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PAYNE v. AHFI/NETHERLANDS

United States District Court, Northern District of Illinois, E.D


November 12, 1980

DONALD E. PAYNE, PLAINTIFF-COUNTERDEFENDANT,
v.
AHFI/NETHERLANDS, B.V., ET AL., DEFENDANTS-COUNTERCLAIMANTS, V. DAVID M. EDWARDS, ET AL., ADDITIONAL COUNTERDEFENDANTS.

The opinion of the court was delivered by: Shadur, District Judge.

  MEMORANDUM OPINION AND ORDER

This action involves (1) claims by plaintiff Donald E. Payne ("Payne") charging breach of contract and fraud by defendants American Hospital Supply Corporation ("American") and AHFI/Netherlands, B.V. ("AHFI") relating to Payne's now-terminated employment relationship with defendants and (2) counterclaims by defendants against Payne and additional counterdefendants Daniel C. Lee ("Lee") and David M. Edwards ("Edwards") charging conspiracy, extortion, conversion and breach of fiduciary duties. Defendants have moved for summary judgment on Payne's complaint. For the reasons stated in this memorandum opinion and order, defendants' motion for summary judgment is granted.

Facts*fn1

On October 1, 1975 Payne was hired by the predecessor of AHFI, which is a wholly-owned subsidiary of American. Initially Payne was to work for AHFI on a project in Saudi Arabia. Though he commenced work there, the position for which he had been hired was terminated, and he was reassigned with his consent to AHFI headquarters in Illinois.

In early 1976 Payne was reassigned to the Korean team of the Seoul National University Hospital ("SNUH") equipping project. On that project his duties were to coordinate distribution of catalogues and handle correspondence relating to mechanical, electrical and architectural equipment.

Edwards and Lee were hired by AHFI in January and February 1976 to work on the SNUH project. Edwards served as director of the Korean-based AHFI team and Lee as a coordinator for architectural changes. After brief trips to Korea in early 1976, Payne, Edwards and Lee moved there permanently in about August 1976.

Payne's original assignment to the Saudi Arabian project was evidenced by an October 1, 1975 letter from AHFI executive Vansant. Among other provisions, the letter set Payne's salary "at an annual rate of [10,000£] ($20,850)" and stated that AHFI would pay Payne's airfare home "[i]n the unlikely event of termination of your employment with us." When Payne was reassigned to the Korean project a 20-page document captioned "Expatriate Foreign Assignment" was executed by AHFI and delivered to Payne in about June 1976. As Payne's memorandum in opposition to defendants' motion states:

  This document sets forth all the pertinent terms and
  conditions of Payne's employment on the Korean
  assignment and describes the term of said assignment.

In the latter respect the "Expatriate Foreign Assignment" ("EFA") document stated:

  It is expected that the employee will remain in the
  foreign post for duration of project which is
  expected to be approximately two (2) years. In some
  cases because of certain circumstances the EFA may be
  shorter or longer. There are many factors that would
  cause a shortening or lengthening of the EFA such as
  individual performance, economic conditions, foreign
  or domestic, AHFI's business plans, etc.

In addition the EFA document stated:

  Donald E. Payne's employment arrangement will be in
  compliance with the labor laws of thw (sic) State of
  Illinois and subject to all of that State's laws and
  regulations in all disputes arising out of this
  employment arrangement.

  Payne claims that before delivery of the EFA document his conversations with Vansant dealt with the terms of his employment, including a statement that the SNUH project would last not less than two years. At his deposition Payne was asked "whether Mr. Vansant phrased what he said about two years in terms of a prediction or in terms of a promise." Payne replied, "I cannot remember exactly what he said." Upon further questioning Payne said, "Corwin Vansant stated that in his opinion the project would be not less than two years and he never indicated to me that I would be required for a less period than that." Payne could remember no more about what he characterizes as the "oral promise" by Vansant. Vansant's memorandum of his conversations with Payne, which Payne admitted covered the "essence" of the talks, mentions termination as one of Payne's options but does not mention any specific term of employment.

Although the SNUH project in fact lasted more than two years, Payne was terminated as of September 30, 1977, exactly two years after he was hired by AHFI. We turn then to the circumstances leading to termination.

