IN THE APPELLATE COURT OF ILLINOIS
FOR THE FIRST DISTRICT
__________________________________________
No. 08-0695
and
No. 08-0779
__________________________________________
JEFFREY N. COVINSKY
Plaintiff –Appellee / Cross-Appellant,
v.
HANNAH MARINE CORPORATION,
Defendant – Appellant,
and
DONALD C. HANNAH
Defendant-Appellee.
__________________________________________
Appeal from the Circuit Court of Cook County, Illinois
County Department, Law Division
Case No. 06 L 006368
The Honorable Brigid Mary McGrath, Judge Presiding
__________________________________________
INITIAL BRIEF AND RESPONSE BRIEF
FOR PLAINTIFF – APPELLEE / CROSS-APPELLANT
JEFFREY N. COVINSKY
__________________________________________
Ralph J. Schindler, Jr.
Joshua M. Smith
Law Offices of Ralph J. Schindler, Jr.
53 W. Jackson Boulevard, Suite 818
Chicago, Illinois 60604
(312) 554-1040
Attorney for Plaintiff-Appellant-Appellee
Dated: Sept.5, 2008
ORAL ARGUMENT REQUESTED
i
POINTS AND AUTHORITIES
NATURE OF THE CASE................................................................................... 1
ISSUES PRESENTED FOR REVIEW ................................................................ 4
JURISDICTION ............................................................................................... 5
Illinois Supreme Court Rule 303 ................................................................ 5
STATUTES INVOLVED .................................................................................... 5
STATEMENT OF FACTS .................................................................................. 6
A. COVINSKY’S CLAIM FOR BREACH OF CONTRACT BY HMC AND VIOLATION OF THE
WAGE PAYMENT AND COLLECTION ACT BY HMC AND DONALD HANNAH .............. 6
1. COVINSKY’S EMPLOYMENT AGREEMENT AND GOLDEN PARACHUTE ................... 6
2. THERE WAS A “CHANGE IN PRESENT OWNERSHIP” OF HMC WHILE COVINSKY WAS
PRESIDENT AND CHIEF EXECUTIVE OFFICER ................................................ 7
3. COVINSKY’S EMPLOYMENT WITH HMC WAS TERMINATED “AS A RESULT OF” THE
“CHANGE IN PRESENT OWNERSHIP” .......................................................... 8
4. DONALD HANNAH ADMITTED THAT HE WAS IN CONTROL OF THE HMC’S
CHECKING ACCOUNTS AND HMC WAS SOLVENT .......................................... 9
5. THE TRIAL COURT’S ORDER AS TO HMC’S LIABILITY FOR BREACH OF CONTRACT
AND VIOLATIONS OF THE ILLINOIS WAGE PAYMENT AND COLLECTION ACT ........ 10
a. HMC is liable for Count I, Breach of Contract ............................. 10
b. Determination of Damages and the Prove-Up .............................. 10
c. HMC is found liable under Count II, Wage Act Claim, and damages
are awarded – but Donald Hannah is released of liability ............ 11
d. Final Order ................................................................................ 12
6. THE TRIAL COURT LIMITED COVINSKY’S ATTORNEY’S FEES AND BILL OF COSTS 12
B. HMC’S COUNTERCLAIM AND AMENDED COUNTERCLAIM ................................ 13
C. COVINSKY AND HMC TIMELY FILED THEIR NOTICE OF APPEALS ...................... 15
STANDARD OF REVIEW ............................................................................... 15
ii
Dept. of Public Health v. Wiley, 218 Ill. 2d 207, 843 N.E. 2d 259 (2006). .... 15
Avery v. State Farm Mutual Automobile Ins. Co., 216 Ill. 2d 100, 835 N.E. 2d
801 (2005) ........................................................................................... 16
In re Jamie P., 223 Ill.2d 526, 861 N.E.2d 958 (2007) ............................... 16
Bell Leasing Brokerage LLC v. Roger Auto Service, Inc. 372 Ill. App.3d 461,
865 N.E. 2d 558 (1st Dist. 2007). ......................................................... 16
Lyon vs. Dept. of Children & Family Services, 209 Ill.2d 264, 807 N.E. 2d
423 (2004) ........................................................................................... 16
Baker v. Daniel S. Berger, Ltd., 323 Ill. App. 3d 956, 753 N.E.2d 463 (1st
Dist. 2001) ............................................................................................ 16
Technology Innovation Center, Inc. v. Advanced Multiuser Technologies Corp.,
315 Ill. App. 3d 238, 732 N.E.2d 1129, 247 Ill. Dec. 797 (1st Dist. 2000)..
............................................................................................................. 16
ARGUMENT.. ................................................................................................ 17
I. THE TRIAL COURT RULED CORRECTLY THAT COVINSKY'S GOLDEN PARACHUTE
TRIGGERED REGARDLESS OF WHETHER THE TERMINATION WAS VOLUNTARY OR
INVOLUNTARY ............................................................................................... 17
A. THE "GOLDEN PARACHUTE" PROVISION OF THE EMPLOYMENT AGREEMENT
APPLIES TO BOTH VOLUNTARY AND INVOLUNTARY TERMINATIONS..................... 18
Williams v. Interpublic Severance Play Plan, 523 F.3d 819 (7th Cir. 2008)
....................................................................................................... 18
Williams v. Interpublic Severance Pay Plan, 2007 U.S. Dist. LEXIS 57368
(N.D. Ill. Aug. 7, 2007) ....................................................................... 18
Gerow v. Rohm & Haas Co., 308 F.3d 721 (7th Cir. 2002) .................... 19
Robert A. Prentice, “Front-End Loaded, Two-Tiered Tender Offers: An
Examination of the Counterproductive Effects of a Mighty Offensive
Weapon”, 39 CASE W. RES. 389, 420 (1985) ........................................ 19
Charles M. Elson, 57 U. Cin. L. Rev. 699 ............................................. 19
B. PARAGRAPH 8'S DISCUSSION OF RESIGNATION ACTUALLY SUPPORTS COVINSKY,
HMC'S RELIANCE ON PARAGRAPH 8 IS MISPLACED ....................................... 23
iii
C. PARAGRAPH 7(G) IS NOT AMBIGUOUS AND ANY AMBIGUITY THAT RESULTS IS TO BE
RESOLVED AGAINST HMC, THE DRAFTER OF THE AGREEMENT ....................... 25
Newcastle Properties, Inc. v. Shalowitz, 221 Ill. App. 3d 716 (1st
Dist. 1991) ............................................................................... 25
Dowd & Dowd, Ltd. v. Gleason, 181 Ill. 2d 460, 693 N.E.2d 358
(1998). ..................................................................................... 26
II. THE TRIAL COURT'S AWARD OF DAMAGES IS NOT AGAINST THE MANIFEST WEIGHT OF
THE EVIDENCE .............................................................................................. 27
Bell Leasing Brokerage LLC v. Roger Auto Service, Inc. 372 Ill. App.3d 461,
865 N.E. 2d 558 (1st Dist. 2007) ............................................................ 27
A. THE TRIAL COURT CORRECTLY INCLUDED COVINSKY'S BENEFITS AS "WAGES"
UNDER THE ACT ..................................................................................... 28
820 ILCS 115/2 (2007) ................................................................... 28
Zabinsky v. Gelber Group, Inc., 347 Ill. App. 3d 243 (1st Dist. 2004) . 28
Anderson v. First Am. Group of Cos., 353 Ill. App. 3d 403 (1st 2004) 29
Catania v. Local 4250/5050 of the Communications Workers of
America, 359 Ill. App. 3d 718, 834 N.E.2d 966 (1st Dist. 2005) .... 29
820 ILCS 115/2 (2007) ................................................................... 29
B. PARAGRAPH 7(G) OF THE EMPLOYMENT AGREEMENT DOES NOT REQUIRE
COVINSKY TO "OPT-IN" TO THE HMC'S HEALTH INSURANCE COVERAGE ............ 32
Western Casualty & Surety Co. v. Brochu, 105 Ill. 2d 486, 86 Ill. Dec.
493 (1985) ................................................................................... 32
Surestaff, Inc. v. Open Kitchens, Inc., 2008 Ill. App. LEXIS 740 (Ill.
App. Ct. 1st Dist. July 25, 2008) ................................................. 32
III. THERE WAS NO ERROR REGARDING HANNAH'S RIGHT TO A JURY TRIAL ON DAMAGES
.................................................................................................................. 33
Catania v. Local 4250/5050 of the Communications Workers of America, 359
Ill. App. 3d 718, 834 N.E.2d 966 (1st Dist. 2005) .................................. 34
IV. THE TRIAL COURT CORRECTLY DISMISSED THE FIRST AMENDED COUNTERCLAIM FOR
FAILURE TO STATE A CAUSE OF ACTION FOR BREACH OF FIDUCIARY DUTY .............. 35
iv
A. UNDER THE BUSINESS JUDGMENT RULE, HMC'S COUNTERCLAIM WAS NOT WELL
GROUNDED IN FACT OR EXISTING LAW ........................................................ 36
1. COVINSKY DID EVERYTHING THIS COURT REQUIRES OF A CORPORATE OFFICER
WHERE HE CONSULTED WITH HANNAH'S LEGAL COUNSEL THROUGHOUT THE
NEGOTIATION PROCESS, CONSULTED WITH HANNAH'S BOARD OF DIRECTORS,
WHICH INCLUDED THE MAJORITY SHAREHOLDER, AND DID NOT SEEK TO
PERSONALLY BENEFIT FROM THE TRANSACTION ......................................... 36
Stamp v. Touche Ross Co., 263 Ill. App. 3d 1010 (1st Dist. 1993) . 36
a. Covinsky consulted with Hannah's legal counsel throughout the
negotiations ............................................................................... 37
IOS Capital, Inc. v. Phoenix Printing, Inc., 348 Ill. App. 3d 366
(4th Dist. 2004) ................................................................... 37
b. Covinsky acted with the consent of Hannah's board of directors . 38
c. Covinsky did not seek to gain any personal advantage, and did not
gain any personal advantage from this transaction ..................... 38
Swager v. Couri, 77 Ill. 2d 173, 191 (1979)............................. 38
2. THOUGH THE BUSINESS JUDGMENT RULE DOES NOT REQUIRE ADDITIONAL
CONSIDERATION GAINED FROM ALL TRANSACTIONS, TO THE EXTENT ALLOWED
UNDER THE PRIME LEASE, THE HOLNAM SUBLEASE PROVIDED HANNAH WITH
CONSIDERATION .................................................................................. 39
a. The District's Prime Lease Required District Approval for all
Subleases and the District to Retain its Discretion as to th Fair
Market Value.............................................................................. 39
b. The Assignment the HMC Complains of Actually Provides
Additional Consideration to HMC in Section 3 of the Prime
Sublease, to the Extent Allowed by the Water District ................. 43
3. EVEN IF THE CONTRACT DID NOT REQUIRE HOLNAM TO PAY AN AMOUNT ABOVE
THE PAYMENTS TO THE WATER RECLAMATION DISTRICT, THE ASSIGNMENT ADDED
SHAREHOLDER VALUE BECAUSE IT RELIEVED HANNAH OF RECURRING AND
SIGNIFICANT OBLIGATIONS ON A DORMAN ASSET ........................................ 45
Gunter v. Novopharm USA, Inc., 2001 U.S. Dist. LEXIS 2117 (N.D.
Ill. 2001) ................................................................................. 46
v
V. THERE WAS NO DENIAL OF HMC'S DISCOVERY REQUEST RELATIVE TO ITS
COUNTERCLAIM UNTIL AFTER SUCH CLAIM WAS DISMISSED .................................. 47
VI. UNDER EITHER THE ATTORNEY FEE IN WAGES ACT OR RULE 137, COVINSKY SHOULD
HAVE BEEN AWARDED FEES FOR THE COUNTERCLAIM AND THE EMPLOYMENT
CONTRACT CLAIM .......................................................................................... 49
705 ILCS 225/1 (2007) ............................................................................. 49
Schakleton v. Federal Signal Corp., 196 Ill. App. 3d 437, 143 Ill. Dec. 309
(1st Dist. 1989) ....................................................................................... 50
Supreme Court Rule 137 .......................................................................... 50
Baker v. Daniel S. Berger, Ltd., 323 Ill. App. 3d 956, 753 N.E.2d 463 (1st
Dist. 2001) ............................................................................................. 51
Technology Innovation Center, Inc. v. Advanced Multiuser Technologies Corp.,
315 Ill. App. 3d 238, 732 N.E.2d 1129, 247 Ill. Dec. 797 (1st Dist. 2000) 51
Wittekind v. Rusk, 253 Ill. App. 3d 577, 192 Ill. Dec. 467, 625 N.E.2d 427
(3rd Dist. 1993), appeal denied, 155 Ill. 2d 577, 198 Ill. Dec. 554, 633
N.E.2d 16 (1994). ................................................................................... 51
Whitmer v. Munson, 335 Ill. App.3d 501 (1st Dist. 2002) ............................ 51
Shea, Rogal & Assocs. v. Leslie Volkswagen, Inc., 250 Ill. App. 3d 149, 190
Ill. Dec. 208 (1st Dist. 1993) ............................................................... 51-52
Ciampi v. Ogden Chrysler Plymouth, Inc., 262 Ill. App. 3d 94, 634 N.E.2d
448 (2nd Dist. 1994) ......................................................................... 52-54
Robert W. Gray, Sr., “The Applicability of Constructive Eviction, Implied
Warranty of Habitability, Common-Law Fraud, and the Consumer Fraud Act
to Omissions of Material Facts in a Commercial Lease,” 38 J. MARSHALL L.
