Bourke v. Dun & Bradstreet Corp.

• Decision Date: 27 October 1998
• Docket Number: No. 98-1163,98-1163
• Citation: 159 F.3d 1032
• Parties: 137 Lab.Cas. P 58,525 Diana M. BOURKE, Jane B. Perrin, and Michael S. Geltzeiler, Plaintiffs-Appellants, v. The DUN & BRADSTREET CORPORATION, a Delaware corporation having its principal place of business in New Jersey, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1032

159 F.3d 1032

137 Lab.Cas. P 58,525

Diana M. BOURKE, Jane B. Perrin, and Michael S. Geltzeiler Plaintiffs-Appellants, v. The DUN & BRADSTREET CORPORATION, a Delaware corporation having its principal place of business in New Jersey, Defendant-Appellee.

No. 98-1163.

United States Court of Appeals Seventh Circuit.

Argued Sept. 24, 1998.

Decided Oct. 27, 1998.

Michael R. Levinson (argued), Seyfarth, Shaw, Fairweather & Geraldson, Chicago, IL, for Plaintiffs-Appellants.

Mark E. Ferguson (argued), Adam L. Hoeflich, Bartlit, Beck, Herman, Palenchar & Scott, Chicago, IL, for Defendant-Appellee.

Before CUMMINGS, BAUER, and DIANE P. WOOD, Circuit Judges.

CUMMINGS, Circuit Judge.

This diversity case concerns an issue of contract interpretation to be decided under Illinois law. Diane M. Bourke, Jane B. Perrin, and Michael S. Geltzeiler allege that their former employer, Dun & Bradstreet Corp. ("D & B"), owes them money under a contractual incentive compensation plan. They sued D & B for breach of contract, violation of the Illinois Wage Payment and Collection Act, 820 Ill. Comp. Stat. 11511, et seq., and unjust enrichment. At issue was whether the applicable provision of the contract could be interpreted to support their claims. Finding that it could not, the district court held that the first two counts failed to state a claim on which relief could be granted, Fed. R. Civ. Pro. 12(b)(6), and that the third was therefore barred by state law. Accordingly, it dismissed Bourke's, Perrin's, and Geltzeiler's case with prejudice on the briefs. Bourke v. Dun & Bradstreet Corp., No. 97-C-4981. Bourke and her fellow plaintiffs appealed. We affirm.

I. Background

Bourke, Perrin, and Geltzeiler were employees and officers of some D & B subsidiaries, including NCH Promotional Services ("NCH"). D & B underwent a reorganization in November 1996, splitting into three separate companies. Appellants' employment contract included an incentive compensation plan, the Key Employees Performance Plan (the "Plan"), the terms and application of which are at issue here. The Plan gave covered employees the opportunity to earn a great deal of money in the form of "performance units." These units had greater or lesser value depending on, among other things, participants attaining certain performance criteria and targets within an award period. Appellants' targets were specified in individual grant letters. The letters stated that participants' performance units would be paid out at the end of an award period under different bonus levels, described as "floor," "target," or "200% payout." The letters also say that "additional bonus opportunity exists beyond the 200% mark."

The Plan also provided that if a subsidiary underwent a "change in control," such as a reorganization, its beneficiaries would nonetheless receive some payment. Precisely how much is the point of contention in this case. The key language, § 6(a) of the Plan, says that upon a change in control, "[Performance] Units held by [a Plan participant] ... shall immediately become payable in full, with the final value of such units determined as though performance criteria and targets for the full Award Period had been achieved." It is undisputed that D & B's reorganization was a change in control which triggers § 6(a). The question is rather whether D & B did what was required of it under the correct interpretation of the provision. That in turn depends in large part upon whether the term "target" is to be read as singular or plural.

D & B argues that the plain meaning of the contractual language is that, upon a "change in control," the performance units would be "payable in full" at the 100% "target" level no matter what. So understood, each of the several participants was given a single target. Even if a participant were to fall short of that target, his or her performance units would be paid out as if she or he had attained the target. However, the performance units would not be paid out above the 100% level, even if a participant had exceeded his or her target when the change in control occurred. On this reading, § 6(a) is a sort of safety net, providing a best worst outcome in case of a change in control while giving D & B a simple and uniform method of paying participants in case of such an event. D & B also asserts that even if the contractual language was ambiguous, the interpretation given to it by D & B's Executive Compensation and Stock Option Committee should be accorded deference under an abuse of discretion standard.

