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ZICK v. VERSON ALLSTEEL PRESS CO.

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


December 3, 1985

ROBERT ZICK, PLAINTIFF,
v.
VERSON ALLSTEEL PRESS CO., DEFENDANT.

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

MEMORANDUM OPINION AND ORDER

Robert Zick ("Zick") sues Verson Allsteel Press Co. ("Verson"), alleging Verson terminated his employment in violation of the Age Discrimination in Employment Act, 29 U.S.C. § 621-34 (Count 1) and — as a pendent claim — in breach of an implied contractual covenant of good faith and fair dealing under Illinois law (Count II). Verson now moves under Fed.R.Civ.P. ("Rule") 12(b)(6) to dismiss Count II and under Rule 11 for sanctions. For the reasons stated in this memorandum opinion and order, Verson's motion is granted in both respects.

Facts*fn1

For purposes of this opinion, the relevant facts are few. Zick was hired by Verson in 1956.*fn2 After twenty-eight years as a Verson employee, Zick (then fifty-six years old) was fired July 27, 1984. Zick makes no allegation he had an express employment contract, nor does he allege Verson ever specifically undertook not to fire him except for cause.

"Good Faith and Fair Dealing"

Verson principally contends Zick was an "at will" employee whom it could fire at any time "for any reason, or none at all." Martin v. Federal Life Insurance Co., 109 Ill. App.3d 596, 600, 65 Ill.Dec. 143, 147, 440 N.E.2d 998, 1002 (1st Dist. 1982). Zick does not dispute his at-will status, but he argues an at-will employment contract, like all contracts in Illinois, incorporates an implied covenant of good faith and fair dealing (the "Implied Covenant"). That Implied Covenant, in Zick's view, imposes "a substantive limitation on the employer's right to discharge" (Zick Mem. 4).

Before this opinion addresses the argument as Zick presents it, the Rule 11 issue makes it worthwhile to note arguments he expressly does not present:

    1. Zick's claim is purely contractual. He does
  not assert the tort of retaliatory discharge.

    2. He does not allege any express promise of job
  security or permanent employment, nor does he
  allege he and Verson bargained over such promises.
  See Martin, 109 Ill. App.3d at 600-03, 65 Ill. Dec.
  at 147-49, 440 N.E.2d at 1002-04 (discussing
  requirement of specific bargaining to rebut
  presumption employment contract is at will).

    3. He does not claim the Implied Covenant is to
  be implied-in-fact from his course of dealing with
  Verson.

    4. He makes no quasi contractual or quantum
  meruit claim.

In short, Zick argues the Implied Covenant is a part of his at-will employment contract "as a matter of law" (Zick Mem. 5), essentially as a compulsory term. See Restatement (Second) of Contracts 2d ("Restatement") § 205 (1979):

  Every contract imposes upon each party a duty of
  good faith and fair dealing in its performance and
  its enforcement.

  As a general principle of contract construction, the Restatement position is of course unexceptionable. See Martindell v. Lake Shore National Bank, 15 Ill.2d 272, 286, 154 N.E.2d 683, 690 (1958); Bonner v. Westbound Records, Inc., 76 Ill. App.3d 736, 744-45, 31 Ill.Dec. 926, 932-33, 394 N.E.2d 1303, 1309-10 (1st Dist. 1979). But Zick's interpretation of the scope of the good-faith-and-fair-dealing doctrine is totally awry. That requirement is not an enforceable legal duty to be nice or to behave decently in a general way. Instead the phrase "good faith" is more a term of art, having a number of meanings as used in contract law (Restatement § 205 comment a):

1. Good faith is an obligation to refrain from acts or omissions tending to defeat the justified and reasonable expectations of the parties to a contract. Id.; Corbin on Contracts § 654 D, at 804 (Kaufman supp. 1984 pt. 1).

2. Good faith is a tool for interpreting contractual provisions. It "comes into play in defining and modifying duties which grow out of specific contract terms and obligations. It is a derivative principle." Gordon v. Matthew Bender & Co., 562 F. Supp. 1286, 1289 (N.D.Ill. 1983). As Martindell, 15 Ill.2d at 286, 154 N.E.2d at 690 observed:

  [W]here an instrument is susceptible of two
  conflicting constructions, one which imputes bad
  faith to one of the parties and the other does
  not, the latter construction should be adopted.