REV. 1289 (2005) ........................................................................... 53, fn. 7
TruServ Corp. v. Ernst & Young, LLP, 376 Ill. App.3d 218 (1st Dist. 2007)
......................................................................................................... 54-55
Whitmer v. Munson, 335 Ill. App.3d 501 (1st Dist. 2002) ....................... 56-57
VII. THE TRIAL COURT ERRED IN REFUSING TO ENTER JUDGMENT AGAINST DONALD C.
HANNAH PERSONALLY AS A "RESPONSIBLE PERSON" UNDER THE WAGE ACT ............ 57
vi
A. DONALD HANNAH IS AN OFFICER, WITH KNOWLEDGE OF HANNAH MARINE'S DEBT
TO COVINSKY FOR WAGES, AND HAS FAILED TO CAUSE PAYMENT TO BE MADE ... 57
Andrews v. Kowa Printing Corp.¸ 217 Ill. 2d 101 (2005) ............... 57-61
820 ILCS 115/5 (2007) ................................................................... 58
820 ILCS 115/13 (2007) ................................................................. 58
B. DONALD HANNAH CANNOT BE EXCUSED FROM LIABILITY BECAUSE HE CLAIMS TO
HAVE DISPUTED THIS CASE IN GOOD FAITH ................................................ 63
Andrews v. Kowa Printing Corp.¸ 217 Ill. 2d 101 (2005) .................... 64
VIII. CONCLUSION ............................................................................................ 65
1
NATURE OF THE CASE
Plaintiff/Cross-Appellant, Jeffrey Covinsky, (“Covinsky”) brought
this action to recover damages arising from breach of contract and a
violation of the Illinois Wage Payment and Collection Act, 820 Ill. Comp.
Stat. 115/1, et seq. The trial court granted summary judgment as to
both claims against Covinsky’s former employer, Hannah Marine
Corporation (“HMC”). However, the trial court granted summary
judgment in favor of HMC’s sole owner, Donald C. Hannah, as to
Covinsky’s Illinois Wage Payment and Collection Act claim.
In 1997, Jeffrey Covinsky entered into a contract with Hannah
Marine Corporation (hereafter “HMC”) to serve as its president and chief
executive officer. The company was owned equally by three siblings, all
of whom were members of the Board of Directors. Later Donald C.
Hannah was ousted from the Board in a family dispute. Covinsky’s
contract provided that if there was a “change in the present ownership
which results in the termination of [Covinsky’s] employment”, he would
be entitled to eighteen months severance pay. In May of 2006, Donald
Hannah bought out the interests of his two siblings which constituted a
“change in the present ownership” under the contract. Immediately
following the change in control, Donald Hannah called Covinsky into his
office and “accepted” his resignation but refused to make any final
payment under the contract.
2
Covinsky gave proper notice and demand for payment of his
severance pay under the Illinois Wage Payment and Collection Act (820
ILCS 115/5) and the Illinois Attorneys fees in Wage Actions Act (705
ILCS 225/1) demanding payment of both his employer, HMC, and
Donald Hannah as a responsible person under the Act. His demand was
less than the amount eventually awarded by the trial court.
Receiving no response, Covinsky filed his action in the Circuit
Court of Cook County claiming Breach of Contract in Count I, and claims
against HMC and Donald C. Hannah for failure to pay final “wages”
under the Illinois Wage Payment and Collection Act and Illinois Attorneys
fees in Wage Actions Act in Count II.
On February 7, 2007, the trial court granted summary judgment
against HMC for Count I, the Breach of Contract claim, and set a date for
prove up of damages. On June 12, 2007 the court held a prove up.
Plaintiff flew in from South Carolina to testify at the prove up. At the
hearing, counsel for HMC suddenly moved for a jury trial on the issue of
damages. Yet, Hannah had previously responded to requests to admit as
to the amount of Covinsky’s salary, his 401k contribution, his company
car and his medical care benefit costs all of which were introduced into
evidence. Covinsky testified as to his damages claiming loss of salary
and benefits for 18 months for a total of $311,653. The court took
Covinsky’s testimony and then continued the hearing, allowing Hannah
3
to respond or to supplement facts. HMC filed no response or
supplemental information.
The court proceeded as to Count II, the Illinois Wage Payment and
Collection Act claim. On October 1, 2007 summary judgment was
granted to Covinsky and against HMC and a finding of damages in the
amount of $311,653 was entered against HMC as to liability based on
the prior prove up. Interest was allowed under the Interest Act with
attorney’s fees to be added as “costs”. HMC’s amended counterclaim was
dismissed for failure to state a cause of action in light of the “Business
Judgment Rule”. HMC was granted leave to file a second amended
counterclaim within 28 days which it declined to do.
The matter proceeded as to the remaining issues. On February 19,
2008, the Court renewed its prior order and granted summary judgment
against HMC on the Breach of Contract claim, now finding the same
amount of $311,653 was due Covinsky under the contract. As to the
Illinois Wage Payment and Collection Act claim against Donald Hannah
personally, the court refused to impose personal liability and dismissed
the Wage Act claim against him.
Appeal was duly filed by Covinsky as to the denial of liability of
Donald C. Hannah and partial denial of attorney’s fees, and an appeal
was taken by HMC contesting its liability and dismissal of its amended
counterclaim.
4
ISSUES PRESENTED FOR REVIEW
Issues raised by HMC in its appeal:
1. Whether the trial court erred as a matter of law in finding that
Paragraph 7(g) of Covinsky’s contract applied regardless of whether
Covinsky’s termination of employment following a change in control was
voluntary or involuntary.
2. Whether the trial court’s findings of fact as to the measure of
damages for violation of the Wage Payment Act was against the manifest
weight of the evidence.
3. Whether the trial court erred in denying Hannah Marine
Corporation a jury trial as to damages under the Wage Act where jury
demand was made on the day of the prove up of damages, Plaintiff’s
witnesses were present in court for the hearing and the elements of
damages had been admitted by Hannah in response to Plaintiff’s prior
requests to admit.
4. Whether the trial court erred in dismissing Hannah Marine’s
First Amended Counterclaim for failure to state a cause of action.
5. Whether the trial court erred in denying HMC’s request to
continue discovery as to its counterclaim after the action had been
dismissed?
Issues jointly disputed by HMC and Covinsky:
6. Under the Illinois Attorney’s Fees in Wage Actions Act, is a trial
court correct where it fails to provide recovery of fees incurred for defense
5
of meritless counterclaims and other motions, and prosecution of the
contract action that was part and parcel of the Wage Payment Act claim?
Additional issue raised in Covinsky’s appeal:
7. Whether the trial court erred in refusing to enter judgment
against Donald C. Hannah personally as a “responsible person” under
the Illinois Wage Payment and Collection Act.
JURISDICTION
This court has jurisdiction pursuant to Illinois Supreme Court
Rule 303 in that this is an appeal from a final judgment entered in the
Circuit Court of Cook County on February 19, 2008. (R. C605-607)1 On
March 12, 2008 Covinsky timely filed his notice of appeal (R. C657) and
on March 19, 2008 HMC filed its notice of appeal. (R2. C105).2
STATUTES INVOLVED
705 ILCS 225/1 et seq., The Illinois Attorneys fees in Wage Actions Act
735 ILCS 5/2-1005 (2005) regarding Summary Judgment.
815 ILCS 205/2, The Illinois Interest Act.
820 ILCS 115/1 et seq. (2007), The Illinois Wage Payment Act,
1 All references to the Record on Appeal for Appeal No. 08-0695 are made by the notation “(R. C___)”, with the page(s) of the record referenced to be inserted in the blank. 2 All references to the Record on Appeal for Appeal No. 08-0779 are made by the notation “(R2. C___)”, with the page(s) of the record referenced to be inserted in the blank.
6
STATEMENT OF FACTS
A. COVINSKY’S CLAIM FOR BREACH OF CONTRACT BY HMC AND
VIOLATION OF THE WAGE PAYMENT AND COLLECTION ACT BY HMC AND
DONALD HANNAH
1. Covinsky’s Employment Agreement and Golden
Parachute
In 1997, Jeffrey Covinsky was hired as president and chief
executive officer of HMC. (R. C4; R. C131; R. Tr. 15).3 He entered into
a certain employment contract with HMC, a copy of which was
attached to the complaint and acknowledged by HMC. (R. C4-22; R.
C139). Certain provisions of the contract are at issue:
Section 3 of Covinsky’s Employment Agreement provides:
“During the term of this Agreement and any extensions thereof, Employee shall receive for his services a salary as follows: . . . . (b) during the period from March 1, 2005 to February 28, 2006, a salary at the rate of $170,352 annually; and (c) during the period from March 1, 2006 to February 28, 2007, at a salary to be agreed upon between Employee and Hannah, but not to be less than the amount in 3(b) above. Said salary shall be paid in accordance with the normal payroll schedule and procedures. In addition, Employee shall be entitled during the period of employment hereunder to participate on the same basis as all other employees in all employee benefit programs (including, without limitation, any such programs providing vacation, sick leave, retirement benefits, disability benefits, life insurance, medical insurance or dental insurance) maintained by Hannah from time to time, subject to the eligibility and participation rules in effect from time to time
3 All references to Volume 4 of 4 of the Record on Appeal for Appeal No. 08-0695 are made by the notation “(R. Tr.___)”, with the page(s) of the record referenced to be inserted in the blank.
7
for such programs. Employee shall each year be entitled to a vacation period of five (5) weeks which shall not include more than two (2) consecutive weeks at any one time. Additionally, the Employee shall be entitled to a Company car similar in model and style to the Company cars of other employees of Hannah. Such car shall be used for Company business and the Employee shall be reimbursed in accordance with Company policy for expenses incurred in the operation of the vehicle. (R. C13-14). Section 7 of the contract sets forth the parties rights and
obligations upon “Early Termination.” (R. C15-17). Subsections (a) –
(e) are “for cause” severance clauses, subsection (f) is a “not for cause”
severance clause, and subsection (g) is what has been referred to as a
“golden parachute” clause. (R. C15-17). Paragraph 7(g) of the
contract provides in its entirety:
(g) In the event that Hannah is sold, merged with another corporation, or there is a change in the present ownership which results in the termination of the Employee’s employment as President and Chief Executive Officer and Chief Operating Officer of Hannah, Hannah shall pay to Employee an amount equal to eighteen (18) months salary as set forth under the contract salary rate then in existence. (R. C17).
2. There was a “change in present ownership” of HMC while
Covinsky was President and Chief Executive Officer
HMC admitted that there was a change in control, stating “Hannah
acquired the balance of the shares in HMC on May 9, 2006.” (R. C34).
Further, HMC stated “The parent of HMC, James A. Hannah, Inc.
(“JAH”), was acquired by Donald C. Hannah on May 9, 2006” (R. C47),
and that “at the last board meeting under the prior management of
HMC”. (R. C47).
8
In addition to the pleadings which formed the basis for Covinsky’s
Summary Judgment Motion, on November 16, 2006, HMC filed its
Answer to the Complaint. (R. C131-136). In its answer it admitted the
following allegations of the complaint:
12. On information and belief it is alleged that on or about May 9, 2006, DONALD HANNAH purchased or caused to be purchased all of the outstanding interest of James A. Hannah, Jr. and Margaret Maloney and related family interests, such that his one third interest in the company resulted in his ownership of control of 100% of the company. 13. On information and belief it is alleged that on or about May 9, 2006, as a result of the acquisition of HANNAH MARINE CORPORATION by DONALD HANNAH, James A. Hannah, Jr. and John McNulty resigned as the directors of HANNAH MARINE CORPORATION and DONALD HANNAH became the sole director and Chief Executive Officer. (R. C132).
On April 19, 2007 Donald C. Hannah filed his response to certain
Requests to Admit. (R. C219). In his response, Donald Hannah admitted
that prior to May 9, 2006 HMC was owned in approximately one third
interests by Donald Hannah, James A. Hannah Jr. and Margaret
Maloney. (R. C219). Donald C. Hannah further admitted that on or
about May 10, 2006, he became the officer and sole owner of HMC. (R.
C219).
3. Covinsky’s employment with HMC was terminated “as a
result of” the “change in present ownership” In the Statement of Facts submitted by attorney Christopher
Saternus to the Department of Employment Security and attached as an
Exhibit to its pleadings before the court, HMC alleged that “Covinsky told
9
Christopher Saternus, attorney for Donald C. Hannah, that he would not
work for Donald C. Hannah and would resign on the date which the deal
was concluded.” (R. C47).
Further HMC alleged that, after learning of the change in control,
Covinsky stated in a January 4, 2006 email “I will be resigning the date
the transaction is finalized, unless we have an agreed upon exit
strategy.” (R. C40). Covinsky further stated in a January 9, 2006 email:
I would be remiss, however, by noting that I continue to be disappointed in our lack of conversation regarding my long term situation. . . . I had hoped that we could reach an agreement that would allow you the benefit from my presence for a transitional period of time, while affording me the security that would normally be expected in any situation, where a change of ownership takes place. My offer remains on the table. However, I must reiterate that I am prepared to resign my position as president immediately upon the completion of the ownership change. (R. C42).
HMC admitted that “Mr. Covinsky was told on May 10 [the day
after the change of ownership] that his resignation was accepted and was
allowed pay through the end of the week as a gesture of courtesy.” (R.
C34; R. C47).
4. Donald Hannah admitted that he was in control of the
HMC’s checking accounts and that HMC was solvent
In his response to the Covinsky’s Requests to Admit, Donald
Hannah admitted that he had corporate check signing authority some
time after May 10, 2006 and that he was “the chief executive officer” at
the time of Covinsky’s departure. (R. C219-20; R. C221). Further,
10
Donald Hannah admitted HMC was not insolvent and was current on all
payroll liabilities at the time of Covinsky’s departure and had sufficient
credit available from its commercial lender to pay wages. (R. C222-23).
