Illinois Court Affirms Decision Striking Down Noncompete Because of Inadequate Consideration

FIFIELD v. PREMIER DEALER SERVICES INC, No. 1–12–0327., June 24, 2013 - IL Court of Appeals | FindLaw:

This case deals with a noncompetition agreement between an employee and a company. The court held, consistent with long-standing Illinois precedent, that a noncompete is not binding unless the employee has been employed for at least two years.

In October 2009, Premier made an employment offer to plaintiff Fifield. The offer was conditioned upon his execution of a noncompetition agreement which provided:

“Employee agrees that for a period of two (2) years from the date Employee's employment terminates for any reason, Employee will not, directly or indirectly, within any of the 50 states of the United States, for the purposes of providing products or services in competition with the Company (i) solicit any customers, dealers, agents, reinsurers, PARCs, and/or producers to cease their relationship with the Company * * * or (ii) interfere with or damage any relationship between the Company and customers, dealers, agents, reinsurers, PARCs, and/or producers * * * or (iii) * * * accept business of any former customers, dealers, agents, reinsurers, PARCs, and/or producers with whom the Company had a business relationship within the previous twelve (12) months prior to Employee's termination.'



Fifield worked for three months and resigned. Premier sought to enforce the noncompetition agreement. The trial court ruled that the agreement was void for lack of consideration because Fifield had not worked for at least two years before he quit.


The appellate court agreed that three months employment was insufficient consideration to allow the noncompetition agreement to be enforceable.


Comment: this is a rare legal decision which announces a clear rule. Whether this is a good idea remains to be seen. Some employee may quit after 23 months to avoid the noncompetition agreement and force the court to reconsider this bright line rule.

Edward X. Clinton, Jr.

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Illinois Appellate Court Affirms Enormous Award For Retaliatory Discharge

Holland v. SCHWAN'S HOME SERVICE INC., Ill: Appellate Court, 5th Dist. 2013 - Google Scholar:

This is a retaliatory discharge case in which the plaintiff claimed that he was fired for exercising his rights under the workers compensation act. After a trial, the jury awarded plaintiff about $600,000 in compensatory damages and $3.6 million in punitive damages.

The majority affirmed the jury verdict, concluding that the defendant worked an injured employee until he sustained further injuries. The court comments:

The evidence presented at the trial introduced the jury to an employer that intentionally worked an injured employee beyond his medical restrictions to the point that he suffered from severe pain from a work-related injury. When the employee's treating physician took him off work for recovery and treatment, it retaliated against the injured employee by terminating his employment. The need to deter employers from engaging in this type of reprehensible conduct is obvious and substantial. In light of the evidence considered and weighed by the jury, we will not overturn its assessment of punitive damages as being excessive or unconstitutional. 

There is also a strong dissent, filed by Justice Spomer, which argued that the employee was never fired at all, merely demoted. Thus, there was no retaliatory discharge.

In recent years, there has been much fuss over the Illinois Workers Compensation Act and some have argued that the Act is unfair to employers. This case is also controversial and, in my view, is a strong candidate to be reviewed by the Illinois Supreme Court.

Edward X. Clinton, Jr.

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National Football League's Efforts To Sue Insurers in California Are Rebuffed

National Football League v. FIREMAN'S FUND INSURANCE COMPANY, Cal: Court of Appeal, 2nd Appellate Dist., 5th Div. 2013 - Google Scholar:

The NFL has been sued by dozens of former players who allege that they were injured playing football in the 1950s, 60s and 70s. The NFL is defending the cases. As usual, the liability litigation against the league spawned an enormous cloud of coverage litigation.

The insurers sued in New York, where the league has its headquarters, for declaratory judgments that their policies do not cover the concussion lawsuits. The NFL tried to sue in California, but the California court held that the NFL is really a resident of New York and that the litigation to be fought out in the courts of New York. The order stays the California cases pending the results of the New York litigation.

Undoubtedly there was an advantage to litigating in California as opposed to New York.

Edward X. Clinton, Jr.

