amount due under the Settlement Agreement, paragraph 7(a) of this agreement provides that Plaintiffs are entitled to a portion of "the consideration actually received by them" from MMT or another third party. I find this language describes precisely that which the FIDSA excludes from the definition of a "fee", i.e., "payment from a portion of the income received." (815 ILCS 620/103(e)).
Summary judgment is granted in favor of Plaintiffs on the Inventors' first counterclaim.
B. Counterclaim II: Breach of Fiduciary Duties by Plaintiffs
Plaintiffs also move for summary judgment on the Inventors' second counterclaim on the grounds that they could not have breached any fiduciary duties because no fiduciary relationship existed. The Inventors contend that there was either an inventor-invention developer fiduciary relationship based upon the FIDSA or an attorney-client fiduciary relationship, that Plaintiffs were the fiduciaries and that they breached duties owed based on their fiduciary status.
My conclusion that the FIDSA does not apply in this case rules out the existence of an inventor-invention developer relationship based upon the FIDSA. So, what about an attorney-client relationship? Ordinarily, an attorney-client relationship is a contract the parties expressly agree to enter into. The facts clearly demonstrate that no express attorney-client relation existed: there was no retainer agreement, no express request for or consent to the provision of legal services, and no payment of fees. However, the existence of an attorney-client relationship may be implied even in situations where no formal agreement exists and in the absence of mutual consent. United States v. Evans, 954 F. Supp. 165, 167 (N.D. Ill. 1997) (quoting Westinghouse Elec. Corp. v. Kerr-McGee Corp., 580 F.2d 1311, 1317 (7th Cir. 1978)). "A fiduciary relationship may result because of the nature of the work performed and the circumstances under which confidential information is divulged." Westinghouse, 580 F.2d at 1319. "But the professional relationship does not arise where one consults an attorney in a capacity other than as an attorney." Id.
The Inventors argue that the following facts demonstrate the existence of an attorney-client relationship between them and Sain and Carroll: (1) Sain stated that he and Carroll and Camel were "brought into this venture to bring to it a business and legal acumen"; (2) Plaintiffs provided legal services when they drafted the Exotherm incorporation agreement; (3) Sain sent letters to third parties in which he stated that "this firm represents" the Inventors; and (4) Plaintiffs never told the Inventors to seek independent counsel. Sain and Carroll present the following facts to demonstrate that no attorney-client relationship arose: (1) the Inventors only sought business advice from Plaintiffs, not legal advice; (2) Bach testified during a deposition that Sain's role was to identify venture capitalists; and (3) Sain advised the Inventors to seek outside counsel. Upon reviewing the record I found that the latter fact alleged by Plaintiffs is unsupported and that a genuine issue of material fact precludes summary judgment on the issue of whether an implied attorney-client relationship existed here.
II. The Inventors' Motion
A. Count I: Breach of Contract
In their breach of contract claim, Plaintiffs contend that the Inventors breached the terms of paragraphs 3 and 7 of the Settlement Agreement by failing to pay Plaintiffs their share of the $ 50,000 that the Inventors received from MMT to hold open the option period and the $ 114,110.50 they received thus far from the sale of the Patents. The Inventors move for summary judgment on the grounds that they cannot be found to have breached the Settlement Agreement because two conditions precedent to paying Plaintiffs have not yet been fulfilled: (1) the Inventors have not yet received full payment from MMT, and (2) the Patents' Allocated Value has not been determined. A finding that the agreement contained either of these conditions precedent and that Plaintiffs improperly failed to fulfill one or both would preclude Plaintiffs' breach of contract claim.
Did Plaintiffs fail to fulfill conditions precedent contained in the Settlement Agreement? Generally, a condition precedent is "one which must be performed before some right dependent thereon accrues, or some act dependent thereon is performed." Black's Law Dictionary (5th ed.) First, the Inventors submit that pursuant to paragraph 7 receiving full payment for the Patents is a condition precedent to compensating Plaintiffs. The relevant portion of paragraph 7 provides that "the Inventors shall pay to the Interested Parties, out of the consideration actually received by them, an amount equal to the greater of (i) [sic] $ 500,000 or (ii) one-sixth of the Allocated Value of the Patents...." (Emphasis added). The Inventors argue that this language means that they become obligated to pay Plaintiffs once they "actually receive" payment in full. Plaintiffs interpret this same language differently. Plaintiffs contend that the language of paragraph 7 clearly and unambiguously mandates immediate payment by the Inventors to Plaintiffs of their share of whatever consideration the Inventors have actually received whenever they receive it. Plaintiffs also point out that no part of the Settlement Agreement provides that the Inventors must receive full payment prior to compensating Plaintiffs. I find that the language contained in paragraph 7 is fairly susceptible to either the Inventors' or Plaintiffs' interpretation and thus "ambiguous", Echo, Inc. v. Whitson Co., Inc., 121 F.3d 1099, 1105 (7th Cir. 1997), and the settlement agreement as a whole does not address the issue of when payment to Plaintiffs becomes due. The parties do not offer other evidence to clarify this point, and, seeing none, I conclude that this is a factual question that may not be resolved on summary judgment.
Was a determination of the Allocated Value of the Patents a condition precedent to compensating Plaintiffs? The relevant portion of Paragraph 7 provides:
The Inventors shall pay to [Plaintiffs] ... an amount equal to the greater of $ 500,000 or (ii) one-sixth of the Allocated Value of the Patents.... The parties shall attempt to arrive promptly at the Allocated Value by negotiations in good faith, but if they are unable to do so, the Allocated Value shall be determined by an independent expert reasonably acceptable to both sides. (Emphasis added).