5. The Trial Court’s Orders as to HMC’s Liability for Breach of
Contract and Violations of the Illinois Wage Payment and Collection Act.
a. HMC is liable for Count I, Breach of Contract.
On February 7, 2007, the trial court entered its order for summary
judgment against HMC as to Count One of the Complaint, Breach of
Contract. (R. C165-66). The trial court found that there was a change in
ownership of HMC, that “Paragraph 7(g) applies in a situation where,
upon a change in ownership, Covinsky voluntarily resigns,” and that
termination for Paragraph 7(g) of Covinsky’s Employment Agreement
includes “the employee’s voluntary resignation.” (R. C165-166).
b. Determination of Damages and the Prove-Up
In its May 16, 2007 order, the trial court denied HMC’s motion for
reconsideration of the February 7, 2007 order that awarded Covinsky
summary judgment as to Count One. (R. C255). In that same order, the
court set June 12, 2007 as the hearing date on damages for Count One.
(R. C255).
On April 19, 2007 Donald C. Hannah, in his response to Requests
to Admit, stated Covinsky’s salary was $170,352, that Covinsky
participated in HMC’s 401(k) plan for which the company matched the
first 6% of compensation, that Covinsky participated in the company’s
11
family medical program which cost HMC approximately $1,000 per
month. (R. C220-21). Donald Hannah further admitted Covinsky was
provided with a company car at no cost to Covinsky. (R. C220-21).
On June 12, 2007, “commencing at the hour of 10:10 a.m.” (R.
Tr.2) the prove-up of Covinsky’s damage claim started. Covinsky’s
counsel waived his jury demand as to Count One, and counsel for HMC
advised the trial court that “if they’re waiving that right, we’re going to
assert it.” (R. Tr.9). The court was advised that Plaintiff flew to Illinois
from South Carolina for purposes of the prove-up. (R. Tr.8). The court
proceeded to hear evidence much of which comes from various
admissions on the part of HMC. (R. Tr.34; R. C220-221). The court took
evidence relative to the prove up and continued the matter. (R. C291).
No further briefs or supplemental evidentiary evidence was adduced by
HMC.
c. HMC is found liable under Count II, Wage Act Claim, and damages are awarded – but Donald Hannah is released of liability.
On October 1, 2007, the trial court entered summary judgment on
Count Two, the Wage Act Claim, as to HMC alone. (R. C470-72). It
ordered additional briefs as to Donald Hannah’s personal liability under
Count Two. (R. C470-72). Further briefing followed. The briefs related
to the personal liability of Donald Hannah can be found at R. C510-14
and R. C529-40.
12
d. Final Order
On February 19, 2008, the trial court renewed its finding, granting
summary judgment in favor of Covinsky and against HMC for the
contract action, allowed the same measure of damages of $311,653 as it
had found under Count Two, and reaffirmed its prior order denying
judgment against Donald C. Hannah personally. (R. C605-607). The
trial court allowed interest under the Interest Act from the next pay date
following Covinsky’s termination to the date of Judgment. (R. C606).
6. The trial court limited Covinsky’s Attorney Fees and Bill of
Costs
On October 11, 2007, Covinsky filed its motion for approval of first
bill of costs related to an award of attorney fees, as allowed under 705
ILCS 225/1. (R. C475-508). Further briefing followed. (R. C475-508; R.
C516-24; R. C543-551; R. C555-573; R. C574-583).
The trial court refused to grant the entire amount requested in
Covinsky’s motion for bill of costs, which was in excess of $70,000,
ruling that only time specifically allocable to the Wage Act Claim in
Count Two should be awarded, and denied fees relative to the
prosecution of the contract action in Count One or defense of the
counterclaim. (R. C606-607). The trial court did award attorney’s fees in
the amount of $11,103.71 for legal fees and $644.20 in costs based upon
HMC’s Response to Covinsky’s Motion for Approval of Revised First Bill of
Costs. (R. C606).
13
B. HMC’S COUNTERCLAIM AND AMENDED COUNTERCLAIM
On November 16, 2006, HMC filed a counterclaim against
Covinsky alleging conversion. (R. C131-136). HMC’s counterclaim
alleged Covinsky’s actions caused the loss of a lease on 8 acres of
property, which resulted in $600,000 in damages to HMC. (R. C135).
On February 14, 2007, Covinsky filed a motion to dismiss the
counterclaim, pursuant to 735 ILCS 5/2-615, for failure to state a cause
of action upon which relief may be granted. (R. C169-72). On May 16,
2007, the trial court granted Covinsky’s motion, dismissing the
counterclaim and granting HMC twenty-one days to refile. (R. C255).
On May 30, 2007, HMC filed its first amended counterclaim. (R.
C267-270). In its amended counterclaim, HMC alleged that in 1951 it
entered into a 99 year lease with the Metropolitan Sanitary District of
Greater Chicago for the lease of certain waterfront property alongside the
Chicago Sanitary and Ship Canal near Route 83 in Cook County Illinois
(R. C267). Additional properties were leased in 1961. (R. C267). In
1999, Covinsky, as the President of HMC, agreed to sublease a certain
portion of this property to Holnam, Inc. (R. C268). HMC alleged
Covinsky breached his fiduciary duty because “Despite granting Holnam
the right to sublease HMC’s Property, Covinsky did not demand any
consideration for HMC from Holnam.” (R. C269). Damages in excess of
$600,000 were alleged. (R. C270).
14
The Industrial Sublease was attached to the amended
counterclaim. (R. C 278). By its terms, HMC was able to pass its lease
expense to Holnam, Inc. on the property it was not using. (R. C278; par.
3(a)). However, the sublease had to be approved by the Metropolitan
Water Reclamation District (hereafter “Water District”). (R. C278; par.
3(a)). The rent from Holnam, Inc. to HMC was to be the differential of the
“fair market value” and the monthly base rent, as determined by the
master lease between HMC and the Water District. The sublease
between HMC and Holnam, Inc. provided notice must be given to
corporate counsel at “Vedder Price Kaufman & Kammholz” (R. C283).
On July 5, 2007, Covinsky filed his motion to dismiss the amended
counterclaim and sought sanctions under Supreme Court Rule 137. (R.
C294-333; R. C334-44).
Covinsky moved to dismiss the amended counterclaim as the
alleged acts were protected under the Business Judgment Rule – since
Covinsky, an officer, consulted with HMC’s legal counsel in the
negotiations of the lease, presented the lease to HMC’s Board of Directors
for approval, and did not personally benefit from the transaction. (R.
C294-308). Further, Covinsky argued that HMC’s damages were
speculative and the transaction provided HMC with the possibility of
consideration and relieved HMC of a recurring financial obligation on a
dormant asset. (R. C294-308).
15
As to Covinsky’s claim for sanctions, Covinsky gave timely notice
under Supreme Court Rule 137 that he believed HMC’s amended
counterclaim was not filed in good faith but was filed for purposes of
delay. (R. C342-343).
On October 1, 2007, the trial court entered its order as to
Covinsky’s motion to dismiss the amended counterclaim and motion for
sanctions. (R. C470-72). The court found that, “Hannah’s Counterclaim
fails to set forth any actions by Covinsky which would constitute a cause
of action for such Breach in light of the Business Judgment Rule.” (R.
C472). HMC was granted twenty-eight days to file its second amended
counterclaim (R. C472), which HMC did not file. Further, the trial court
denied Covinsky’s motion for sanctions. (R. C472).
C. COVINSKY AND HMC TIMELY FILED THEIR NOTICE OF APPEALS
On March 12, 2008, Covinsky timely filed its Notice of Appeal of
the court’s final order of February 19, 2008, denying liability under the
Wage Act as to Donald C. Hannah and denial of its fee request. (R.
C657). On March 19, 2008, HMC filed its Notice of Appeal of the
judgment entered against it in Counts Two and One and the dismissal of
its amended counterclaim. (R2. C105). On June 26, 2008, this Court
ordered the consolidation of the briefing schedule for the appeals.
STANDARD OF REVIEW
Appellate review of the grant of Summary Judgment is de novo.
Dept. of Public Health v. Wiley, 218 Ill. 2d 207, 220, 843 N.E. 2d 259, 267
16
(2006). Likewise, review of a contract interpretation is de novo. Avery v.
State Farm Mutual Automobile Ins. Co., 216 Ill. 2d 100, 129, 835 N.E. 2d
801, 821 (2005) Similarly, review of issues of statutory construction
regarding the interpretation of The Attorney Fees in Wage Actions Act are
de novo. In re Jamie P., 223 Ill.2d 526, 532, 861 N.E.2d 958, 962 (2007)
The trial court’s award of compensatory damages will be reversed
only if it is against the manifest weight of the evidence. Bell Leasing
Brokerage LLC v. Roger Auto Service, Inc. 372 Ill. App.3d 461, 473, 865
N.E. 2d 558, 568 (1st Dist. 2007). A finding is against the manifest
weight of the evidence if the opposite conclusion is clear from the record
or if the finding is unreasonable, arbitrary, and without a basis in the
evidence. Lyon vs. Dept. of Children & Family Services, 209 Ill.2d 264,
271, 807 N.E. 2d 423, 430 (2004).
When called upon to determine whether Supreme Court Rule 137
sanctions are appropriate in a given case, the appellate court must
employ an abuse of discretion standard of review. Baker v. Daniel S.
Berger, Ltd., 323 Ill. App. 3d 956, 753 N.E.2d 463. A trial court abuses
its discretion when no reasonable person could take the view it adopted.
Technology Innovation Center, Inc. v. Advanced Multiuser Technologies
Corp., 315 Ill. App. 3d 238, 732 N.E.2d 1129, 247 Ill. Dec. 797 (2000).
"When reviewing a decision on a motion for sanctions, the primary
consideration is whether the trial court's decision was informed, based
17
on valid reasoning, and follows logically from the facts." Technology
Innovation Center, Inc., 315 Ill. App. 3d at 244, 732 N.E.2d at 1134.
ARGUMENT
This brief, in parts I though V, responds to HMC’s arguments
raised in its brief under appeal 08-0779, and requests this court affirm
the trial court’s decisions as to these issues. In Part VI, both parties
objected to either the award (HMC) or limitations of the award (Covinsky)
of Plaintiff’s “reasonable attorney’s fees” under the Illinois Attorneys Fees
in Wage Actions Act. Argument is then made at point VII below relating
to Covinsky’s appeal of the trial court’s dismissal of Donald Hannah as a
responsible person under the Illinois Wage Payment and Collection Act.
I
THE TRIAL COURT RULED CORRECTLY THAT COVINSKY’S GOLDEN PARACHUTE TRIGGERED REGARDLESS OF WHETHER THE
TERMINATION WAS VOLUNTARY OR INVOLUNTARY
The issue of whether Covinsky resigned or was fired was disputed
in the trial court. It is undisputed that, immediately following the
change in control, Donald Hannah called Covinsky in and “accepted” his
resignation, a resignation Covinsky asserts he never tendered to Donald
Hannah. Yet the trial court ruled the factual issue was irrelevant because
Covinsky’s golden parachute triggered in either event, whether voluntary
or involuntary. (R. C165-66). Here, HMC argues that paragraph 7(g) of
Covinsky’s employment agreement applies only to involuntary
terminations because of: (1) its interpretation of the use of the term
18
“results”; (2) its comparison of paragraphs 7 and 8 of the contract, and
(3) the alleged ambiguity of the golden parachute provision. Whether by
fact or law, HMC’s arguments must fail.
A. COVINSKY’S GOLDEN PARACHUTE TRIGGERED WHETHER HIS EMPLOYMENT WAS
TERMINATED VOLUNTARILY OR INVOLUNTARILY
HMC’s sole argument, at page 13, that a voluntary resignation
cannot trigger a golden parachute clause is premised on HMC’s
misreading, and misrepresentation to this Court, of the ruling in
Williams v. Interpublic Severance Play Plan, 523 F.3d 819 (7th Cir. 2008).
HMC cites to Williams, 523 F.3d at 820, for the premise that:
[A] golden parachute clause only offers benefits to executives that resign following a change of control when the new owner fails to offer the executive a comparable position at the same salary. (HMC Brief at 13). In actuality, this was not the court’s holding – rather it was the
court’s description of the golden parachute provision contained in the
Interpublic Severance Play Plan which was before the court. (See
Williams v. Interpublic Severance Pay Plan, 2007 U.S. Dist. LEXIS 57368
(N.D. Ill. Aug. 7, 2007) wherein the District Court stated: “The Plan
specifically provides that an employee shall not be entitled to severance
benefits if his employment is terminated as the result of a sale of the
business and the employee is offered a ‘comparable position at a
successor employer at the same or a higher salary.’” (slip opinion p.2))
The Williams opinion turned on the second aspect of the plan, the
issue of whether Mr. Williams had been offered a higher salary and the
19
fact that he had voluntarily terminated his employment as “the result of
a sale of the business” was not in dispute. No such requirement of an
offer of a higher salary is present under these facts or under Covinsky’s
employment agreement.
Contrary to HMC’s position, voluntary terminations are often
covered by an employee’s “golden parachute” clause. As Judge
Easterbrook recognized in Gerow v. Rohm & Haas Co., 308 F.3d 721 (7th
Cir. 2002) at 723:
Golden Parachutes protect executives from surprise insecurity, and thus make them more willing to invest human capital in their firms; by making a change of control profitable to the executive. Moreover, the agreement aligns managers’ interests with those of investors, who usually gain substantially from takeovers and do not want managers to resist in order to protect their positions.