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Court Resolves LLC Dispute By Compelling Arbitration

RITZ-CARLTON MANAGEMENT COMPANY, LLC v. ASSOCIATION OF APARTMENT OWNERS OF KAPALUA BAY CONDOMINIUM, Dist. Court, D. Hawaii 2013 - Google Scholar:

This case does not make any new law. Rather, it holds that an arbitration clause in a limited liability company operating agreement is binding and enforceable under the Federal Arbitration Act.

Dispute resolution is an important provision in any operating agreement. That provision should be carefully considered before any members are accepted into the limited liability company.

Edward X. Clinton, Jr.

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Well-Drafted LLC Operating Agreement Allows Members to Be Terminated

Berndt v. Berndt, Wis: Court of Appeals, 4th Dist. 2013 - Google Scholar:

This is a decision of the Wisconsin Court of Appeals, affirming the grant of summary judgment to an LLC and two members who terminated the interests of two other members. Here, the operating agreement allowed members to be removed for wrongful conduct. The Court concluded that the Defendants appropriately (a) gave notice of the termination; and (b) offered to purchase the interests of the departing members.

The court rejected an argument that the actions taken by the Defendants were not in good faith. The covenant of good faith and fair dealing did not apply because the Defendants had proper grounds to terminate the plaintiffs' interests in the LLC.

This case illustrates the importance of carefully drafting an operating agreement for every limited liability company. The terms of the operating agreement allowed the Defendants to terminate the Plaintiffs for wrongful conduct and to purchase their interests in the company.

Edward X. Clinton, Jr.

www.clintonlaw.net

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District Court Compels Arbitration of Dispute Between Broker and Insurance Company

Chambers v. AVIVA LIFE & ANNUITY CO., Dist. Court, ND Illinois 2013 - Google Scholar:

This is a routine dispute between a broker and an insurance company. The broker was required to maintain errors and omissions insurance. He allegedly failed to do so and the insurance company brought a collection action against him for the cost of the errors and omissions insurance.

The broker then brought claims against the insurance company. However, all of his claims were dismissed because the parties had entered into an arbitration agreement, which is governed by the Federal Arbitration Act, 9 U.S.C. Section 4.

In recent years, the United States Supreme Court has decided several cases which have strengthened the Federal Arbitration Act.  These decisions serve to remove many typical civil litigation cases from the court.

Here, Judge Kendall granted the motion to dismiss and compelled arbitration pursuant to the parties' agreement.  Usually, the court stays the lawsuit while the arbitration is pending.  Here the court, based on cases decided in other circuits, elected to dismiss the entire case. This is an issue which may be litigated in the future.

The court writes:

"The FAA provides that once the Court determines that arbitration should be compelled, the Court "shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration." 9 U.S.C. § 3. Pursuant to this provision, all of the defendants requested this Court to stay the case pending arbitration of Chambers's claims. However, the Court finds that dismissal of the case, and not a stay, is the proper remedy in this case."
Edward X. Clinton, Jr.

www.clintonlaw.net

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LLC Operating Agreements And Fiduciary Duty

This post is based upon an excellent article in Business Law Today titled, Eliminating Fiduciary Duty Uncertainty - The Benefits of Effectively Modifying Fiduciary Duties in Delaware LLC Agreements. The authors are Paul Altman, Elisa Maas and Michael Maxwell.

The issue is whether members of an LLC owe each other fiduciary duties. In the absence of any explicit disclaimers, Courts have held that the members of an LLC do owe each other a fiduciary duty.

A fiduciary duty is a high duty requiring the members to be loyal to the enterprise and each other. They are not permitted to (a) divert business to another entity; or (b) take excessive compensation or, obviously convert company assets.

There are situations where these fiduciary duties can hinder the members of the LLC. The authors recommend that any disclaimer of any fiduciary duty be explicit and unambiguous.

If the LLC operating agreement is silent, the courts will assume that all of the traditional fiduciary duties apply.

Edward X. Clinton, Jr.

www.clintonlaw.net

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