Federal Signal Corp. v. Thorn Automated Systems Inc.

SECOND DIVISION
March 31, 1998

No. 1-97-0087

FEDERAL SIGNAL CORPORATION, ) Appeal from the
) Circuit Court of
Plaintiff-Appellant, ) Cook County
)
v. )
)
THORN AUTOMATED SYSTEMS, INC., a/k/a )
THORN AUTOMATED SYSTEMS, THORN AUTOCALL,)
THORN EMI COMPANY, and AUTOCALL, INC., ) Honorable
) David Lichtenstein,
Defendants-Appellees. ) Judge Presiding

PRESIDING JUSTICE McNULTY delivered the opinion of the court:
Plaintiff, Federal Signal Corporation, alleged that defendant,
Thorn Automated Systems, tortiously induced a third party to breach
its contract with plaintiff. Plaintiff filed suit five years after
the initial breach of contract and obtained service of process on
defendant four months later, after completing a deposition of one of
defendant's employees. The trial court dismissed the case with
prejudice for failure to obtain service of process diligently.
On April 20, 1990, plaintiff sold its subsidiary, Autocall,
Inc., to Wormald U.S., Inc. Plaintiff guaranteed payment of
Autocall's accounts receivable, promising to pay any amounts shown
on the closing balance sheet as accounts receivable which remained
uncollected as of April 30, 1991. Wormald agreed to use collection
methods consistent with Autocall's past efforts to collect the
accounts receivable. Plaintiff agreed to give Autocall's president,
James Frankow, substantial stock options in plaintiff, but the
payment depended upon Frankow using his best efforts to collect the
receivables.
On December 5, 1990, Wormald sold Autocall to Thorn. Wormald
agreed to repurchase, at face value, any accounts receivable that
remained uncollected 120 days after the closing, if Thorn elected to
sell the account back to Wormald. However, Thorn did not agree to
continue Autocall's past collection policies, and the contract
detailed the lesser efforts Thorn intended to make. On December 6,
1990, Thorn management told Autocall personnel to reduce their
efforts to collect receivables, including those plaintiff and
Wormald guaranteed.
On February 14, 1991, Frankow called plaintiff's treasurer,
Robert Racic, and told him Thorn had directed Autocall personnel to
spend no time or effort on collecting receivables. Racic promptly
discussed the call with plaintiff's general counsel, Kim Wehrenberg.
Frankow wrote to Racic on March 13, 1991, informing him that Thorn
had disbanded Autocall's collection department.
Wormald sued plaintiff on December 20, 1993, alleging that as
of April 30, 1991, Autocall had failed to collect $513,918 of the
accounts receivable that plaintiff guaranteed. Plaintiff answered
that Autocall failed to use collection efforts consistent with its
past practices, in violation of their contract. Wormald's complaint
and plaintiff's response are not part of the lawsuit on appeal.
The case on appeal commenced on December 4, 1995, when
plaintiff filed a complaint against Thorn, alleging that Thorn
tortiously induced Wormald to breach its contract with plaintiff.
After filing the suit, but before serving defendant, counsel for
plaintiff had numerous conversations with counsel for defendant
concerning Frankow's calls and letters to plaintiff. Plaintiff
wished to depose Frankow, and defendant's counsel indicated that
Frankow's deposition testimony would be substantially inconsistent
with the calls and letters. Defendant's counsel knew the deposition
could have significant effect on Wormald's suit against plaintiff,
but he knew nothing of the suit plaintiff had filed against
defendant.
Counsel for plaintiff deposed Frankow in the presence of
Wormald's counsel on April 2, 1996; defendant's counsel did not
appear. Frankow swore that defendant instructed him to give
collection of receivables Wormald and plaintiff guaranteed low
priority. Autocall's efforts thereafter failed to meet the
requirements of Wormald's contract with plaintiff.
