New Horizons Electronics Marketing, Inc. v. Clarion Corp. of America

• Decision Date: 21 September 1990
• Docket Number: No. 2-89-1172,2-89-1172
• Parties: , 149 Ill.Dec. 5, 122 Lab.Cas. P 56,913 NEW HORIZONS ELECTRONICS MARKETING, INC., Plaintiff-Appellant, v. CLARION CORPORATION OF AMERICA, Defendant-Appellee (Stephen Feuer, Defendant).
• Court: United States Appellate Court of Illinois

Page 283

561 N.E.2d 283

203 Ill.App.3d 332, 149 Ill.Dec. 5,

122 Lab.Cas. P 56,913

NEW HORIZONS ELECTRONICS MARKETING, INC., Plaintiff-Appellant, v. CLARION CORPORATION OF AMERICA, Defendant-Appellee (Stephen Feuer, Defendant).

No. 2-89-1172.

Appellate Court of Illinois Second District.

Sept. 21, 1990.

McBride, Baker & Coles, Chicago, Ill., Robert W. Queeney, Steven B. Varick, for New Horizons Electronics Mktg.

Kelly, Drye & Warren, Chicago, Ill., Peter Carlson, Carolyn Quinn, for Clarion Corp. of America, and Stephen Feuer.

Justice REINHARD delivered the opinion of the court:

Plaintiff, New Horizons Electronics Marketing, Inc., filed a three- count complaint in the circuit court of Lake County against defendant, Clarion Corporation of America (Clarion), and its employee, Stephen Feuer, alleging that Clarion's termination of a sales representation agreement constituted both the tort of retaliatory discharge (count I) and a breach of contract (count II). As to Feuer, plaintiff alleged an intentional interference with contractual relations and prospective business relations with Clarion (count III). Pursuant to Clarion's motion to dismiss (Ill.Rev.Stat.1989, ch. 110, par. 2-615), the circuit court dismissed count I of the complaint, alleging retaliatory discharge, and it later granted summary judgment in favor of Clarion on count II, asserting a breach of contract. The written order of summary judgment in favor of Clarion also stated that summary judgment was granted in favor of defendant Feuer, although the record filed on appeal does not contain any filing of pleadings or appearance by Feuer. Plaintiff's appeal addresses only counts I and II relating to the rulings against it on the claims against Clarion.

At issue on appeal is (1) whether an independent contractor can assert a claim based on the tort of retaliatory discharge; and (2) whether under California law Clarion breached an implied covenant of good faith and fair dealing.

The facts underlying this action can be briefly summarized. Plaintiff is an Illinois corporation with its principal place of business in Bannockburn, Illinois, and Clarion is a California corporation with an Illinois office. Defendant Stephen Feuer is Clarion's Midwest regional sales manager employed by Clarion at its Illinois office. In 1983, plaintiff and Clarion entered into a written sales representation agreement (the agreement) whereby plaintiff was to act as Clarion's sales representative in Illinois, eastern Wisconsin, and two counties in Indiana. The agreement was terminable by either party upon 30 days' notice, and it was also subject to termination if plaintiff failed to meet its assigned sales quota for any two consecutive quarters. The agreement was expressly to be governed by California law.

Plaintiff's complaint alleged that, on several occasions during the term of the agreement, Feuer asked plaintiff for bribes and kickbacks, but plaintiff refused. In a letter dated March 1, 1985, Feuer informed plaintiff that, "based on New Horizons' failure to achieve quota for the last 17 months," Clarion would terminate the agreement effective April 1, 1985. Clarion's upper management denied plaintiff's request to overrule Feuer's decision.

In an amended complaint, plaintiff set forth three counts, counts I and II against Clarion and count III against Feuer. Count I sought recovery under the tort of retaliatory discharge because plaintiff was allegedly terminated for its refusal to participate in illegal bribes and kickbacks. Count II alleged that Clarion breached an implied covenant of good faith and fair dealing both by terminating plaintiff due to its refusal to engage in illegal conduct and by failing to afford plaintiff an opportunity to cure any defects in its performance. Count III alleged that Feuer intentionally interfered with plaintiff's contractual relationship with Clarion.

Clarion filed a motion under section 2-615 of the Code of Civil Procedure (Ill.Rev.Stat.1989, ch. 110, par. 2-615) seeking dismissal of count I of the amended complaint for failure to state a cause of action. The trial court granted the motion based on its finding that "plaintiff does not fall within the principles of employee at-will retaliatory discharge." The order setting forth this ruling notes that plaintiff admitted that it was not an employee of Clarion but was an independent contractor.

