Strzelecki v. Schwarz Paper Co., 92 C 6668.

• Decision Date: 28 May 1993
• Docket Number: No. 92 C 6668.,92 C 6668.
• Citation: 824 F. Supp. 821
• Parties: James T. STRZELECKI, Plaintiff, v. SCHWARZ PAPER COMPANY and Andrew J. McKenna, Sr., Defendants.
• Court: U.S. District Court — Northern District of Illinois

824 F. Supp. 821

James T. STRZELECKI, Plaintiff, v. SCHWARZ PAPER COMPANY and Andrew J. McKenna, Sr., Defendants.

No. 92 C 6668.

United States District Court, N.D. Illinois, E.D.

May 28, 1993.

COPYRIGHT MATERIAL OMITTED

Thomas E. Gibbs, Chicago, IL, for plaintiff.

William F. Conlon, Pamela Bristow Strobel, Glenn Douglas Newman, Sidley & Austin, Chicago, IL, for defendants.

MEMORANDUM AND ORDER

JAMES B. MORAN, Chief Judge.

Plaintiff James Strzelecki (Strzelecki) has filed a ten-count complaint against defendants Schwarz Paper Company (Schwarz) and Andrew McKenna (McKenna), president and principal shareholder of Schwarz. The controversy concerns plaintiff's dismissal from Schwarz and Schwarz's refusal to pay him certain severance benefits and sales commissions to which he says he was entitled. Specifically, plaintiff claims that defendants breached a contract concerning the sale of company stock (count I); that they violated the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq., by dismissing him to avoid paying certain benefits (count II), by not paying him those benefits (count III), by failing to follow certain rules in administering a benefit plan (count IV), and by breaching fiduciary duties owed to him as a participant in a benefit plan they were administering (count V); that they breached a covenant of good faith and fair dealing with respect to stock and employment contracts (count VI); that they are estopped from breaking certain promises relating to the sale of company stock (count VII); that they breached their employment contract with plaintiff (count VIII); that they breached their sales commissions contract with plaintiff (count IX); and that they discriminated against plaintiff on the basis of his age, in violation of the Age Discrimination in Employment Act (ADEA), 29 U.S.C. § 621 et seq. (count X). Defendants now move to dismiss the entire complaint. Their motion is granted in part and denied in part.

BACKGROUND

For the purpose of this motion the court assumes the truth of the allegations made in Strzelecki's complaint. Schwarz is a privately-held Chicago-based company engaged primarily in the fields of paper distribution, printing, and advertising. Strzelecki began working for Schwarz in 1968, following his graduation from college. He began as a sales representative, earning a promotion to sales manager in 1977 and to manager of national accounts in 1979. He became a vice president in 1983. Throughout Strzelecki's tenure at Schwarz, McKenna served as company president and owned over 90 percent of the company's outstanding stock. Strzelecki and McKenna enjoyed an excellent working relationship and McKenna went so far as to state on several occasions that he expected Strzelecki to spend his entire career with Schwarz.

In 1970 and 1971, Strzelecki purchased a total of 15 shares of Schwarz stock. In 1978 he used his 15 shares as collateral for a loan from the Lake Shore National Bank. He also listed the shares as assets in loan applications submitted to other institutions. As a result of those financial dealings, McKenna became concerned that a lender might demand to look into Schwarz's financial records. To prevent such an inquiry, McKenna asked Strzelecki to sell his shares back to the company. Strzelecki agreed and sold the stock for $75,000 (the value of the shares at that time, based on the company's book value) plus, significantly, any appreciation in the value of the shares from the date of the sale to the date of Strzelecki's "retirement from Schwarz." In effect, Strzelecki was to retain ownership in "phantom stock." The sales agreement was not put into writing, but over the years McKenna offered repeated assurances that no written documentation was necessary.

In 1989, McKenna suggested to Strzelecki that Strzelecki buy Schwarz's PGA Packaging Division (PGA) and run PGA while retaining his sales position with Schwarz. McKenna promised that Strzelecki could stay at Schwarz for as long as he wanted, for at least twenty more years, and that Schwarz would support the growth and development of PGA. Convinced by McKenna's representations, Strzelecki purchased PGA from Schwarz on October 9, 1989.

As an older salesperson with considerable seniority, Strzelecki had by that time become one of the more highly paid employees at Schwarz and was entitled to significant benefits—above and beyond the appreciated value of the "phantom stock" that he expected to receive upon his retirement. In June 1990, as a cost-cutting measure, McKenna asked Strzelecki to train a younger salesperson to help with his accounts. McKenna's request, along with other employment decisions at Schwarz that benefited younger employees at the expense of older employees, convinced Strzelecki that Schwarz was discriminating on the basis of age. Strzelecki refused to share his accounts with a younger salesperson.

