Nation v. Am. Capital
| Decision Date | 22 April 2011 |
| Docket Number | Case No. 09 C 6917 |
| Parties | JAMES NATION, Plaintiff, v. AMERICAN CAPITAL, LTD. d/b/a AMERICAN CAPITAL STRATEGIES, LTD., Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
James Nation has sued American Capital, Ltd. He alleges that American Capital tortiously induced his former employer, The Spring Air Company, to breach a severance agreement. The parties have filed cross-motions for summary judgment. For the reasons stated below, the Court grants American Capital's motion and denies Spring Air's motion.
The Court takes the following facts from the parties' submissions on the summary judgment motion.
In 1990, James Nation began working for Spring Air, a mattress sales company, as its senior vice president for national accounts. Spring Air operated as a co-op in that it licensed its brand name to independent mattress manufacturers. In 1995, Spring Air promoted Nation to president and chief executive officer.
In June 2007, HIG Capital, an investment firm that had acquired Spring Airlicenses in the past, purchased Spring Air and most of its remaining licenses. American Capital, a creditor of Spring Air, provided financing to HIG Capital for the purchase. As part of the transaction, American Capital acquired a minority equity interest in Spring Air and one seat on its seven-member board of directors.
Nation left the company in August 2007 after learning that Spring Air intended to replace him. He negotiated a severance agreement entitling him to $1,243,140 over a period of fifteen months. As a condition of the agreement, Nation agreed not to work for competitors, including Serta, through December 31, 2008. Spring Air entered into similar agreements with three other executives: Eric Spitzer, Ron Lueptow, and Vince Zupkus.
In January 2008, Spring Air advised American Capital that it faced an urgent liquidity crisis and required additional financing to carry out its business plan and satisfy credit obligations. American Capital and HIG each invested eleven million dollars in the company. American Capital thereby increased its minority ownership in Spring Air, and it acquired two additional seats on the board of directors. At that time, American Capital appointed Michael Michienzi to the board.
By April 2008, Spring Air required another significant cash infusion. HIG and American Capital each invested an additional $1.5 million into Spring Air to maintain its operations. American Capital became the majority equity holder in Spring Air and acquired a fourth seat on the company's board of directors. Michienzi became the chairman of the board. In June 2008, Spring Air hired Steven Cumbow, American Capital's former vice president of finance, as its new chief financial officer.
In July or August 2008, Spring Air informed Nation, Spitzer, Lueptow, andZupkus by e-mail that it was suspending their severance payments. The parties dispute American Capital's role in the suspension decision. Nation attributes the decision to American Capital, acting through Michienzi.1 At the time, American Capital was both the majority equity holder and largest creditor of Spring Air. American Capital, in contrast, attributes the decision to Spring Air management.
Nation contacted Serta on August 25, 2008 to discuss employment and began working for Serta on September 15, 2008. He earned a total of $106,384.64 from Serta by the end of 2008. In late 2008, Spring Air resumed its payments to Spitzer, Lueptow, and Zupkus, but not Nation.
Spring Air never stabilized its cash flow problems. In mid and late 2008, it deferred payments to vendors and renegotiated terms with its suppliers. In May 2009, the company filed for bankruptcy. Spring Air's failure cost American Capital millions of dollars.
Nation asserts that American Capital, acting through Michienzi, tortiously induced Spring Air to breach his severance agreement. The parties agree that he received only $846,153.28 of the $1,243,140 owed to him under his severance agreement.
The parties have filed cross-motions for summary judgment. American Capital seeks a judgment that it has no liability to Nation and, in the alternative, seeks judgment in its favor on its setoff defense. Nation seeks a judgment that American Capital is liable for tortious interference with contract. The Court addresses American Capital'smotion first and thereby resolves Nation's motion.
Summary judgment is proper "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). On a motion for summary judgment, the Court draws reasonable inferences in favor of the non-moving party. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). "Summary judgment is not appropriate 'if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.'" Payne v. Pauley, 337 F.3d 767, 770 (7th Cir. 2003) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)).