As explained by Professor Robert A. Prentice, “Frequently, the hostile
bidder need not even fire the managers; they may voluntarily quit and
still receive the benefits.” Robert A. Prentice, “Front-End Loaded, Two-
Tiered Tender Offers: An Examination of the Counterproductive Effects of
a Mighty Offensive Weapon”, 39 CASE W. RES. 389, 420 (1985). As stated
by Professor Charles M. Elson, 57 U. Cin. L. Rev. 699 at 699-700:
Golden parachutes typically have three basic clauses. These three components are: 1) A trigger clause based on a change of control; 2) a termination clause; and 3) a compensation clause. The trigger clause sets forth the conditions that must occur before the golden parachute becomes operative. The conditions are usually based on some objective standard such as the accumulation of stock by a potential corporate raider, a fundamental change in the corporate asset structure, or a change in the composition of the board of directors. . .
20
After the golden parachute has been triggered, the termination clause determines if and when the benefits provided in the compensation clause will be paid out to the executive. Typically, the termination clause provides that an executive can claim benefits only after actual termination by the corporation after a change of control, or that he may resign if his position and responsibilities have been materially reduced by the new corporation.
The golden parachute section of Covinsky’s contract is set forth
in Paragraph 7(g) of the contract and provides:
(g) In the event that . . . there is a change in the present ownership which results in the termination of the Employee’s employment as President and Chief Executive Officer and Chief Operating Officer of Hannah . . .” (R. C17).
then HMC is liable for eighteen months of salary.
The plain language of Section 7 (g) shows that it contains all three
clauses of the model golden parachute: 1.) the trigger clause (“there is a
change in the present ownership”), 2.) the termination clause (“which
results in the termination of the Employee’s employment as…”), and 3.)
the compensation clause (“shall pay an amount equal to eighteen (18)
months salary . . “). This plain language also shows that Covinsky’s
termination clause is not concerned with who initiated the termination,
this clause only requires that the termination be the result of: (1) a
change of control or ownership (2) followed by the termination of the
employment relationship.
Absent from (g) is the requirement that the termination be caused
by Hannah or be involuntary in any fashion. Paragraph (g) does not
state “if Hannah or the new owner terminates Covinsky” then payment is
21
due nor does it use words like “discharge” or “release”, whose definition
implies Employer termination. This is especially apparent when (g) is
compared to the severance paragraphs under Early Termination, which
clearly express the power and requirement of an Employer initiated
termination. (“Hannah may terminate” Paragraph 7(a) – (f)). The
termination described in 7(g) is modified only by the phrase “results in”,
further indicating that this clause is not concerned with who initiates the
contract termination – only that the employment relationship is ended.
Also absent from 7(g) is the detailed reasons that would give rise to a
termination for cause or not for cause as described in the severance
sections (a) – (f). Instead, Covinsky’s golden parachute, like most
executive agreements, puts the ripcord in Covinsky’s hand.
Contrary to HMC’s position, the use of the term “results” in
Section 7(g) does not require an involuntary termination of the
Employment Agreement. Here the facts are clear that Donald Hannah
purchased his sibling’s interest in HMC, acquiring complete control of
the company. Under the Employment Agreement, Covinsky’s
termination must be merely the “result” of the change of control. (R.
C17). The result is without regard to the voluntariness of the
termination. HMC’s request to incorporate a “voluntary” requirement
would require this Court to write in a new term for this contract, which
the parties never contemplated at the time of execution.
22
The dictionary defines “results” to mean “to spring, arise or
proceed as a consequence of actions, circumstances, premises, etc.; be
the outcome” (www.dictionary.com). Covinsky’s employment agreement
simply provides that Covinsky shall be entitled to 18 months severance
pay in the event of “a change in the present ownership which results in
the termination of the Employee’s employment as President and Chief
Executive Officer and Chief Operating Officer of Hannah.” (R. C17).
The plain reading of the contract does not state which party, HMC
or Covinsky, must initiate the termination of the employment agreement.
The contract simply requires the termination to result (or spring, arise, or
proceed) from a change in control, or present ownership. It is clear that
a change of control occurred and what sprung, arose, and proceeded was
Covinsky’s termination. HMC’s suggestion that the “result” can be
derived only from HMC’s firing of Covinsky is not what the Agreement
states, nor is such reading logical.
As Judge Easterbrrok noted, golden parachutes align
management’s interest with the stock holder or ownership’s interest. If
there is a change in control, as occurred here, the language gives
Covinsky the option to work for the new owner or claim his severance.
But the option is Covinsky’s, not Hannah’s. If he chooses to work for the
new Buyer, he may do so. However, if he chooses to rest on his contract,
he may do so as well.
23
Here the facts are clear that a change in present ownership
occurred, which resulted in Covinsky’s termination, and triggered the
“golden parachute” clause under Paragraph 7(g) of Covinsky’s
employment agreement.
B. PARAGRAPH 8’S DISCUSSION OF RESIGNATION ACTUALLY SUPPORTS COVINSKY
HMC’S RELIANCE ON PARAGRAPH 8 IS MISPLACED
As used in Paragraph 7(g) of the Employment Agreement, the term
“termination” includes both voluntary and involuntary terminations. (R.
C165-66). HMC’s contention otherwise is an attempt to rewrite the
agreement after the fact. The trial court fully reviewed the Employment
Agreement, including Paragraph 8 upon which HMC relies.
Hannah argues that, because section 8 of the contract contains the
phrase “or should Employee resign or otherwise terminate his
employment” (HMC Brief p. 10), this language indicates that the parties
distinguished between a resignation and a termination. Covinsky
submits the language in Paragraph 8 suggests just the opposite, i.e., that
the word “terminate” includes a resignation. To “resign or otherwise
terminate” suggests that a resignation is one way to terminate one’s
employment. Since paragraph 7(g), the golden parachute clause actually
at issue in the case sub judice does not distinguish between the two
types of termination, HMC’s argument to the contrary is not compelling.
HMC’s interpretation and application of Section 8 is further
misplaced. Section 8 is a non-compete clause which becomes effective
“after termination of Employee’s employment with Hannah for any reason
24
with cause or should Employee resign or otherwise terminate his
Employment . . .” Different periods for the non-compete provisions apply
based on the form of termination. In essence, the clause becomes
effective upon an involuntary termination, with limitations, and a
voluntary termination. HMC posits that because the parties
contemplated a voluntary termination here – it should be referenced in
all other termination provisions in the agreement. HMC fails to address
that the “termination” used in Section 7(g) and 8 are different. Moreover,
HMC fails to provide any analysis of the provisions contained in Section
7 itself. HMC’s argument that the trial court disregarded the evidence of
the parties’ intent fails in light of the consistencies within Section 7
where distinctions between voluntary and involuntary terminations are
made.
Paragraphs 7(a) through 7(f) specifically address involuntary
terminations.
7. Early Termination . . . .
(a) If Employee dies during the term of this Agreement . . . (b) If, after a period of six months and because of any illness
or disability . . . this Agreement may be terminated by Hannah. . . . .
(c) If Employee has failed to perform . . .Hannah may terminate Employee’s employment . . .
(d) In the event of an act of Employee involving dishonesty . . . Hannah may terminate Employee’s employment . . .
(e) After termination pursuant to any foregoing provisions . . . (f) Hannah may terminate Employee’s employment at any
time . . .
25
As the trial court found, much of Section 7 calls for Hannah to be
the active party and allows Hannah the power to terminate to trigger
those clauses. As the trial court found, Section 7(g) is different, it
requires merely “a change in control which results in the termination”
and does not require the termination to be involuntary. If the parties
intended Paragraph 7(g) to be limited in its application to involuntary
terminations, such language could have been included—as it was in
Paragraphs 7(a) through 7(f). Since this language was not included, the
trial court’s finding that Paragraph 7(g) includes both voluntary and
involuntary termination is the only reasonable interpretation, and it is
wholly consistent with Section 7 and the entire contract.
C. PARAGRAPH 7(G) IS NOT AMBIGUOUS AND ANY AMBIGUITY THAT RESULTS IS TO
BE RESOLVED AGAINST HMC, THE DRAFTER OF THE AGREEMENT Covinsky posits that there is nothing ambiguous about the “golden
parachute” provision. Had the parties intended for the term
“termination” to be solely an involuntary termination – the parties could
have used the language present in Paragraphs 7(a) –(f). The parties did
not include such language. As such, the provision lacks ambiguity and
the trial court’s ruling was reasonable.
This Court has stated, in Newcastle Properties, Inc. v. Shalowitz,
221 Ill. App. 3d 716, 722-723 (1st Dist. 1991), that:
The mere fact that the parties do not agree upon the meaning of the terms of a contract does not create an ambiguity. Where the question [before the court] involves one of contract construction, a court of review may ascertain the meaning of contract provisions from the instrument itself as a matter of law. [C]ontract terms
26
must be given their plain, ordinary, popular and natural meaning. (Citations omitted). The Mirriam-Webster Dictionary defines “termination” as an “end
in time or existence.” The plain, ordinary meaning of an employment
termination is merely the “end in time” of the employee-employer
relationship, regardless of whether the employee or employer initiated the
termination. Even if this plain language can somehow be infused with
ambiguity, this ambiguity must be resolved against Hannah as the
drafter of the contract because it is black letter law in Illinois and nearly
every jurisdiction that when deciding contract rights:
the terms of an agreement, if not ambiguous, should generally be enforced as they appear (P.A. Bergner & Co. v. Lloyds Jewelers, Inc., 112 Ill. 2d 196, 203, 492 N.E.2d 1288 (1986)), and those terms will control the rights of the parties (Midland Management Co. v. Helgason, 158 Ill. 2d 98, 103, 630 N.E.2d 836 (1994)). Moreover, any ambiguity in the terms of a contract must be resolved against the drafter of the disputed provision. Duldulao v. St. Mary of Nazareth Hospital Center, 115 Ill. 2d 482, 493, 505 N.E.2d 314 (1987). Dowd & Dowd, Ltd. v. Gleason, 181 Ill. 2d 460, 479, 693 N.E.2d 358 (1998).
Covinsky requests the Court affirm summary judgment on breach of
contract because there was a change in present ownership that resulted in the
termination of Covinsky’s employment at HMC. The golden parachute in
Paragraph 7(g) does not require involuntary termination, other sections of
Paragraph 7 supports this reading, and Paragraph 8 also supports this
reading. Finally, there is no ambiguity, and if there were, it would be held
against HMC.
27
II
THE TRIAL COURT’S AWARD OF DAMAGES IS NOT AGAINST THE MANIFEST WEIGHT OF THE EVIDENCE
Hannah next argues there exists genuine issues of material fact
relative to the trial court’s finding of damages. On June 12, 2007 the
court heard evidence at a prove-up of damages. Covinsky testified as to
the components of the “salary” which he was receiving prior to his
termination. Under the contract, his “salary” included his wages,
medical benefits, pension benefits, and a company car. Covinsky valued
the package for 18 months as being worth $311,653. (R. Tr. 22).
Hannah’s attorney participated in the hearing and was given an
opportunity to make further inquiry or objection as to damages (R. Tr.
38-39). Hannah did nothing, and on October 1, 2007 judgment was
entered for this amount under the Wage Act claim.
Covinsky submits that the terms of the Employment Agreement
speak for themselves and the lower court correctly determined the award
of damages, and those findings should not be disturbed unless against
the manifest weight of the evidence. Bell Leasing Brokerage LLC v. Roger
Auto Service, Inc. 372 Ill. App.3d 461, 473, 865 N.E. 2d 558, 568 (1st
Dist. 2007). Hannah disputes the trial court’s findings of fact relative to
the measure of damages. Hannah objects that the fringe benefits should
not be considered “wages” under the Wage Act.
Further, HMC argues that Paragraph 7(f) of the agreement requires
that Covinsky exercise an option to be included in HMC’s health
28
insurance coverage before it can be awarded as damages under
Paragraph 7(g). Covinsky submits this argument was not raised in this
trial court and should be considered waived for appeal. In the event
such argument was not waived, Paragraph 7(g) contains its own damage
clause provision, HMC’s interpretation is inconsistent with traditional
contract interpretation, and is frivolous.
A. THE TRIAL COURT CORRECTLY INCLUDED COVINSKY’S BENEFITS AS “WAGES”
UNDER THE ACT The Trial Court correctly awarded Covinsky the value of 18 months
of regular pay and the value of his participation in HMC’s 401(k) plan,
medical insurance program, and use of the corporate vehicle – pursuant
to Paragraph 7(g) and Section 3 of the Employment Agreement. The trial
court’s finding of the additional benefits as “wages” under the Illinois
Wage Payment and Collection Act (820 ILCS 115/1, et seq.) is supported
by both statute and case law. Section 2 of the Illinois Wage Payment Act,
820 ILCS 115/2 (2007) states:
For all employees, other than separated employees, "wages" shall be defined as any compensation owed an employee by an employer pursuant to an employment contract or agreement between the 2 parties, whether the amount is determined on a time, task, piece, or any other basis of calculation. Payments to separated employees shall be termed "final compensation" and shall be defined as wages, salaries, earned commissions, earned bonuses, and the monetary equivalent of earned vacation and earned holidays, and any other compensation owed the employee by the employer pursuant to an employment contract or agreement between the 2 parties. . . . (emphasis added).
In Zabinsky v. Gelber Group, Inc., 347 Ill. App. 3d 243 (1st Dist.
2004), this Court upheld a verdict awarding Plaintiff salary, a quarterly
29
bonus, retirement benefits under a pension plan, and medical benefits,
as allowed under 820 ILCS 115/1 stating:
The terms of plaintiff's employment contract classified "relocation expenses" as part of plaintiff's compensation package. The Wage Act includes "any other compensation owed" as part of an employment contract within the statutory definition of "wages." It properly follows that plaintiff's relocation expenses were part of the compensation owed under his employment contract and the Wage Act.” Anderson v. First Am. Group of Cos., 353 Ill. App. 3d 403, 415 (Ill. App. Ct. 2004)
Further, in Catania v. Local 4250/5050 of the Communications
Workers of America, 359 Ill. App. 3d 718, 834 N.E.2d 966 (1st Dist.
