Hytel Group, Inc. v. Butler

• Decision Date: 19 November 2010
• Docket Number: No. 2-09-1003.,2-09-1003.
• Parties: HYTEL GROUP, INC., Plaintiff-Appellant and Cross-Appellee, v. Michelle Z. BUTLER, Defendant-Appellee and Cross-Appellant.
• Court: United States Appellate Court of Illinois

938 N.E.2d 542

405 Ill.App.3d 113

345 Ill.Dec. 103

HYTEL GROUP, INC., Plaintiff-Appellant and Cross-Appellee,

v.Michelle Z. BUTLER, Defendant-Appellee and Cross-Appellant.

No. 2-09-1003.

Appellate Court of Illinois, Second District.

Oct. 20, 2010.

Rehearing Denied Nov. 19, 2010.

Cary S. Fleischer, Chuhak & Tecson, P.C., Chicago, for Hytel Group, Inc.

Gary W. Leydig, Riordan, Fulkerson, Hupert & Coleman, Chicago, for Michelle Z. Butler.

Justice SCHOSTOK delivered the opinion of the court:

[345 Ill.Dec. 107, 405 Ill.App.3d 114]

The plaintiff, Hytel Group, Inc., filed suit against a former employee, the defendant, Michelle Butler, on December 15, 2008, alleging that she breached fiduciary duties and made fraudulent misrepresentations. Butler filed two motions to dismiss the complaint, one based on section 2-615 of the Code of Civil Procedure (Code) (735 ILCS 5/2-615 (West 2008)) and the other premised on the Citizen Participation Act (Act) (735 ILCS 110/1 et seq. (West 2008)), which provides a procedure for early-stage dismissals of certain claims and the opportunity to recover attorney fees expended in defending against those claims. On April 30, 2009, the trial court granted the motion based on the Act. The trial court later awarded Butler some, but not all, of the attorney fees she requested. After its motion to reconsider was denied, Hytel appealed the dismissal of its complaint, and Butler cross-appealed the trial court's refusal to award her certain of her attorney fees. We affirm as modified.

FACTUAL AND PROCEDURAL BACKGROUND

In February 2008, Hytel hired Butler as comptroller for the company. On June 4, 2008, Hytel's lender, GBC Funding, LLC, filed a verified complaint and an emergency motion seeking the appointment of a receiver for Hytel. The complaint alleged that Hytel was in default on several of its obligations under the loan agreement, and that beginning in January 2008 GBC Funding had sent Hytel several notices of default. The complaint also alleged that, in May 2008, Hytel entered into agreements with GBC Funding under which GBC Funding would forbear from exercising its rights under the loan agreement and Hytel would, among other things, "engage and fully cooperate with a Chief Restructuring Officer" who was acceptable to GBC Funding. Jack Cochran was selected as the chief restructuring officer and was retained as of May 21, 2008. However, Hytel's president, Scott Johansen, allegedly did not cooperate with Cochran, refused to permit Cochran to control disbursements, and continued to take money from the company for his own use. The complaint alleged that Cochran therefore resigned

[345 Ill.Dec. 108, 938 N.E.2d 547]

on June 3, 2008. GBC Funding filed its suit the following day.

On June 10, 2008, Hytel fired Butler. On August 3, 2008, Butler filed a wage claim with the Illinois Department of Labor, seeking the payment of approximately $2,300 in final wages.

On December 15, 2008, Hytel filed a two-count complaint against Butler. Count I, titled "Breach of Fiduciary Duty," alleged that, as comptroller, Butler owed Hytel a fiduciary duty of loyalty and had a further duty to disclose "all material information to management." The complaint alleged that Butler breached these duties in that she: "had been unable" to prepare financial statements for the year that ended in December 2007, and also failed to prepare interim financial statements for any month during which she was employed; spoke with Cochran "on multiple occasions, including June 6, 2008," during which conversations Cochran told Butler of the status of GBC Funding's litigation against Hytel and assured her that she would be kept informed; and did not advise Johansen of these conversations, or advise Hytel's management that GBC Funding "had promised Butler" that she could remain as comptroller in the event that GBC Funding began exercising control over Hytel through Cochran. The complaint alleged that Butler also breached her fiduciary duty in that she deliberately did not perform her duties (presumably, this refers to not preparing financial reports) "because of the developed relationship with" GBC Funding. Immediately following this allegation, Hytel alleged that Butler "was not capable of performing the work as her resume contained misrepresentations as to her competency." Hytel sought $1 million in compensatory damages for these alleged breaches of fiduciary duty and $3 million in punitive damages, along with the forfeiture and repayment of all of the wages ever paid to Butler.