Clarion subsequently filed a motion for summary judgment (Ill.Rev.Stat.1989, ch. 110, par. 2-1005) on count II of the amended complaint with supporting excerpts from depositions and other materials. Clarion argued that it had given plaintiff the required 30-day notice before terminating the agreement and also that it had the right to terminate the agreement because of plaintiff's failure to meet its sales quotas. Clarion further argued that, under California law, no covenant of good faith and fair dealing could be implied in the contract. Plaintiff filed a memorandum in opposition to the motion.

In a memorandum opinion issued October 10, 1989, the trial court ruled that the agreement did not require that termination be for cause, and the court noted that Clarion had given plaintiff the required 30-day notice of cancellation. The court also ruled that there was no "special relationship between the corporate parties" which would give rise to an implied covenant of good faith and fair dealing under California law.

We first address the trial court's dismissal of count I of the amended complaint for failure to state a cause of action. The trial court concluded that plaintiff could not assert a retaliatory discharge claim because it was an independent contractor and not an employee of Clarion. A court reviewing the dismissal of a complaint for failure to state a cause of action must determine the legal sufficiency of the complaint. Kirk v. Michael Reese Hospital & Medical Center (1987), 117 Ill.2d 507, 516, 111 Ill.Dec. 944, 513 N.E.2d 387.

As a general rule, an employment relationship without a fixed duration is terminable at will by either party. (Duldulao v. St. Mary of Nazareth Hospital Center (1987), 115 Ill.2d 482, 489, 106 Ill.Dec. 8, 11, 505 N.E.2d 314, 317.) In Kelsay v. Motorola, Inc. (1978), 74 Ill.2d 172, 181-82, 23 Ill.Dec. 559, 563, 384 N.E.2d 353, 357, the Illinois Supreme Court recognized the tort of retaliatory discharge as an exception to the rule of at-will employment. The court held that an employee who is terminated for asserting his rights under the Workmen's Compensation Act (Ill.Rev.Stat.1973, ch. 48, par. 138.1 et seq.) may maintain an action for retaliatory discharge against his employer. The supreme court expanded the tort in Palmateer v. International Harvester Co. (1981), 85 Ill.2d 124, 130, 52 Ill.Dec. 13, 15-16, 421 N.E.2d 876, 878-79, holding that an employee may maintain an action for retaliatory discharge when his termination violates a clearly mandated public policy. To allege a valid claim for retaliatory discharge, a plaintiff must allege (1) a discharge; (2) the discharge was in retaliation for his activities; and (3) the discharge violates a clear mandate of public policy. Hinthorn v. Roland's of Bloomington, Inc. (1988), 119 Ill.2d 526, 529, 116 Ill.Dec. 694, 696, 519 N.E.2d 909, 911.

Plaintiff argues that it was a violation of public policy for Clarion to terminate the agreement because plaintiff refused to engage in illegal conduct. Plaintiff further contends that the rationale for the tort is to deter the violation of public policy and that such rationale applies equally to employees and independent contractors.

The supreme court recognized the tort of retaliatory discharge as an exception to the rule of at-will employment. (Kelsay, 74 Ill.2d at 181, 23 Ill.Dec. at 563, 384 N.E.2d at 357.) Although the tort has been extended beyond at-will employees (see Midgett v. Sackett-Chicago, Inc. (1984), 105 Ill.2d 143, 150, 85 Ill.Dec. 475, 478-79, 473 N.E.2d 1280, 1283-84 (employees under union contract may assert retaliatory discharge claim and recover punitive damages)), the court has not expanded the tort outside of the employment setting. The rationale underlying the tort is based on the recognition that "employer and employee do not stand on equal footing," and a proper balance must be maintained among the employee's interest in operating a business efficiently and profitably, the employee's interest in earning a livelihood and society's interest in seeing its public policies carried out. (Palmateer, 85 Ill.2d at 129, 52 Ill.Dec. at 15, 421 N.E.2d at 878.) Moreover, our review of other jurisdictions indicates that the only State to address the question has determined that an independent contractor cannot assert a claim of retaliatory discharge. See Wilmington v. Harvest Insurance Cos. (Ind.App.1988), 521 N.E.2d 953, 956; Morgan Drive Away, Inc. v. Brant (Ind.App.1985), 479 N.E.2d 1336, 1338, rev'd on other grounds (Ind.1986), 489 N.E.2d 933, 934.

Here, plaintiff is not an employee but an independent contractor. We hold, therefore, that plaintiff cannot assert a claim of retaliatory discharge against Clarion, and we affirm the trial court's dismissal of count I of the amended complaint.

The second issue raised by plaintiff is that the trial court, in entering summary judgment for Clarion on the breach of contract claim in count II, erred in ruling that Clarion's termination of the agreement did not breach any implied covenant of good faith and fair dealing...