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Cress v. Recreation Services

July 07, 2003

DONALD L. CRESS, PLAINTIFF-APPELLEE AND CROSS-APPELLANT,
v.
RECREATION SERVICES, INC., LARRY M. DONOVAN, AND RECREATION SERVICES, INC., DEFERRED COMPENSATION PLAN, DEFENDANTS-APPELLANTS AND CROSS-APPELLEES.



Appeal from the Circuit Court of Du Page County. No. 97--L--703 Honorable Hollis L. Webster, Judge, Presiding.

The opinion of the court was delivered by: Justice O'malley

PUBLISHED

Defendants, Recreation Services, Inc. (RSI), Larry Donovan, and Recreational Services, Inc., Deferred Compensation Plan (Plan), appeal from a judgment entered in favor of plaintiff, Donald Cress, on his claims for breach of contract and tortious interference with contract, which were tried to a jury, and his claim for declaratory relief under the Employment Retirement Income Security Act (ERISA) (29 U.S.C. §1001 et seq. (1994)), which was tried to the bench. Defendants appeal on various grounds. Plaintiff cross-appeals. We affirm in part and reverse in part and remand for further proceedings consistent with this opinion.

BACKGROUND

In his complaint, plaintiff alleged that he had been an employee of RSI for 30 years until he was terminated on May 8, 1997, in contravention of a deferred compensation agreement (Agreement), which, he claimed, contained a guarantee of employment until he reached age 65 as well as a provision for retirement benefits. Plaintiff further alleged that Donovan, as president of RSI, knowingly and unjustifiably induced RSI to breach the contract. Plaintiff averred that Donovan thereby acted outside the scope of his limited privilege as a corporate officer to influence the actions of RSI and was liable for tortious interference with contract. Plaintiff claimed he was terminated at age 61 and was owed approximately four years of compensation. Plaintiff alleged that his compensation each year included salary, a bonus, health insurance premiums, and car allowances. Plaintiff also claimed that he was owed back wages and vacation pay. Finally, plaintiff claimed RSI owed him retirement benefits under the Agreement.

Plaintiff brought the following six counts in his complaint: count I (claim against RSI for breach of contract); count II (claim against RSI for violating the Illinois Wage Payment and Collection Act (Wage Payment Act) (820 ILCS 115/1 et seq. (West 2000))); count III (claim against Donovan for violating the Wage Payment Act); count IV (claim against Donovan for tortious interference with plaintiff's contract with RSI); count V (claim against Donovan for tortious interference with plaintiff's prospective economic advantage); and count VI (claim against the Plan for a judgment declaring plaintiff's right to receive retirement benefits under the Agreement). Plaintiff sought punitive damages on counts IV and V. Counts II, III, and V were dismissed before trial.

Before trial, plaintiff moved under section 2--1005(d) of the Code of Civil Procedure (735 ILCS 5/2--1005(d) (West 2000)) for a summary determination of whether the Agreement contained an enforceable promise that RSI would employ plaintiff until age 65 provided he was capable of performing in his position as general manager for RSI. The trial court granted plaintiff's motion, relying on excerpts from the parties' depositions that were quoted in the pleadings.

Defendants subsequently filed a motion to dismiss plaintiff's contract and tort claims as preempted by section 514(a) of ERISA (29 U.S.C. §1144(a) (1994)). The trial court denied the motion.

The trial court ordered a bifurcated trial on the remaining counts; counts I and IV would be tried to the jury and count VI to the bench. Before trial, the court granted defendants' motion in limine barring plaintiff from introducing evidence to the jury of the value of the retirement benefits allegedly owed plaintiff under the Agreement as well as evidence of whether defendants had paid plaintiff any of those benefits. Defendants also moved to redact all provisions related to retirement benefits from the copy of the Agreement admitted into evidence. Reasoning that the redactions would render the Agreement incomprehensible, the court denied the motion.