Before any of Payne, Edwards and Lee had been hired, American issued a corporate policy on August 15, 1975 (the "1975 Policy") prohibiting contributions or gifts to governmental officials, candidates or political party officials. In late December 1976, after all three had been employed, American entered into a consent decree (the "Consent Decree") with the SEC in which American, while not admitting allegations that it had made illegal foreign payments, agreed to take stringent steps to see that no such payments occurred in the future. As part of the Consent Decree, American agreed to "institute and maintain enforcement and control measures to assure compliance" with the Consent Decree and its new Business Ethics Code of Conduct (the "1976 Code"), which embodied and added to the 1975 Policy. Under the 1975 Policy and the 1976 Code, American asked managerial employees, including those working for its controlled subsidiaries such as AHFI, to sign "certificates of compliance" and to note on them, where appropriate, exceptions to complete compliance.

Edwards and Lee signed certificates of compliance in mid-1976. Payne was not asked to sign a certificate at that time.

During January 1977 Edwards, as SNUH project director, held a meeting for Payne, Lee and all other members of the Korean project team to distribute, discuss and explain the Consent Decree and 1976 Code. Payne received copies of both and understood that he and other AHFI employees were covered by the Consent Decree, that violations of that Decree were violations of law and that a violation of the 1976 Code would be a violation of the Consent Decree. Payne read the provisions of the 1976 Code that appropriate AHFI employees would periodically be required to certify compliance, as well as the portion that required employees to report knowledge of any violations of the Code to their superiors (and Payne understood that provision to apply to him).

During January and February 1977 Payne and Edwards told American and AHFI officials about rumors of improper payments in connection with the SNUH project. As soon as those were reported, Edwards and Payne were flown to Illinois to be questioned by company officials and attorneys on the matter. They were encouraged to report specific evidence of wrongdoing to American's audit committee and special counsel.

In June-August 1977 Payne, Edwards and Lee were asked to sign the annual certificates of compliance. They considered the matter for a while and then refused, instead sending a telex to defendants demanding more than $375,000 in return for their silence on undisclosed matters involving alleged wrongdoing by defendants. At meetings in September 1977 they again refused to sign the certificates, even though they were told and admittedly understood that they could state as "exceptions" to the certificate any suspicion or knowledge of wrongdoing. They also refused suggestions by defendants that they go to governmental authorities with their claimed knowledge. Those refusals resulted in disputes, refusals to cooperate and finally termination of Payne, Edwards and Lee effective September 30, 1977.

Payne's Employment Contract

As to Payne's written employment contract, the startlingly
similar case of Buian v. J.L. Jacobs & Co., 428 F.2d 531 (7th
Cir. 1970) is completely controlling. In Buian  the corporate
defendant had also hired an employee for an overseas job and sent
him a letter stating the terms of employment. For convenience the
duration language of the Buian letter and Payne's EFA document
are juxtaposed below:

Buian                 Payne

It is scheduled that your      It is expected that the employee
assignment in Saudi Arabia     will remain in the
will continue for a period     foreign post for the duration
of eighteen (18) months.       of the project which is
                               expected to be approximately
                               two (2) years.

Similarly, where the EFA document referred to "many factors that would cause a shortening or lengthening of the EFA such as individual performance, economic conditions, foreign or domestic, AHFI's business plans, etc.," the Buian letter stated that the employment abroad was subject to contingencies such as satisfactory service by the employee, good business conditions and no interruption of the foreign projects.

In Buian our Court of Appeals found it "clear on its face that [the agreement] does not guarantee any specific term of employment" (428 F.2d at 533), so that the agreement was held terminable at will under Illinois law. It held that the phrase stating that the employment was scheduled to last for eighteen months was "merely one of expectation and not sufficient to insert any ambiguity into an otherwise customary employment relationship terminable at will" (id.). Indeed the parallel is made even more striking by the specific use in Payne's agreement of the term "expected," tracking even more directly with the Buian concept of "expectation" as negating a binding contract for a term certain.