I agree that this language sets forth a condition precedent: before the Inventors can pay the appropriate share of the Allocated Value of the Patents to the Plaintiffs, the parties must determine what that value is. The parties agree that they never explicitly negotiated the Allocated Value. But Plaintiffs claim that the failure to perform this condition should not interfere with their breach of contract claim because the $ 114,110.50 that the Inventors received thus far is undisputably part of the Allocated Value, and the Inventors prevented the performance of the condition precedent.
Pursuant to the well-established covenant of good faith and fair dealing that is implied in every contract absent express disavowal, both parties had a duty to use reasonable efforts to bring about the condition precedent at issue here. Dayan v. McDonald's Corp., 125 Ill. App. 3d 972, 979-80, 81 Ill. Dec. 156, 466 N.E.2d 958 (1st Dist. 1984) (quoting Martindell v. Lake Shore Nat'l Bank, 15 Ill. 2d 272, 286, 154 N.E.2d 683 (1958)). Moreover, Illinois courts have observed that when a condition is peculiarly within the power of one party, the controlling party may attempt to avoid incurring any contractual obligation by refusing to bring about the relevant condition. But in such cases, the courts have held that the controlling party's discretion is limited by the implied covenant of good faith which requires the party to use reasonable efforts to bring about the condition. 125 Ill. App. 3d at 990. Here, the Inventors received the payments for the Patents, and Plaintiffs had no way of knowing whether such payments were made unless the Inventors notified them or responded to their inquiries. The Inventors were peculiarly empowered to bring about the condition precedent at issue because they alone knew when the payments were made and unless they informed Plaintiffs that they had received such payments and agreed to negotiate the Allocated Value, such negotiations could not occur as required by paragraph 7. Between April 1990 and April 1993, Sain repeatedly wrote to Nagel, Jacks and Kehoe to inquire whether the Inventors had received any payments, but he was unable to obtain a proper response. By their failure to notify Plaintiffs about payments actually received and to respond to Plaintiffs' inquiries, the Inventors obstructed fulfillment of the condition precedent. The Inventors have failed to provide evidence in support of their contention that Plaintiffs did not attempt to negotiate Allocated Value. The Inventors cannot now claim the failure of a condition defeats their own liability when they prevented actualization of the condition. Osten v. Shah, 104 Ill. App. 3d 784, 786, 60 Ill. Dec. 497, 433 N.E.2d 294 (3rd Dist. 1982). Thus, the Inventors' motion for summary judgment on the breach of contract claim is denied.
B. Count II: Fraud
Next, Plaintiffs allege that the Inventors fraudulently induced them to enter into the Settlement Agreement by omitting material information beforehand. The Inventors move for summary judgment on this fraud claim based on a lack of evidence that they made any material omissions with the intent of deceiving Plaintiffs or that Plaintiffs relied on any alleged omissions and suffered injury thereby.
In Illinois, the elements of common law fraud are: (1) a false statement or omission of material fact; (2) made by one person with the intent to induce a second person to act; (3) action by the second person in reliance on the statement or the omission; and (4) actual injury to the second person from that reliance. Drobny v. Commissioner of Internal Revenue, 113 F.3d 670, 679 n. 14 (7th Cir.), cert. denied, 118 S. Ct. 303 (1997); Lidecker v. Kendall College, 194 Ill. App. 3d 309, 314, 141 Ill. Dec. 75, 550 N.E.2d 1121, (1st Dist. 1990). In a business transaction, silence is not equivalent to fraud unless it is accompanied by deceptive conduct or the suppression of material facts causing actual deception. Lagen v. Balcor Co., 274 Ill. App. 3d 11, 17, 210 Ill. Dec. 773, 653 N.E.2d 968 (2nd Dist. 1995) (citation omitted). At trial Plaintiffs have the burden of proving the elements of fraud by clear and convincing evidence. Ampat/Midwest, Inc. v. Illinois Tool Works Inc., 896 F.2d 1035, 1040 (7th Cir. 1990) (citation omitted).
First, were there any material omissions? Plaintiffs allege that the Inventors failed to disclose several material facts, primarily that: (1) the Inventors would assume officer and director positions in MMT; (2) the Inventors would receive salaries and options from MMT; (3) MMT incorporated on November 8, 1989; (4) the Inventors were negotiating with third parties regarding the sale of their technology; (5) the Inventors were "founders" of MMT; and (6) the Inventors would unilaterally reduce the sales price of the Patents.
Materiality is generally a question of fact. Kleban v. S.Y.S. Restaurant Management, Inc., 929 F. Supp. 294 (N.D. Ill. 1996). Accepting for purposes of this motion that the facts Plaintiffs refer to were material, I focus on whether they were impermissibly omitted as a matter of law. I begin by observing that the Inventors disclosed some information to Plaintiffs before the settlement by sending them a copy of the Option Contract with MMT in January 1990, about four months before the parties executed the Settlement Agreement.
Facts # 1 and 2: The Inventors would assume officer and director positions in MMT and receive salaries and stock options.
In the Option Contract, the Inventors revealed information about Nagel's anticipated role in MMT, including the fact that he would be employed by MMT in exchange for a salary, stock options and other benefits. Specifically this contract provides in relevant part:
After the closing of the Technology Development Deal ... MMT (or its assignee) and Nagel shall enter into an employment agreement for a three-year term ... and Nagel shall be employed ... as the Chief Scientist or Vice President of Engineering of MMT... and Nagel shall be entitled to receive a compensation package including ... cash salary, stock options ... comparable to ... the Employer's five other most highly compensated employees....