2005), the court noted that the definition of Wages under the Wage
Payment Act is to be broadly construed, stating at 359 Ill. App. 3d at
725:
In addition to the expansive meaning given to the term "employer"
under the Wage Payment Act, a separated employee is entitled to recover
much more than contractual wages. Under the act, an employee is
entitled to "final compensation", which includes not only wages, but also
encompasses earned commissions, earned bonuses, the monetary
equivalent of earned vacation and earned holidays, and "any other
compensation owed the employee by the employer pursuant to an
employment contract or agreement between the 2 parties." 820 ILCS
115/2 (West 1998). Because a separated employee is entitled to more
than just contractual wages, we believe that the legislature created new
rights for employees upon the termination of their employment.
30
The benefits present under Plaintiff’s Employment Agreement are
consistent with the term “wages” or “final compensation” as addressed in
Section 2 of the Act. As such, Covinsky’s damages under the Act can
include both the annual compensation received and the monetary value
of his denied employee benefits.
Here the contract is clear. Under Section 7(g) of the contract, the
change in control triggered Hannah’s obligation to “pay to Employee an
amount equal to eighteen (18) months’ salary as set forth under the
contract salary rate then in existence.” Thus at a minimum, Covinsky
was entitled to $255,528 in salary.4 Yet, it is submitted that the
Agreement contemplates more than a simple “salary” calculation.
Section 3(c) of the employment agreement defines “salary” not only to the
cash portion but to the fringe benefits as well. Specifically, Section 3(c)
states:
“During the term of this Agreement and any extensions thereof, Employee shall receive for his services a salary as follows: (c) during the period from March 1, 2006 to February 28, 2007, at a salary to be agreed upon between Employee and Hannah, but not to be less than the amount in 3(b) above ($170,352) Said salary shall be paid in accordance with the normal payroll schedule and procedures. In addition, Employee shall be entitled during the period of employment hereunder to participate on the same basis as all other employees in all employee benefit programs (including, without limitation, any such programs providing vacation, sick leave, retirement benefits, disability benefits,
4 This calculation is based upon 18 months of Covinsky’s annual cash salary of $170,352.
31
life insurance, medical insurance or dental insurance) maintained by Hannah from time to time, subject to the eligibility and participation rules in effect from time to time for such programs. Employee shall each year be entitled to a vacation period of five (5) weeks which shall not include more than two (2) consecutive weeks at any one time. Additionally, the Employee shall be entitled to a Company car similar in model and style to the Company cars of other employees of Hannah. Such car shall be used for Company business and the Employee shall be reimbursed in accordance with Company policy for expenses incurred in the operation of the vehicle. (Emphasis added)
The language of “in addition” and “additionally” fall within Section
3(c). It is submitted that the language of the Agreement includes the
benefits in the definition of “salary” as the trial court found. The term is
expanded beyond the monetary amount and provides that “in addition”
he is to receive benefits under the 401-k plan, the medical insurance
plan and “Additionally” he is to receive the use of a company car. Donald
Hannah admitted that Covinsky participated in the 401-k plan with a 6%
match (R. C220-21), which was valued at $852 per month. Donald
Hannah admitted the value of Covinsky’s medical insurance was
approximately $1,000 per month. (R. C220-21). Donald Hannah further
admitted Covinsky was provided a company automobile for his personal
and business use at no cost to Covinsky. (R. C220-21). These were
considered in the trial court’s findings of fact as to the measure of
damages and should not be disturbed on appeal. It is the exact measure
of damages to which Covinsky testified and the only evidence available.
Thus it is submitted that the trial court’s construction of the
contract was correct, that the trial court’s finding of the measure of
32
damages comported with the definition of “salary” under the contract and
that such “salary” constituted “wages” under the Wage Payment Act. The
trial court’s finding should not be disturbed unless against the manifest
weight of the evidence.
B. PARAGRAPH 7(G) OF THE EMPLOYMENT AGREEMENT DOES NOT
REQUIRE COVINSKY TO “OPT-IN” TO THE HMC’S HEALTH
INSURANCE COVERAGE Further, HMC argues the trial court erred in awarding damages for
loss of medical insurance coverage under Paragraph 7(g), as Covinsky
failed to exercise his “option to participate” in such plan. (HMC Brief p.
14). This argument was not raised in the trial court and should be
considered waived for purposes of this appeal. Western Casualty &
Surety Co. v. Brochu, 105 Ill. 2d 486, 500-01, 86 Ill. Dec. 493 (1985);
Surestaff, Inc. v. Open Kitchens, Inc., 2008 Ill. App. LEXIS 740 (Ill. App.
Ct. 1st Dist. July 25, 2008).
HMC relies on Paragraph 7(f), which is the early termination
provision applicable if HMC terminated Covinsky without cause, a
provision inapplicable in this case. Similar to Paragraphs 7(e) and (g),
paragraph 7(f) contains a separate and unique damages provision
applicable solely to that provision. Finally, Covinsky offered the only
evidence into the record on damages, and included the health insurance
in that measure.
33
III
THERE WAS NO ERROR REGARDING HANNAH’S RIGHT TO A JURY TRIAL ON DAMAGES
HMC next argues that it had a right to a jury trial as to damages
under the Contract action in Count I because of the demand it made
orally on the day of the prove up of damages. As the transcript indicates,
the hearing began at 10:10 a.m. on June 12, 2007. At some time
following the hearing, at 11:25 a.m. on June 12, 2007, Hannah filed its
“Amended Jury Demand” (R. C290). At the prove up, the court ruled
that it would accept the testimony of Mr. Covinsky since he was present
that day in court for the hearing and the elements of damages had been
admitted by Hannah in its prior responses to Plaintiff’s Requests to
Admit.
The court reserved final ruling on the motion pending briefing by
the parties or supplemental filings. The order entered June 12, 2007
stated that the “prove-up is entered and continued.” Yet Hannah filed no
briefs regarding its jury demand until it filed its brief in the appellate
court. The trial court then moved on to the Wage Act claim in Count II
and awarded Summary Judgment as to liability on Count II and found
damages in the amount of $311,653 based on the prove up. These
findings were entered by order of October 1, 2007. HMC filed no brief or
discovery request relative to the damage issue between the June 12,
2007 hearing and the October 1, 2007 ruling.
34
In the October ruling, the trial court found there was “no genuine
issue as to any material fact regarding Covinsky’s compliance with the
terms and provisions of the Act, that the balance due Covinsky under
Paragraph 7(g) of the Employment Agreement constituted the final
compensation due Covinsky under the Act, that the amount due
Covinsky pursuant to such Employment Agreement was $311,653” (R.
C470). The order makes no mention of Hannah’s jury demand. It is
neither granted nor denied.
As to the Wage Act claim, the law is clear that HMC had no right to
a jury trial. This court stated in Catania v. Local 4250/5050, 359 Ill.
App. 3d 718, 296 Ill. Dec. 161 at 168 (1st Dist. 2005):
[W]e conclude that the Wage Payment Act created a cause of action distinct from a common law action for breach of contract. We therefore hold that the Illinois Constitution does not confer the right to a jury trial for actions filed pursuant to the Wage Payment Act and, in the absence of a jury conferring the right to a jury trial, no such right exists. (citations omitted).
Since damages were found first under this count to which HMC had no
jury right, the matter was res judicata and could not be relitigated. The
same measure of damages applied both to Count II and Count I.
Further, HMC admitted all the elements that comprised the measure of
damages under the Act as would be at issue under the contract claim. In
short, there was no issue left for a jury to decide because of Covinsky’s
assertions, HMC admissions and waivers, and the contract itself. Thus,
HMC’s claim that the court erred in denying it a right to a jury trial as to
the measure of damages is without basis in fact or law.
35
IV THE TRIAL COURT CORRECTLY DISMISSED THE FIRST AMENDED
COUNTERCLAIM FOR FAILURE TO STATE A CAUSE OF ACTION FOR BREACH OF FIDUCIARY DUTY
HMC next objects that the trial court erred in dismissing its First
Amended Counterclaim. The trial court ruled the Counterclaim failed to
allege sufficient facts to overcome Covinsky’s defense of the Business
Judgment Rule. While there is no question that Covinsky, as President
of HMC, owed the fiduciary duties of loyalty, good faith and fair dealing,
the trial court found that HMC failed to plead any facts that indicated
that he breached such obligation. The First Amended Complaint does
not allege Covinsky was negligent in his duties, operated under a conflict
of interest, or personally benefitted from any decision he made relative to
a sublease of corporate property.
The only allegation was that Covinsky should have obtained a
better bargain for HMC through the sublease. In response to the First
Amended Counterclaim Covinsky filed an affidavit (R. C333) in support of
his Motion to Dismiss wherein he states that he “was the President of
HMC at the time of the assignment, that he received advice of corporate
counsel and input from the Board of Directors on this issue” (R. C295)
and that, in his opinion HMC benefitted by the lease in that “Hannah
had not used the property in question since at least 1997. Under its
lease with the Water Reclamation District, Hannah was required to pay
real estate taxes, EPA fees, canal wall repair and other maintenance, and
36
rent for this asset. The sublease relieved Hannah of this financial drain.”
(R. C304).
A. UNDER THE BUSINESS JUDGMENT RULE, HMC’S COUNTERCLAIM WAS
NOT WELL GROUNDED IN FACT OR EXISTING LAW
The counterclaim was based on a contract negotiated by Covinsky
on Hannah’s behalf, through which Hannah sublet a parcel of land to its
neighbor, Holnam, Inc. Under the business judgment rule, this
counterclaim was without merit, on its face, because a) Covinsky did
everything required of an officer or director of a corporation, b) to the
extent consideration was allowed under the Prime Lease with the Water
Reclamation District, the sublease granted Hannah that consideration,
and c) even if the sublease provided Hannah with no additional
consideration, it still served the legitimate business purpose of
eliminating significant operating costs on a dormant asset. As such, the
business judgment rule required that the counterclaim be dismissed.
1. Covinsky did everything this Court requires of a corporate officer where he consulted with Hannah’s legal counsel throughout
the negotiation process, consulted with Hannah’s Board of Directors, which included the majority shareholder, and did not
seek to personally benefit from the transaction
The Business Judgment Rule does not require that officers and
directors make perfect decisions, it simply requires that officers and
directors make reasonable decisions, free from personal conflicts of
interest, and after proper steps are taken to ensure a reasonable
decision. See Stamp v. Touche Ross Co., 263 Ill. App. 3d 1010, 1015
(1993)(holding that an officer or director of a corporation should not be
37
held liable for the performance of his duties if performed in good faith
and in a manner he reasonably believes to be in the best interests of the
corporation). In the instant matter, Covinsky complied with the law.
a. Covinsky consulted with Hannah’s legal counsel throughout the negotiations
HMC’s counterclaim failed to mention that throughout the entire
negotiation process, Covinsky sought and reasonably relied on the advice
of Hannah’s legal counsel, Mr. Michael Igoe at the law firm Vedder, Price,
Kaufman & Kammholz. Exhibit A attached to HMC’s counterclaim,
showed that when Covinsky sought the Water Reclamation District’s
consent to the sublease, a copy of the letter was sent to legal counsel.
Exhibit C of the counterclaim, the sublease, actually lists Vedder Price as
the law firm to be copied with any notice pertaining to the lease. There
can be no dispute that Covinsky consulted with and reasonably relied on
the advice of counsel and that this reliance is dispositive of the issue. As
stated in IOS Capital, Inc. v. Phoenix Printing, Inc., 348 Ill. App. 3d 366,
375 (Ill. App. Ct. 4th Dist. 2004):
The reasonableness of acting on advice of legal counsel applies in the corporate context as in other areas of the law. While an officer or director may not blindly accept counsel's advice to avoid liability, he may rely on such advice when he does not have knowledge of his actions causing such reliance to be unwarranted. (internal citations and string citations omitted).
Here it was apparent from the document itself that Covinsky employed
Hannah’s corporate counsel in the lease negotiations.
38
b.Covinsky acted with the consent of Hannah’s Board of Directors
Covinsky’s affidavit asserted that, though the explicit approval may
not appear in the Minutes of the Director’s Meetings, the Board was
aware of the assignment and took no action to prevent the assignment.
As such, it is reasonable to assume the former Board of Directors, like
Covinsky, saw the assignment for what it was: an agreement which
eliminated the operating expenses of holding an asset that was dormant
since before 1997, granted some potential benefit to Hannah by a referral
of additional business and retained a possibility of an increase in fair
market rental value for HMC (to the extent allowed under the Prime
Lease).
c.Covinsky did not seek to gain any personal advantage, and did not gain any personal advantage from this transaction
Under the duty of loyalty, Covinsky could be liable if he sought to
gain an advantage to himself that could, or should, have flowed to
Hannah Marine. See Swager v. Couri, 77 Ill. 2d 173, 191 (1979). In the
instant case, however, the counterclaim did not allege that Covinsky
personally gained from the transaction and thus there is not even an
allegation that Covinsky breached the duty of loyalty. If there were such
an accusation, Covinsky would seek sanctions for that accusation as
well, because there is no true set of facts that could show Covinsky
placed any interest in front of his duty to HMC. Covinsky sought to
receive nothing for himself from this transaction and received nothing for
39
himself for this transaction. The counterclaim makes no claim that
Covinsky personally benefited from the alleged action.
