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Northern Illinois Telecom, Inc. v. PNC Bank, N.A.

United States District Court, Northern District of Illinois, Eastern Division

April 29, 2015

NORTHERN ILLINOIS TELECOM, INC., Plaintiff,
v.
PNC BANK, NA, Defendant.

MEMORANDUM OPINION AND ORDER

JOHN ROBERT BLAKEY, UNITED STATES DISTRICT JUDGE

Northern Illinois Telecom, Inc. (“NITEL”) sued PNC Bank NA (“PNC”) for breach of contract [46-2]. On PNC’s motion [44], the Court entered summary judgment in favor of PNC, finding that NITEL had failed to demonstrate the existence of a valid contract between the parties [63]. PNC then moved for sanctions under Federal Rule of Civil Procedure 11, arguing that NITEL knew or should have known that its claim was frivolous from the outset and that NITEL sued PNC for an improper purpose – namely, to harass and exploit a settlement [65]. For the reasons set forth below, PNC’s motion is granted.

Background & Procedural History

NITEL filed a breach of contract suit against PNC in Cook County Circuit Court, alleging that PNC failed to pay for cabling work NITEL had done at four bank branches. See Verified Complaint [46-2]. NITEL alleged that:

[i]n August of 2007, NITEL entered into agreements with National City Bank and Mid-America Bank to install data and telephone cabling at four separate bank locations:
A. 90 Burr Ridge Parkway, Burr Ridge, Illinois;
B. 2600 E. Main Street, St. Charles, Illinois;
C. 8990 N. Milwaukee Avenue, Niles, Illinois; and
D. 1955 N. Damen Avenue, Chicago, Illinois.

Verified Complaint [46-2], ¶4. NITEL alleged that it performed the work required under “Work Orders” signed by bank representatives at each location; that it issued invoices on those work orders; and that National City Bank and Mid-America Bank defaulted on their obligations under the agreement[1] by failing to pay NITEL for the work it completed at those four locations. Id., ¶¶6, 8-9. NITEL alleged that PNC, as “the successor in interest to both National City Bank and Mid-America Bank . . . is solely responsible for the obligations of those entities” – including damages of $81, 300 “based on the fact that the banks never paid for any of the work performed under those invoices.” Id., ¶¶10-11.

PNC removed the action to the Northern District of Illinois [1] and answered the complaint, denying the existence of any agreement between NITEL and PNC or its predecessor banks and denying any obligation to pay. PNC’s Answer and Affirmative Defenses [7], ¶¶4, 9, 13. PNC asserted that NITEL was a subcontractor to Nexxtworks Inc., and that any monies due and owing to NITEL were owed by Nexxtworks. Id., ¶14.

Before engaging in substantial discovery, PNC sent NITEL a letter detailing the defects in the claim against PNC. On July 31, 2012, Jim Crowley, counsel for PNC, wrote to Robert Riffner, counsel for NITEL, advising that PNC was taking the position that neither it, nor its predecessors, ever entered into an agreement with NITEL relating to the matters referenced in NITEL’s complaint. See 7/31/12 Letter from Crowley to Riffner [65-1] (attached as Exhibit A to PNC’s motion for sanctions). PNC asserted that NITEL performed the subject work as a subcontractor to Nexxtworks and that if it believed it was owed money, it should look to Nexxtworks. Id., p. 1. According to Crowley, NITEL knew its claim was with Nexxtworks, not PNC, and NITEL’s awareness of the real party in interest was obvious as of at least February 16, 2010, when NITEL filed a proof of claim in Nexxtworks’ bankruptcy case. Id. Crowley attached the proof of claim and, based upon the information and evidence, demanded that NITEL dismiss the complaint or risk sanctions under Rule 11. Id. Crowley advised that if NITEL did not dismiss the complaint, “PNC will be seeking sanctions under Federal Rule 11 against NITEL and your firm in connection with the matters which are set forth in the referenced Complaint.” Id., p. 2. PNC offered to settle the matter in exchange for a dismissal order and a check to cover PNC’s attorney’s fees and costs in defending against the lawsuit to date (which, at that time, amounted to about $9, 000). NITEL did not respond (through counsel or otherwise), and PNC was forced to proceed with discovery.