3. Finally, good faith has been construed as an obligation to refrain from certain types of conduct "because they violate community standards of decency, fairness or reasonableness." Restatement § 205 comment a. But this is a limited and discretely-bounded public-policy exception, prohibiting acts not expressly breaches of the terms of a contract yet offensive to the community. See, e.g., Palmateer v. International Harvester Co., 85 Ill.2d 124, 132-33, 52 Ill.Dec. 13, 16-17, 421 N.E.2d 876, 879-80 (1981) (against public policy to discharge at-will employee for reporting potentially criminal activity of fellow-employee to law-enforcement authorities); Kelsay v. Motorola, Inc., 74 Ill.2d 172, 181-82, 23 Ill.Dec. 559, 563-64, 384 N.E.2d 353, 357-58 (1978) (same where at-will employee is fired for applying for statutory workers' compensation).*fn3

None of those concepts of "good faith" applies to the Implied Covenant as Zick asserts it. As to the last: described meaning of the term, Zick does not articulate a public-policy rationale comparable to that expressed in Palmateer and Kelsay.*fn4 As to the second, there are no express press contractual terms in need of interpretation or clarification. And as to the first (and perhaps most important) of the meanings of "good faith," discharge whenever and for whatever reason an employer chooses is a basic component of an at-will contract. Thus that sort of discharge cannot logically be said to contradict or frustrate the reasonable and justifiable expectations of the employee.*fn5 As Judge Hart of this District Court observed in a case much like Zick's (Gordon, 562 F. Supp. at 1290):

  Since Gordon was an at will employee, the duty to
  deal in good faith was appended to nothing which
  had independent life. Therefore no cause of action
  predicated only on the good faith principle may
  stand. . . .

True enough, courts in some other jurisdictions have adopted a broader role for the concept of good faith in at-will employment contracts. See, e.g., the landmark case of Monge v. Beebe Rubber Co., 114 N.H. 130, 316 A.2d 549, 551 (1974) (employer may not terminate an at-will employee if motivated by bad faith or malice). What those courts have really done is essentially to abolish the at-will contract as it has been known at common law.

Zick in essence asks this Court to follow the path cleared by Monge, a move this Court has already declined to take because it cannot do so. See Scott v. Sears, Roebuck & Co., 605 F. Supp. 1047, 1052-53 (N.D.Ill. 1985):

  Despite her admitted at-will employee status,
  Scott claims Illinois law implies a covenant of
  good faith and fair dealing that limits the
  circumstances under which Sears could discharge
  her. But that is not the law in Illinois.

That last sentence is really the crucial stumbling block Zick cannot overcome. According to well-established principles of federal jurisprudence, this Court must apply state law to a pendent state-law claim. Just as in diversity cases, federal courts do not participate in the evolution of state law.*fn6 In diversity and pendent jurisdiction cases, federal jurisprudence is rubber-stamp jurisprudence.*fn7

Zick's case is not even a close call. As the cases already cited demonstrate, Illinois courts have shown no inclination whatever to back away from the traditional at-will rule. Nothing could be clearer than the statement made in Criscione, 66 Ill. App.3d at 669-70, 23 Ill.Dec. at 459, 384 N.E.2d at 95 (quoting Loucks v. Star City Glass Co., 551 F.2d 745, 747 (7th Cir. 1977)):

  Furthermore, requiring 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."

  Only last May the Illinois Supreme Court forcefully reaffirmed that Illinois rule in Barr v. Kelso-Burnett Co., 106 Ill.2d 520, 525, 88 Ill.Dec. 628, 633, 478 N.E.2d 1354, 1356 (1985):

  Contrary to plaintiffs' assertion, however, this
  court has not, by its Palmateer and Kelsay
  decisions, "rejected a narrow interpretation of the
  retaliatory discharge tort" and does not "strongly
  support" the expansion of the tort. The common law
  doctrine that an employer may discharge an
  employee-at-will for any reason or for no reason is
  still the law in Illinois, except for when the
  discharge violates a clearly mandated public
  policy.

Zick tries to invoke a dictum in Dayan v. McDonald's Corp., 125 Ill. App.3d 972, 991, 81 Ill.Dec. 156, 170, 466 N.E.2d 958, 972 (1st Dist. 1984) (citations omitted):

  In describing the nature of that limitation
  [imposed by the doctrine of good faith
  performance) the courts of this state have held
  that a party vested with contractual discretion
  must exercise that discretion reasonably and with
  proper motive, and may not do so arbitrarily,
  capriciously, or in a manner inconsistent with the
  reasonable expectations of the parties. . . .
  Where a party acts with improper motive, be it a
  desire to extricate himself from a contractual
  obligation by refusing to bring about a condition
  precedent or a desire to deprive an employee of
  reasonably anticipated benefits through
  termination, that party is exercising contractual
  discretion in a manner inconsistent with the
  reasonable expectations of the parties and
  therefore is acting in bad faith.

