Opinion
No. 99 C 1639
November 21, 2000
MEMORANDUM OPINION AND ORDER
Plaintiff Deborah Watson has asserted a claim for breach of contract against her former employer, Champion Computer Corporation. Champion has moved for summary judgment pursuant to Federal Rule of Civil Procedure 56 (c). For the reasons set forth below, Champion's motion is denied.
Background
Deborah Watson is a former employee of Champion Computer Corporation, and is suing Champion for breach of her employment contract. Watson claims that Champion terminated her employment in violation of her employment agreement, which she alleges provided for a three year term of employment, terminable only upon good cause. Champion contends that Watson's employment agreement was terminable at-will.
Watson is a highly educated individual, holding a master's degree in business administration from the University of Michigan. In 1997 and 1998, while Watson was employed with IBM, she communicated with Champion about employment opportunities. Champion then sent Watson a letter dated April 15, 1998 offering her employment. The letter contained outline of "the details of [the parties'] mutual understanding of [Watson's] employment." (Offer Ltr. at 1). The following relevant terms were included in the letter:
5. In recognition of the substantial investment Champion has made in your training and relocation, you agree to commit to three years of service with Champion provided that Champion lives up to all commitments and continues to offer a competitive compensation plan. . . .
9. Conditions of employment and compensation are subject to change to meet the needs of the business.
10. Employment is dependent on the completion and acceptance of the Employment, Confidentiality, Non-Competition and Non-Interference Agreement . . . .
12. You are subject to a ninety day probationary period, subject to termination with or without cause.
(Offer Ltr. at 1-2).
The parties do not dispute that this offer letter was signed by both Deborah Watson and Michael Baker, the CEO of Champion.
A second relevant document is the Employment, Confidentiality, Non- Competition and Non-Interference Agreement. That document contains language granting each party the right to unilaterally terminate the employee's employment without cause upon two weeks notice. (See Empl., Confid., Non-Comp. Agreement. at 2). The parties dispute whether or not Watson ever signed this second document. Watson claims that she never received the document, while Champion asserts that it was sent as an attachment to the offer letter. Furthermore, Watson claims that the signature of her name that appears on the document was forged, which Champion denies.
The third relevant document is an "Employee Acknowledgment Form." The Employee Acknowledgment Form states, in relevant part: "I understand that Champion Computer Corporation is an `at-will' employer and as such employment with Champion is not for a fixed term or definite period and may be terminated at the will of either party, with or without cause, and without prior notice." (Empl. Acknow. Form). The parties do not dispute that Watson signed this document after beginning her employment.
After accepting Champion's offer of employment and working for Champion as a Field Sales Engineer for eight and one-half months, Champion informed Watson that her position was being eliminated and offered her a different position at a significantly lower annual salary. After refusing to accept that position, Watson was involuntarily terminated. (See Exit Interview Form).
Although defendant refutes the assertion that Watson was involuntarily terminated, citing Watson's own deposition testimony, the Exit Interview form suggests that Watson's termination was involuntary. Viewing the record in the light most favorable to Watson, the court assumes that Watson was involuntarily terminated.
Analysis
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). When considering a motion for summary judgment, the court must view the record and any inferences to be drawn from it in the light most favorable to the party opposing summary judgment. See Griffin v. Thomas, 929 F.2d 1210, 1212 (7th Cir. 1991). The party opposing summary judgment may not rest upon the pleadings, but "must set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). There is no genuine issue for trial unless there is "sufficient evidence favoring the non-moving party for a jury to return a verdict for that party." Id. The party moving for summary judgment bears the initial burden of demonstrating the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
Champion argues that it is entitled to summary judgment because the express terms of the offer letter and the acknowledgment form establish that Champion had the right to terminate Watson without cause. In response, Watson asserts that the offer letter was ambiguous as to the term of employment and that the acknowledgment form was not an enforceable contract. Matters of contract interpretation are particularly suited for summary judgment where there are no ambiguities or triable questions of fact. See Hickey v. A.E. Staley Mfg., 995 F.2d 1385, 1389 (7th Cir. 1993) (citing Metalex Corp. v. Uniden Corp. of America, 863 F.2d 1331, 1333 (7th Cir. 1988). When considering a motion for summary judgment in cases requiring contract interpretation, the court must determine: "1) if The contract is ambiguous or unambiguous and 2) if it is ambiguous, whether after consideration of the extrinsic evidence, there are any triable issues of fact." Id. A contract is ambiguous if it. is reasonably susceptible to more than one interpretation. See CSX Transp. v. Chicago North W. Transp. Co., 62 F.3d 185, 189 (7th Cir. 1995); Hickey, 995 F.2d at 1389.
