STUART PARK ASSOCIATES v. Ameritech Pension Trust
| Decision Date | 18 March 1994 |
| Docket Number | No. 93 C 1817.,93 C 1817. |
| Parties | STUART PARK ASSOCIATES LIMITED PARTNERSHIP and Stuart Park/Summit Partners, Plaintiffs, v. AMERITECH PENSION TRUST, Ameritech Corporation, and Harris Trust & Savings Bank, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
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Harvey Joel Barnett, Ira J. Bornstein, John Alden Fritchey, IV, Barnett, Bornstein & Blazer, Ltd., Chicago, IL, Leonard L. Gordon, Piper & Marbury, Baltimore, MD, Benjamin Sorrells Boyd, Lewis A. Noonberg, David H. Bamberger, Piper & Marbury, Washington, DC, for plaintiffs.
Alfred Winchell Whittaker, Kristen Y. Allman, Kirkland & Ellis, Washington, DC, Frank Cicero, Jr., Ruben Castillo, Anni A. Najem, Kirkland & Ellis, Chicago, IL, for defendants.
The defendants, Ameritech Pension Trust ("the Pension Trust"), Ameritech Corporation ("Ameritech"), and Harris Trust and Savings Bank ("Harris"), move this court for summary judgment.1 The defendants argue that they are entitled to summary judgment on count I of the plaintiffs' complaint which alleges breach of contract because (1) the contract violates the Employee Retirement Income Security Act ("ERISA") and hence, is unenforceable; (2) the contract never became binding because the plaintiffs failed to fulfil a condition precedent; and/or (3) the contract never became binding because the contract was never actually delivered. The defendants argue they are entitled to judgment on count II of the plaintiffs' complaint because as a matter of law the plaintiff's cannot establish the requirements for promissory estoppel. With respect to the plaintiffs' tort claims, the defendants argue they are entitled to judgment on count IV because the defendants did not owe the plaintiffs the legal duty to act in accordance with good faith and fair dealing. Similarly, the defendants argue that they did not owe the plaintiffs the legal duty to forewarn them that the contract may violate ERISA and consequently, that they are entitled to judgment on count VI of the plaintiffs complaint. Finally, with respect to damages, the defendants argue that the plaintiffs are not entitled to lost profits, punitive damages and/or attorneys' fees. For the reasons set forth below, this court grants the defendants' motion in part and denies it in part.2
The plaintiffs engage in the business of real estate development. In 1989, the plaintiffs procured a contract to purchase a parcel of land in Arlington, Virginia. (Complaint at ¶ 11). Because the property was located in close proximity to the Washington Metro public transportation system, the plaintiffs considered it an ideal location for a 372-unit apartment complex, to be known as Stuart Park. Id.
The plaintiffs contacted L & G Realty Advisors ("L & G") in the hopes of obtaining investments in Stuart Park. Id. at ¶ 12. L & G acted as realty investment advisor to the Pension Trust, and it undertook preliminary discussions with the plaintiffs on behalf of the Pension Trust. Id. at ¶¶ 12, 13. The plaintiffs understood that the approval of Ameritech was required to commit it to investing in the Stuart Park project. (Plaintiffs' Memorandum in Opposition to Defendants' Motion for Summary Judgment at 2) ("Pl.Mem. in Opp.").
However, the parties experienced difficulty obtaining that approval. Although their discussions were encouraging, the parties were unable to attract the attention of Lloyd B. Thompson, the Director of Real Estate Investments for the Pension Trust. Id. at 3. Thompson had the authority and responsibility to approve real estate investments for the Pension Trust or to recommend any such investment to the Chief Investment Officer, Judith Mares. (Defendants' Statement of Material Facts as to Which No Genuine Issue Exists at 4-5) ("Def.Stat. of Mat.Facts"). Because the negotiations could not proceed any further without Thompson, the plaintiffs enlisted the assistance of Donald Bennett, a long-time friend of Thompson. . The plaintiffs agreed to insure that Bennett would receive $350,000.00 to direct Thompson's attention to Stuart Park and to play a minor role in the negotiations.3 (Def.Mem. in Supp. at 5; see also Pl.Mem. in Opp. at 3).
After Bennett directed Thompson's attention to Stuart Park, the plaintiffs undertook formal negotiations with the Pension Trust. The defendants allege, however, that Bennett and Thompson had already negotiated their own deal. The defendants contend that Bennett and Thompson agreed that Thompson would recommend to the Pension Trust those investments in which Bennett had a financial interest. (Def.Reply Br. at 2-4.) In return, Bennett would pay Thompson a portion of Bennett's fees and profits. Id. Thus, Thompson would receive a portion of the $350,000.00 fee for the Stuart Park transaction. Id.
