Ritchie Capital Mgmt., L.L.C. v. Kermath
| Decision Date | 13 December 2016 |
| Docket Number | No. 15 C 8021,15 C 8021 |
| Parties | RITCHIE CAPITAL MANAGEMENT, L.L.C., Plaintiff, v. JOHN KERMATH, Defendant. JOHN KERMATH, Counter-Plaintiff, v. RITCHIE CAPITAL MANAGEMENT, L.L.C., AARON ROBERTS THANE RITCHIE, and PLAN ADMINISTRATOR FOR THE RITCHIE CAPITAL MANAGEMENT, L.L.C. BENEFIT PLANS, Counter-Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
OPINION AND ORDER
Ritchie Capital Management, L.L.C. ("Ritchie Capital"), an investment management company, filed suit against John Kermath, its former president, for misappropriating Ritchie Capital's confidential and privileged information. Kermath filed counterclaims against Ritchie Capital, the Plan Administrator for the Ritchie Capital Management, L.L.C. Benefit Plans (the "Plan Administrator"), and Ritchie Capital's founder and former chief executive officer, Aaron Roberts Thane Ritchie ("Thane Ritchie," and collectively with Ritchie Capital and the Plan Administrator, the "Ritchie Parties"), seeking to recover benefits arising from his alleged misclassification as an independent contractor while working for Ritchie Capital, in addition to outstanding wages, bonuses, and other employment-related compensation he did not receive when he left Ritchie Capital's employment.1 Kermath brings his claims pursuant to the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq., the Illinois Wage Payment and Collection Act (the "IWPCA"), 820 Ill. Comp. Stat. 115/1 et seq., and the common law of unjust enrichment. Because Kermath agreed not to receive any benefits Ritchie Capital offered its employees and he has not pleaded facts to suggest he did not enter into the waiver knowingly and voluntarily, the Court dismisses Kermath's ERISA benefits claim without prejudice. Kermath's IWPCA claim for unpaid compensation may proceed because he has sufficiently alleged an agreement for payment so as to put Ritchie Capital and Thane Ritchie on notice of the contours of that claim, although he cannot pursue this claim with respect to accrued unused vacation time. But the Court dismisses Kermath's unjust enrichment claim, which seeks the same recovery as the IWPCA claim, because it is governed by his compensation agreements with Ritchie Capital, and Kermath has not properly pleaded the claim in the alternative.
Ritchie Capital manages investment funds. Although it currently has its headquarters in the Cayman Islands, it also had offices in Illinois. It was in Illinois where Kermath began working for Ritchie Capital in May 2006.
At all times, Ritchie Capital treated Kermath as an independent contractor. Ritchie Capital memorialized Kermath's employment arrangement in an amended and restated professional services agreement ("PSA"), signed by Kermath on November 14, 2008 and retroactive to May 6, 2006.3 The PSA specifically provides that Kermath was an independent contractor, that nothing in the PSA "should be construed to create . . . [an] employer-employee relationship," and that Kermath "is not the agent of [Ritchie Capital] and is not authorized to make any representation, contract, or commitment on behalf of [Ritchie Capital]." Doc. 56-1 § 3. Further, the PSA provides that Kermath "will not be entitled to any of the benefits that [Ritchie Capital] may make available to its employees, such as group insurance, profit-sharing, or retirement benefits." Id. Ritchie Capital agreed to pay Kermath "a fee for services rendered under the [PSA] as set forth in Exhibit A," as well as to reimburse him "for any reasonable expenses incurred in connection with the performance of services under" the PSA. Id. § 2. Upon the PSA's termination, Ritchie Capital was to pay Kermath "fees and expenses on a proportional basis . . . for work which is then in progress, up to and including the effective date of such termination." Id. Exhibit A only set forth that Kermath's fee for his services was to be "based on a rate per month as determined from time to time." Id. at 6.