For purposes of defendant's motion for summary judgment, the court assumes that Watson did not receive or sign the Employment, Confidentiality, Non- Competition and Non-Interference Agreement. Champion asserts that Watson is still bound by that document, since Watson knew that Champion would assume that she had received, read, and signed it in conjunction with signing the offer letter. See Def. Mtn, Summ. J. at 12-13). However, Champion's main support for this argument is a case in which the terms of an extrinsic document were expressly incorporated into the signed contract. See Breckenridge v. Cambridge Homes, 616 N.E.2d 615, 616-17 (Ill.Ct.App. 1993). Here, the offer letter does not incorporate the terms of the Employment, Confidentiality, Non- Competition and Non-Interference Agreement. Rather, it simply makes execution of that document a condition precedent to employment. ( See Offer Ltr. at 2, 10). Watson, therefore, was never bound by the terms of the Employment, Confidentiality, Non-Competition and Non-Interference Agreement if she did not receive or sign it.
Watson also points out that Champion's motion for summary judgment failed to comply with Local Rule 56.1. Watson is correct that Champion's submission did not follow the format requirements of Rule 56.1 and failed to include a statement of facts supporting venue and jurisdiction in this court, as required by that rule. Champion, however, has admitted that this court has jurisdiction and venue. ( See Defendant's Reply at 2). The court will consider Champion's motion on its merits, despite its failure to comply with the requirements of Rule 56.1.
The court finds that the offer letter, combined with the acknowledgment form, are ambiguous as to the term of employment. Under lllinois law, employment is assumed to be at will, unless the pates contract otherwise, See Duldulao v. Saint Mary of Nazareth Hospital Ctr., 505 N.E.2d 314, 317-28 (Ill. 1987). While the acknowledgment form clearly states that the employment is "not for a fixed term and may be terminated at the will of either party, with or without cause, and without prior notice" ( see Acknow. Form), there are provisions in the offer letter that directly contradict that statement. Most notable is paragraph 5, which requires that Watson commit to three years of service with Champion. Although, by its terms, this paragraph obligates only Watson to a definite term of employment, it nevertheless undermines the language of the acknowledgment form by making clear that the employment contract is not terminable at will by either party. Furthermore, there is language in the offer letter suggesting that the three year obligation runs in both directions. Paragraph 12 of the offer letter provides for a ninety day probationary period, in which Watson is "subject to termination with or without cause." This language would be superfluous if Champion already had the right to terminate Watson at any time with or without cause. In light of paragraphs 5 and 12, one reasonable interpretation of the whole employment agreement would be that both parties were obligated to a three year term of employment terminable only for good cause.
The court assumes, without resolving the issue, that the acknowledgment form is an enforceable contract, and therefore construes this document in combination with the offer letter as Watson's entire employment agreement. See Burgener v. J.R. Gain, 428 N.E.2d 725 (Ill.Ct.App. 1981) (courts must read two contracts executed as part of a single transaction as one single contract).
Since Watson's employment agreement, comprised of both the offer letter and the acknowledgment form, is ambiguous, the court must examine extrinsic evidence to determine whether there is a triable issue of fact as to the term of Watson's employment. Watson offers sufficient evidence to create a genuine issue of material fact as to the term of her employment. Most significantly, Watson testified in her deposition that she asked Champion's Human Resources manager whether signing the acknowledgment form would affect her three year term of employment under her contract, and that the Human Resources manager responded that it would not. (See Watson Dep. at 127-28). At trial, this evidence may help establish that both parties intended for the offer letter to create a definite three year term of employment. Given the ambiguity of the writings constituting the employment agreement and the extrinsic evidence offered by Watson, summary judgment is inappropriate.
Champion argues that, in any event, no written employment agreement ever existed because the offer letter, in paragraph 10, expressly conditioned employment on the completion of the Employment, Confidentiality, Non- Competion and Non-Interference Agreement. Champion correctly asserts that the execution of that document was, therefore, a condition precedent to Watson's employment. Conditions precedent, however, can be waived by conduct indicating that strict compliance with the condition will not be required. See MBC, Inc. v, Space Center Minnesota, Inc., 532 N.E.2d 255, 260 (Ill.App.Ct. 1988). Taking the evidence in the light most favorable to Watson, Champion may have waived the condition by employing Watson for over eight months without ever receiving an executed copy of the Employment, Confidentiality, Non-Competition and Non-Interference Agreement from her.
Champion responds by correctly noting that the waiver of a condition must be a knowing waiver. See, e.g., Lavelle v. Dominick's Finer Foods, Inc., 592 N.E.2d 287, 292 (1992); Lehman v. IBP, Inc., 639 N.E.2d 152, 154 (Ill.Ct.App. 1994). Champion apparently assumed that Watson had executed the Employment, Confidentiality, Non-Competition and Non-Interference Agreement, and hence, did not know that she had failed to do so. Knowledge, however, can be actual or constructive. Where, as here, a party should have known through reasonable diligence that the condition was not met, the party may be charged with a knowing waiver of the condition. See, e.g., Whalen v. K-Mart Corp., 519 N.E.2d 991, 994 (1998) (condition requiring that subcontractor provide proof of insurance to general contractor waived where general contractor did not complain until an injury led to litigation against general contractor) MBC, 532 N.E.2d at 259-60 (buyer of business waived condition precedent that seller's representations would be true as of closing date where buyer had opportunity and duty to make good faith effort to learn the truth of the seller's representations before closing but failed to do so).
