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Precision Comp. v. Kapco Communications

OPINION FILED MARCH 8, 1985.

PRECISION COMPONENTS, INC., PLAINTIFF-APPELLANT AND CROSS-APPELLEE,

v.

KAPCO COMMUNICATIONS ET AL., DEFENDANT-APPELLEE AND CROSS-APPELLANT.



Appeal from the Circuit Court of Cook County; the Hon. J.L. Fribley, Judge, presiding.

PRESIDING JUSTICE MEJDA DELIVERED THE OPINION OF THE COURT:

Plaintiff, Precision Components, Inc., appeals from an order granting defendant's, Ken Rubel, d/b/a Kapco Communications, motion for expenses and attorney fees (Ill. Rev. Stat. 1983, ch. 110, par. 2-611) in the amount of $1,297.40. The issues presented are: (1) whether the trial court erred in finding that plaintiff's allegations seeking recovery from defendant individually were untrue and made without reasonable cause; (2) whether the trial court erred in finding that plaintiff's allegation claiming additional damages was untrue and made without reasonable cause and in ruling on the truth of this claim prior to a trial on the merits; and (3) whether defendant showed that actual expenses were incurred as a result of plaintiff's allegations. Defendant cross-appeals, raising the issue of whether the trial court erred in reducing the award of expenses and attorney fees because a portion of the trial time might be used in a subsequent lawsuit. We reverse.

During 1982, Kapco Communications (Kapco) contracted with plaintiff for the purchase of battery chargers. The original purchase order for these goods issued to plaintiff bore the purchaser's designation as "Kapco Communications." This purchase order did not identify Kapco as a division of K.L. Rubel & Associates, Ltd. (K.L. Rubel, Ltd.). Plaintiff invoiced these and subsequent purchases to Kapco's account. Apparently, correspondence regarding these purchases from plaintiff was received by defendant at Kapco. Checks received in payment on the account were drawn on Kapco's account and signed by defendant without any indication that he was signing the checks in a corporate capacity.

It appears that defendant was the president of K.L. Rubel, Ltd. In June 1978, K.L. Rubel, Ltd., purportedly registered the name of Kapco, one of its divisions, as an assumed name of the corporation in the office of the Cook County recorder of deeds. In February 1983, defendant sent a letter to Art Sears (Sears), plaintiff's sales representative. This letter revealed that neither K.L. Rubel, Ltd., nor Kapco was in existence any longer. It also informed plaintiff that the proper corporate name was Kapco, Inc., although this name change was not to be effected until April 1983, some two months later. A check of the office of the Cook County recorder of deeds disclosed no record of an assumed name filing by K.L. Rubel, Ltd. As of March 30, 1984, no assumed name filing had been made in the office of the Secretary of State. The Secretary of State's records also showed that K.L. Rubel, Ltd., never filed a name change, that on December 1, 1978, Kapco, Inc., was involuntarily dissolved, and that there is no current corporation by the name of Kapco, Inc.

On June 13, 1983, with Kapco in arrears in payments on its account, plaintiff sued both Kapco Communications and Ken Rubel d/b/a Kapco Communications alleging breach of contract and seeking damages in the amount of $11,597.24. Plaintiff filed suit against both defendants due to its confusion regarding responsibility for the account.

In its complaint, plaintiff alleged that $11,597.24 was due and owing. After the complaint was filed, plaintiff's counsel learned that payments made by Kapco in April 1983 had been inadvertently overlooked in arriving at the above figure. In a letter dated July 27, 1983, plaintiff's counsel informed defense counsel that the amount alleged as due and owing would be reduced to $6,503.96 to reflect the April 1983 payments, but that figure would be increased to account for additional damages not included in the complaint. These additional damages included: $2,530.94 for unused materials allocated to Kapco's outstanding purchase orders; $3,935.07 for efforts expended securing Underwriters Laboratories, Inc.'s, approval of the product; and $1,200 for tooling and fabrication charges incurred in the production of the battery chargers sold to defendant. When defendant failed to respond to either the complaint or the July 27 letter, plaintiff moved for entry of a default judgment and for an increase in damages to include the additional damages, resulting in a total sum due and owing of $14,169.96.

Defendant moved to dismiss the complaint on the ground that he was an improper party. The trial court granted the motion. On September 15, an order was entered on the motion to dismiss granting plaintiff leave to refile. Subsequent to the dismissal of the instant litigation, plaintiff did file a new action against K.L. Rubel, Ltd., in the amount of $14,169.96. A second amended complaint reduced that figure to $6,503.96.

On October 17, 1983, defendant moved for an award of expenses and attorney fees, asserting that plaintiff's allegations were untrue and made without reasonable cause. Defendant based his motion on (1) plaintiff's claim that defendant owed $11,597.24 when its own records showed this to be untrue; (2) plaintiff's suit against defendant Rubel personally when it knowingly dealt with a corporation; and (3) plaintiff's motion to increase the damages to which defendant contended plaintiff was not entitled. After the hearing, the trial court found that these allegations were untrue and made without reasonable cause. Defendant requested $4,201.25 in actual costs and attorney fees. Judgment was granted for defendant, but because the court was of the opinion that some of the time spent in this lawsuit would be useful in a subsequent suit, it awarded defendant only $1,297.40. Plaintiff appeals from the trial court's order, and defendant cross-appeals on the trial court's reduction of attorney fees.

OPINION

• 1 Plaintiff's first contention on appeal is that the trial court erred in finding that plaintiff knew it was dealing with K.L. Rubel, Ltd., and that plaintiff's allegations seeking recovery from defendant Rubel individually were untrue and made without reasonable cause.

Section 2-611 of the Illinois Code of Civil Procedure (Ill. Rev. Stat. 1983, ch. 110, par. 2-611) provides:

"Allegations and denials, made without reasonable cause and found to be untrue, shall subject the party pleading them to the payment of reasonable expenses, actually incurred by the other party by reason of the untrue pleading, together with a reasonable attorney's fee, to be summarily taxed by the court upon motion made within 30 days of the judgment or dismissal."

The purpose of section 2-611 is to penalize a litigant who pleads frivolous or false matters or brings suit without basis in law whereby another party shoulders the burden of expending money for an attorney to defend against an untenable suit. (In re Estate of Palm (1973), 11 Ill. App.3d 24, 28, 295 N.E.2d 580.) Because the statute is penal in nature, it may be invoked only in cases falling strictly within its terms. (Fewer v. Grant (1982), 111 Ill. App.3d 747, 750, 444 N.E.2d 628.) When the allegations in question are proved to be both untrue and made without reasonable cause, allowance of attorney fees is proper. (Third Establishment, Inc. v. 1931 North Park Apartments (1981), 93 Ill. App.3d 234, 243, 417 N.E.2d 167.) The burden of proving these two elements rests with the party seeking relief. (Demos v. Ericson (1982), 104 Ill. App.3d 403, 405, 432 N.E.2d 1035.) Allowance of fees and costs is discretionary with the trial court and will not be disturbed on review absent a clear abuse of discretion. Whirlpool Corp. v. Bank of Naperville (1981), 97 Ill. App.3d 139, 144, 421 N.E.2d 1078.

Plaintiff contends that the trial court erred in charging plaintiff with the knowledge that Kapco was an assumed name of the corporation K.L. Rubel, Ltd., and not a name under which defendant personally conducted business. It argues that this finding was erroneous because at the time that defendant allegedly filed the assumed name of Kapco, it was contrary to public policy for a corporation to conduct ...


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