Illinois Construction Law Blog : Illinois Construction Lawyer & Attorney : Foran Glennon Palandech & Ponzi Law Firm : Chicago IL

In Stewart v. Gino's East, et al. (N.D. IL, Doc. No. 07 C 6340), the defendants, restaurants that accept credit cards for payment, were sued under the Fair and Accurate Credit Transactions Act (FACTA) in a class action alleging they violated the FACTA by not removing the expiration dates of credit cards from their customer's receipts.  One of the defendants brought a third-party action against a company that installed the software and hardware used for the credit card transaction for breach of contract.  The third-party complaint attaches the contract.  It is a short agreement entitled "Construction Contract" and appears to be a standard contract used by the defendants for the contractor installing the equipment and allows the architect final approval on the remediation of unsatisfactory work.

The third-party complaint alleges that the description of the services provided in the contract meant that the contractor would assure that the software and hardware were in compliance with all applicable laws, including FACTA.  The contractor brought a motion to dismiss and argued that nothing in the contract obligated it to make sure the system was in compliance with FACTA and pointed to provisions of the contract arguing that they were not ambiguous and precluded a complaint against the contractor. 

The court found that the provisions pointed to by the contractor were silent about the system or hardware complying with FACTA (after all, it reads like a contract for the installation of the machines):

• "You do hereby warrant, that all material and equipment supplied for this job shall be new and free from faults and defects, and standard written equipment warranties shall be included and delivered to owner and also included is an one year warranty (from completion of the contract work) on all workmanship and materials."

The court went on to hold that other provisions could be interpreted to mean that compliance with FACTA was included in the contract:

• [the contractor] is "authorized to furnish all labor and equipment to do the POS set up for the building"

• "[t]he work is intended to be complete and fully useable as a finished product or system."
  
• "that all material and equipment supplied for this job shall be new and free from faults and defects."

Finding that these contractual provisions might be interpreted to require the system, as installed, would be compliant with FACTA.  The court denied the motion to dismiss, pointing out that these ambiguities created a question requiring future litigation.

Now, obviously, the court, and we, don't have all the facts about the nature of the agreement, but if it was just an agreement for the work on the installation of the equipment, then the ambiguities have created an issue and possible liability in a situation where absolutely none was intended.  Again, it might seem like a pain to have lawyers reviewing your agreements and helping negotiate even something as small as this contract must have seemed, but there is a reason such a big deal is made over contractual language.

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In American Multi-Cinema, Inc., v. MCL REC, LLC, et al. (N.D. of Illinois, Doc. No. 06 C 0063)  a lessee, AMC, filed for a declaratory judgment seeking a determination regarding its lease.  They want to know if the lease requires them to pay for the hot and cold water that runs in their portion of the building. (That's right... don't feel bad about having this dispute with your landlord every time the water bill arrives, apparently it doesn't matter if you're renting a garage space in Port Byron, or if you're running one of the nicest theaters in downtown Chicago, it's important to know who's paying for the water).

Under protest, AMC paid the balance of the water bill to its previous landlord prior to the sale of the property to a new landlord and then filed an action seeking a declaration regarding the duties imposed by its lease against the old landlord and brought in the new landlord after the sale was complete.  The two landlords then filed claims against each other regarding whether or not either of them owed money, indemnification, or a defense to each other concerning AMC's declaratory action.  They based these claims on their own sale agreement.  The end result of AMC's action will determine who foots the bill for the hot and cold water; AMC, or the current landlord.

The original landlord brought a motion for summary judgment on the cross-claim of the second landlord and the court rendered this opinion.  The court granted the original landlord's motion for summary judgment, in part with regard to the indemnification clause in the sale agreement, but held that there was a question of fact regarding when and what the parties knew about AMC's disputes and contentions over the water bill before, during, and after the sale.

As a practice pointer, make sure the due diligence is in order before you sign off on that asset purchase agreement.  Additionally, see the court's footnote 1, reminding the parties that under the Northern District's local rules, tabs and indexes of the exhibits (local rule 5.2(c)) need to be filed.  R. David Donoghue over at the Chicago IP Litigation Blog has also commented on the failure of many counsel to fully follow the lesser-known federal rules.

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