The opinion of the court was delivered by: Mihm, District Judge.
On June 21, 1988, this Court conducted oral argument on
Plaintiffs' Motion to Dismiss Defendant's Counterclaim. At
that time, the Court orally granted said Motion, and indicated
that a written order would follow. This is that order.
1. This is a lawsuit filed under the Age Discrimination in
Employment Act ("ADEA") by a group of former employees of
Caterpillar, Inc. Plaintiffs allege that their jobs were
targeted for elimination by Caterpillar on the basis of their
age and that they were in effect forced to retire or otherwise
to terminate their employment by Caterpillar. Among other
things, Plaintiffs allege that purported releases were
obtained from them in the course of securing their departure
from Caterpillar's employment. Plaintiffs allege on various
factual and legal grounds that these releases are of no legal
effect. Their complaint affirmatively asks this Court to
invalidate these purported releases.
2. Caterpillar has filed a Counterclaim alleging that the
releases are valid, and that by filing this lawsuit the
Plaintiffs have breached the contract with Caterpillar
allegedly embodied in these releases. The Counterclaim asserts
that this alleged breach has damaged Caterpillar at least in
the amount of the special payments that have been rendered to
Plaintiffs pursuant to the "Statements" that contain the
release language. Each Plaintiff signed such a Statement at
the time of his or her departure from Caterpillar's
employment. Caterpillar's Counterclaim asks that the Court
award it damages against each Plaintiff for breach of contract
in the amount of all payments previously made under the terms
of these "Statements;" that the Court declare that Caterpillar
need make no future payments under those Statements; and that
the Court award Caterpillar the fees and costs incurred in
defending this litigation.
3. Plaintiffs have moved to dismiss the Counterclaim
pursuant to F.R.Civ.P. 12(b)(6) for failure to state a claim
on which relief can be granted.
4. At the time of their separation from the Company, each
Plaintiff received certain financial benefits. At the same
time, each Plaintiff signed a purported release, relied on by
Caterpillar as the heart of their Counterclaim, which reads as
This language does not contain any provision specifically
promising not to file a lawsuit, or providing for damages if
a lawsuit is filed that is found to be barred by the release,
or providing for attorney's fees and costs. A release of this
type, which merely states that claims are discharged and
released, will hereinafter be referred to as a "defensive
5. Caterpillar's Counterclaim does not assert that
Plaintiffs have filed their complaint in bad faith, or that
Plaintiffs' attack on the validity of the releases is made in
bad faith. Neither has Caterpillar made any such assertion in
the brief it has filed defending its Counterclaim.
6. The Court has reviewed the thorough briefs filed by the
parties on this motion and heard extensive oral argument on
June 21, 1988.
B. CONCLUSIONS OF LAW
1. This Court has jurisdiction of Caterpillar's Counterclaim
pursuant to F.R.Civ.P. 13(a). The Counterclaim is clearly a
"compulsory counterclaim" within the meaning of that rule and
the cases interpreting it. Accordingly, no independent basis
of federal jurisdiction is required to support it.
2. For purposes of this Motion to Dismiss, it is assumed
that the facts asserted in Defendant's Counterclaim are true.
Powe v. City of Chicago, 664 F.2d 639, 642 (7th Cir. 1981).
3. The Court concludes that the legal validity of this
Counterclaim is to be judged by Illinois law, except to the
extent that such law may be inconsistent with the ADEA. See,
Air Line Stewards & Stewardesses Assoc. v. Trans World
Airlines, Inc., 713 F.2d 319, 321 (7th Cir. 1983). The Court
takes note of authority construing releases of ADEA claims to
be governed by "federal common law." DiMartino v. City of
Hartford, 636 F. Supp. 1241, 1248-49 (D.Conn. 1986). While this
holding may be appropriate in construing a release that was
signed as part of a specific settlement of an ADEA federal
court lawsuit (as in DiMartino), the Court does not believe
that it applies here, where the release was signed before any
specific dispute had surfaced between the parties, and where
the release does not specifically mention the ADEA or any other
federal rights of action. In any event, however, both
Caterpillar and Plaintiffs agree that there is no reason to
believe that Illinois would differ from "federal common law" on
the issue presented here, and this Court concurs with that
4. Because this case is before the Court on a Motion to
Dismiss the Counterclaim, and is based on the pleadings, this
Court's decision is a narrow one. Specifically, this decision
does not address the validity of the release agreements
themselves. The validity issue was not raised by Plaintiffs'
Motion. Further, resolution of the validity of the release
agreements would require findings of fact regarding
circumstances surrounding their execution and the intent of
the parties. Such an inquiry is inappropriate on a Motion to
Dismiss based on the pleadings.
5. The Court concludes that the Motion to Dismiss should be
granted for several alternative reasons.
6. The filing of a good-faith lawsuit does not constitute a
breach of the agreement evidenced by that release. In the
Court's view, Illinois law would follow the reasoning of
Artvale, Inc. v. Rugby Fabrics Corp., 363 F.2d 1002, 1008 (2nd
Cir. 1966), which held that, unless a covenant not to sue
expressly provides for damages in the event of breach, it will
be presumed to be intended for defensive purposes only, absent
allegations that the subsequent lawsuit was brought in bad
7. Caterpillar has been unable to cite a single case from
Illinois or any other jurisdiction that has ever allowed a
"defensive release" to be used to support an offensive damage
claim for breach of contract such as alleged by Caterpillar.
