Koehler v. Packer Grp., Inc.

• Citation: 53 N.E.3d 218,403 Ill.Dec. 164
• Decision Date: 28 March 2016
• Docket Number: No. 1–14–2767.,1–14–2767.
• Parties: Michael G. KOEHLER, Ph.D, Plaintiff–Appellee and Cross–Appellant, v. The PACKER GROUP, INC. ; Packer Engineering, Inc.; Kenneth Packer; Warren Denniston; and Charlotte Sartain, Defendants–Appellants and Cross–Appellees.
• Court: United States Appellate Court of Illinois

53 N.E.3d 218

403 Ill.Dec. 164

Michael G. KOEHLER, Ph.D, Plaintiff–Appellee and Cross–Appellant

v.The PACKER GROUP, INC. ; Packer Engineering, Inc.; Kenneth Packer; Warren Denniston; and Charlotte Sartain, Defendants–Appellants and Cross–Appellees.

No. 1–14–2767.

Appellate Court of Illinois, First District, First Division.

March 28, 2016.

Tressler LLP, Chicago (James K. Borcia, of counsel), for appellants.

Dykema Gossett PLLC, Chicago (Steven H. Gistenson and Seth Mann Rosenberg, of counsel), for appellee.

OPINION

Presiding Justice LIU delivered the judgment of the court, with opinion.

¶ 1 Pursuant to an employment agreement with The Packer Group, plaintiff Dr. Michael Koehler was employed as chief executive officer of its wholly owned subsidiary, Packer Engineering. Plaintiff alleged that he was first demoted and then discharged from this position after revealing to the company's board that its founder and chairman, Dr. Kenneth Packer, had engaged in financial improprieties. Plaintiff sued Packer Engineering and The Packer Group for breach of contract. He also sued Dr. Packer; Charlotte Sartain, board secretary and vice president of finance for The Packer Group; and longstanding board member Warren Denniston for tortious interference with contract, claiming they each induced The Packer Group to breach its agreement with him. After a three-week trial, the jury returned a verdict for plaintiff.

¶ 2 On appeal, defendants contend that plaintiff's claims against them should have been resolved by binding arbitration and that the circuit court erred in granting plaintiff leave to file a late jury demand absent a showing of good cause. Beyond this, they claim no error with respect to the jury's verdict in plaintiff's favor on the breach of contract claim against Packer Engineering and The Packer Group (the corporate defendants). With respect to the tortious interference claim against Dr. Packer and Ms. Sartain (the individual defendants),¹ defendants raise additional claims of error, arguing that: (1) they were entitled to judgment as a matter of law, (2) the circuit court improperly instructed the jury, (3) the jury's verdict was against the manifest weight of the evidence, (4) the award of compensatory damages was improper in several respects, (5) punitive damages were not warranted, and (6) the amount of punitive damages awarded was excessive.

¶ 3 On cross-appeal, plaintiff additionally argues the circuit court improperly limited his damages for breach of contract to severance pay, improperly admitted evidence of his post-termination earnings, and failed to award him the full amount of costs he requested as a prevailing party. For the reasons that follow, we affirm the judgment of the circuit court.

¶ 4 BACKGROUND

¶ 5 In his initial complaint against the corporate defendants, plaintiff alleged that, on October 22, 2008, The Packer Group offered him the position of chief executive officer of Packer Engineering for an initial term of four years, after which point his employment would automatically become “at-will.” The employment agreement was memorialized in a letter signed by plaintiff, Dr. Packer as chairman of the board, and Ms. Sartain as executive vice president of finance. The employment agreement established the term of plaintiff's employment, his duties, and his compensation, providing as follows:

“Term of Agreement

The term of your employment under this Agreement will be for a period of four (4) years, beginning on the date of employment with the Company, which will begin on December 1, 2008. Following this initial term of employment, unless otherwise mutually agreed upon, employment will revert to ‘at will’ and subject to the terms of similarly situated employees of the Company at that time, except under the provisions of the section entitled ‘Severance Pay Arrangement.’

* * *

Severance Pay Arrangement

In the event your employment is terminated by the Company without ‘cause,’ or by you as a result of ‘constructive cause,’ or due to a ‘change of control’ of the Company, you will be entitled to a severance payment of one (1) year of salary and benefits, plus the targeted incentive compensation for that year of employment. This severance amount will be paid out during the course of one (1) year from the date of termination.”