In count II, the fraud claim, Hytel alleged generally that Butler's actions described in count I were done with the intent that Hytel rely on her and further that Butler represented that she was "attempting to prepare financial statements which would cure defaults and also allow the company to obtain alternate financing." The complaint alleged that these representations were knowingly false, "in that at the time she was discussing with [GBC Funding] and Jack Cochran employment that she would be given once management was replaced." The fraud count also contained general allegations that Butler's communications with Cochran, GBC Funding, and its auditors were "to the detriment" of Hytel, that Hytel "reasonably relied on her representations," and that Hytel was "damaged thereby." Like count I, count II prayed for a total of $4 million in damages, plus interest and costs.

On February 17, 2009, Butler filed two motions to dismiss the complaint, each arguing a different basis for dismissal. The first motion was based upon section 2-615 of the Code (735 ILCS 5/2-615 (West 2008)) and argued that, even taking the allegations of the complaint as true, they failed to state a cause of action for breach offiduciary duty or for fraud. Butler also argued that, although Hytel's claims were based in part upon the filing of GBC Funding's receivership action, Hytel failed to attach the relevant pleadings to its complaint. Butler then attached various pleadings and motions from that case that was mentioned by Hytel in its complaint against her (the initial complaint and emergency motion for appointment of a receiver, filed June 4, 2008; and a motion for order of replevin, filed July 24, 2008). Butler argued that these filings contradicted the allegations of Hytel's complaint,

[345 Ill.Dec. 109, 938 N.E.2d 548]

showing that she did not cause Hytel's default because Hytel was in default before she was even hired.

Butler's second motion was based upon the Act, and it argued that Hytel's suit against her was in retaliation for her wage claim. In support, Butler attached her own affidavit, in which she averred that she had made repeated attempts to obtain her last paycheck but had been turned away by Johansen; that eventually she had told him that if she did not receive her pay she would have to file a wage claim with the Department of Labor; and that Johansen told her that if she did that, he would "sue [her] a—, honey." Hytel filed responses to both motions, arguing among other things that the complaint properly alleged the claims therein and that a "purely private" dispute such as Butler's wage claim was not within the scope of the Act, and attaching an affidavit from Johansen denying that he and Butler ever discussed her wage claim or that he made the alleged statement. The motions were fully briefed and on April 16, 2009, the trial court heard oral argument on the motions.

On April 30, 2009, the trial court issued a written decision in which it found that, under the plain language of the Act, the Act applied to Butler's wage claim. The trial court further found that Hytel had not met the burden of proving, by clear and convincing evidence, that Butler's acts were not immunized from liability by the Act. However, the trial court went on to consider the merits of Hytel's complaint, reasoning that a determination of whether Hytel had stated a viable claim against Butler would be an independent indicium of whether its suit was brought for an improper purpose under the Act. The trial court found that Butler did not have a fiduciary relationship with Hytel but rather an employee-employer relationship, and thus the complaint failed to state a cause of action for breach of fiduciary duty. The trial court further found that, even if Butler's representations regarding her competency to prepare financial reports and perform other financial oversight tasks were false, the complaint did not sufficiently allege the remaining elements of fraud. Finally, the court found that the complaint as a whole did not allege any facts supporting the $4 million in damages requested. The court concluded bydismissing the complaint pursuant to the Act and continuing the case for status and for the filing of a motion for attorney fees.

On May 14, 2009, Butler filed a motion for attorney fees, seeking $38,233.50. On the same date, Hytel filed a motion to reconsider, in which it argued that Butler's wage claim was not protected conduct under the Act and that it had adequately pled its claims for breach of fiduciary duty and fraud. In its motion to reconsider, Hytel also noted that dismissals pursuant to section 2-615 are usually without prejudice, unless it is apparent that the plaintiff can prove no set of facts that would entitle it to recover, and it asked that the court grant it 28 days in which to file an amended complaint. Hytel did not attach any amended complaint to its brief, nor did it indicate in what manner it proposed to amend its complaint. A few days later, Butler filed a motion seeking "an express order of dismissal of the complaint, with prejudice," pursuant to section 2-615, as an alternative basis for dismissal in the event that the dismissal under the Act was later invalidated on appeal. Butler also sought to recover attorney fees (beyond those imposed under the Act) pursuant to Supreme Court Rule 137 (155 Ill.2d R. 137), on the ground that the entire action was frivolous. Each party filed written responses...