Plaintiff procured a summons for defendant on April 19, 1996,
and defendant received service on April 25, 1996. Defendant's
counsel immediately faxed a letter to plaintiff's counsel objecting
to the deceptive failure to mention the lawsuit in their ongoing
discussions of discovery for Wormald's lawsuit. On August 14, 1996,
defendant discharged its attorneys and hired instead the attorneys
who represented Wormald, including the attorney who attended
plaintiff's deposition of Frankow.
Defendant moved to dismiss the lawsuit pursuant to Supreme
Court Rule 103(b) (134 Ill. 2d R. 103(b)), arguing that plaintiff
did not act with reasonable diligence to obtain service on
defendant. Defendant claimed that because the lack of diligence
occurred after the applicable statute of limitations expired, the
case should be dismissed with prejudice.
In opposition to the motion plaintiff presented the affidavit
of Wehrenberg, who swore that plaintiff did not see a copy of
defendant's contract with Wormald until May 28, 1991. Plaintiff did
not receive documentation of outstanding receivables until June 6,
1991, and before that plaintiff could not make even a preliminary
determination of its damages. But in his deposition Wehrenberg
admitted that Frankow called plaintiff on February 14, 1991, to
report defendant's new policy curtailing Autocall's collection
efforts. He said that he and Racic needed more information before
proceeding in response to Frankow's call.
An attorney for plaintiff also submitted an affidavit stating
that without Frankow's deposition, plaintiff could not resolve
inconsistencies in the reports it received from defendant's
attorneys, Wormald's attorneys, and Frankow. The attorney swore
that defendant's attorneys never asked whether plaintiff had sued
defendant.
The trial court found that plaintiff delayed service
"intentionally *** to effect tactical and strategic advantage."
Plaintiff knew where it could easily serve defendant. Plaintiff's
concern about the veracity of its complaint, needing confirmation
from Frankow's deposition, did not constitute a special circumstance
justifying the delay in service. The court held that plaintiff did
not exercise due diligence. The court also found that the
limitations period expired on December 5, 1995, five years after the
initial breach defendants allegedly induced. Accordingly the court
dismissed the complaint with prejudice.
The parties agree that a five-year limitations period applies
to this case. 735 ILCS 5/13-205 (West 1994). Plaintiff argues that
the period began to run either on April 30, 1991, when Thorn stopped
its continuing tortious behavior inducing breach of contract to
plaintiff's continuing detriment, or on June 6, 1991, when plaintiff
first discovered its damages.
Our supreme court recently restated applicable principles:
"For most torts, the cause of action usually accrues when
the plaintiff suffers injury. [Citations.] For contract
actions and torts arising out of contractual
relationships, though, the cause of action ordinarily
accrues at the time of the breach of contract, not when a
party sustains damages." Hermitage Corp. v. Contractors
Adjustment Co., 166 Ill. 2d 72, 77, 651 N.E.2d 1132
(1995).
A continuing injury delays commencement of the limitations period
for most torts until cessation of the tortious behavior or the last
injury. Hyon Waste Management Services, Inc. v. City of Chicago,
214 Ill. App. 3d 757, 763, 574 N.E.2d 129 (1991). But such a delay
applied to contractual torts would contravene the policy reasons for
the distinction. The plaintiff, knowing of the breach of contract,
could allow damages to accumulate with each passing day the
defendant failed to comply, and claim a continuing injury. Our
supreme court has instead adopted a rule for contractual torts that
"encourages the party to act within five years of the breach rather
than to delay until damages increase." West American Insurance Co.
v. Sal E. Lobianco & Son Co., 69 Ill. 2d 126, 132, 370 N.E.2d 804
(1977). Accordingly, we hold that the delay in the commencement of
the limitations period for continuing torts does not apply to
contractual torts.