Appellants maintain that the plain meaning of the contested language is that even if a change in control occurred, their performance units would be worth as much as if no change in control had taken place. The contract says, according to them, that each participant has several targets at different payout levels, 100%, 200%, and so on. If a participant would have been entitled to a 200% or higher payout had there been no reorganization, then that person would be paid at that level despite any reorganization. That is, participants would be protected against any reduction of their individual awards due to a change in control, although they would not have been entitled to payout at the 100% level if they had not attained their 100% target. The contract would provide neither ceiling nor floor, but only accelerate whatever individual payments were already due upon occurrence of the change in control. Alternatively, appellants argue that if the language is ambiguous, ambiguities must be construed against the drafter, D & B. They wish to proceed with discovery and trial, seeking to construe the contract in view of extrinsic evidence to eliminate alleged ambiguities.

The practical difference between these positions is that under D & B's interpretation, appellants have been "paid in full" under the contract provision at $222,000, but under the appellants' reading, they would be entitled to about two million dollars collectively. Hence this litigation.

II. Analysis

As a preliminary matter, we note that the district court treated the case as a contract dispute rather than as one arising under ERISA. We follow this approach. For a compensation plan to come under ERISA, it must be a "plan" within the meaning of the statute. That requires, among other things, "a uniform administrative scheme, which provides a set of standard procedures to guide processing of claims and disbursements of benefits." Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 9, 107 S.Ct. 2211, 2216, 96 L.Ed.2d 1; see also Tischmann v. ITT/Sheraton Corp., 882 F.Supp. 1358, 1368-1369 (S.D.N.Y.1995) (discussion of what constitutes an ERISA "plan"). We do not hold that this Plan is not a "plan" under ERISA, but no showing that it is such a "plan" has been made here, since the parties did not address ERISA. We think in any case that the outcome would be the same and the analysis essentially unchanged if ERISA were to apply.

Contract interpretation, including the question of whether a contract is ambiguous, involves conclusions of law. The district court's determination is reviewed de novo, "without giving any deference to the interpretation by the first-line decider, here the district judge." United States v. Administrative Enterprises, 46 F.3d 670, 674 (7th Cir.1995); see also Fuja v. Benefit Trust Life Ins. Co., 18 F.3d 1405, 1407 (7th Cir.1994). The law to be applied is state law under Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188. In a diversity case, a federal court applies federal procedural but state substantive law. Id. Rules of contract interpretation are treated as substantive to avoid driving a wedge between state and federal diversity contract cases. AM Internat'l Inc. v. Graphic Management Associates, Inc., 44 F.3d 572, 576 (7th Cir.1995); Coplay Cement Co. v. Willis & Paul Group, 983 F.2d 1435, 1438 (7th Cir.1993). In the present case, neither party disputes that the law to be applied is Illinois law.

Illinois uses in general a "four corners" rule in the interpretation of contracts, holding, as we have previously remarked, that "if the language of a contract appears to admit of only one interpretation, the case is indeed over." AM Internat'l, 44 F.3d at 574. Contracts "must be construed to give effect to the intention of the parties which, when there is no ambiguity in the terms of the [contract], must be determined from the language of the [contract] alone." Flora Bank & Trust v. Czyzewski, 222 Ill.App.3d 382, 164 Ill.Dec. 804, 809, 583 N.E.2d 720, 725 (1991). As the Illinois Supreme Court recently restated this rule: "The terms of an agreement, if not ambiguous, should be generally enforced as they appear, and those terms will control the rights of the parties. Moreover, any ambiguity in the terms of a contract must be resolved against the drafter of the disputed provision." Dowd & Dowd, Ltd. v. Gleason, 181 Ill.2d 460, 230 Ill.Dec. 229, 239, 693 N.E.2d 358, 368 (1998) (internal citations omitted).

Under the Illinois "four corners" rule, the threshold inquiry is whether the contract is ambiguous. Ford v. Dovenmuehle Mortgage Inc., 273 Ill.App.3d 240, 209 Ill.Dec. 573, 577, 651 N.E.2d 751, 755 (1995); Hillenbrand v. Meyer Medical Group, S.C., 288 Ill.App.3d 871, 224 Ill.Dec. 540, 542, 682 N.E.2d 101, 103 (1997). Neither party here alleges ambiguity as a first line of argument. Appellants urge ambiguity in the alternative. But if the contract is not ambiguous, that will normally settle the dispute. In Illinois, "[a]n instrument is ambiguous only if the language used is reasonably or fairly susceptible to having more than one meaning, but it is not ambiguous if a court can discover its meaning simply through knowledge of those facts which give it meaning as gleaned from the general language of the contract. A contract is not rendered ambiguous simply because the parties do not agree on the meaning of its terms." Flora Bank & Trust, 164 Ill.Dec. at 809,...