Month: September 2015

Northern District Enforces Forum Selection Clause in Unsigned Contract

This case is worthy of attention for only one reason: the district court granted a motion to transfer the case to another district based on a forum selection clause in an agreement, which neither party signed.

Leon’s Auto Sales sued the defendants alleging that they engaged in the unauthorized practice of law and violated the Illinois Consumer Fraud and Deceptive Practices Act. The Defendants removed the case on diversity of citizenship and moved to dismiss for lack of personal jurisdiction, venue  and failure to state a claim. The District Court reached only one argument: the motion to dismiss for improper venue.

Leon’s Auto Sales sent two representatives to attend an industry conference. A lawyer affiliated with the defendants urged Leon’s to hire a law firm to do a compliance audit. The defendants sent the form contract to Leon’s Auto Sales, but it was never signed. The court explains that, even though the contract was not signed, the defendants performed the compliance audit:

[An attorney affiliated with the Defendants] sent Leon’s a draft contract entitled “Compliance Audit Contract” and asked for a payment of $5,000. The draft contract contained a choice of law and forum selection clause stating that “[t]his Contract, and any arbitration or litigation arising therefrom, shall be governed by the law of the State of Florida. Proper venue shall, and Client agrees to be subject to, a court of competent jurisdiction for Sarasota County, Florida.” Def.’s Jt. Mot. to Dismiss, Ex. B.

Leon’s says that it did not sign the draft contract. In its complaint, however, Leon’s alleges that in late September 2013, Leedom sent [Debra] Dawn to Leon’s office in Chicago to perform the compliance audit Leon’s had requested. After the audit, Leedom sent Leon’s an invoice in the amount of $6,338.82 for the audit and related travel expenses, the amount called for by the contract. Leon’s says that it paid Leedom in full.

In November 2013, a customer named Marquita Purnell purchased a car from Leon’s. Leon’s says that it documented the purchase with a form contract that Dawn had reviewed during the compliance audit. Purnell later sued Leon’s on the ground that the form contract violated the Federal Truth in Lending Act. After these events, attorneys for Leon’s reviewed the form contract that Dawn had reviewed and discovered the contract did not comply with several state and federal laws. Leon’s subsequently filed this suit.

In response to the motion, Leon’s Auto Sales alleged that it never signed the contract so the contract was not binding. The district court disagreed. It explained:

As indicated earlier, Leon’s contends that the contractual forum selection provision is unenforceable because it never executed the contract. But a written contract does not necessarily have to be signed in order to be binding on the contract’s parties. Whether an unsigned writing constitutes a binding contract depends on the parties’ intention, and a party’s assent to an unsigned writing’s terms can be shown in other ways, including by the party’s conduct. See Hedlund & Hanley, LLC v. Bd. of Trs. of Cmty. Coll. Dist. No. 508, 376 Ill. App. 3d 200, 206, 876 N.E.2d 1, 6 (2007). “[A] party named in a contract may, by his acts and conduct, indicate his assent to its terms and become bound by its provisions even though he has not signed it.” Landmark Props., Inc. v. Architects Int’l-Chicago, 172 Ill. App. 3d 379, 383, 523 N.E.2d 603, 606 (1988) (parties were bound by conduct to the terms of an unsigned contract because correspondence indicated that all services were performed and payment would be forthcoming). Similarly, under Florida law, unsigned contracts and their terms are binding where both parties have performed under the contract. Sosa v. Shearform Mfg., 784 So. 2d 609, 610 (Fla. Dist. Ct. App. 2001); Gateway Cable T.V., Inc. v. Vikoa Constr. Corp., 253 So. 2d 461, 463 (Fla. Dist. Ct. App. 1971).

The court concluded that the contract was in effect and was binding because both parties acted in accordance with the contract and acted as if it was binding. The takeaway point here is that in some circumstances an unsigned contract can be binding.

Edward X. Clinton, Jr.

Source: LEON’S AUTO SALES, INC. v. LEEDOM AND ASSOCIATES, LLC, Dist. Court, ND Illinois 2015 – Google Scholar

Seventh Circuit Affirms Dismissal of Lawsuit Where Plaintiff Tried to Defraud the Court

The Seventh Circuit affirmed a decision of a district judge to dismiss a case where the plaintiff submitted a doctored employment agreement in response to a motion to dismiss. The employment agreement was altered by inserting pages from another agreement between the first and last pages. The phony pages would have given the plaintiff a right to arbitration.