Tortious interference with contract is a contractual tort, for
which the limitations period generally begins to run on the date of
breach. Howard T. Fisher & Associates, Inc. v. Shinner Realty Co.,
24 Ill. App. 2d 216, 164 N.E.2d 266 (1960). In Fisher the court
said:
"The plaintiff urges that the statute of limitations
cannot be invoked because *** it is alleged that [the
defendant] 'continuously' to the present date 'aided,
abetted, induced, procured and caused [co]defendant ***'
to breach the contract. We cannot follow that reasoning.
It is apparent from the record that the breach of the
contract occurred on January 19, 1950. Either at or
before that time [the defendant's] alleged tortious
conduct in inducing the breach must have taken place. It
is a contradiction in terms to say that there can be a
continuous procuring of a breach of a contract after the
breach has actually occurred." Fisher, 24 Ill. App. 2d at
226.
Accordingly, the court found the cause of action barred.
Plaintiff here stated a cause of action for tortious
interference with contract. Because this is a contractual tort, the
limitations period is not delayed to the end of the continuing
breach of contract. We reject plaintiff's argument for April 30,
1991, as the date for commencement of the limitations period.
The discovery rule applies to contractual torts just as it
applies to other torts. Cassidy v. Derek Bryant Insurance Brokers,
Ltd., 244 Ill. App. 3d 1054, 1064, 613 N.E.2d 1201 (1993).
Therefore the limitations period for the tort alleged here did not
begin until plaintiff knew, or reasonably should have known, of the
breach of contract and its tortious inducement. Hermitage Corp.,
166 Ill. 2d at 86. "[T]he running of the statute of limitation
commences when the injured person becomes []possessed of sufficient
information concerning his injury and its cause[] to put a
reasonable person on notice to determine whether actionable conduct
is involved." Henderson v. Jones Brothers Construction Corp., 234
Ill. App. 3d 871, 873, 602 N.E.2d 16 (1992).
"[T]he question of the time at which a party has or should have
requisite knowledge under the discovery rule to maintain a cause of
action is ordinarily a question of fact." Goran v. Glieberman, 276
Ill. App. 3d 590, 596, 659 N.E.2d 56 (1995). However, where the
parties do not dispute the crucial facts, which compel only one
conclusion, "[d]etermining at what point a party becomes possessed
of sufficient information to be under an obligation to inquire
further may be a question of law." Henderson, 234 Ill. App. 3d at
873.
Here, Wehrenberg admitted that Frankow told plaintiff of
defendant's new policy, which adversely affected collections, on
February 14, 1991. Wehrenberg also admitted that he took the call
seriously enough that plaintiff began investigation to determine
whether defendant had caused injury to plaintiff's interests. At
least by that point, plaintiff had "an obligation to inquire further
to determine whether an actionable wrong was committed." Nolan v.
Johns-Manville Asbestos, 85 Ill. 2d 161, 171, 421 N.E.2d 864 (1981).
Under these undisputed facts, the limitations period commenced on or
before February 14, 1991, so it expired no later than February 14,
1996, 10 weeks before defendant received service.
For purposes of the motion to dismiss with prejudice, "the
crucial inquiry is whether or not an examination of the plaintiff's
actions following the expiration of the statute of limitations
reveals a failure to exercise reasonable diligence." Matthews v.
Donnelly, 265 Ill. App. 3d 1016, 1019, 639 N.E.2d 193 (1994). To
determine whether a plaintiff has shown due diligence in effecting
service, the court should consider several factors, including:
"(1) the length of time used to obtain service of
process; (2) the activities of plaintiff; (3) plaintiff's
knowledge of defendant's location; (4) the ease with which
defendant's whereabouts could have been ascertained; (5)
actual knowledge on the part of the defendant of pendency
of the action as a result of ineffective service; (6)
special circumstances which would affect plaintiff's
efforts; and (7) actual service on defendant." Segal v.
Sacco, 136 Ill. 2d 282, 287, 555 N.E.2d 719 (1990).
