treatment, or declined to schedule appointments, among other things.  Tujetsch asserted that such patients were not “active patients” — based on her alleged subjective understanding of the term “active patients” — even if they had been treated in the 24 months before the sale, as reported by First Pacific dental practice management software.

In a motion for summary judgment, we argued, on behalf of Dr. Pusateri, that “active patients” is a dental term of art that refers to the number of patients treated in a dental practice during a defined lookback period, usually 12, or 24 months.  We argued both in the trial court and on appeal that that this definition is consistent with the ADA definition of “active patient,” and the definition of “active patient” employed by First Pacific Software, which is widely distributed throughout the United States — and defines “active patient” as any patient treated in the previous 24 months, without regard to other events.  As such, the number of “active patients” is an objective tally, and says nothing about changes in the status of a patient after receiving treatment.

In June 2011, Judge Raymond Mitchell Mitchell entered an Order granting summary judgment to Dr. Pusateri on all counts of the complaint filed by Tujetsch.  Judge Mitchell found there had been no misstatement of “active patients,” properly understood, because there was no evidence that Dr. Pusateri misstated the number of patients treated in the practice,  in the 24 months before the sale, as reported by First Pacific software.

Tujetsch took an appeal of Judge Mitchell’s order to the First District Appellate Court.

On July 20, 2012, the First District issued an Order upholding Judge Mitchell’s June 2011 Order in its entirety.  Among other things, the Order states that evidence from disinterested third-parties about the meaning of contract terms is preferred over subjective (and self-serving) definitions offered by the parties to a dispute.

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Does the Wage Payment Act Apply to Deferred Compensation Payable Post-Separation?

The Illinois Wage Payment and Collection Act, 820 ILCS § 115/1, et. seq. (the “Wage Act” or “Act”) “levels the playing field” in employer-employee disputes over nonpayment of compensation by providing for recovery of attorney’s fees by a prevailing employee, and by imposing a monthly penalty of 2% on late payments.

By providing for fee-shifting and penalties, the Act tends to discourage relatively well-heeled employers from using their superior financial resources to engage in protracted litigation in order thereby to deprive employees of the full value of compensation promised to them.

The Act applies to “final compensation,” which is broadly defined to include “wages, salaries, earned commissions, earned bonuses, and the monetary equivalent of earned vacation and earned holidays, and any other compensation owed the employee by the employer pursuant to an employment contract or agreement between the 2 parties.”

Section 5 of the Act states that “[e]very employer shall pay the final compensation of separated employees in full, at the time of separation, if possible, but in no case later than the next regularly scheduled payday for such employee.”

In the usual case, “final compensation” includes whatever the employer owes to the employee as of the date of separation for work performed by the employee. In addition, the Act has been broadly construed to include the monetary equivalent of any unused vacation days as of separation.

The Section 5 deadline imposed on employers for payment of “final compensation” seems clear enough. Employers are required promptly to pay to employees the full value of any compensation owed to them shortly after their separation from employment.

But what happens when part of the compensation owed by an employer to an employee as of the date of separation consists of a monthly annuity, payable indefinitely subject to a condition subsequent?

More to the point, does Section 5 impliedly limit the scope of the Act to exclude promised monthly payments that, because they are of indefinite duration, cannot easily be reduced to a lump sum monetary equivalent as of the date of separation?

In the usual case, monthly annuities that employers promise to pay employees after the termination of their employment are pensions; and pension benefits are governed by ERISA. But ERISA only governs annuities that are promised as part of a “plan,” as defined therein.

What happens when an Illinois employer promises to pay to an employee an open-ended monthly annuity for work completed by the employee during the employee’s term of employment?

Is the employee relegated to a common law breach of contract action, wherein his ultimate recovery will be diminished by attorney fees and delayed payment, or is the employer’s promise subject to the Wage Act?

In a case pending in the Circuit Court of Cook County, the Court recently found that an employer’s contractual obligation indefinitely to make monthly annuity payments post-separation was outside the scope of the Wage Act because the value of that annuity could not be reduced to a lump sum at the time of separation.

Under this theory, Section 5 seems impliedly to narrow the scope of the Act by modifying the definition of “final compensation,” as follows:

‘final compensation’ . . . shall be defined as wages, salaries, earned commissions, earned bonuses, and the monetary equivalent of earned vacation and earned holidays, and any other compensation owed the employee by the employer pursuant to an employment contract or agreement between the 2 parties; provided, however, that, ‘final compensation’ shall not include any claim for any compensation that may not be reduced to a lump-sum monetary equivalent on the date for payment of “final compensation” contemplated by Section 5 of this Act, by means of a calculation applying facts then in existence.

The applicability, vel non, of the Wage Act to promised post-separation monthly annuities appears to be a question of first impression in Illinois.

We respectfully moved for reconsideration, supported by a brief that can be viewed here.

Update: Our motion to reconsider was denied. Thereafter, the parties filed cross-motions for summary judgment on plaintiff’s breach of contract claim. Plaintiff’s motion was granted by an Order entered on the eve of trial.