2.Though the Business Judgment Rule does not Require Additional Consideration gained from all transactions, to the extent allowed under the Prime Lease, the Holnam sublease provided Hannah with
consideration
As stated previously, Hannah had a commercial lease with the
Chicago Sanitary District dating back to 1951. Though Hannah did not
present the original lease, Exhibits B & C of the counterclaim provided
the trial court with sufficient evidence to show that Hannah was required
to seek and obtain the District’s approval before entering any sublease or
collecting additional rents from any sublease. The counterclaim was
based entirely on the notion that Hannah received no consideration for
the sublease. Such a claim is without merit where the sublease provides
consideration to the extent allowed under the Prime Lease, both in the
rent and additional business opportunities.
a.The District’s Prime Lease Required District Approval for all Subleases and the District to Retain its Discretion as to the Fair Market Value
In Paragraph 10 of the Amended Counterclaim (R. C268), HMC
alleged:
10. The Industrial Sublease provides for a term commencing on October 1, 1999 and ending on August 30, 2050, the date the 1951 lease terminates. The Industrial Sublease also provides that, as rent for HMC’s Property, Holnam pays HMC: an amount equal to the differential between the monthly base rent, paid by [HMC] to the [District] and the rent to be acceptable by [Holnam] determined to be the additional rent to be paid under the [District’s] determination of the fair
40
market value rent to be paid by [HMC] upon approval by the [District] of this sublease. [HMC] shall pay the total monthly rental as calculated above to the [District] and then bill [Holnam] for the amount of the differential.
As was argued to the trial court, the sublease is clear that any
additional rent up to the supposed fair market value had to be based on
“the [District’s]” determination of fair market value, not HMC’s
determination. The Industrial Sublease, which was attached as Exhibit
C to the Amended Counterclaim (R. C278-85), contained the above
language under the “rent” section at paragraph 3(a). (R. C278). The
adjustment is further clarified in Paragraph 3(c) of such Exhibit C of the
Amended Counterclaim. (R. C278). The Agreement passed through any
increases in the rent to the Sublessee. These increases are to be
determined by the Water District based on the Water District
determination of fair market value. Apparently, under the Prime Lease
between HMC and the Water District, there was a provision to adjust the
lease periodically and raise the rent based on the District’s determination
of fair market value. Further, at page 8 of the Industrial Sublease at
Exhibit C of the Amended Counterclaim (R. C285), the approval of the
District was required for the Sublease to occur. It is clear that if the
lease was a bargain lease by $600,000 as alleged by HMC, wouldn’t the
Water District have breached its fiduciary duty to allow Hannah to
benefit by such sublease? Thus, it is submitted that the lease actually
stated the “fair market value” and that such fair market value was
properly determined by the Water District as the prime landlord. It was
41
impossible for HMC to charge Holnam a higher rental unless it would be
higher than “fair market value” and such amount would have to have
been approved by the Water District in order for the lease to be assigned
to Holnam!
The methodology used for the determination of fair market rent
was set forth in Exhibit B of the Amended Counterclaim at paragraph
1(c). (R. C273). Under this document, entitled “consent to Sublease”,
the Water Reclamation District set out the method the parties were to
use to determine the “fair market value”. (R. C273). In essence, the
agreement required that on September 1, 2001, HMC was to obtain two
appraisals of the fair market value of the underlying property. The
agreement then stated that the rental value was to be set at 10% of the
fair market value of the property as determined by the two appraisal
reports obtained by HMC. If the Water District disapproves of the
appraisal, then the Water District may obtain its own appraisal of value.
After noting that the rental is $32,402.88 the Consent at Exhibit B of the
Amended Counterclaim goes on to note in Paragraph 1(c) (R. C273-74):
The Prime Lease provides for an adjustment of rental on September 1, 2001, and every 15 years thereafter, and at said times an adjustment of the sublease rental shall also be made and determined as follows: (1) No later than 90 days prior to September 1, 2001, and September 1st every 15 years thereafter, sublessee shall obtain, at its sole cost and expense, and submit to the District two appraisals of the fair market value of the fee simple interest of the sublease premises. The District, at its option, may obtain a third appraisal. The District, at its sole discretion, shall accept one of the appraised values as the fair market value of the sublease premises and the
42
adjusted annual sublease rental shall be established at 10% of the selected appraised value and shall then be in effect for the next 15 years. In the event that the rental readjustment process set forth in this paragraph is not completed by the date the new sublease rental is scheduled to take effect, the new adjusted sublease rental shall be applied retroactive to the scheduled sublease rental adjustment date—September 1st. In the event the sublessee fails to provide its appraisals as required by Paragraph 1 c.(1) above, then the District shall determine the new sublease rental without first obtaining the sublessee’s appraisals.
Finally, a copy of the invoice to Holcim from the Water District was
attached to the lease at Exhibit C of the Amended Counterclaim showing
the District’s direct billing of the lease to Holcim for $35,348.60 for the
period 09/01/03 to 08/31/04. (R. C287). Thus, the billing at “fair
market value” is actually coming from the Water District to Holcim.
Again, based on the formula at Exhibit B of the counterclaim, HMC was
required to submit an appraisal of the property. The rent was to be 10%
of the appraised value. Since the rent was $35,348.60, HMC’s appraisal
submitted to the Water District would have been ten times such annual
rental or $353,486. Yet HMC sought $600,000 in damages from
Covinsky for his alleged failure to get a higher rent on a property worth
approximately $350,000! Clearly the claim was without merit and the
documents submitted by HMC as its exhibits to the Amended
Counterclaim told the lie.
43
b. The Assignment HMC Complains of Actually Provides Additional Consideration to HMC in Section 3 of the Prime Sublease, to the Extent
Allowed by the Water District
The Amended Counterclaim, at paragraph 11 (R. C269),
complained “Despite granting Holnam the right to sublease HMC’s
Property, Covinsky did not demand any consideration for HMC from
Holnam.”5
Yet consideration can be found on the face of the exhibits attached
to the Amended Counterclaim. In Section 3(d) of Exhibit C, Industrial
Sublease, Holnam gave HMC “the right of first refusal to provide to
[Holnam] any barging services for granules and/or finished product
(“Grancem”) from Inland, U.S. Steel or Skyway Facilities to Lemont
terminal at competitive prices.” (R. C278-79). Thus HMC received
additional barging business.
In addition, sublease stated that additional rents payable on the
property could not be collected by HMC without the District’s approval.
(R. C278). Thus, as Exhibit B attached to the counterclaim showed,
Covinsky was required to request the District’s approval for the sublease,
as provided in the lease with Holnam. (R. C273-74).
Section 3 of the sublease (R. C278-79) stated as follows:
(a) Lessee [Holnam] shall pay to Lessor [Hannah], as rent for the Premises, an amount equal to the differential between the monthly base rent paid by Lessor to the Prime Landlord [Water District], and the rent to be acceptable by the Lessee determined by the Prime Landlord to be the additional rent
5 Holnam and Holcim are the same company and are used interchangeably.
44
to be paid under the Prime Landlord’s determination of the fair market value rent to be paid by the Lessee upon approval by the Prime Landlord of this sublease. Lessor shall pay the total monthly rental as calculated above to the Prime Landlord and then bill the Lessee for the amount of the differential. (b) The Parties recognize and agree that from the commencement date of this lease through August 31, 2001 the payment method as set forth in subsection (a) shall be the rental and reimbursement method between Lessor and Lessee. They further agree that the Prime Lease provides for an adjustment of base rent payable by Lessor under the Prime Lease on September 1, 2001 and in accordance with the terms of the Prime Lease every 15 years thereafter. The parties agree that they will have to adjust between themselves a new rental rate upon the adjustment of the monthly base rental rate payable to the Prime Landlord hereunder when the base rent is adjusted under the Prime Lease on September 1, 2001. (c) If as a result of the provision of base rent adjustment as provided for in the Prime Lease, the base rental payable under the adjustment is increased, then Lessee’s rent shall be increased by same amount of the increase by the Prime Landlord to the Lessor and the Lessee shall then pay as rent an amount of the difference between the base rent amount prior to September 1, 2001 and the new rental amount consisting of the increase in 2001 to the Lessor plus the fair market value rent which is established by the Prime Landlord upon approval of this sublease and subsequent increases thereof. (d) Lessee hereby gives to Lessor during the term of this lease, the right of first refusal to provide to Lessee, any barging services for granules and/or finished product (“Grancerm”) from Inland, U.S. Steel or Skyway Facilities to Lemont terminal at competitive prices.
The result was clear: HMC assigned its interest in this real
property and was relieved of all its rent obligations to the Prime Landlord
or any other obligations related to the ownership of the property. In
addition, any amount of fair market value over and above the rent owed to
45
the Sanitary District was and is still due to HMC from Holnam. Thus, as
the contract states, “Lessor shall pay the total monthly rental as
calculated above to the Prime Landlord and then bill the Lessee for the
amount of the differential.” (R. C278). In legal terms, we generally call
this consideration. In business terms, this contract maintains HMC’s
interest in the property should the real estate value increase before the
expiration of HMC’s lease. In short, this contract of which the Amended
Counterclaim complained could hardly be more advantageous to HMC
and certainly provided HMC with consideration, without breaking the
lease between HMC and the Water District.
3. Even if the Contract did not Require Holnam to pay an amount above the payments to the Water Reclamation District,
the Assignment added Shareholder Value because it Relieved Hannah of Recurring and Significant Obligations on a Dormant
Asset
The Amended Counterclaim complained, at paragraph 16 (R.
C269), that Covinsky breached his fiduciary duty because the
assignment did not provide for consideration to HMC. In short, the
argument was that Covinsky was required, in all circumstances, to
obtain additional consideration for any HMC asset. Such a notion is
foolish. Sometimes, it makes sound business sense to assign a
corporate asset without receiving anything from the assignee – like
when the asset has maintenance costs and is not being used.
Moreover, without a clear violation of the triad of fiduciary obligations:
the [business judgment] rule operates as both a procedural guide for litigants and a substantive rule of law. As a rule of
46
evidence, it creates a "presumption that in making a business decision, the directors of a corporation acted on an informed basis [i.e., with due care], in good faith and in the honest belief that the action taken was in the best interest of the company. Thus, a litigant challenging a decision by a corporate officer has the burden at the outset to rebut the rule's presumption by providing evidence that the officer, in reaching their challenged decision, breached any one of the triads of their fiduciary duty--good faith, loyalty or due care. Id. If a litigant fails to meet this evidentiary burden, the business judgment rule attaches to protect corporate officers and directors and the decisions that they make. The courts will not second-guess these business judgments. Gunter v. Novopharm USA, Inc., 2001 U.S. Dist. LEXIS 2117, (N.D. Ill. 2001)(internal citations omitted).
In the instant matter HMC had not used the property in
question since at least 1997. Under its lease with the Water District,
HMC was required to pay real estate taxes, EPA fees, canal wall repair
and other maintenance, and rent for this asset. (R. C279-80). The
sublease relieved HMC of this financial drain. The sublease required
the sublessee to pay all of the real estate taxes on the premises (R.
C279) and required the sublessee to maintain the seawall (R. C280).
From all of the above, it is clear that Covinsky acted under
advice of counsel and with the Board and shareholders, gained
consideration to the extent allowed by the Prime Landlord and
alleviated HMC’s cost associated with the unused property.
Covinsky’s business decision benefited a neighbor who was also a
customer of HMC and gave HMC additional business. Under the
47
business judgment rule, HMC’s Amended Counterclaim was properly
dismissed.
V THERE WAS NO DENIAL OF HMC’S DISCOVERY REQUEST
RELATIVE TO ITS COUNTERCLAIM UNTIL AFTER SUCH CLAIM WAS DISMISSED
HMC next argues that the trial court erred in denying HMC’s
requests for Discovery (HMC Brief 18). It is respectfully submitted that
the discovery process is not a tool to be abused or used as a methodology
to harass a former employee. Nor is it to be a fishing expedition used to
create a cause of action when you fail to allege sufficient facts to make
your case.
HMC filed its initial counterclaim on Nov. 16, 2006. On Feb. 14,
2007 Covinsky filed its 2-619 Motion. On April 19, 2007 HMC served
Covinsky with Document Production Requests and Interrogatories
directed both at the Counterclaim and at Counts I and II. On May 16,
2007 the court dismissed the counterclaim. Five days later, on May 22,
2007 Covinsky responded to the interrogatory requests but refused to
answer any questions regarding the counterclaim because it had been
dismissed.
On May 30, 2007 HMC filed its First Amended Counterclaim and
on June 5, 2007 sent its 201(k) letter objecting to Covinsky’s refusal to
answer the interrogatories regarding the counterclaim. Covinsky
objected to the 201(k) demand that there was no counterclaim on file at
the time response was due and that HMC should refile its discovery
48
requests addressing the new facts alleged in the First Amended
Counterclaim. On July 5, 2007 Covinsky filed its second Motion to
Dismiss the Counterclaim. On September 11, 2007 HMC filed its Motion
to Compel, but on October 1, 2007 the court granted Covinsky’s Motion
to dismiss the First Amended Counterclaim and ruled that the Motion to
Compel answers to interrogatories and to take Covinsky’s deposition
regarding the First Amended Counterclaim was moot in light of her
ruling on the Motion to Dismiss.
It should be noted that at the time of the request, Covinsky was no
longer in control of the corporate books and records of HMC and had
moved out of state. Yet, HMC sought information relative to a 1999 lease
and sublease with its neighbor, Holnam – albeit HMC was in possession
of these documents. (R. C271-288). There is no allegation that Covinsky
stole any of the corporate records or correspondence. All such
information was contained on the premises of HMC or in the offices of
Vedder Price, the corporate attorney for HMC during Covinsky’s period as
President. (R. C283). Covinsky had no records regarding the frivolous
counterclaim. HMC was aware of this at all times and the court merely
prevented HMC from further harassment of Covinsky.