The parties agree that Illinois law governs Nation's claim. To prevail on a claim of tortious interference with contract under Illinois law, "a plaintiff must prove: 1) the existence of a valid and enforceable contract between the plaintiff and another party; 2) that the defendant was aware of the contractual relationship; 3) an intentional and unjustified inducement of a breach of the contract by the defendant; 4) the subsequent breach of the contract by the other party, caused by the defendant's inducement; and 5) damages." Williams v. Shell Oil Co., 18 F.3d 396, 402 (7th Cir. 1994) (citing Lusher v. Becker Bros., Inc., 155 Ill. App. 3d 866, 868-69, 509 N.E.2d 444, 445 (1987)); see also Cook v. Winfrey, 141 F.3d 322, 327 (7th Cir. 1998). To survive summary judgment, the plaintiff must show that there is a genuine issue of fact as to each of these elements. See Shank v. William R. Hague, Inc., 192 F.3d 675, 681 (7th Cir. 1999). American Capital denies that it induced Spring Air to breach the agreement, denies that any such conduct was unjustified, and contends that Nation's 2008 earnings from Serta shouldconstitute a setoff against any damages to which Nation might be entitled.
The Court assumes for purposes of the present motion that American Capital induced the breach of Nation's severance agreement and addresses whether Nation has shown a genuine factual dispute on the question of unjustified interference. The Court must first determine whether American Capital had a conditional privilege to interfere, and if so, whether Nation has provided evidence from which a reasonable jury could find that he has overcome the privilege. HPI Health Care Servs., Inc. v. Mt. Vernon Hosp., Inc., 131 Ill. 2d 145, 156, 545 N.E.2d 672, 677 (1989). The existence of a conditional privilege is an issue of law. See id. at 157-58, 545 N.E.2d at 677. Whether a plaintiff has overcome a conditional privilege is an issue of fact. See id.
Under Illinois law, "a party who interferes with another party's contract is... privileged from liability where the party acts to protect a conflicting interest which is considered to be of equal or greater value than that accorded the contractual rights involved." Price v. Zazove, 959 F.2d 1395, 1397 (7th Cir. 1992). "[A]n individual may be privileged to interfere in the business affairs of another, depending on his purpose and methods, when the interference takes a socially sanctioned form." Langer v. Becker, 176 Ill. App. 3d 745, 749, 531 N.E.2d 830, 832 (1988) (citing Swager v. Couri, 77 Ill. 2d 173, 190, 395 N.E.2d 921, 927 (1979)) (other citations omitted).
Pursuant to this principle, corporate directors, corporate officers, and shareholders normally enjoy protection from liability for acts committed on behalf of the corporation. See Von der Ruhr v. Immtech Int'l, Inc., 570 F.3d 858, 866 (7th Cir. 2009) (corporate officers); HPI Health Care Servs., Inc., 131 Ill. 2d at 157, 545 N.E.2d at 677(corporate officers and directors); MGD, Inc. v. Dalen Trading Co., 230 Ill. App. 3d 916, 920, 596 N.E.2d 15, 18 (1992) (); Swager, 77 Ill.2d at 191, 395 N.E.2d at 928 (). Likewise, a management company enjoys protection from liability for acts it commits on behalf of a corporation it is managing. See HPI Health Care Servs., Inc., 131 Ill. 2d at 157, 545 N.E.2d at 677. The privilege applies to business entities as well as to individuals. See id. (); see also Stevenson v. ITT Harper, Inc., 51 Ill. App. 3d 568, 579-80, 366 N.E.2d 561, 570-71 (1979) ().
To overcome a defendant's privilege, a plaintiff must establish that the defendant "induced the breach to further [its] personal goals or to injure the other party to the contract, and acted contrary to the best interest of the corporation." Von der Ruhr, 570 F.3d at 866-67 (emphasis in original) (citations omitted); see also HPI Health Care Servs., Inc., 131 Ill. 2d at 158, 545 N.E.2d at 678 (). If a privilege applies, to survive summary judgment the plaintiff must put forth evidence that would permit a finding that has overcome the privilege. See HPI Health Care Servs., Inc., 131 Ill. 2d at 156, 545 N.E.2d at 676-77; Williams, 18 F.3d at 403.
American Capital's alleged conduct falls within the scope of a conditional privilege to interfere with Spring Air's contracts with others. It is undisputed that, at the time of the decision to suspend payments on Nation's contract, American Capital held amajority equity interest in Spring Air and therefore was invested in Spring Air's continued viability. American...
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