Despite the PSA's formalization of his status as an independent contractor, Kermath's day-to-day activities suggested an employer-employee relationship: he used Ritchie Capital's email, phone, and computer systems, office space, and business equipment; he had a Ritchie Capital email address; Ritchie Capital provided Kermath with a company-issued Blackberry andpaid for the data charges; he routinely worked five days a week from Ritchie Capital's Illinois offices; he used a corporate credit card for business-related expenses; and he reported to one or more superiors and supervised other employees. Additionally, Ritchie Capital paid Kermath bonuses tied in part to his work performance and he received deferred compensation amounts based on the performance of Ritchie Capital managed funds.
In September 2007, Ritchie Capital promoted Kermath to president of the company, with Thane Ritchie remaining as chief executive officer. Kermath began signing documents on Ritchie Capital's behalf and had access to almost all aspects of the business. His job duties included asset management, staffing and supervision of employees, oversight of the accounting department, audit management, valuations, and litigation strategy. Kermath also determined bonus payments and salaries for other Ritchie Capital employees, subject to Thane Ritchie's final approval. When Thane Ritchie moved out of the country, Kermath effectively became the de facto chief executive officer as well, with certain Ritchie Capital regulatory filings even identifying him as such.
On March 17, 2015, Thane Ritchie reasserted day-to-day operational control over Ritchie Capital and demoted Kermath to vice president. He then reappointed Kermath as president in April 2015. This did not last long, however, as Thane Ritchie again demoted Kermath to vice president on May 8. Kermath resigned from Ritchie Capital on August 7, 2015. When he left, he did not receive his outstanding compensation from Ritchie Capital, which included a base $30,000 monthly payment he had received since he started working for Ritchie Capital and a portion of his 2014 bonus that Ritchie Capital had agreed in writing to pay him no later than September 30, 2015.4
A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of the complaint, not its merits. Fed. R. Civ. P. 12(b)(6); Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). In considering a Rule 12(b)(6) motion to dismiss, the Court accepts as true all well-pleaded facts in the plaintiff's complaint and draws all reasonable inferences from those facts in the plaintiff's favor. AnchorBank, FSB v. Hofer, 649 F.3d 610, 614 (7th Cir. 2011). To survive a Rule 12(b)(6) motion, the complaint must not only provide the defendant with fair notice of a claim's basis but must also be facially plausible. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009); see also Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678.
Kermath claims that Ritchie Capital misclassified him as an independent contractor and so wrongfully excluded him from coverage under its employer-sponsored benefit plans during his employment. He seeks to recover all benefits allegedly due him under these benefit plans and to clarify his rights to future benefits, if any. To state a claim for these benefits under ERISA, Kermath must allege (1) he qualifies as an employee, and (2) he was eligible to receive benefits under the terms of Ritchie Capital's benefit plans. Estate of Suskovich v. Anthem Health Plans of Va., Inc., 553 F.3d 559, 571 (7th Cir. 2009); see also Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323-24, 112 S. Ct. 1344, 117 L. Ed. 2d 581 (1992) (). The Ritchie Parties argue that Kermath's claim fails on both elements because the PSA establishes that he worked as an independent contractor for Ritchie Capital and agreed that he did not have any entitlement to benefits Ritchie Capital made available to its employees.5
Initially, the Court cannot definitively decide Kermath's status as an independent contractor or an employee based solely on the pleadings. Courts use a ten-factor test to determine if an individual qualifies as an employee under ERISA, considering:
(1) the extent of control which, by the agreement, the master may exercise over the details of the work; (2) whether or not the one employed is engaged in a distinct occupation or business; (3) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision; (4) the skill required in the particular occupation; (5) whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work; (6) the length of time for which the person is employed; (7) the method of payment, whether by the time or by the job; (8) whether or not the work is a part of the regular business of the employer; (9) whether or not the parties believe they are creating the relation of master and servant; (10) whether the principal is or is not in business.
Suskovich, 553 F.3d at 565-66. Although the PSA designates Kermath as an independent contractor, this alone is not dispositive. See E.E.O.C. v. Sidley Austin Brown & Wood, 315 F.3d 696, 705 (7th Cir. 2002) (); Cox v. Gannett Co., No. 1:15-cv-02075-JMS-DKL, 2016...
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