Accordingly, as in Buian this Court is obligated to hold that Payne's employment relationship under Illinois law (specifically made controlling by the EFA document) was at will and therefore freely terminable by defendants. That conclusion is not changed by the original letter's reference to an "annual rate" of pay, Atwood v. Curtiss Candy Co., 22 Ill.App.2d 369, 161 N.E.2d 355, 357 (1st Dist. 1959), and the doctrine of ejusdem generis does not apply to the specific factors referred to in the EFA document any more than it did in Buian. Moreover, this Court's conclusion is buttressed by Payne's own statement that he had the right to quit before two years were up, a factor that Buian found would raise serious questions of mutuality if the employer's obligation were read differently (428 F.2d at 533).

As for the claimed parol variation or supplementation of Payne's contract by his conversations with Vansant, Payne must fail on four separate grounds, any one of which (with the possible exception of the first) independently defeats Payne's claim:

1. As a matter of proof, Payne himself was indefinite. When asked whether Vansant had promised him employment for two years or had merely predicted that the project would last two years, Payne said, "I can't answer it. . . . I cannot remember exactly what he said." Finally Payne said, "Vansant stated that in his opinion the project would not be less than two years." Thus on Payne's own version of the facts there was no oral promise that would enlarge the mere statement of "expectation" contained in the EFA document.

2. Even if Fed.R.Civ.P. 56 requirements were stretched to give Payne the benefit of unreasonable inferences from his own admission that there had been no promise by Vansant, the lack of mutuality of the claimed promise would make the alleged contract illusory and non-enforceable. Payne's own account of his undertaking was that he had simply agreed to work for AHFI as long as he wanted to. In Meadows v. Radio Industries, Inc., 222 F.2d 347, 348 (7th Cir. 1955), our Court of Appeals applied Illinois law to hold a claimed employment contract void for lack of mutuality when there was "not the slightest bit of evidence that plaintiff ever agreed that he would continue in the employment of defendant for any specified time." Buian, 428 F.2d at 533, is in accord as to the unenforceability of such an alleged agreement so lacking in mutuality.

3. Because the claimed oral statements by Vansant antedated the EFA document, and because that document is plainly an integrated writing embodying all the terms of Payne's employment, the oral statements cannot be used to modify the terms of the EFA document. Bernard Klibanow & Co. v. Shafer, 2 Ill.App.3d 392, 276 N.E.2d 446, 451 (1971), confirming what has been the law in Illinois for over 100 years, Orr v. Ward, 73 Ill. 318, 319 (1874).

4. Even had Vansant orally promised to employ Payne for more than two years, that promise would be unenforceable under the Illinois Statute of Frauds, Ill.Rev.Stat. ch. 59, § 1. Gilliland v. Allstate Ins. Co., 69 Ill.App.3d 630, 26 Ill.Dec. 444, 388 N.E.2d 68, 70 (1st Dist. 1970).

Thus neither the written documentation nor the claimed oral supplementation supports Payne's claimed cause of action on the theories he had originally asserted. In Payne's memorandum in opposition to defendants' motion, Payne has advanced for the first time another theory — essentially that AHFI owed a "duty of good faith and fair dealing" to him and breached that duty when it fired Payne. But the short and conclusive answer to that argument*fn2 is that whether or not California law (on which Payne's California lawyer relies) would support such a claim, Illinois law does not. Criscione v. Sears, Roebuck & Co., 66 Ill. App.3d 664, 23 Ill.Dec. 455, 384 N.E.2d 91, 95 (1st Dist. 1978), rejected an employee's claim based on an alleged bad faith termination of an at will employment contract:

  [R]equiring an employer in an at will relationship to
  terminate an employee only for a legitimate business
  reason absent any other restrictions by contract or
  statute would place the courts in the untenable
  position of having to assess an employer's business
  judgment. There has been no attempt by the
  legislature to so alter the State's employment policy
  and such a step is not one for the courts to make.
  The rule in this state is that an employment at will
  relationship can be terminated for "a good reason, a
  bad reason, or no reason at all."