Further, the record indicates that HMC never refiled its discovery
request after the filing of its First Amended Counterclaim inquiring about
the new facts alleged therein. Thus it is submitted that the trial court’s
order was correct and HMC has failed to point to any facts in the record
49
which would indicate that the trial court abused its discretion in denying
HMC its belated discovery request.
VI UNDER EITHER THE ATTORNEY FEE IN WAGES ACT OR RULE 137,
COVINSKY SHOULD HAVE BEEN AWARDED FEES FOR THE COUNTERCLAIM AND THE EMPLOYMENT CONTRACT CLAIM
HMC next objects to the trial court’s award of attorney’s fees under
the Illinois Attorneys fees in Wage Actions Act (705 ILCS 225/1). HMC
suggests that the court should have rejected the fee request “in toto”
(HMC’s Brief p. 16).
This issue is also the subject of Covinsky’s appeal arguing that the
court erred in limiting the approximately $70,000 in legal fees incurred
as of the motion date to an award of only approximately $11,000.6
The pertinent section of the Illinois Attorneys fees in Wage Actions
Act, 705 ILCS 225/1, provides:
Whenever a . . employee brings an action for wages earned and due and owing according to the terms of the employment, and establishes by the decision of the court or jury that the amount for which he or she has brought the action is justly due and owing, and that a demand was made in writing at least 3 days before the action was brought, for a sum not exceeding the amount so found due and owing, then the court shall allow to the plaintiff a reasonable attorney fee of not less than $ 10, in addition to the amount found due and owing for wages, to be taxed as costs of the action.
There is no factual dispute that Covinsky made his demand in the
amount of approximately $255,528 at least three days prior to the
6 It should be noted that supplemental Bills of Costs are allowed under the Illinois Attorney’s Fees in Wage Actions Act including reasonable attorneys fees incurred in this appeal.
50
commencement of the action and such demand was less than the
amount awarded by the court of $311,653. (R. C387). Thus the only
issue is whether the court’s award of attorney’s fees was “reasonable”
under the facts of this case.
This Court has interpreted this Act to be a mandatory requirement
to order payment of attorney fees. Schakleton v. Federal Signal Corp.,
196 Ill. App. 3d 437, 143 Ill. Dec. 309 (1st Dist. 1989). There is nothing
in the statute that appear to limit attorney fees to just a recovery action
for the wage, and not for defense of counterclaim, or prosecution of
alternate legal theories with the exact same evidence (like proof of
payment due under a contract action). Covinsky submits the trial
court’s reasoning would encourage employers to interject frivolous
counterclaims to defeat or derail an employees Wage Act claim. Thus,
public policy should require that the court grant “reasonable” attorney
fees for the defense of any such frivolous counterclaim as well as the
prosecution of the Wage Act claim. To do otherwise would not make
terminated employees whole and defeat the purpose of the Act.
Alternatively, Covinsky asks this court to review the trial court’s
denial of attorney fees under Supreme Court Rule 137 relative to the
defense of the counterclaim. Proper notice was given to HMC requesting
that they withdraw the Counterclaim or that sanctions would be sought,
that the counterclaim was without merit and was not brought in good
51
faith. HMC refused to withdraw the claim and continues to prosecute its
frivolous claim even before this court.
When called upon to determine whether Rule 137 sanctions are
appropriate in a given case, the appellate court must employ an abuse of
discretion standard of review. Baker v. Daniel S. Berger, Ltd., 323 Ill. App.
3d 956, 753 N.E.2d 463 (1st Dist. 2001). A trial court abuses its
discretion when no reasonable person could take the view it adopted.
Technology Innovation Center, Inc. v. Advanced Multiuser Technologies
Corp., 315 Ill. App. 3d 238, 732 N.E.2d 1129, 247 Ill. Dec. 797 (1st Dist.
2000). "When reviewing a decision on a motion for sanctions, the primary
consideration is whether the trial court's decision was informed, based
on valid reasoning, and follows logically from the facts." Technology
Innovation Center, Inc., 315 Ill. App. 3d at 244.
The test to be utilized in determining whether the rule has been
violated is an objective standard of what was reasonable under the
circumstances at the time the assertions were made. Wittekind v. Rusk,
253 Ill. App. 3d 577, 192 Ill. Dec. 467, 625 N.E.2d 427 (3rd Dist. 1993),
appeal denied, 155 Ill. 2d 577, 198 Ill. Dec. 554, 633 N.E.2d 16 (1994).
The standard to be employed is an objective one; it is not sufficient that
the attorney honestly believed the case was well-grounded in fact or law.
Whitmer v. Munson, 335 Ill. App.3d 501, 513 (1st Dist. 2002).
Furthermore, an attorney has an obligation to promptly dismiss a
lawsuit once it becomes evident that it is baseless. Shea, Rogal & Assocs.
52
v. Leslie Volkswagen, Inc., 250 Ill. App. 3d 149, 190 Ill. Dec. 208, 621
N.E.2d 77 (1st Dist. 1993).
On October 11, 2007, Covinsky, in compliance with the trial
court’s order of October 1, 2007, filed a Motion for Approval of its First
Bill of Costs. The fee petition sought legal fees in excess of $70,000 to
prosecute the wage action and defend the counterclaim. The fee petition
and reply are contained in the Appendix at A122 and A154. In its
February 19, 2008 order, the trial court approved only approximately
$11,000 of the total of approximately $70,000 in fees and expenses
claimed based on the limitation of the claim to Count II legal fees only.
(A164).
As this Court is aware, “the most important factor in determining
whether fees are reasonable is the amount of time necessarily spent on
the case. Ciampi v. Ogden Chrysler Plymouth, Inc., 262 Ill. App. 3d 94,
634 N.E.2d 448 (2nd Dist. 1994). Notably, Hannah, at no point,
disputed the reasonableness of either the time or the rate but only the
matters worked upon.
Since proof of the contract allegedly breached in Count I was
required to prove the Wage Act Claim set forth in Count II, it is submitted
that the claims are based on the same evidence. Thus fees to prosecute
both counts should have been granted. In short, like Siamese twins,
Counts I and Count II are inseparably intertwined. Thus, all time and
expense related to Count I should have been allowed in the fee petition
53
since the same effort and proof were required to proceed if Count II were
the only count of the Complaint.
Such argument was recognized in claims for attorneys’ fees under
the Consumer Fraud Act. In Ciampi v. Ogden Chrysler Plymouth, Inc.,
262 Ill. App. 3d 94, 634 N.E.2d 448 (2nd Dist. 1994) the Plaintiff filed
suit, alleging fraud under the Consumer Fraud Act (815 ILCS 505/1) and
common law fraud for changing a car’s odometer. It has been noted that
a common law fraud claim encompasses all elements of a statutory
consumer fraud claim, except that common law fraud requires a
heightened mental state and reliance requirement.7 In Ciampi, the jury
returned a verdict in Plaintiff’s favor as to the common law fraud. The
Consumer Fraud Act was tried by the court, which also entered
judgment against Defendant on that count. In Ciampi, the trial court
awarded Plaintiff attorney fees under the Consumer Fraud Act for time
on both the statutory fraud, common law fraud, and the odometer claim.
On appeal, Defendant argued the trial court awarded Plaintiff attorney’s
fees spent on all claims, and such fees should be limited to the
prosecution of the Consumer Fraud Act claim. The appellate court
affirmed the trial court’s decision, stating “[w]e agree with [Plaintiff’s]
argument that the fraud claims and the odometer claim were based on
7 See, e.g., Robert W. Gray, Sr., “The Applicability of Constructive Eviction, Implied Warranty of Habitability, Common-Law Fraud, and the Consumer Fraud Act to Omissions of Material Facts in a Commercial Lease,” 38 J. MARSHALL L. REV. 1289 (2005)
54
the same evidence and time spent on each issue could not be
distinguished.” 262 Ill. App. 3d at 115.
In the case at bar, as in a case proving consumer fraud and
common law fraud (Ciampi) all elements of Count I are included in Count
II. To prevail on Count I, Covinsky was required to show that an
employment contract existed, that he was entitled to payment under the
contract, and that payment was not made. To prevail under Count II,
Covinsky was required to show those same elements plus 1) the required
statutory demand and 3 day notice in an amount equal to or less than
the amount found to be due and owing; 2) that HMC and Donald Hannah
(as an officer with knowledge of the contract and its non-payment) were
Covinsky’s employers, 3) that HMC was able to pay the debt at the time it
arose, and 4) (for Donald Hannah personally) that Donald Hannah knew
it was not paid and had control over its payment. Thus all the elements
of Count I were required in order to prevail on Count II.
Like Ciampi (and Covinsky), in TruServ Corp. v. Ernst & Young, LLP,
376 Ill. App.3d 218 (1st Dist. 2007), judgment was entered in Ernst &
Young’s favor on both the count with less elements, Consumer Fraud,
and the count with more elements, common law fraud. The arbitration
panel awarded, and the trial court affirmed, shifting Ernst & Young’s
attorney fees to Truserv for both the common law fraud claim and the
Consumer Fraud claim. Id. at 235. The First District Appellate Court
rejected Truserv’s appeal and held:
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TruServ contends that the award was improper because Ernst & Young did not demonstrate that the requested attorney fees and costs were attributable to work specifically related to the consumer fraud claim. This argument is unpersuasive. Illinois courts have held that when a party prevails on multiple claims, including a claim for consumer fraud, an award of all reasonable attorney fees and costs is proper where the claims were "based on the same evidence and the time spent on each issue could not be distinguished." Ciampi v. Ogden Chrysler Plymouth, Inc., 262 Ill. App. 3d 94, 115, 634 N.E.2d 448, 199 Ill. Dec. 609 (1994); see also Berlak v. Villa Scalabrini Home for the Aged, Inc., 284 Ill. App. 3d 231, 238-39, 671 N.E.2d 768, 219 Ill. Dec. 601 (1996). In awarding Ernst & Young $ 12,191,000 pursuant to section 10a(c) of the Consumer Fraud Act, the arbitration panel specifically found that the attorney fees and costs incurred in defending the consumer fraud count could not be differentiated from those incurred in defending the other counts because all of TruServ's claims were premised on the same central factual issues. Therefore, the arbitration award is not subject to vacatur on this ground where no gross error of law is apparent on the face of the award. Id.
As shown in Covinsky’s prove up and Motion, and reiterated here, “the
attorney fees and costs incurred [in prosecuting Count I] could not be
differentiated from those incurred in [prosecuting Count II] because all of
[Covinsky’s] claims were premised on the same central factual issues.”
Id.
Likewise the reasonable attorney fees to defend the counterclaim
filed by HMC should be allowed as well under the Attorney’s Fees in
Wage Actions Act. It should be noted that HMC did not file a Second
Amended Counterclaim although given leave to do so. HMC filed its
original counterclaim, which was stricken, and a First Amended
Counterclaim, which was also dismissed with leave to refile if it could
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cure the defects relating to the Business Judgment Rule. Covinsky has
always contended and continues to argue that such counterclaims were
raised without merit and for the sole purpose of delay in violation of
Supreme Court Rule 137. Covinsky included his time relative to the
defense of the counterclaim in its bill of costs since defense of the
counterclaim was an integral part of the prosecution of Covinsky’s claim.
To deny Covinsky reasonable attorney fees to defend a frivolous
counterclaim would deny him full recovery of what he is due. But for
HMC’s obstructionist behavior, such costs would never have been
incurred. A counterclaim is often an integral part of a defense to the
wage claim. In order to be successful on the wage claim, the
counterclaim had to be responded to and quashed. This was done and it
is submitted that the trial court’s denial of fees to defend the frivolous
counterclaim was error.
While reversal of the attorney fees for the contract action and the
counterclaim seems warranted under the de novo review analysis of
statutory interpretation, even under the more stringent standard of Rule
137 Covinsky submits the trial court’s decision denying reasonable
attorney’s fees for defense of the counterclaim was in error. As stated by
this court in Whitmer v. Munson, supra at 516-7:
We have held that, even where the initiating party "'honestly believed' his or her case was well grounded in fact or law," it is still unreasonable to file the suit if its falsity could have been uncovered through reasonable inquiry. Fremarek, 272 Ill. App. 3d at 1074-75, 651 N.E.2d at 601. In this case, Whitmer initiated a lawsuit based on facts that he had to have known were false.
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. . . Accordingly, we find that the trial court abused its discretion in relying on these factors to deny the Munsons' motion for sanctions and that a reasonable person, relying on the language and guidance of Rule 137, could not have reached the court's conclusion.
Here it was apparent Donald C. Hannah did not bring his counterclaim
in good faith but merely to further harass Covinsky and to increase the
cost of litigation. The counterclaim is totally without factual basis,
frivolous and was properly dismissed by the trial court for failure to state
a cause of action. Reasonable attorney’s fees should have been awarded
for Covinsky’s defense either under the Attorney’s fees in Wage Actions
Act or under Rule 137 and for prosecution of the contract action. The
trial court’s decision was in error.
VII THE TRIAL COURT ERRED IN REFUSING TO ENTER JUDGMENT AGAINST DONALD C. HANNAH PERSONALLY AS A “RESPONSIBLE
PERSON” UNDER THE WAGE ACT.
In its ruling of February 19, 2008, the trial court dismissed Donald
C. Hannah from personal liability. Covinsky timely appealed this order.
It is submitted that, as a matter of law, Donald C. Hannah was a
responsible person under the Illinois Wage Act and should be held
personally liable, jointly with HMC.
A. DONALD HANNAH IS AN OFFICER, WITH KNOWLEDGE OF HANNAH
MARINE’S DEBT TO COVINSKY FOR WAGES, AND HAS FAILED TO CAUSE
PAYMENT TO BE MADE
The issue of an officer’s personal responsibility for failure to pay an
employee his wages was recently discussed in Andrews v. Kowa Printing
58
Corp.¸ 217 Ill. 2d 101 (2005). Under those authorities and these facts,
Covinsky submits Donald Hannah’s personal liability is clear for HMC’s
failure to pay Covinsky’s wages.
