Who's Paying the Water Bill?

Posted on April 15, 2008 by Ashley Brandt

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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Upholding the Contract for Indemnification

Posted on March 20, 2008 by Ashley Brandt

    A case from the Northern District (Smith v. The Village of Norridge), involving actions brought by an individual against the police, a landlord shopping center and its tenant, emphasizes the significance of indemnity provisions in a contract.

   At issue are cross-claims filed by the landlord of the facility arguing that the tenant is required to indemnify the landlord under a paragraph of the lease which reads that the tenant must:

"[i]ndemnify and save Landlord ... harmless from and defend against any and all demands,claims, actions, damages, costs and expenses, including [costs and attorneys' fees] arising from the conduct or management of the business conducted by Tenant."

  The lease contained a similar provision requiring the tenant to procure insurance for such acts and that the insurance was required to cover the landlord as well.  The cross-claims are pled as breach of contract actions stating the because the contract contains the indemnity provisions, the tenant's failure to indemnify (and obtain insurance in the second claim) amounts to a breach of the contract.

  The court disagreed with the tenants' argument that the Illinois Landlord-Tenant Act (765 ILCS 705/1(a)), which provides:

"(a) Except as otherwise provided in subsection (b), every covenant, agreement, or understanding in or in connection with or collateral to any lease of real property, exempting the lessor from liability for damages for injuries to person or property caused by or resulting from the negligence of the lessor, his or her agents, servants or employees, in the operation or maintenance of the demised premises or the real property containing the demised premises shall be deemed to be void as against public policy and wholly unenforceable."

would bar this action.  The Court found that the provision would apply if the claim against the tenant had been one for indemnity for the negligent acts of the landlord.  However, the landlord pled an action for breach of contract, and the acts alleged as the root of the claims were intentional, so under two separate rationales, the ILTA did not apply.

 
  Accordingly, the court denied the tenant's motion to dismiss the cross claims.

 

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