Tag: Twombly

Corporate Officer Can’t Tortiously Interfere with His Company’s Contract; No Punitives for Breach of Contract – ND IL

In Richmond v. Advanced Pain Consultants, P.C., 2015 WL 4971040 (N.D.Ill. 2015), the plaintiff sued the defendants – two companies that operated suburban (Chicago) pain clinics and their doctor principal – claiming several thousand dollars in unpaid computer and accounting services plaintiff performed at the clinics over a several-month period.  The plaintiff brought claims for overtime under the Federal Fair Labor Standards Act and joined companion state law claims for breach of contract, quantum meruit and tortious interference with contract.  The defendants moved to dismiss plaintiff’s claims arguing preemption and the failure to state a claim, among other things.

In dismissing some of plaintiff’s claims (and sustaining others), the Northern District stressed some vital pleading rules and substantive law principles that apply in Federal court litigation.

Federal Notice Pleading Requirements

Federal Rule 8(a)(2) requires a “short and plain statement of the claim showing a pleader is entitled to relief.”  The plaintiff must provide enough factual context to rise above a speculative level so that a defendant has “fair notice” of what the plaintiff’s claim is.  However, “threadbare recitals of the elements of a cause of action” are not enough to survive a Rule 12(b)(6) dismissal motion.

Preemption and Punitive Damages

The defendant first argued the plaintiff’s common law claims (breach of contract, quantum merit, tortious interference) were preempted by the FLSA.  FLSA preempts common law claims that seek to recover overtime or minimum wage compensation.  But if the plaintiff’s claim seeks something other than overtime or minimum wage payments, those claims aren’t preempted.  Here, several of the plaintiff’s claims were for “regular wages” (not overtime) and so were not preempted by FLSA.

The court next struck plaintiff’s punitive damages claim from his breach of contract suit.  Under Illinois law, contract law’s sole purpose is to compensate the nonbreaching party.  It does not seek to punish the breaching party or give an economic windfall to the plaintiff.  This is true even if the breach is intentional.  Punitive damages can only be allowed in the breach of contract setting where the breach is itself an actionable, independent tort (e.g. a civil conspiracy, fraud, etc.).  Since there was no independent tortious conduct over and above the breach of contract – failure to pay plaintiff for his office services – the court struck plaintiff’s punitive damages claims.

Tortious Interference Against A Single-Member Corporation

The court dismissed the plaintiff’s tortious interference claims against the individual defendant – the sole shareholder of the two corporate defendants.

To state a claim for tortious interference with contract, a plaintiff must allege: (i) the existence of a valid and enforceable contract between a plaintiff and another; (ii) defendant’s awareness of the contractual obligation; (iii) defendant’s intentional and unjustified inducement of a breach of contract; (iv) breach of the contract by the third party caused by the defendant’s wrongful conduct.

A colorable tortious interference claim requires the involvement of at least three entities: (1)-(2) the parties to the contract and (3) the person inducing the breach.

Here, the individual defendant was the sole officer and manager of the two defendant medical offices who had unchallenged authority to make all hiring and firing decisions for the two entities.  The court noted that the two corporate defendants wouldn’t exist without the individual defendant.  There were no other shareholders or parties who had an interest in the corporate defendants.  Since the individual defendant was the only operator and stakeholder in the corporate defendants, he could not tortuously induce a breach of (effectively) his own contract with the plaintiff.

Afterwords:

The case provides some useful damages law reminders including that in a breach of contract suit, punitive damages normally can’t be recovered.  The plaintiff must show that the defendant’s breach is itself an intentional tort for a punitive claim possibly to lie.

Advanced Pain Consultants also makes clear that an officer of a corporation cannot tortiously interfere with a contract involving that corporation where that officer is the only shareholder of the corporation and has sole responsibility for the corporation’s business.

 

Successor Corporation Can’t Enforce Expired Restrictive Covenants

 

Stericycle, Inc. v. Carney, 2013 WL 3671288 (N.D.Ill. 2013) is post-worthy for its useful  gloss on the enforceability of restrictive covenants, Federal pleading requirements and a purchasing corporation’s standing to assert the restrictive covenant rights of its predecessor.

Facts:  In 2007 and 2008, defendant signed employment agreements (the “SEI Agreements”) with SEI, his former employer.  The SEI Agreements contained 2-year non-disclosure and non-solicitation provisions. Plaintiff Stericycle acquired SEI in 2009 as part of a stock purchase. 

Defendant later signed separate employment agreements (the “Stericycle Agreements”) in 2009 and 2011.  In late 2011, defendant resigned and within a month went to work for a competitor in the waste management business. Plaintiff then filed suit to enforce the SEI Agreements and the Stericycle Agreements.

Disposition: Plaintiff’s claims dismissed.  The Court granted the defendants’ 12(b)(6) motion to dismiss plaintiff breach of contract claims based on the SEI Agreements with prejudice (claims can’t be refiled) and the Stericycle Agreements without prejudice (claims can be refiled).

Reasoning: The Court dismissed the SEI Agreements because there the two-year restrictive covenants contained in them expired by their terms.  The record demonstrated that that defendant stopped working for SEI in January 2009 and didn’t begin working for his current employer, an SEI competitor, until October 2011 – well past the two-year restrictive period. 

But putting aside the expiration of the contractual two-year restrictions, the Court did hold that the plaintiff – the successor entity – had standing to enforce the SEI Agreements.  That’s because they expressly provided that their restrictive covenants were enforceable by SEI’s successors and assigns.  And since plaintiff was a successor to SEI, plaintiff had standing to sue on the SEI Agreements. 

 The Court also struck plaintiff’s claims which alleged defendant’s breach of the Stericycle Agreements.  The Court found plaintiff’s allegations too conclusory – even under Federal notice pleading rules – to allege that defendant breached the Stericycle Agreements’ non-disclosure terms.  

Plaintiff pled no facts to plausibly suggest that  defendant violated the non-disclosure provisions. The Court also held that to adequately plead breach of a non-compete covenant, the plaintiff must do more than simply say that defendant’s current position is similar to his former position at plaintiff. 

On the issue of whether the Stericycle Agreements’ were enforceable, the Northern Disrtrict stated it couldn’t decide this based only on the complaint’s allegations. 

It cited basic Illinois rules on restrictive covenants: (1) a restrictive covenant will be upheld if it’s a reasonable restraint and supported by consideration; and (2) will be found reasonable only where (a) it’s no greater than necessary to protect the employer’s legitimate business interest; (b) it doesn’t impose an undue hardship on the employee; and (c) the restriction doesn’t injure the public.  

The Court found there were too many fact questions – such as the covenants’ geographic reach and what business interest plaintiff was trying to protect – that couldn’t be resolved on a  bare complaint (i.e. without any discovery) and declined to find the Stericycle Agreements’ restrictions unreasonable.  

 Take-aways:

(1) The Federal notice pleading standard has some teeth: Plaintiff must do more than regurgitate a cause of action’s elements and must also allege specific facts in support of a given claim;

(2) A successor corporation can enforce a restrictive covenant contained in a predecessor’s employment contract where that contract provides that it’s enforceable by a successor or assignee; and

(3) whether a restrictive covenant is reasonable (and enforceability) will most likely not be decided only on a complaint before discovery is taken.