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Klein v. Caremark International

May 07, 2002


Appeal from the Circuit Court of Cook County 96 L 13206 Honorable James F. Henry, Judge Presiding.

The opinion of the court was delivered by: Justice McBRIDE

Released for publication.

This appeal arises out of the termination of employee Michael Klein, plaintiff-appellee and cross-appellant from Caremark International, Inc. (Caremark or the Company), defendant-appellant and cross-appellee. On November 27, 1995, Klein and Caremark entered into a severance compensation agreement (Agreement). The Agreement provided Klein, who at the time was regarded as a key executive by Caremark, certain severance benefits in the event of a termination of Klein's employment. The Agreement also provided that Klein could be terminated by Caremark in the event the board of directors of the Company determined that he was no longer a key executive and gave him notice of such determination. On July 12, 1996, Klein was terminated at a meeting held by Caremark management.

Klein filed a complaint alleging that Caremark materially breached the Agreement by terminating him while the Agreement was still in effect. Klein further alleged that he was entitled to the severance benefits provided under paragraph 5(A) of the Agreement. Both sides filed cross-motions for summary judgment on several issues including whether the Agreement had been materially breached and whether Klein was entitled to severance benefits. Several months before the trial court ruled on the parties' cross-motions for summary judgment, the parties stipulated that if liability were found, Klein's damages would be $756,556. On March 15, 2000, the trial court found that Klein's termination was a material breach of the Agreement and that he was entitled to severance benefits in the amount of $756,556. The court further granted Klein's motion for legal fees in the amount of $182,474.75 based on paragraph 5(B)(iv) of the Agreement. Klein also made motions for supplemental attorney fees, for prejudgment interest, and for attorney fees incurred in prosecuting an appeal. The trial court denied these motions.

Caremark appeals the trial court's summary judgment ruling in favor of Klein. Klein cross-appeals the trial court's denial of his motions for supplemental attorney fees, prejudgment interest, and attorney fees in connection with prosecuting an appeal.

Eight issues are raised on review. First, whether the trial court properly granted summary judgment in favor of Klein on the basis that Caremark materially breached the Agreement. Second, whether the trial court correctly ruled the Agreement provided Klein a fixed term of employment. Third, whether Caremark's post termination actions cured Caremark's material breach of the Agreement. Fourth, whether Klein was entitled to damages equal to the severance pay scheme set forth in the Agreement. Fifth, whether the trial court abused its discretion by awarding attorney fees to Klein based on the hourly rates of his attorneys. Sixth, whether the trial court properly denied Klein's motion for pre judgment interest. Seventh, whether the trial court incorrectly denied Klein's supplemental submission in support of legal fees. Eighth, whether the trial court properly denied Klein's motion for attorney fees incurred in prosecuting an appeal. The fifth, sixth, seventh, and eighth issue are discussed in the non-published portion of this opinion. We state the following background facts.

On November 12, 1996, Michael Klein filed a complaint against his former employer Caremark. Caremark is a public "spinoff" of a division of Baxter Laboratories, which conducts business in the health care industry. Klein held a management position at Baxter Laboratories and then accepted a position at Caremark upon its creation by Baxter in 1992.

On July 13, 1992, Klein and Caremark executed an employment agreement which expressly stated that Klein was an at-will employee. On November 27, 1995, Klein and Caremark entered into the Agreement at issue, which was a severance compensation agreement designed to provide incentives and benefits to Klein and other personnel deemed by Caremark to be superior managers. On May 1, 1996, certain terms of the Agreement were amended including a provision concerning a change of control over the Company. Klein and Caremark executed both the Agreement and the amendment. Due to allegedly poor business performance by Klein, Caremark sought to terminate his employment.

Paragraph 1 of the Agreement stated that Caremark would continue to employ Klein as an executive for a specific term. Paragraph 2 of the Agreement provided that the term "shall be one year commencing on December 1, 1995 and ending on November 30, 1996 and shall automatically renew for successive one year periods." Paragraph 2 further set forth that the Agreement would automatically end upon the occurrence of any of the following events:

"(i) [Klein gave] notice to the Company that [he] wished to terminate this Agreement not less than 90 days after [his] notice was given;

(ii) [Klein died] or [received] a Notice of Termination due to Disability;

(iii) [Klein reached his] Retirement Date; or

(iv) The Board of Directors of the Company [determined] that [Klein] was no longer a key executive and [gave Klein] notice of this determination except that such determination shall not be made, and if made, shall have no effect, after a Change in Control."

A "Change in Control" is defined in the amendment to the Agreement as "the acquisition by any individual, entity or group *** of 20% or more of *** the then outstanding shares of common stock of the Company."

In paragraph 5(A), the Agreement provided that, in the event of Klein's termination for any reason except those set forth in Paragraph 2 (A)(i)(notice that employee wishes to terminate the Agreement),(ii)(employee dies or receives a notice of termination due to disability), or (iii)(employee reaches the date of retirement), Caremark shall pay Klein his full base salary through the date of termination, three times the sum of his annual base salary, and an amount equal to all awards or units of participation awarded but not paid. Paragraph 5(B)(iv) set forth that, in the event of Klein's termination, Caremark, "shall pay all legal fees and expenses incurred by [Klein] as a result of [his] Termination (including all such fees and expenses, if any, incurred in contesting or disputing [his] Termination or in seeking to obtain or enforce any right or benefit provided by the Agreement)."

In his deposition, Klein testified that, on July 12, 1996, he was instructed to attend a meeting with his superior, Diane Munson, and Kent DeLucenay, vice president of human resources at Caremark. Munson and DeLucenay testified that Klein was informed that he was going to be terminated. Klein confirmed in an affidavit that he was informed at the July 12, 1996, meeting that he was being terminated effective August 6, 1996. According to Munson, the basis for Klein's termination was his performance in executing the Pacificare contract, which adversely impacted Caremark's medical clinic in Oklahoma City. Klein stated in an affidavit that after July 12, 1996, except for a brief visit to Caremark's facility to retrieve his personal belongings, he did not return to work for any purpose. On July 15, 1996, Caremark mailed a "Employment Termination and General Release Agreement" to Klein. The letter explained that his employment would be terminated effective August 6, 1996, in consideration for separation pay in the amount of $166,400 in addition to $14,080 for accrued and unused vacation time. The last paragraph of the letter stated the following: "If you agree to the terms outlined in the agreement, then please sign two copies and return one of them to me by August 6, 1996. Otherwise, I will assume that you rejected this agreement."

The record indicates that Klein and DeLucenay spoke via telephone on August 8, 1996. In that conversation, Klein rejected the employment termination and release agreement proposed by Caremark. On August 9, 1996, Klein sent a letter to DeLucenay, which, among other things, informed DeLucenay that he would not agree to the severance agreement noted above.

On August 15, 1996, Klein was sent a letter from human resources at Caremark informing him that, upon termination, his life insurance coverage would stop. The record reveals that on or about August 21, 1996, Caremark's board of directors determined that Klein was no longer a key executive. On August 22, 1996, Klein's counsel received a letter from Diane Nobles, an attorney and vice president of ethics and integrity at Caremark. The letter stated the following, in pertinent part:

"For performance-related reasons that I alluded to in our conversation and which I will not detail here, the Board of Directors at Caremark has been asked to determine that Mr. Klein is no longer a 'key executive' within the meaning of his Agreement. The formal ...

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