Payne's Fraud and Misrepresentation Claim

As a matter of proper federal pleading, Payne's Complaint has difficulty satisfying the requirement of Fed.R.Civ.P. 9(b) that "the circumstances constituting fraud . . . shall be stated with particularity." But on defendants' motion for summary judgment, this Court must look at the uncontroverted facts rather than such pleading defects. And on that score Payne also fails.

First, as to the claimed false statements regarding the term of Payne's employment, even viewed in the light most favorable to Payne they were "a promise or prognostication concerning a future happening" rather than relating "to an existing or past event." Under Sinclair v. Sullivan Chevrolet Co., 31 Ill.2d 507, 202 N.E.2d 516, 518 (1964), Illinois law makes such statements non-actionable as fraud. Dealing with a claimed oral promise of employment, the Illinois Supreme Court found no reason to make an exception to the rule barring a fraud claim on a promise in a situation "where an individual is charged with having failed to comply with an oral agreement rendered unenforceable by [the Statute of Frauds]." See also Younger v. Revelle, 78 Ill.App.3d 1, 33 Ill.Dec. 888, 397 N.E.2d 221, 223-24 (5th Dist. 1979), rejecting statements and predictions as to the future as actionable fraud. Payne's memorandum in opposition to defendants' motion does not even address this issue and may on familiar principles be deemed to have abandoned the point, but even apart from that defendants' argument is sound.

Second, Payne complains of concealment of the requirement that he sign a certificate as to compliance with the 1976 Code. That complaint is not supported by Payne's own deposition. Additionally, in the context of affirmative disclosure of the Consent Decree, the 1976 Code and the certificates of compliance confirmed by Payne himself, no claim of fraudulent concealment can lie here. But perhaps most significant, the requirement of compliance certification is such an ordinary and reasonable business matter that its non-disclosure would be nonmaterial and non-actionable in any case.*fn3 Payne's deposition confirmed that he was well aware of the prevalence of codes of conduct, comparable to American's, among large United States corporations, and he never considered the existence or nonexistence of such codes material with respect to his prior employers or his subsequent employers or prospective employers. Payne's tenuous argument that such codes may have been reasonable, but that a certificate of compliance with such codes was not, is rejected by the Court. Most important, as stated in footnote 3 Payne's whole argument in this respect is grounded on a reading of the Certificate that is at war with both its plain language and Payne's own deposition testimony.

Third and finally, Payne complains that he was defrauded by Vansant's statements, before Payne began work in Korea, that in Vansant's opinion the SNUH project was "clean," and was also allegedly defrauded by concealments during 1976 and early 1977 of illegal payments. But even if Payne's statements in that respect are assumed to be true (a matter vigorously contested by defendants, but taken in the light most favorable to Payne for purposes of this opinion), Payne himself states that he learned information to the contrary not later than January 1977 and that he told AHFI officials in January and March 1977 that bribes were being paid by defendants' employees. Thus on Payne's own version of the facts he learned of the alleged illegal foreign payments long before his employment with AHFI ended. Nonetheless he continued to work for AHFI until he was fired, well over six months after he first learned of the alleged illegal payments. As a matter of Illinois law, exemplified by Eisenberg v. Goldstein, 29 Ill.2d 617, 195 N.E.2d 184, 186-87 (1963); cert. denied, 377 U.S. 964, 84 S.Ct. 1645, 12 L.Ed.2d 735 (1964), that inaction by Payne defeats his claim of fraud:

  A person who has been misled by fraud or
  misrepresentation is required, as soon as he learns
  the truth, to disaffirm or abandon the transaction
  with all reasonable diligence . . . If, after
  discovering the untruth of the representations, he
  conducts himself with reference to the transaction as
  though it were still subsisting and binding, he
  thereby waives all benefit of relief from the
  misrepresentations.

Payne's only response is that he did not have "proof positive" of the alleged payoffs, but the Eisenberg decision specifically rejects that response by emphasizing that under comparable circumstances "there was obviously enough to make it [plaintiff's] duty to use ordinary diligence to make further investigations."

Conclusion

It is therefore apparent that even on Payne's own version of the facts in this case he is not entitled to relief. This Court finds that there is no genuine issue as to any material fact and that American and AHFI are entitled to a judgment against Payne on Payne's Complaint as a matter of law.


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