¶ 6 The agreement also contained the following arbitration clause:

“Dispute Resolution

Any material breach, dispute, or claim resulting from this Agreement shall be settled by binding arbitration in accordance with the laws of the State of Illinois. Both you and the Company agree to waive their respective rights to dispute resolution in a court of law. The costs associated with arbitration will be paid by the party(ies) as designated by the arbitrator.”

¶ 7 Plaintiff further alleged that, as CEO of Packer Engineering and, beginning in June 2009, as a member of the board of directors, he reviewed financial records of The Packer Group and learned that Dr. Packer was, without board authorization, diverting money from The Packer Group to New Vermillion Iron Works, an independent company purchased by Dr. Packer. Plaintiff investigated, became aware of “potentially illegal financial activities” between The Packer Group and New Vermillion, and disclosed these improprieties to senior leadership and select members of the board of directors in or around September 2009. Plaintiff further alleged that, when he refused to participate in or turn a blind eye to the improprieties, Dr. Packer forbid him from reviewing The Packer Group's financials or attending board meetings.

¶ 8 According to plaintiff, Dr. Packer refused to cooperate with a special committee appointed in the spring of 2010 to investigate the situation. Plaintiff alleged that Dr. Packer formed a new management committee to run The Packer Group and Packer Engineering called the Chief Executive Officer Counsel (CEOC) and that, in retaliation for his attempts to fulfill his duties as CEO and disclose Dr. Packer's conduct, he received a letter from the CEOC on May 7, 2010 purporting to demote him. Plaintiff alleged that, shortly thereafter, he was presented with an ultimatum: accept the demotion or be terminated. He chose the latter and sued. In his complaint, plaintiff sought the full amount of his unpaid annual salary and benefits for the two-and-a-half years remaining on his agreement, one year of severance pay, the value of his stock, amounts due to him under the company's incentive compensation plan, and punitive damages.

¶ 9 The corporate defendants filed an answer largely denying these allegations and asserting plaintiff's own breach of the material terms of the employment agreement as an affirmative defense. The circuit court granted plaintiff's motion to strike the affirmative defense as conclusory and set a deadline for defendants to file any amended affirmative defenses. Discovery commenced throughout the summer and fall of 2011. Defendants responded to plaintiff's written discovery requests and produced documents—serving an Illinois Supreme Court Rule 214(c) (eff. Jan. 1, 1996) affidavit of completeness—but did not propound their own discovery.

¶ 10 On September 29, 2011, the corporate defendants moved to dismiss plaintiff's complaint pursuant to section 2–619 of the Code of Civil Procedure (735 ILCS 5/2–619 (West 2010) ), arguing that the arbitration provision in plaintiff's employment agreement deprived the circuit court of subject matter jurisdiction and required that all disputes arising under the agreement be submitted to arbitration. In response, plaintiff argued that the corporate defendants had waived their right to arbitrate and that he would suffer prejudice if arbitration was compelled so late in the litigation. The circuit court denied the motion, concluding that the actions taken by the corporate defendants from the inception of the lawsuit were inconsistent with a right to arbitrate. Specifically, the circuit court determined that “the weight of authority in Illinois and in other jurisdictions supports the proposition that answering a complaint without asserting the contractual right to arbitrate results in a waiver of that right.”

¶ 11 Plaintiff subsequently filed an amended complaint adding a claim for tortious interference with contract against the individual defendants. Defendants again sought to enforce the arbitration clause. The individual defendants contended both that the tortious interference claim against them fell within the scope of the agreement because it “result[ed] from” plaintiff's employment, and that—although they did not sign the agreement in their individual capacities—they could enforce the arbitration clause as agents of the corporate defendants. Defendants alternatively urged the court, pursuant to section 2–615 of the Code of Civil Procedure (735 ILCS 5/2–615 (West 2010) ), to find that plaintiff failed to state a claim upon which relief could be granted.

¶ 12 The circuit court dismissed the new tortious interference claim with prejudice, noting that plaintiff had failed to state what each of the individual defendants did to induce a breach of the employment agreement. The circuit court denied defendants' motion to dismiss for lack of subject matter jurisdiction “for the reasons stated in [its] Order of November 9, 2011,” i.e., the order denying the corporate defendants motion to dismiss and finding those defendants waived their right to arbitrate. Because it dismissed the new tortious interference claim pursuant to section 2–615, the court noted: “there is nothing at issue presently that was not before the court when it previously denied Defendants' argument that the case was subject to mandatory arbitration.”

¶ 13 Plaintiff was ultimately allowed to file a second amended complaint and, this time, the circuit court found his allegations were sufficient to state a claim for tortious interference with contract. Although the claim against the individual defendants was thus reinstated, defendants did not ask ...