An Illinois-based legal battle involving an attempt by public entities to take over fire alarm monitoring in Illinois has received national attention for its potential to influence fire monitoring in districts across the United States. While many know that, to date, the courts have sided with the alarm companies operating in Illinois, not as many may know the specific legal explanations for why the courts reached those rulings.

In September 2009, the Lisle-Woodridge Fire Prevention District, a public entity, adopted and implemented Ordinance 09-06 that mandated the use of a direct connect wireless fire alarm monitoring network. That wireless radio system was to send signals directly to the district and thus eliminate the need for central stations. 

To implement the wireless network, the ordinance specified that the district would purchase the necessary equipment and a company of its choice would operate it. Subscribers were required to enter into five-year contracts and pay fees for the provision of that service. The rationale and motivation of the district was self-described as an “effort to provide better protection against fire.” The district purchased radios and took out a significant loan to cover the cost of purchasing, maintaining and monitoring the network. 

The district then sent a notice in December 2009 to all affected customers of fire alarm monitoring services, informing them that their current contracts with fire alarm companies were superseded and thus “null and void.” The notice was accompanied by a written contract under which the subscriber was asked to pay the district $66 each month in monitoring fees. In January 2010, the district sent a second notice modifying the first, so that monitoring contracts that were currently enforced would be allowed to expire before the subscriber was required to join the network. 

The companies that sell fire and burglar alarm monitoring services to commercial buildings and multi-family residential buildings in the Lisle-Woodridge Fire Prevention District, the plaintiffs in the case, requested a permanent injunction against the district, on the grounds that the fire prevention district lacked the requisite statutory authority to pass the ordinance and displace plaintiffs from the fire alarm monitoring business. 

The plaintiff alarm companies took action against the district for preliminary and injunctive relief.  The court granted a preliminary injunction on Nov. 23, 2010 and in doing so suspended implementation of the ordinance, reinstated the customer contracts that had previously been in place and permitted plaintiffs to resume fire alarm monitoring services.

The court indicated that the action turned on whether the district had legal authority to engage in the fire alarm monitoring business and that the determination of the issue depends on the act enabling legislation that establishes all such fire protection districts in Illinois. 

The court pointed out that as the district would have it, the plain meaning of the act would authorize the district to engage in the fire alarm monitoring business because it is “necessary or appropriate” to “acquire” fire alarm monitoring equipment to “provide as nearly adequate protection from fire” as it has a legal obligation to do determining that the ordinance would provide more effective fire protection than the privately-owned systems that it sought to replace.

The act was not a blanket source of power, but instead simply authorized the creation of fire districts and stated the general legislative purpose.

Both Act §1 and Act §11 repeated the identical language as to the obligation of fire districts “to provide as nearly adequate protection from fire . . . as possible” and to regulate “the prevention and control of fire therein.” The court pointed out that if the district were right, Act §1 alone gave it the blanket authority to engage in collateral activities such as the fire alarm monitoring business, there would have been no need for Act §11 to set out the same generality and then, even more importantly, to go on granting specific itemized power. 

It was abundantly clear that the authority to engage in the fire alarm monitoring business was not among the specific grants of power conferred by Act §11.  Importantly, Act §11 gave fire districts the specific authority to “maintain life-saving and rescue equipment, services and facilities, including an emergency ambulance service.” Entering the fire alarm monitoring business and owning a fire alarm monitoring network were conspicuous by their absence from the grant of power . . .  that the district sought to confer on itself.  

The court indicated that the plaintiffs’ move for summary judgment were on five other counts, charging violations of rights conferred by the United States Constitution’s Contracts Clause and its Fourteenth Amendment’s Due Process and Equal Protection Clauses and tortious interference with contract and business expectancy. The court pointed out that the additional counts present complex questions of law and fact and that it was not necessary for the court to grapple with those issues, pointing out that it should not be mistaken as an indication that the claims lacked merit. 

The court then indicated that the preliminary injunction that was previously granted considered all of the factors before it in determining that the injunctive relief was warranted and therefore the factors required for a permanent injunction had been satisfied. 

The plaintiffs plainly succeeded on the merits. The court pointed out that damages were inadequate because the plaintiffs had not only lost current customers, but could also stand to lose future customers in consequence of their having been barred from fire alarm monitoring in the district. The equities were in the plaintiffs’ favor because they lost or would lose their fire business, while the district was never in that business in the first place (and to boot, did not have the authority to displace the plaintiffs in that capacity). While the court respected the district’s interest in protecting people and property from fire, the fact remains that before adoption of the ordinance, the plaintiffs had in place fire alarm monitoring services that were in compliance with national standards and approved by the district.

The plaintiffs’ motion for partial summary judgment against the district was previously granted on the ground that the district lacked the requisite statutory authority to pass the ordinance and displace the plaintiffs from the fire alarm monitoring business. Therefore, the plaintiffs’ request for a permanent injunction was granted, the ordinance was invalidated and the district was enjoined from any activity relating to its implementation and enforcement. 

The district then attempted to obtain a stay of the permanent injunction, but the court in August 2011 ruled that it was not entitled to that because the district did not make a strong showing of success on appeal due to the absence of merit in its illegal power grab.

Readers Ask

Q: I have been advised that I cannot have a liquidated damage clause in my contract, but I can have a limitation of liability. What is the difference?

A: Liquidated damage clause is a fixed predetermined amount that a party agrees to pay for a breach of contract. Although some states allow a liquidated damage clause, many states do not. On the other hand, a limitation of liability is a cap on the liability that a party agrees to pay for a breach of an agreement. The limitation of liability provision is allowable in most all states. 

To ask Les Gold a question, e-mail sdm@bnpmedia.com.