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Federal Signal Corp. v. Thorn Automated Systems Inc.

March 31, 1998


The opinion of the court was delivered by: 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." ...

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