Plaintiff knew where to serve defendant at the time of filing
and made no effort to serve for more than four months. Defendant
had no knowledge of the pending action. Plaintiff argues that the
10-week delay is too short to permit dismissal of the complaint,
especially in light of the special circumstance of plaintiff's need
for the deposition of defendant's employee, Frankow, to support the
allegations of the complaint.
Plaintiff contends that serving the complaint prior to
Frankow's deposition would have violated its duties under Supreme
Court Rule 137 (155 Ill. 2d R. 137). That rule requires the
attorney filing any paper to certify "that he has read the pleading,
motion or other paper[, and] that to the best of his knowledge,
information, and belief formed after reasonable inquiry it is well
grounded in fact." 155 Ill. 2d R. 137.
The summons plaintiff obtained in April 1996, and which
plaintiff served on defendant, is not a paper of a party, because
the clerk of court issues it, albeit at a party's request.
Therefore Rule 137 does not apply to the summons or service. See In
re C.K., 214 Ill. App. 3d 297, 299-300, 573 N.E.2d 378 (1991).
Plaintiff filed the complaint in December 1995; if plaintiff's
attorney had by then failed to make sufficient inquiry to satisfy
Rule 137, his later delay in effecting service in no way diminished
the already completed violation of Rule 137.
Moreover, if Rule 137 could justify procuring the deposition of
an opposing party's employee, without leave of court and without
notice, that rule would conflict with discovery rules. Supreme
Court Rule 201(d) provides that no party shall notice or otherwise
initiate a deposition prior to the time that the defendant is
required to appear, except by leave of the court granted upon good
cause shown. 166 Ill 2d R. 201(d). Committee comments indicate
that our supreme court adopted this rule to end the objectionable
practice of noticing depositions for the earliest possible date,
that on which defendants were required to appear, leaving defendants
inadequate time to prepare for the depositions. 166 Ill. 2d R.
201(d), Committee Comments. Plaintiff's explanation and use of the
deposition of Frankow show that it intentionally obtained the
deposition for use in this case, without leave of court in this case
and far prior to the time required for defendant's appearance, in
direct violation of Rule 201(d).
Our supreme court has established proper procedures for
discovery that a potential plaintiff may need to determine whether
the facts justify filing suit against a potential defendant, so that
the plaintiff may get the information necessary without violating
Rule 137. Yuretich v. Sole, 259 Ill. App. 3d 311, 317, 631 N.E.2d 767 (1994). Under Supreme Court Rule 224 (134 Ill. 2d R. 224), even
before filing suit a potential plaintiff may obtain discovery by
filing a special action for discovery. The potential plaintiff, as
petitioner, must then name as respondents the persons from whom he
seeks discovery, and those respondents must receive notice and have
an opportunity to contest the request for discovery.
Plaintiff here sought to escape the constraints of discovery
rules to obtain discovery for this case without notice to defendant
or its employee, Frankow, of the suit. Plaintiff's actions here
constitute a special circumstance bearing on the motion to dismiss.
The fact that defendant later hired the attorney for Wormald who
attended Frankow's deposition provides scant mitigation for
plaintiff's attempt to circumvent discovery rules. Even if
plaintiff did not successfully obtain an unfair advantage over
defendant, the record here amply supports the trial court's
conclusion that plaintiff tried to obtain such an advantage.
Our supreme court has held that an inadvertent delay of 19
weeks in service of process did not warrant dismissal under Rule
103(b). Segal, 136 Ill. 2d at 288-89. Here, plaintiff delayed
service for only 10 weeks after the expiration of the limitations
period. However, the delay in service is only one of the factors
the court should consider. Here, all the other factors weigh
against plaintiff, especially the special circumstance that
plaintiff obtained discovery for this case, after filing but before
service and therefore without notice to defendant, in violation of
discovery rules. The trial court did not abuse its discretion by
dismissing the complaint with prejudice for failure to exercise
diligence in obtaining service of process on defendant.
Accordingly, the judgment of the trial court is affirmed.
Affirmed.
RAKOWSKI and TULLY, JJ., concur.