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SCHERER v. ROCKWELL INTL. CORP.

May 3, 1991

CLAUS D. SCHERER, Plaintiff,
v.
ROCKWELL INTERNATIONAL CORPORATION, Defendant


Milton I. Shadur, United States District Judge.


The opinion of the court was delivered by: SHADUR

MILTON I. SHADUR, UNITED STATES DISTRICT JUDGE.

 Claus Scherer ("Scherer") has sued his former employer Rockwell International Corporation ("Rockwell") for a declaratory judgment finding a post-employment restrictive covenant invalid or unenforceable (Count I), as well as asserting two claims based on the circumstances surrounding his termination from Rockwell: one for breach of contract (Count II) and the other for defamation (Count III). Both parties now move for summary judgment under Fed. R. Civ. P. ("Rule") 56. *fn1" For the reasons stated in this memorandum opinion and order, Rockwell's motion is granted in its entirety, while Scherer's motion is denied in full.

 Facts

 On March 31, 1989 Rockwell purchased Baker. At that time Scherer headed Baker's United States sales subsidiary headquartered in Schaumburg, Illinois. Scherer was then reporting to Baker's managing director Michael Leggatt ("Leggatt") and supervised approximately 80 employees, at least half of whom were female.

 Under the terms of the acquisition, Rockwell assumed all obligations of Baker, including employment contracts. One of those was a 1984 letter agreement between Baker and Scherer (the "Agreement"). *fn2" Leggatt had negotiated the Agreement with Scherer, explaining that the reason for the Agreement was that Scherer had received an offer from another company and that if he were to stay at Baker he wanted improvements in his overall benefits and compensation as well as the assurance that those benefits would not be cut off without notice (Leggatt Dep. 120, P. Mem. Ex.).

 Among the relevant portions of the Agreement (Complaint Ex. A) is paragraph 5:

 
This agreement and your employment shall cease without notice on the last day of the month in which you attain the age of 65 years but subject thereto the employment may be terminated at any time by the Company giving you written notice effective on a date not less than three years from the date of giving such notice. If the Company so terminates this agreement and your employment (other than for reasons contained in paragraph 13), the Company shall continue to pay you an amount equal to your salary, bonus and benefits for the lesser of the following three years or the expiration of the term of this agreement (absent such termination). If you have earned income within this period (from a job or from self-employment), the total amount of your earnings and benefits shall be deducted from the amount otherwise payable by the Company. In determining the total amount payable by the Company during the period, your salary shall be computed at the rate in effect at the time of such notice and the bonus shall be equal to the average bonus for the three immediately preceding financial years. Your employment may also be terminated by you giving three years prior written notice to that effect to the Company at any time.

 Paragraph 13 (cross-referenced in paragraph 5) provided:

 If at any time during the employment you

 
(a) shall be guilty of any gross default or misconduct or material breach or non-observance of any of the stipulations herein contained, or
 
(b) shall absent yourself from the Company without leave except to attend to other duties with the permission of the Company or except in the case of illness or accident, or
 
(c) shall intentionally disobey or intentionally neglect any lawful orders or directions of the Board of Directors or of the Company, or
 
(d) shall be adjudicated bankrupt, then in any such case the Company may terminate your employment forthwith without any notice.
 
You will not within three years after ceasing to be employed by the Company without the previous consent of the Company in writing on your own behalf or on behalf of any person, firm or company directly or indirectly seek to procure orders from or do business with any person, firm or company who has at any time during the three years immediately preceding the cessation of your employment with the Company done business with the Company or with any associate of the Company provided always that nothing in this paragraph shall be deemed to prohibit the seeking or procuring of orders or the doing of business not related or similar to the business or businesses aforesaid or any of them.

 On one or two occasions in April and May 1989, Rockwell's Vice President of Human Resources Richard Luzzi ("Luzzi") and Vice President and General Manager of the Commercial Products Division William Boston ("Boston") attempted to renegotiate the compensation terms of Scherer's Agreement. Both Luzzi and Boston were concerned that the compensation level was excessive in comparison to compensation normally received in such a position, *fn3" but Scherer refused to renegotiate, saying "I will honor my contract" (Scherer Dep. 216, D. 12(m) App. 8).

 Finally at a convention in late May 1989, Boston told Scherer that Rockwell would honor the Agreement by giving him the three-year notice called for in paragraph 5. Scherer's understanding was that they would talk again in two and a half years to see whether Scherer wanted to stay with Rockwell and that in the meantime he would stay with the company (id. 227, D. 12(m) App. 12). Nor did Boston or Luzzi intend that Scherer would leave Rockwell upon the giving of the notice (Luzzi Dep. 48, 50, D. 12(m) App. 89, 90; Boston Dep. 69, D. 12(m) App. 156). Luzzi directed the legal department to draw up a notice, the draft of which stated (D. R. Mem., Leggatt Dep. Ex. 1):

 
In accordance with the terms of the employment contract between you and Baker Perkins PMC, dated 27 January 1984, this letter will serve as written notice of termination of the employment contract, effective three years from date of this notice. Accordingly, the termination shall be effective as of May 31, 1992.

 That notice was never delivered to Scherer, however, due to the events that followed.

 In early June 1989 Scherer's secretary Terry Pendy ("Pendy") spoke with Luzzi about various incidents of sexual harassment by Scherer. Pendy testified to and related to Luzzi the following history of unwanted sexual advances: In about December 1988, three months after she first began working for Scherer, he began to harass her sexually. In the beginning offensive comments occurred once every two to three weeks, but by the end they occurred daily (Pendy Dep. 39, D. 12(m) App. 49). He made comments about her breasts 15 to 30 times (id. 43, D. 12(m) App. 53). On one occasion, when they went to lunch together for Secretary's Day, he touched her two times in what she considered to be an offensive manner -- she became very upset with him and demanded that he never do that again (id. 60, D. 12(m) App. 57). On another occasion Scherer tried to grab her in his office and she ran out yelling for another secretary. When the other secretary demanded that Scherer "stop touching that woman" (id. 62, D. 12(m) App. 59), he laughed and said "Well, she touches me all of the time" (id.).

 To investigate those claims further and in response to a concern over high turnover of Baker employees since the acquisition, Luzzi initiated an organization audit. It was conducted on the premises of the Schaumburg facility on June 12 and 13, 1989 by Joseph Burton Salter, Jr. ("Salter"), an investigator from Rockwell's Human Resources Department in California. In a memo sent out by Luzzi, all employees were invited to participate. That memo stated (P. Mem. Ex. C):

 
The purpose of this audit is to determine trends in the work place that may have contributed to the recent turnover of employees as well as determine other sources of employee discontent.
 
Upon managements [sic] review of the results, we will determine what actions, if any, are necessary. We will communicate results to all of you as appropriate.
 
In order to maximize the organization audit process, it is important that all of you communicate openly and candidly about matters which you feel are important. You are not limited to any specific subject or ...

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