Amendola v. Bayer

• Decision Date: 24 July 1990
• Docket Number: No. 89-1218,89-1218
• Parties: Anthony J. AMENDOLA, Plaintiff-Appellant, v. Gary R. BAYER, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 760

907 F.2d 760

18 Fed.R.Serv.3d 305

Anthony J. AMENDOLA, Plaintiff-Appellant, v. Gary R. BAYER, Defendant-Appellee.

No. 89-1218.

United States Court of Appeals Seventh Circuit.

Argued Nov. 3, 1989.

Decided July 24, 1990.

Frederic F. Brace, Jr., C. Timothy Smoot, Kristi L. Browne, Chicago, Ill., for plaintiff-appellant.

Carol J. Gerner, Jerald Esrick, Craig M. White, Wildman, Harrold, Allen & Dixon, Chicago, Ill., for defendant-appellee.

Before BAUER, Chief Judge, and FLAUM and KANNE, Circuit Judges.

KANNE, Circuit Judge.

The plaintiff-appellant, Anthony J. Amendola, alleged that the defendant-appellee, Gary R. Bayer, breached an oral agreement between them and breached his fiduciary duty to Amendola when Bayer abandoned a group attempting to buy out a company. The district court granted summary judgment in favor of Bayer. We affirm.

I.

This case arises out of the sale of Quaker Oats Company's in-house advertising agency and wholly-owned subsidiary called AdCom, Inc. In late 1984, Quaker considered selling AdCom. The company asked Bayer, president of AdCom, to determine suitable merger candidates for AdCom. One of the advertising agencies that Bayer contacted was Backer & Spielvogel ("B & S"). After meeting with representatives of B & S, Bayer determined that B & S would be a good merger partner.

Simultaneously, Bayer spoke with Amendola about the potential sale of AdCom. Amendola and Bayer had known each other for several years because they had previously worked at the same advertising firm. The two men discussed the possibility of forming a group and using a leveraged buy out ("LBO") to purchase AdCom.

Soon thereafter, B & S made an offer to Quaker officials to purchase AdCom. The offer was rejected. Later, the LBO group made an offer to Quaker to purchase AdCom. That offer also was not accepted. The competition between B & S and the LBO group continued for several months. Shortly before June of 1984, Bayer had concluded that a merger with B & S was better for both AdCom and Quaker. In June of 1984, representatives from B & S and Quaker reached an agreement in principle for the sale of AdCom to B & S. The merger was completed to form a new company called Backer & Spielvogel-Chicago.

On October 30, 1985, Amendola filed a complaint in district court against Bayer and others. ¹ The complaint alleged that Bayer asked Amendola to contribute his business expertise and participate in the LBO of AdCom. It further alleged that Amendola and Bayer reached an oral agreement in which Amendola would assist with the LBO in exchange for the right to purchase an equity interest in the new company and hold the positions of Chairman of the Board and Chief Operating Officer with a three-year employment contract.

Counts One and Two of the complaint were against Bayer and incorporated the above allegations. Count One alleged that Bayer breached the oral agreement and requested damages for lost income and equity in the new company. Count Two alleged that as a "promoter" of the LBO, Bayer owed a fiduciary duty to Amendola which was breached when Bayer abandoned the LBO. Count Two requested equitable relief in the form of a constructive trust on the interest held by Bayer in Backer & Spielvogel-Chicago. Bayer filed a motion to dismiss Count Two. The court denied the motion.

Subsequently, Bayer filed a motion for summary judgment on both counts. Supporting memoranda and depositions were filed by both parties. In his memorandum in opposition to the motion, Amendola argued that the oral agreement alleged in Count One could be enforced by means of a constructive trust.

The district court granted the motion. Regarding Count One, the court held that (1) the oral agreement was not enforceable in law against Bayer because it did not comply with the Illinois Statute of Frauds, and (2) the requirements for the imposition of a constructive trust were not satisfied. Regarding Count Two, the court held that no reasonable jury could find by clear and convincing evidence that a fiduciary relationship by implication existed between Amendola and Bayer. Amendola filed a motion to reconsider the grant of summary judgment and a motion for leave to file an amended complaint. The court denied both motions.

On appeal, we will address two issues: (1) whether the grant of summary judgment in favor of Bayer on both counts was appropriate; and (2) whether the district court abused its discretion by denying Amendola's motion for leave to amend his complaint.

II.