Strzelecki was discharged in February 1991. He was forty-four years old. The company then denied him commission payments on business he had developed or obtained for it before he left. In addition, the company refused to pay him the appreciated value of his "phantom stock," which by then amounted to the considerable sum of $375,000. (From 1980, when Strzelecki sold his stock to McKenna, to February 1991, when he left the company, the value of an individual share of Schwarz stock rose from $5,000 to $30,000.) Strzelecki then filed this lawsuit.

DISCUSSION

The Stock Sale Claims (Counts I, VI and VII)

Defendants argue that two separate statutes of fraud apply to this case, one found in the Illinois Commercial Code, the other in the Illinois Frauds Act, and that both preclude enforcement of the oral contract between Strzelecki and Schwarz for the sale of securities. In the same vein, they argue that no implied covenant of good faith and fair dealing attached to the sale, and that there can be no estoppel against their refusal to pay the stock's appreciated value.

The Commercial Code provides:

A contract for the sale of securities is not enforceable by way of action or defense unless:

(a) there is some writing signed by the party against whom enforcement is sought or by his authorized agent or broker, sufficient to indicate that a contract has been made for sale of a stated quantity of described securities at a defined or stated price;

(b) delivery of a certificated security or transfer instruction has been accepted, or transfer of an uncertificated security has been registered and the transferee has failed to send written objection to the issuer within 10 days after receipt of the initial transaction statement confirming the registration, or payment has been made, but the contract is enforceable under this provision only to the extent of delivery, registration, or payment;

(c) within a reasonable time a writing in confirmation of the sale or purchase and sufficient against the sender under paragraph (a) has been received by the party against whom enforcement is sought and he has failed to send written objection to its contents within 10 days after its receipt; or

(d) the party against whom enforcement is sought admits in his pleading, testimony, or otherwise in court that a contract was made for the sale of a stated quantity of described securities at a defined or stated price.

810 ILCS 5/8-319.

The Frauds Act provides:

No action shall be brought ... upon any agreement that is not to be performed within the space of one year from the making thereof, unless the promise or agreement upon which such action shall be brought, or some memorandum or note thereof, shall be in writing, and signed by the party to be charged therewith....

740 I.L.C.S. 80/1.

The contract described in the complaint plainly satisfies the statute of frauds contained within the Commercial Code. The critical provision here is section (b) of the statute, 810 ILCS 5/8-319(b), which states that any contract for the sale of certificated securities, whether written or unwritten, is enforceable if the securities have been delivered. According to the complaint, Strzelecki's securities were delivered to Schwarz and Schwarz accepted them. Insofar as the Commercial Code is concerned, delivery is sufficient to prove the existence of a valid contract. Meyer v. Logue, 100 Ill.App.3d 1039, 56 Ill.Dec. 707, 710-11, 427 N.E.2d 1253, 1256-57 (1981).

However, the court does not believe that the contract meets the requirements of the Frauds Act. The contract provided that Schwarz would be awarded the appreciated value of his "phantom stock" upon his "retirement from Schwarz." The term "retirement" generally connotes the end of a person's working years. Perhaps plaintiff could show that the term "retirement" had a special meaning in the context of this particular contract, akin to the meaning of "retirement" when used to describe an officer's departure from the police force or the military, but there is no allegation in the complaint of such an unconventional usage. Because Strzelecki was in his early thirties when he entered into the agreement, and because, by his own account, he planned to work for many more years, the contract does not seem to have been performable within the span of a year. The Frauds Act requires a writing in such circumstances. See Martin v. Federal Life Ins. Co., 109 Ill.App.3d 596, 65 Ill.Dec. 143, 149, 440 N.E.2d 998, 1004 (1982); Federal Deposit Ins. Corp. v. Bruno, 777 F.Supp. 1432, 1437 (N.D.Ill.1991); Lamaster v. Chicago and Northeast Illinois Dist. Council of Carpenters Apprentice and Trainee Program, 766 F.Supp. 1497, 1509 (N.D.Ill.1991).

The question, then, is whether the contract's satisfaction of the Commercial Code requirements "trumps" the Frauds Act requirements. In this case, by virtue of the "full performance doctrine," it must. The "full performance doctrine" is a common law rule that works both as an exception to the traditional statute of frauds—the one contained within the Frauds Act—and...