The plaintiff sued his former employer and some of its employees alleging violations of Title VII. This passage sets out the facts:

After Secrease filed suit in June 2014, Western & Southern moved to dismiss the suit as untimely. It argued that Secrease had tried to make his Title VII claims look timely by attaching to his complaint a charge of discrimination, filed with the EEOC in April 2013, but mismatched to a right-to-sue letter dated March 2014 that addressed a different EEOC charge.

Secrease had filed three charges of discrimination with the EEOC. He filed his first charge in March 2013 alleging age and sex discrimination. He repeated those allegations in a second charge, the one from April 2013 that he attached to his complaint. The EEOC assigned the same charge number to both the March and April 2013 charges and issued Secrease a right-to-sue letter, which Secreaseomitted from his complaint, for both charges on June 25, 2013. Secrease filed a third charge in November 2013 that again repeated the sex and age allegations and added that the company had fired him in retaliation for the earlier charges. In March 2014, the EEOC issued Secrease a second right-to-sue letter, for the November 2013 charge, which he attached to his complaint.

The company argued that because Secrease had alleged similar claims in each of his three charges, his time to sue started after he received his first right-to-sue letter in June 2013 and lapsed about nine months before he filed suit. Finally, as to the state-law claims, the company argued that Secrease failed to state a claim.

Secrease asked the court to deny the motion to dismiss. Instead of answeringWestern & Southern’s arguments or seeking to dismiss his suit voluntarily (if he had no response), he asked the court for different relief: an order to resolve the dispute in arbitration. He submitted a document, signed by him, that he said was his employment contract. It contained a mandatory arbitration clause.

Western & Southern replied that Secrease was trying to defraud the court because his actual employment contract did not contain an arbitration clause. According to Western & Southern, Secrease furnished the first and last pages of his own employment contract, both of which he signed in October 2006. But the remaining, interior pages of Secrease’s submission containing an arbitration clause were from an employment contract that the company did not use until 2008, two years after Secrease had signed his employment contract. Although that later contract form did include mandatory arbitration, Secrease and the company never entered into such an agreement. The document identification numbers confirmed the company’s explanation. The signed pages produced by Secrease were labeled 2-0603 (06 representing the year 2006 and 03 representing March) and the remaining pages of the document bore the label 2-0901 (09 for 2009 and 01 for January). Having already experienced Secrease’s effort to mismatch his EEOC charges and right-to-sue letters, Western & Southern asked the district judge to dismiss Secrease’s claims with prejudice as a sanction for his fraud on the court.

The District Court dismissed the case for the fraudulent conduct by the plaintiff. On appeal, the Seventh Circuit was unimpressed by the arguments of Secrease:

We find no error in the district court’s factual finding of attempted fraud. The district judge reasonably concluded that Secrease intended to mislead the court into granting his request to compel arbitration. His actual 2006 contract did not contain the arbitration clause, and Secrease admitted that the inside pages of the contract that he submitted were from a different employee’s contract. He could not substantiate his assertions that he combined the documents only accidentally, that he tried to call the court to correct his mistake, and that he had signed another contract containing an arbitration clause. The district court’s findings that Secreasehad falsified evidence in bad faith and lied about it were amply supported by the evidence and certainly were not clearly erroneous.

Edward X. Clinton, Jr.

Source: SECREASE v. WESTERN & SOUTHERN LIFE INSURANCE COMPANY, Court of Appeals, 7th Circuit 2015 – Google Scholar

A Prenda Law Update

I have not written about Prenda Law in some time as the Prenda Law Firm has lost numerous cases in the Seventh and Ninth Circuits and is subject to several sanctions judgments. The Illinois Attorney Registration and Disciplinary Commission has filed a complaint against John Steele. (Apparently there was a prior version of the complaint that named Paul Duffy as a defendant, but Duffy passed away last month). Given that Prenda, Duffy and Steele lost case after case in federal court, it is unlikely that the disciplinary case will result in a good outcome for Steele.

Edward X. Clinton, Jr.