The Illinois Wage Payment Act, 820 ILL. COMP. STAT. 115, et seq.,
provides:
Sec. 5. Every employer is required to pay the final compensation of separated employees in full, at the time of separation, if possible, but in no case later than the next regularly scheduled payday for such employee. Sec. 13. Any officers of a corporation or agents of an employer who knowingly permit such employer to violate the provisions of this Act shall be deemed to be the employers of the employees of the corporation.
The Andrews Court specifically interpreted these statutory
sections, and analyzed whether Kowa Printing’s president and sole
shareholder, Thomas Kowa, may be held personally liable where Kowa
Printing’s accountant embezzled sufficient funds to put Kowa Printing in
dire financial straits, and Kowa, nonetheless, paid all salaries while he
had control over corporate assets. Andrews v. Kowa Printing Corp., 217
Ill. 2d at 104. While the Illinois Supreme Court reversed the trial court’s
decision finding Thomas Kowa personally liable, it did so because Kowa
was not in control of the assets when the company failed to pay its debts.
In response to the accountant’s actions - and the subsequent bank
default and foreclosure notices - Thomas Kowa:
entered into negotiations and eventually executed a forbearance agreement . . . [whereby] Thomas Kowa agreed to personally guarantee all of Kowa Printing's loans [to Bank Illinois - for the sole purpose of allowing] . . . the corporation
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time to find a buyer, to try to save all the jobs and the money that was involved, and get appraisals of the equipment, get the company in as good a position for a seller as possible. Id.
Subsequent to Thomas Kowa’s personal guarantee of bank loans to
continue operations after an intervening criminal act by an unrelated
party, Kowa negotiated with a buyer and required the buyer to maintain
the current staff. Id. The buyer was negotiating wage payments with the
union for the Plaintiff, Nancy Andrews, when “Bank Illinois foreclosed on
the loans, seized the Kowa Printing facility, and sent plaintiffs home.
From that point forward, neither Thomas Kowa nor Huston-Patterson [a
related entity] had access to Kowa Printing's assets or accounts. The
parties stipulate that plaintiffs never received their final vacation and
severance pay.” Id. at 105. Additionally, the Andrews trial court found,
no party on appeal disputed, and the Illinois Supreme Court specifically
relied on the fact that:
as long as Thomas Kowa was in control of Kowa Printing and its accounts, plaintiffs were paid on time and in full, even at the expense of other Kowa Printing creditors. As importantly, the specific Wage Act violation alleged in this case did not occur until after Thomas Kowa lost control of the business. Plaintiffs allege that Thomas Kowa violated Section 5 of the Wage Act by permitting the unlawful withholding of their accrued vacation and severance pay. Section 5, however, provides that an employee's final compensation is payable "at the time of separation, if possible, but in no case later than the next regularly scheduled payday for such employee." 820 ILCS 115/5 (West 2004). At the time of plaintiffs' separation from Kowa Printing, Thomas Kowa was no longer in control of Kowa Printing. Plaintiffs' employment was terminated on April 16, 1998, after Bank Illinois seized Kowa Printing and all of its assets. At this point, Bank Illinois was calling the shots, and a violation of section 5
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simply was not within Thomas Kowa's ability to permit, knowingly or otherwise. Id at 112-113.
In rebuking Nancy Andrews’ final argument to attempt to hold Thomas
Kowa liable, the Illinois Supreme Court noted and summarized the
relevant evidence showed:
that, upon receiving the April 9, 1997, default notice, Thomas Kowa immediately negotiated a forbearance agreement "to allow the corporation time to find a buyer, to try to save all the jobs." Within the forbearance period, Thomas Kowa located a buyer who was willing both to continue operations and to retain plaintiffs under their existing terms of employment, provided a compromise could be reached concerning plaintiffs' accrued vacation time. On the day of foreclosure, the buyer and plaintiffs' union were one concession away from a deal that would secure both the company's future and plaintiffs' continued employment. If an agreement had been reached, operations would have continued, plaintiffs would have kept their jobs, and this case never would have been filed. And once negotiations broke down, it was too late for Thomas Kowa to do anything, as Bank Illinois immediately moved in and seized all of Kowa Printing's assets. Nothing in this story supports the inference that Thomas Kowa knowingly set out to deprive plaintiffs of their accrued vacation and severance pay. If anything, the evidence suggests that Thomas Kowa made every effort to ensure that plaintiffs' livelihoods survived Kowa Printing's unexpected financial downturn. Id. at 113.
In short, and not surprisingly, the Illinois Supreme Court reversed on
personal liability because Thomas Kowa did everything an employee, a
legislature, or a court could ask of an individual to protect the employee’s
wages and continuing employment.
Clearly, unlike Thomas Kowa, where “Nothing [supported] the
inference that Thomas Kowa knowingly set out to deprive plaintiffs of
their accrued vacation and severance pay” everything in the instant
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matter shows that Donald Hannah, from the instant he took control of
Hannah Marine Corporation, has made “every effort to ensure” that
Covinsky did not get paid. Andrews, 217 Ill. 2d at 112-113. Since the
moment Donald Hannah undertook to purchase Hannah Marine, he has
continually attempted to “shield [himself] from responsibility” for
Hannah’s wage and salary debt. Id. at 108.
Unlike Andrews, Donald Hannah admitted that at all times
Hannah Marine had the wherewithal to make the required severance
payments. Hannah submitted an affidavit from William Piotrowski, its
Certified Public Accountant, to the affect that HMC currently had
tugboats and barges valued over $21million, its bank debt was only
$14million, and that HMC was able to pay its bills. (R. C403). This
affidavit was submitted in response to Covinsky’s assertion that Hannah
should be liable for sanctions; that the counterclaim filed was without
merit and filed for an improper purpose, i.e., to delay enforcement of the
Judgment while Donald Hannah depleted the assets of Hannah Marine.
It is submitted that the evidence that Donald Hannah had personal
knowledge of Hannah Marine’s obligation under the contract are clear:
a) Donald Hannah was a director in 1997 when the contract was entered into; b) In his “due diligence” it is clear that Donald Hannah reviewed HMC’s liability under the employment contract; c) Covinsky, in a series of emails dated January 2006 through May 2006, and presented to the Court in Hannah’s Motion to Dismiss specifically discussed
62
Hannah Marine’s obligations to Covinsky under his employment contract; d) At corporate meetings before May 10, 2006, and also raised in Hannah’s original Motion to Dismiss, Covinsky put Donald Hannah on notice that Hannah Marine owed Covinsky “over $400,000” under his contract; e) Covinsky, upon termination of his employment, immediately sent a demand notice for his wages to Donald Hannah and Hannah Marine Corporation which letter was delivered to Donald Hannah personally;
Likewise, Covinsky submitted evidence to the trial court that
Donald Hannah was divesting assets from the corporation for his
personal benefit for the possible detriment of judgment creditors
such as Covinsky. Among the arguments and evidence presented
to the trial court were the following assertions from Kathy
Bowman, the former controller of HMC found at R. C344 of the
record:
a) Donald Hannah personally withdrew over $1,500,000 in cash from HMC following the change in ownership between May 10, 2006 and May 20, 2007; b) Donald Hannah draws, at least $70,000 per month from Hannah Marine Corporation for his personal obligations; c) Donald Hannah’s son, David Hannah, received a $250,000 bonus from Hannah Marine in August 2006; d) David Hannah also receives a monthly stipend of at least $10,000 from Hannah Marine;
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The record is clear that Donald Hannah received the official
demand letter from Covinsky prior to the commencement of this action.
The affidavit, at R. C387 (appendix A 118), states:
That on or about June 6, 2006, upon the advise of my attorney, Ralph J. Schindler, Jr., I prepared and signed the attached Demand Letter for the payment of wages due me following my termination of employment as President of Hannah Marine Corporation. A true and correct copy of such letter is attached as Exhibit A to this Affidavit. That I mailed the Demand Letter by certified mail, Return Receipt Requested on or about the same date.
Thus, it is clear that Donald Hannah personally was served with
Covinsky’s statutory demand for payment of his wages but chose to
ignore the demand. Under the statute, he must be held personally liable.
B. DONALD HANNAH CANNOT BE EXCUSED FROM LIABILITY BECAUSE HE
CLAIMS TO HAVE DISPUTED THIS CASE IN GOOD FAITH
On February 7, 2007, the trial court announced it had completed
an exhaustive review of Covinsky’s employment contract and could not
find any support in the contract for HMC’s refusal to pay Covinsky’s
severance pay. (A73). In short, the trial court announced this was not a
close case. This was a fairly simple reading of the plain language of the
contract.
Not only does Donald Hannah’s argument fly in the face of the
facts, such a position would, of course, nullify the statute and its
provisions. The policy expressed in the statute is clear – responsible
officers of a corporation must pay employees what they are due, when
they are due, or be held personally liable, if you control sufficient assets
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to make payments. To allow corporate officers to have a new defense –
Hannah’s claimed subjective “good faith” belief in his “legitimate” dispute
– would mean every corporate officer could simply claim they had a good
faith belief and the statute is completely ineffective. There is no such
defense provided by the statute, or the case law, and this Court should
not invent a new one for Donald Hannah.
Before the trial court Donald Hannah presented Andrews v. Kowa
Printing Corp., 217 Ill. 2d 101 (2005), discussed above, as support for his
proposition that the Act does not cover his refusal to pay because “the
amount claimed is legitimately disputed.” (R. C512). Andrews, as the
above discussion clearly shows, does not support Donald Hannah’s
position; Andrews was about Kowa’s control of assets and ability to pay
at the time the debt arose. Thomas Kowa had no control over the funds
when the liability was incurred and therefore had no personal liability for
its non-payment. In the instant matter, Donald Hannah has remained in
control of Hannah Marine’s ability to pay since his acquisition of control
on May 10, 2006 and his termination of Covinsky’s employment. That is
not in dispute.
Moreover, Donald Hannah’s argument to the trial court that
finding him personally liable would have a “chilling effect on corporate
decision-making” is superfluous. (R. C513). The chilling effect on
employment of allowing corporate officers to escape personal liability on
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employee’s wages is much more likely than any chilling effect on
corporate officers for simply following the law.
Finally, Donald Hannah should have no worries, so long as his
representations to the trial Court in opposition to Covinsky’s request for
sanctions are true. In his affidavit – and that of his accountant –
Hannah represented to the trial court that HMC remains solvent. If that
is the case, Donald Hannah need only have HMC pay the judgment (as
the Act requires) and there is no more debt owed by Donald Hannah
personally. The liability is joint and several. To the extent HMC pays the
liability, Donald Hannah’s debt is discharged. As sole shareholder and
CEO, he has the ability to cause HMC to fulfill its obligations under the
contract. He holds the key to his own release from personal liability.
Any other ruling violates the public policy of Illinois as set forth in the
Illinois Wage Payment Act.
VIII CONCLUSION
In summary, Covinsky requests this Court affirm the trial court on
all issues except the limitation of attorney fees and costs and Donald
Hannah’s personal liability. The golden parachute was triggered,
demand was properly made, and damages properly assessed. HMC had
no legitimate counterclaim, waived any right to jury trial, and had no
right to discovery on the dismissed counterclaim. Attorney fees spent on
defense of the counterclaim and prosecution of the contract action,
inextricably intertwined with the Wage Payment Act, are recoverable
66
under the Act and therefore a reversal and remand for findings on those
fees seems proper. Finally, Donald Hannah admitted he was in charge of
HMC’s assets, which were sufficient to pay Covinsky’s wages, and that he
refused to make payment. Covinsky, therefore, asks this Court to
recognize his personal liability under the Act and reverse the trial court.
Respectfully Submitted,
Ralph J. Schindler, Jr. Attorney for Jeffrey N. Covinsky Law Offices of Ralph J. Schindler, Jr. 53 W. Jackson Blvd., Suite 818 Chicago, IL 60604 (312) 554-1040
CERTIFICATE OF COMPLIANCE
I certify that this brief conforms to the requirements of Rules
341(a) and (b). The length of this brief, excluding the pages containing
the Rule 341(d) cover, the Rule 341(h)(1) statement of points and
authorities, the Rule 341(c) certificate of compliance, the certificate of
service, and those matters to be appended to the brief under Rule 342(a),
is 66 pages.
Respectfully submitted, _______________________ Ralph J. Schindler, Jr. The Law Office of Ralph J. Schindler, Jr. 53 West Jackson Boulevard, Suite 818 Chicago, IL 60604 (312) 554-1040 Attorneys for Jeffrey N. Covinsky Date: September 5, 2008
CERTIFICATE OF SERVICE
The undersigned attorney certifies that three copies of the attached
INITIAL BRIEF, RESPONSE BRIEF FOR PLAINTIFF-APPELLEE / CROSS-
APPELLANT JEFFREY N. COVINSKY, and three copies of the SEPARATE
APPENDIX FOR PLAINTIFF-APPELLEE / CROSS-APPELLANT JEFFREY
N. COVINSKY, were served upon:
Paul J. Kozacky Kozacky & Weitzel, P.C.
Attorneys for Hannah Marine Corporation and Donald C. Hannah
55 West Monroe Street, Suite 2400 Chicago, IL 60603
by personal service of such copies to the receptionist at such office on or
before 5:00 p.m. on the 5th day of September 2008.
Respectfully submitted, _______________________ Ralph J. Schindler, Jr. The Law Office of Ralph J. Schindler, Jr. 53 West Jackson Boulevard, Suite 818 Chicago, IL 60604 (312) 554-1040 Attorneys for Jeffrey N. Covinsky
Date: September 5, 2008