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Knickman v. Midland Risk Services-Illinois

September 29, 1998

RAY E. KNICKMAN II, PLAINTIFF-APPELLEE,
v.
MIDLAND RISK SERVICES-ILLINOIS,INC., MIDLAND FINANCIAL GROUP, MIDLAND RISK SERVICES, INC., AND AGENTS FINANCIAL SERVICES-TENNESSEE, INC., DEFENDANTS-APPELLANTS, AND MIDLAND RISK SERVICES-ILLINOIS, INC., COUNTERPLAINTIFF-APPELLANT,
v.
RAY E. KNICKMAN II, COUNTERDEFENDANT-APPELLEE.



The opinion of the court was delivered by: Justice Green delivered the opinion of the court

Appeal from Circuit Court of Sangamon County No. 95L0381

Honorable Stuart H. Shiffman, Judge Presiding.

On September 18, 1996, Ray E. Knickman II filed suit in the circuit court of Sangamon County against defendants Midland Risk Services-Illinois, Inc. (Midland Illinois), and Midland Financial Group, Inc. (MFG), a holding company of which Midland Illinois was a subsidiary. Count I was against Midland Illinois and alleged it had breached its contract with plaintiff by terminating him as its president at a time and in a manner not permitted by the terms of the contract. Count II was against MFG, charging it with tortious interference with the foregoing contract of employment.

On June 5, 1996, after obtaining leave of court, plaintiff filed an amendment to the complaint adding three counts and adding as parties several other subsidiaries of MFG and Charles H. Gray III, MFG's president, as defendants. Only count VI is significant to us at this time. It contended that Midland Illinois was the alter ego of MFG and that Gray and MFG should be liable for the breach of contract by Midland Illinois. Plaintiff dismissed the charges against defendant Gray upon Gray's death. Midland Illinois filed a counterclaim against plaintiff alleging breach of his fiduciary duty to Midland Illinois and mismanagement of it.

In regard to issues not in dispute in this appeal, the circuit court entered a summary judgment in favor of defendants on count V, which charged conspiracy, and directed verdicts in favor of all defendants as to counts III and IV, charging breach of fiduciary duty. On October 7, 1997, the circuit court entered judgment on verdicts (1) in favor of plaintiff and against Midland Illinois for compensatory damages in the sum of $227,854; (2) in favor of plaintiff and against defendant MFG (a) in the sum of $227,854, stated to be "as a proximate result of [MFG's] breach of contract," and (b) finding MFG's "conduct was willful and wanton" and awarding plaintiff punitive damages against MFG in the additional sum of $500,000; and (3) in favor of plaintiff as to the counterclaim.

Midland Illinois and MFG have appealed. They contend: (1) MFG was entitled to a judgment notwithstanding the verdict as to count II, charging interference with the contract of employment; (2) the verdict on count II was against the manifest weight of the evidence; (3) MFG is entitled to a new trial on count II because the jury was improperly instructed; (4) any award against either Midland Illinois or MFG should be reduced because the award included an improper element of plaintiff's loss of value of stock in the sum of $100,000; (5) the circuit court erred in refusing to admit into evidence designated portions of Gray's discovery deposition; and (6) the jury's determination that Midland Illinois had breached the contract was contrary to the manifest weight of the evidence. The most difficult question in this case is whether MFG can be subject to liability for the breach of plaintiff's contract under count V and also liable under count II for interfering with that contract by encouraging its breach and thus subject to $500,000 in punitive damages. MFG contends it cannot be held guilty of interfering with that contract because plaintiff has shown MFG was constructively a party to the contract, and, in any event, it was privileged to encourage the breach of that contract.

We affirm the judgment in favor of plaintiff and against defendant Midland Illinois in the sum of $227,854. We also affirm the judgment in favor of plaintiff and against defendant MFG to the extent it allows compensatory damages to plaintiff in the sum of $227,854. We reverse the portion of the judgment in favor of plaintiff and against MFG that awarded punitive damages in the sum of $500,000. We affirm the judgment on the verdict finding in favor of plaintiff on the counterclaim. Thus Midland Illinois and MFG are jointly liable to plaintiff in the sum of $227,854.

The parties do not dispute that Midland Illinois is a second-level subsidiary in a structure of corporations of which MFG is the ultimate holding company and that the companies have interlocking directors and interlocking officers. Gray was the president and chief operating officer of MFG and an officer or director of many subsidiaries until his death. The parties also agree that plaintiff's employment contract was based partly upon his apparent acceptance of an offer contained in a February 23, 1993, letter from Gray, which stated that plaintiff would be the president of Midland Illinois, vice president of another subsidiary, and director of both.

Gray's letter stated plaintiff "will be employed under an agreement for a 2[-year period with aut]omatic renewal periods of a like duration, assuming neither party gives notice of non-renewal 90 days prior to an expiration date." (Emphasis added.) The parties do not dispute that the employment was terminated by a letter from Gray and hand-delivered to plaintiff on February 23, 1995, stating plaintiff's employment was terminated effective February 28, 1995.

The contract of employment was also based upon an agency agreement entered into between MFG and plaintiff on June 1, 1993, which provided plaintiff's agency could be terminated regardless of time frame upon plaintiff's fraud or breach of the agency agreement. Accordingly, Midland Illinois was clearly in breach of its contract with plaintiff when plaintiff was discharged unless Midland Illinois proved fraud or breach of the agreement between the parties.

Evidence plaintiff had breached his contract of employment by poor performance came from testimony (1) he had written insurance policies for long-haul carriers and those using leased equipment when directed not to do so; (2) he had failed to collect some premiums; and (3) some record keeping under his responsibility was very poor. However, no finding of poor performance had been placed in a personnel record. Moreover, MFG had made a profit of $312,000 in 1994 after starting from scratch and its governing board had given other high-level MFG employees pay raises after 1994. Some evidence was presented that plaintiff had worked hard.

The jury properly could have concluded plaintiff had not breached his employment contract. As Midland Illinois undisputedly breached the employment contract if plaintiff's conduct did not justify his firing, the judgment for plaintiff and against Midland Illinois was proper. Similarly, for the same reasons, the judgment on the verdict for plaintiff on Midland Illinois' counterclaim was supported by the evidence.

The circuit court properly refused to permit defendants to present in evidence portions of Gray's discovery deposition concerning his reasons for terminating plaintiff. Supreme Court Rule 212(a) provides that discovery depositions may be offered into evidence only (1) to impeach the deponent by a witness, (2) as an admission of a party opponent, (3) if admissible as an exception to the hearsay rule, and (4) for any purpose for which an affidavit can be used. 134 Ill. 2d R. 212(a). Here, Gray's deposition testimony did not come within the purview of the rule. He was an agent of the party offering the testimony and the testimony was offered to prove the reasons the defendant terminated plaintiff.

We find no error in the jury's award to plaintiff of $100,000 in regard to his stock. Gray's letter to plaintiff of February 23, 1993, stated that plaintiff would be provided a 15% stock interest in Midland Illinois and a 10% interest in another subsidiary. The letter also provided that "[i]n the event you resign or change positions within our company, we want the right to acquire your ownership on an agreed formula." The termination letter of February 23, 1993, stated that "[w]e will ...


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