The Court has examined the cases cited by Caterpillar as
authority for allowing damage actions for breach of a release
and finds them inapposite. Most of these cases do not involve
a release or covenant not to sue, nor do they discuss the
right to sue for damages for
violation of them. The case most heavily relied on by
Caterpillar, Anchor Motor Freight v. Teamsters, 700 F.2d 1067
(6th Cir. 1983), cert. denied, 464 U.S. 819, 104 S.Ct. 81, 78
L.Ed.2d 92 (1983), involved not a defensive release but a
provision in a collective bargaining agreement that specified
when the parties could and could not file a lawsuit over
matters previously submitted to arbitration. And the Sixth
Circuit explicitly did not decide the question of whether the
act of filing the suit had breached this provision of the
collective bargaining agreement. 700 F.2d at 1072-73.
8. The Court also rejects the principal argument made by
Caterpillar to distinguish Artvale and the other cases relied
on by Plaintiffs. Caterpillar argues that while these cases
permit a party who has signed a "defensive release" to bring a
lawsuit that is limited to challenging the validity of the
release itself, they do not permit a party to attach to that
lawsuit the underlying cause of action the party wishes to
assert. The cases themselves do not support Caterpillar's
distinction. In all these cases, the plaintiff's lawsuit was
not limited to a challenge of the validity of the release.
Instead, the plaintiff brought an underlying claim, just as the
Plaintiffs here have brought an underlying ADEA claim.
Moreover, Caterpillar's argument makes no practical sense.
Caterpillar is proposing that Plaintiffs litigate their case in
two separate proceedings seriatim. Under Caterpillar's theory,
Plaintiffs must first spend an extended period of time, perhaps
several years, litigating the validity of their release and
then, if they prevail, start a whole new lawsuit on the
underlying claim that would probably take several years more to
resolve. Aside from the statute of limitations and subject
matter jurisdiction problems caused by such a procedure, it
would lead to nearly endless litigation and would be contrary
to judicial economy. This is not to say that the law is always
practical, but in this situation there is no apparent reason in
law, logic, or public policy why it should not be.
9. The Court also rejects Caterpillar's argument that it is
entitled to proceed to determine whether the parties intended
these "defensive releases" to be used for offensive purposes.
Caterpillar cites no case that has allowed such a trial.
Caterpillar could have drafted this release to include
language giving it an offensive right of action in the event
of a lawsuit. It did not include such language. The cases
cited by Caterpillar are inapposite. They did not involve
damage claims based on defensive releases. Instead, they
involved the issue of whether a settlement document had been
intended by the parties as a release (in which case it would
release joint tortfeasors) or as a covenant not to sue (in
which case it would not).
10. The Court further concludes that even if the filing of
this suit constituted a breach of these defensive releases,
the damages sought by Caterpillar are unawardable for this
alleged breach of contract. The only damage that can be caused
by the filing of this lawsuit is the expense of defending it.
Bellefonte Re Insurance Co. v. Argonaut Ins. Co., 586 F. Supp. 1286,
1287 (S.D.N.Y. 1984). Illinois law, however, precludes
even the award of these damages. Child v. Lincoln Enterprises,
Inc., 51 Ill. App.2d 76, 200 N.E.2d 751, 754 (4th Dist. 1964).
Other jurisdictions are in accord. Bellefonte Re Ins. Co. v.
Argonaut Ins. Co., supra; Borbely v. Nationwide Mut. Ins. Co.,
547 F. Supp. 959, 980-81 (D.N.J. 1981); see also Winchester
Drive-In Theatre Inc. v. Warner Bros. Pictures Distrib. Corp.,
358 F.2d 432, 436 (9th Cir. 1966).
11. The Court rejects Caterpillar's argument that it may
claim damages for "restitution" on a theory of "unjust
enrichment." The only claim pleaded in Caterpillar's
Counterclaim is a claim for breach of contract and resulting
damages. Had Caterpillar attempted to plead an alternative
theory of unjust enrichment, it is doubtful that such a claim
could have been sustained. No case is cited by Caterpillar
allowing use of an unjust enrichment theory to order
restitution of monies paid under a defensive release agreement
as a result of the filing of a good faith lawsuit challenging
the release. Although Caterpillar argues that it has received
"nothing" in exchange from these releases, the Court
Caterpillar obtained Plaintiffs' departure from its
employment, and it obtained releases which, if valid, may be
used to defend against litigation.
12. Perhaps most importantly, the Court alternatively
concludes that if state law does allow recovery of damages for
breach of a defensive release, the ADEA preempts and precludes
such a claim. This court concurs with the reasoning of
EEOC v. United States Steel Corp., 671 F. Supp. 351, 358-59
(W.D.Pa. 1987), which dealt with a penalty provision in a
release agreement signed by early retirees of U.S. Steel under
a program similar to that at issue here. The U.S. Steel
releases specifically provided that the filing of a lawsuit
over the retirement would require the employee to pay back the
sums he or she had received and would excuse future payments by
the company. The court concluded that enforcement of this
provision had the potential of deterring the bringing of good
faith ADEA claims and enjoined its enforcement. In the Court's
opinion, EEOC v. U.S. Steel cannot be meaningfully
distinguished from the present case.
13. For the foregoing reasons, Plaintiffs' Motion to Dismiss
the Counterclaim pursuant to F.R.Civ.P. 12(b)(6) is GRANTED
and the Counterclaim is DISMISSED with prejudice.
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