Although the court recognizes that the specific holding in Whalen has been strictly limited to its facts, see Lehman, 639 N.E.2d at 155, the circumstances of this case, including Champion's constructive knowledge of the fact that Watson had not fulfilled the condition and Champion's control of her ability to do so, compel the application of Whalen's reasoning.
Furthermore, the ability to meet the condition was at least partially in the hands of Champion. Assuming that Watson never received the Employment, Confidentiality, Non-Competition and Non-Interference Agreement, she could have reasonably believed that Champion waived the condition by continuing to employ her without ever giving her the document so that she might sign it. Champion in effect, may have lulled Watson into believing that strict compliance with the condition was not required and that the letter offer would govern the employment relationship. Champion cannot now try to avoid the terms of the letter offer by pointing to Watson's failure to meet that condition. See generally Whalen, 519 N.E.2d at 994 ("A party to a contract may not lull another into. a false assurance that strict compliance with a contractual duty will not be required and then sue for noncompliance."); Lavelle, 592 N.E.2d at 292 (stating that waiver can be implied where one party "misled another into acting on a reasonable belief that a waiver has occurred."). Therefore, the court finds that, viewing the facts in the light most favorable to Watson, Champion waived the condition precedent found in paragraph 10 of the offer letter.
Finally, Champion argues that, even if the letter offer was an enforceable contract for a definite term, paragraph 9 of the letter allowed Champion to change the conditions of Watson's employment and her compensation to meet its business needs. Champion asserts that the elimination of Watson's position and its offer to employ her in a different position at a lower salary was simply an exercise of its rights under paragraph 9, not a breach of contract. Watson responds by asserting that Champion's actions were not taken in response to its business needs. ( See Pl. Response Brief at 5). Watson also suggests that Champion was really attempting to terminate her employment, not to place her in a different position. ( See id.). Watson has not produced any evidence to support these claims, however. On a motion for summary judgment, the party opposing the motion may not rely on the pleadings, but must set forth specific facts to create a genuine issue of material fact. See Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248 (1986).
In her response brief, Watson does not cite to the record in support of these contentions. In Watson's response to Champion's Local Rule 56.1 Statement, she disputes that Champion's restructuring was "necessary to meet the needs of Champion's business." (Pl. Resp. to Def. 56.1 Statemt. at 3). In support, Watson cites to an excerpt from her deposition transcript. Watson also disputes Champion's statement that "Watson rejected the alternative position offered to her and elected to terminate her employment," citing her deposition and the exit interview form. ( Id. at 4). After reviewing the cited portions of the transcript and the exit interview form, mindful that the record must be viewed in the light most favorable to Watson, the court finds that they do not support Watson's assertions.
Nonetheless, the court finds that paragraph 9 is not sufficient to entitle Champion to summary judgment. Upon examination of the language of paragraph 9, and the offer letter as a whole, the court is not convinced that the only reasonable interpretation of that provision would allow Champion to unilaterally eliminate Watson's position and offer her a different position with a salary cut of 41 to 47%. It is at least arguable that entirely changing Watson's position from Field Sales Engineer to Configuration Specialist was not simply a change in Watson's "[c]onditions of employment." (Offer Ltr. at 2; 9). Moreover, the duty of good faith and fair dealing, implied in every contract by law, see Interim Health Care of N. Illinois, Inc. v. Interim Health Care, Inc., 225 F.3d 876, 884 (7th Cir. 2000), may impose a limit on the amount by which Champion can reduce Watson's compensation under paragraph 9. As a result, one reasonable interpretation of the offer letter would be that Champion had the right to change Watson's compensation to an extent within the reasonable expectations of the parties. See Citicorp Savings of Illinois v. Rucker, 692 N.E.2d 1319, 1324 (Ill.Ct.App. 1998) ("the duty of good faith and fair dealing requires the party vested with contractual discretion to exercise that discretion reasonably and with proper motive not arbitrarily, capriciously, or in a manner inconsistent with the reasonable expectations of the parties.") (emphasis added). The extrinsic evidence presented by Watson permits the inference that a 41 to 47% salary cut was inconsistent with the reasonable expectations of the parties., ( See Watson Dep. at 34-15 to 35-4).
Indeed, if the duty of good faith and fair dealing did not impose such limits on Champion's power to change Watson's compensation under paragraph 9, the contract might be subject to attack for lack of consideration. See generally Jackson v. Cadence Design Systems, Inc., Nos. 97 C 8287 and 97 C 8860, 1999 WL529566 at *1 (N.D. Ill. July 20, 1999).
The court accordingly finds the offer letter ambiguous as to whether Champion indeed had the contractual right to I) eliminate Watson's position and offer her employment only in a different position, or 2) drastically reduce Watson's compensation. Champion has not presented extrinsic evidence sufficient to demonstrate that no reasonable jury could find that the parties intended or reasonably expected paragraph 9 to be so limited. Accordingly, summary judgment is inappropriate.
When viewing the record in the light most favorable to Watson, the court finds that her employment agreement was ambiguous, and that the extrinsic evidence offered presents a triable issue of fact. Champion's motion for summary judgment is accordingly denied.