A. Count One

Amendola does not contest the district court's ruling that the oral agreement is unenforceable in law. Instead, he argues that the oral agreement could be enforced by means of a constructive trust. An issue which we will address preliminarily concerns the requirements under Illinois law for the imposition of a constructive trust. The district court interpreted Illinois law to require, in the absence of coercion, duress, or mistake, either (1) fraud, or (2) the abuse of a fiduciary relationship. Amendola argues here, as he did in his motion to reconsider, that recent Illinois decisions have expanded the circumstances under which a constructive trust may be imposed to include all situations when it is necessary to correct unjust enrichment. Chicago Park Dist. v. Kenroy, Inc., 107 Ill.App.3d 222, 63 Ill.Dec. 134, 437 N.E.2d 783 (1982); Zack Co. v. Sims, 108 Ill.App.3d 16, 63 Ill.Dec. 732, 438 N.E.2d 663 (1982); Roth v. Carlyle Real Estate, 129 Ill.App.3d 433, 84 Ill.Dec. 699, 472 N.E.2d 836 (1984); People ex rel. Daley v. Warren Motors, Inc., 114 Ill.2d 305, 102 Ill.Dec. 400, 500 N.E.2d 22 (1986).

All of the cases cited by Amendola for expanding the circumstances under which a constructive trust may be imposed are from lower courts in Illinois. Generally, language in these cases suggests that wrongful conduct other than fraud or an abuse of a fiduciary relationship can warrant the imposition of a constructive trust if equity so requires. The Supreme Court of Illinois has not expanded the circumstances under which a constructive trust may be imposed. Indeed, it recently said:

A constructive trust is generally imposed in two situations: first, where actual or constructive fraud is considered as equitable grounds for raising the trust and, second, where there is a fiduciary duty and a subsequent breach of that duty. A constructive trust may also arise when duress, coercion or mistake is present. Some form of wrongdoing is a prerequisite to the imposition of a constructive trust.

A constructive trust will not be imposed unless the complaint makes specific allegations of wrongdoing, such as fraud, breach of fiduciary duty, duress, coercion or mistake. Furthermore, the grounds for imposing a constructive trust must be so clear, convincing, strong and unequivocal as to lead to but one conclusion.

Suttles v. Vogel, 126 Ill.2d 186, 127 Ill.Dec. 819, 822-23, 533 N.E.2d 901, 904-05 (1988) (citations omitted); see also, Charles Hester Enters., Inc. v. Illinois Founders Ins. Co., 114 Ill.2d 278, 102 Ill.Dec. 306, 499 N.E.2d 1319 (1986). Thus, we conclude that the district court correctly applied the law of Illinois as enunciated by the Supreme Court of Illinois. In any event, we note that the case before us does not turn on the differences between the Supreme Court of Illinois decisions and the lower Illinois court decisions. Despite some broad dicta, the lower court cases have retained a requirement of wrongful conduct for a constructive trust to be imposed. As discussed below, Count One does not include allegations of this type of wrongful conduct.

Count One alleged that Amendola performed his promises under the agreement with Bayer, but Bayer breached the agreement by abandoning the LBO. As a result, Amendola lost future income and equity in the company. The only wrongful conduct alleged in Count One is the breach of an (unenforceable) agreement by Bayer. ² This conduct is not analogous to the wrongful activity that has been found to warrant the imposition of a constructive trust. Indeed, a breach of contract specifically has been found to not warrant the imposition of a constructive trust. Evans v. Berko, 408 Ill. 438, 97 N.E.2d 316 (1951); Bachewicz v. American Nat. Bank and Trust, 126 Ill.App.3d 298, 81 Ill.Dec. 294, 306, 466 N.E.2d 1096, 1108 (Ill.App.1984), rev'd on other grounds, 111 Ill.2d 444, 95 Ill.Dec. 827, 490 N.E.2d 680 (1986). Thus, we affirm the grant of summary judgment on Count One.

B. Count Two

Count Two of the complaint alleged that a fiduciary duty arose between Bayer and the participants in the attempted LBO, including Amendola, because Bayer was the promoter of the LBO. Bayer allegedly breached his fiduciary duty to Amendola by abandoning the LBO and uniting with B & S to acquire AdCom. Amendola requested that a constructive trust be imposed upon Bayer's interest in Backer & Spielvogel-Chicago for the benefit of Amendola.

Clearly, the breach of a fiduciary duty, if proved, would warrant the imposition of a constructive trust under Illinois law. Amendola conceded in an early pleading that he did not allege the existence of a fiduciary relationship as a matter of law. Thus, as the district court properly concluded, a claim under Count Two would have to be based on a fiduciary relationship by implication. ³ The existence of such a relationship must be proved by clear and convincing evidence. Ray v. Winter, 67 Ill.2d 296, 10 Ill.Dec. 225, 229, 367 N.E.2d 678, 682 (1977).

Under Illinois law, proof of a fiduciary or confidential relationship requires a showing that one party has reposed trust and confidence in another who thereby gains influence and superiority over the other. Ray, 10 Ill.Dec. at 229, 367 N.E.2d at 682; Metropulos v. Chicago Art Glass, Inc., 156 Ill.App.3d 727, 109 Ill.Dec. 229, 235, 509 N.E.2d 1068, 1074 (1987). The factors to be considered in determining the existence of a fiduciary or confidential relationship are the degree...