But the key to that Dayan statement is the phrase "the reasonable expectations of the parties" (an echo of the Restatement and Corbin). If an employee has an at-will contract, the only reasonable expectation created by that contract is that he or she can be terminated for "a good reason, a bad reason, or no reason at all." Absent a showing of some separate express or implied undertaking by the employer, the fact the at-will employee has put in many years' service with the employer does not give rise to any presumption of tenure. Barr, Palmateer, Kelsay, Wheeler and Price overwhelmingly illustrate the Illinois principle that "bad faith" in the at-will context must amount to a clear breach of articulated public policy, not merely the deprivation of non-vested accrued pension or retirement rights. See Stevenson v. ITT Harper, Inc., 51 Ill. App.3d 568, 572, 9 Ill. Dec. 304, 309, 366 N.E.2d 561, 566 (1st Dist. 1977) (where pension agreement provides for no vesting until age 65, no promise to alter employee's at-will status is presumed).*fn8

In summary, Zick's argument is addressed to the wrong forum. This Court cannot take Illinois law into uncharted waters, and the purported map Zick tenders is a hoax, leading to no buried treasure. Count II must be and is dismissed.*fn9

Sanctions

Verson has also moved for an award of sanctions under Rule 11:

  The signature of an attorney [on a motion]
  constitutes a certificate by him that he has read
  the motion[,] . . . that to the best of his
  knowledge, information, and belief formed after
  reasonable inquiry it is well grounded in fact and
  is warranted by existing law or a good faith
  argument for the extension, modification, or
  reversal of existing law, and that it is not
  interposed for any improper purpose, such as to
  harass or to cause unnecessary delay or needless
  increase in the cost of litigation. . . . If
  a . . . motion . . . is signed in violation of
  this rule, the court, upon motion or upon its own
  initiative, shall impose upon the person who
  signed it, a represented party, or both, an
  appropriate sanction, which may include an order
  to pay to the other party . . . the amount of the
  reasonable expenses incurred because of the filing
  of the . . . motion[,] . . . including a
  reasonable attorney's fee.

Rule 11's standard is not subjective. Its test is not what the signing attorney believed was warranted, but what "a competent attorney" would reasonably believe "after reasonable inquiry." Indianapolis Colts v. Mayor and City Council of Baltimore, 775 F.2d 177, 181 (7th Cir. 1985) (quoting Eastway Construction Corp. v. City of New York, 762 F.2d 243, 254 (2d Cir. 1985)).

Eastway, id., in observing Rule 11 does not contemplate sanctions based on an attorney's subjective bad faith, stated sanctions must be awarded where a competent attorney after reasonable inquiry must say a claim "was destined. to fail."*fn10 See also In re TCI Ltd., 769 F.2d 441, 445 (7th Cir. 1985) (even Rule 11's "good faith" standard for proposed change in existing law is objective). In Zick's case that test is not difficult to apply. Zick's attempt to milk current precedents for support is wholly unavailing: After Barr (which Zick does not attempt to distinguish) any argument based on "existing law" was "destined to fail" in this Court. Indeed, nothing has intervened since this Court's ruling in Scott to hint that decision was incorrect when rendered or is now.

Further, though in an Illinois state court Zick might perhaps have had a "good faith argument for the extension, modification, or reversal of existing law," any argument of that type was also doomed to failure in this Court. As this opinion has already pointed out, the firmly-entrenched canon is that this federal court is bound to follow — not lead — state-court jurisprudence.*fn11 Arguments that might have persuaded an Illinois court (though given the posture and recency of the Illinois cases, even that possibility is highly remote at best) simply cannot be accepted here. Zick has unsuccessfully argued the dicta in the Illinois cases to or beyond their absolute limit, and his bootless effort has only proved that by any objective standard, Count II was "destined to fail."*fn12 Compare Textor v. Board of Regents of Northern Illinois University, 87 F.R.D. 751, 754 (N.D.Ill. 1980) (discussing, in the context of the earlier and less strict version of Rule 11, the appropriate assertion of a claim the law ought to be changed).

Conclusion

Verson's motion to strike Count II of the Complaint and for sanctions under Rule 11 is granted (the sanctions are imposed on Zick's counsel with no right to reimbursement from Zick, absent a showing that would justify sanctioning the client for the choice of legal arguments advanced on his behalf). To minimize (or even avoid) the need for an evidentiary hearing (with its potential for "fees on fees"), this Court urges counsel to seek agreement in as many areas as possible on the relevant factors (such as time spent, hourly rates and so on). Thereupon Verson should submit a modified fees petition, together with a statement of the issues upon which the parties are agreed and those on which they have disagreed. This Court will establish the procedures appropriate to carry on from that point.


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