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One That Got Away . . . Palsgraf Meets Pureed Broccoli in the Law of Felony Murder

Brackett v. Peters, 11 F.3d 78 (7th Cir. Ill. 1993)

I argued this habeas corpus appeal in the Seventh Circuit 20 years ago — and lost. I was a young lawyer then, and this was one of the many pro bono cases that Jenner & Block routinely took as part of its unique dedication to providing legal services to the indigent.

This case still troubles me when I think about it from time to time. Randy Brackett, my young client (he was then in his twenties) was convicted of felony murder because he sexually assaulted an elderly woman (she was over 80), who sustained minor injuries in the attack, was briefly hospitalized, and thereafter moved to a nursing home. There, she became depressed, refused to eat, and was, some months later, choked to death by an overzealous attendant who — in an apparent attempt to force-feed her — injected 8 ounces of pureeed broccoli into her throat. The autopsy reported that the victim’s trachea was full of pureed broccoli at the time of her death, by asphyxia.

After the victim was choked to death, months after the assault, in the nursing home, the state upgraded the charges against Brackett from aggravated sexual assault to felony murder, on the theory that Brackett caused the victim’s death by inflicting ultimately fatal psychological injuries during the commission of the sexual assault, a felony.

The prosecution called this “psychological murder.” They argued that my client killed the victim by causing her to become depressed, which caused her to be placed in a nursing home, which caused her to become more depressed and to refuse to eat, which ultimately led to her being choked to death with pureed broccoli by an overzealous attendant.

The facts raised interesting legal issues about causation. Causation that gives rise to civil liability had been famously examined (and limited) in the seminal case of Palsgraf v. Long Island Railroad Co., 248 N.Y. 339, 162 N.E. 99 (N.Y. 1928), a decision by Benjamin Cardozo.

In Palsgraf, a train passenger carrying a package, while hurrying to catch and board a moving Long Island Rail Road train, appeared to two of the railroad’s employees to be falling. The employees were guards, one located on the train car, the other on the platform. The guard on the car attempted to pull the passenger into the car while the guard on the platform attempted to push the passenger into the car from behind. The guards’ efforts to aid the passenger caused the package the passenger was holding to fall on the rails. Unbeknownst to the guards, the package, which was approximately 15 inches long and wrapped in newspaper, contained fireworks, and exploded when it hit the rails. The shock reportedly knocked down scales at the other end of the railroad platform (although conflicting accounts suggest that a bystander startled by the explosion may have upset the scale), which fell on, and injured Mrs. Helen Palsgraf. Palsgraf sued the railroad, claiming her injury resulted from negligent acts of the railroad guards. The trial court and the intermediate appeals court found for Palsgraf by verdict from a jury, and Long Island Rail Road appealed the judgment.

The long and intricate chain of causation in Palsgraf (reminiscent of a Rube Golberg cartoon) has been modified for humorous effect and acted out by Lego pieces in a very clever tongue-in-cheek video on YouTube:

On appeal, in a seminal opinion authored by Justice Cardozo, the court reversed and dismissed Palsgraf’s complaint, on grounds that the relationship of the guards’ actions to Palsgraf’s injury was too indirect to make them – or their employer – liable. Cardozo’s opinion created what has become known as the “Palsgraf Rule” — the notion that negligent conduct resulting in injury will result in a civil liability only if the actor could have reasonably foreseen that the conduct would injure the victim.

Unlike Palsgraf, Brackett was a criminal case, and therefore subject to a higher standard of proof — proof beyond a reasonable doubt, not just by a preponderance of the evidence (more likely than not).

Was Brackett properly convicted of felony murder because the state had proved — proved beyond a reasonble doubt – that his conduct had foreseeably resulted in the incident that caused the victim’s death?

Before the oral argument, I thought that this sort of case was precisely the sort of intellectual puzzle that would appeal irresistibly to Justice Posner.

I was right. When the day came to argue the case, there he was, one of the three Justices on the panel.

I argued that the careless injection of pureed broccoli into the victim’s throat months after the assault was an intervening superseding cause, and that my client could not foresee, at the time of the assault, that that would occur as a result of his admittedly heinous actions.

That argument did not carry the day.

The panel found that my client was properly convicted of felony murder because but for his conduct the decedent would not have been in the nursing home where she was vulnerable to the impatience of a careless attendant . . . . Put differently, it was reasonably foreseeable that the elderly victim of a home invasion and sexual assault would thereafter become suicidally depressed, and therefore vulnerable to death at the hands of a careless nursing home attendant.

The case has been cited for the notion that for purposes of the “eggshell skull rule,” “psychological vulnerability is on the same footing as physical [vulnerability].”

Does a sexual assault become felony murder if the victim becomes suicidally depressed, and dies months thereafter as a result of the careless act of a third party, on the theory that psychological injury is a reasonably foreseeable consequence of the assault?

What do you think?

 

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So You Want to Go To Law School . . .

 

I hate to admit it, but this video contains some truth, albeit greatly exaggerated. It is also very funny . . .

 

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Welcome!

 

This is the inaugural post of the official blog for the law firm of Kent Maynard & Associates LLC. Please check back regularly for updates.

 

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