In August of 1990, Mares began to suspect that one of her subordinates was engaged in misconduct, and she retained the law firm of Winston & Strawn ("W & S") to investigate. (Def.Stat. of Mat.Facts at 8). W & S interviewed Thompson in September and October 1990. W & S concluded its investigation in approximately December 1990. W & S ultimately reported to Mares that, in its opinion, Thompson engaged in activity which violated ERISA and directly breached his fiduciary duties to the Pension Trust. (See Affidavit of Howard Pearl at 12-13).
On September 27, 1990, the plaintiffs and L & G signed the investment agreement. (Complaint at ¶ 19). Harris, the Pension Trust's trustee, signed it at a later date outside of the presence of the plaintiffs. (Def.Reply Br. at 15). The Pension Trust directed Harris to send the signed agreement to it and to refuse to tender a copy to the plaintiffs. Id. In light of the findings of the W & S investigator, the Pension Trust's in-house counsel worried that because Thompson was a fiduciary of the Pension Trust, his misconduct with respect to the Stuart Park transaction constituted an ERISA violation. (Def.Stat. of Mat.Facts at ¶ 17). Thus, she prevented delivery of the contract while she consulted with outside legal counsel. Id. On November 14, outside legal counsel reported to the Pension Trust that performance of the Investment Agreement would in fact violate ERISA. Id. On November 19, Mares sent a letter to the plaintiffs briefly mentioning the ERISA problems and repudiating the Investment Agreement. Id. at 18.
Throughout 1991 and the first few months of 1992, the plaintiffs and the defendants attempted to restructure the Stuart Park transaction, to no avail. Consequently, the plaintiffs sued the defendants for breach of contract, promissory estoppel, breach of the duty of good faith and fair dealing, and breach of fiduciary duty.4 The defendants have moved for summary judgment; each of their arguments will be addressed in turn.
The defendants first argue that the Investment Agreement violates ERISA, and, hence, is unenforceable pursuant to the doctrine of impossibility. See, e.g., Commonwealth Edison Co. v. Allied-General Nuclear Servs., 731 F.Supp. 850, 855 (N.D.Ill.1990) (). The defendants allege that no genuine issue of material fact exists as to whether Thompson was engaged in an illegal kickback scheme. In support of their contention, the defendants have submitted the affidavit of the W & S investigator attesting that Thompson admitted to him that Bennett did business with the Pension Trust with respect to the Stuart Park transaction, and that Thompson was involved in exercising his discretion and judgment on behalf of the Pension Trust with respect to transactions involving Bennett. (Affidavit of Howard Pearl at 6-7). The investigator also testified that his investigation revealed that Thompson accepted substantial sums of money from Bennett during this time. Id. at 4. The defendants have submitted invoices which total approximately $40,000.00 from Thompson Capital Corporation ("TCC"), Thompson's wholly owned corporation. (Def.Reply Br., Exhibit 3). The defendants state that Thompson billed Bennett, through these invoices, for Thompson's share of the fees that Bennett earned from the Pension Trust. (Def.Stat. of Mat.Facts at 5-6).6 This evidence, defendants argue, convincingly shows the illegal Thompson-Bennett scheme.
Interestingly enough, however, the plaintiffs have submitted the most damaging evidence that Thompson was involved in a kickback scheme. (Pl.Mem. in Opp., Ex. 13). On December 20, 1990, Ameritech filed suit against Thompson for the improprieties revealed by the W & S investigation. Shortly thereafter, Ameritech and Thompson entered into a Settlement Agreement. In this agreement, Thompson admits that Bennett profited from the Stuart Park transaction, that Thompson recommended Stuart Park to the Pension Trust, and that Thompson received approximately $40,000.00 from Bennett through TCC. Id. at 2-3. In settlement of Ameritech's possible causes of action, TCC agreed to pay Ameritech over $150,000.00, approximately $40,000.00 of which represents Bennett's payments to TCC that coincided with Thompson's recommendation of the Stuart Park investment. Id. at 4. Taken together, this evidence strongly indicates that no genuine issue of material fact exists with respect to Thompson's involvement in the kickback scheme with Bennett.
Further, the plaintiffs have not presented one jot of evidence to the contrary. Yorger v. Pittsburgh Corning Corp., 733 F.2d 1215, 1222 (7th Cir.1984) (...
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