During discovery, PNC reiterated that it could not be liable to NITEL because NITEL never had an agreement with PNC or its predecessor banks. In fact, when NITEL objected to PNC’s discovery requests as irrelevant, PNC moved to compel. See, e.g., PNC’s Motion to Compel [24], ¶¶1-3. At the hearing on the motion, the subject of proof came up, and the Magistrate Judge expressly discussed the fact that, absent a contract, PNC could not be found liable on NITEL’s breach of contract claim, even if NITEL had done the work. See Transcript of Proceedings from 2/28/13) [93], pp. 15-16, 19-20 (attached as Exhibit H to PNC’s Reply in Support of its Motion for Sanctions). The Magistrate Judge specifically disabused counsel of any notion that an email from Nexxtworks telling NITEL to deal directly with the banks could somehow form the basis of a breach of contract claim against PNC and that the work orders signed by bank managers likewise would not establish a contract between PNC and NITEL either. Id., pp. 15-16, 19-20. The Magistrate Judge further noted that NITEL’s filing of a proof of claim in Nexxtworks’ bankruptcy case, however, “does indicate that [NITEL] believed that they were the people who owed him money” and that in terms of establishing a legal obligation to pay on the part of PNC, NITEL had “real proof problems”; she observed that the mere fact that he did not get paid “doesn’t mean that he can be made whole by [PNC].” Id., pp. 26, 30, 40.

These points were reiterated in the order entered following the hearing: “NITEL asserts that ‘PNC needs to provide evidence they have either previously paid NITEL . . ., or . . . that they have paid Nexxtworks for the cabling services performed. Dkt. 27-7. This assertion turns the burden of proof on its head. NITEL has the burden of proving the monies it seeks to collect are due and owing from PNC.” Order dated 3/6/13 [39], p. 3, n.1.

Shortly after this hearing, PNC sent NITEL a second Rule 11 letter. On April 2, 2013, Crowley wrote to Riffner, reiterating PNC’s earlier position and refuting NITEL’s allegations concerning the existence of a contract. See April 2, 2013 Letter from Crowley to Riffner [65-5] (attached as Exhibit E to PNC’s motion for sanctions). Crowley attached documents, including affidavits from the bank representatives who allegedly signed the work orders NITEL claimed formed the basis of a contractual relationship between NITEL and PNC. According to the affidavits, which came from the managers of the four branches where work was done, the individuals represented were not authorized to sign such orders, the individuals denied signing the orders and further represented that the signatures appeared to be forged. Id. Crowley’s second letter advised NITEL that PNC planned to file a motion for summary judgment based upon the lack of any contractual obligation on PNC’s part. Crowley advised that PNC would also file “a motion for sanctions against your client, as well as your office with respect to this frivolous lawsuit and you, as attorney for NITEL, should have either refused to file this lawsuit, or sought settlement once you became aware of the matters which I describe above.” Id., p. 3. PNC again offered to settle the matter in exchange for a dismissal order and a check to cover fees and costs (which, by this point, exceeded $24, 000 after a discount). NITEL did not respond to the letter (through counsel or otherwise).

Subsequently, PNC deposed Paul Coy, NITEL’s President, on May 9, 2013. Coy’s deposition testimony shows that NITEL’s breach of contract claim was based on work orders and a general desire to make someone pay for the services NITEL provided. In fact, Paul Coy admitted at his deposition that he did not know (or particular care) whether NITEL had a contract with PNC. When asked why he was suing PNC, Coy testified that

[i]t depends on who paid who for the job. If the banks never – if the banks paid Nexxtworks for the job and Nexxtworks didn’t pay us, then we would have to go after Nexxtworks for the job. But if the banks never paid Nexxtworks for the job and were supposed to pay us, then we are owed the money from the banks. We’re just trying to find the money.

Coy Deposition [83], p. 67, lines 16-23. When pressed, he testified:

I don’t know the legalities of it. I’m speculating. My opinion of the matter is that if National City – even if National City paid Nexxtworks for the job, we still then did not get paid for the services. Therefore, National City reaped the ...

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