The following facts are undisputed. Donovan established RSI in 1962 and has been its president since that time. Initially, RSI owned and operated a single bowling center located in Kankakee. By the late 1970s, RSI owned and operated three entertainment centers, located in Kankakee, Naperville, and Carol Stream, each of which offered bowling, billiards, arcade games, and food and alcohol. At its peak, RSI had as many as 250 employees. Since 1967, Donovan and his wife have been RSI's only shareholders.

Plaintiff began working part time for RSI at the Kankakee center in 1964 and the next year became a full-time employee. He became the manager of the Kankakee center in 1967 and manager of all three centers in 1976. Plaintiff was promoted to vice-president and general manager in 1978 or 1979 and in that capacity reported directly to Donovan. Plaintiff was responsible for managing the workforce and maintaining the facilities and hard assets of RSI while Donovan handled the financial affairs of the business.

In 1993, RSI terminated its qualified pension plan for its employees, whereupon plaintiff received a lump-sum payment from the plan of $264,000, which he rolled over into an individual retirement account (IRA). In 1994, when Donovan was 65 and plaintiff was 58, RSI and plaintiff entered into the Agreement. The Agreement provided that if the funds in the IRA were not sufficient to provide plaintiff a monthly payment of $7,083.33 after his retirement, RSI would supply the difference. The Agreement stated in relevant part:

"RECITALS

WHEREAS, [plaintiff] has been a key employee of RSI for approximately the last 30 years and is now its Vice-President, and

WHEREAS, RSI wishes to retain the services of [plaintiff] until his retirement at age sixty-five, and

WHEREAS, RSI wants to provide [plaintiff] with Additional Compensation to the extent the Qualified Plan Benefits provided to [plaintiff] as a result employment [sic] by RSI are less than a monthly benefit of Seven Thousand Eighty Three and 33/100 dollars ($7,083.33) at attained age 65.

THEREFORE, in consideration of the mutual promises and covenants contained in this Agreement, the parties agree as follows:

AGREEMENT

1. Definitions. The following words shall have the following meanings when used in this Agreement.

ADDITIONAL COMPENSATION: Deferred compensation or pre-retirement death benefits over and above the amount normally paid or payable as Qualified Plan Benefits to the extent the actuarial equivalent of the Qualified Plan Benefits, computed at attained age 65, is less than a monthly benefit of Seven Thousand Eighty Three and 33/100 dollars ($7,083.33). In the event [plaintiff] retires prior to age 65 said Additional Compensation shall be $7,083.33 multiplied by the quotient of the Actuarially Equivalent value of a monthly life annuity payable at age 65 divided by the Actuarially Equivalent Value of a life annuity payable at early retirement.

ACTUARIAL EQUIVALENT: A form of benefit differing in time, period, or manner of payment from a specific benefit provided under RSI's past, present, or future Qualified Plan or Plans but having the same value when computed using One Hundred and Twenty (120) percent of the applicable interest rate and the UP-84 Mortality Table. (Unisex Pension Mortality table of 1984) used by the Pension Benefit Guaranty Corporation.

APPLICABLE INTEREST RATE: The interest rate which is used, determined as of the first day of the month of the earlier of [plaintiff's] retirement prior to age 65 or the date [plaintiff] reaches attained age 65, by the Pension Benefit Guaranty Corporation for the purpose of determining the present value of a lump-sum distribution on a plan's termination.

QUALIFIED PLAN BENEFITS: (1) All funds contributed to a trust, created or organized by RSI and forming part of RSI's stock bonus, pension, or profit-sharing plan or plans for the exclusive use of its employees or their beneficiaries, that were PAID to [plaintiff] prior to his retirement plus an investment return, computed from date paid through date of retirement, on said paid funds of not less than (6) percent or the actual amount earned, whichever is greater, AND (2) all funds contributed to a trust, created or organized by RSI and forming part of RSI's stock bonus, pension, or profit-sharing plan or plans for the exclusive use of its employees or their beneficiaries, that are PAYABLE to [plaintiff] at retirement under any of RSI's past, present, or future stock bonus, pension, or profit sharing plans, excluding employee contributions and earnings on amounts employees contribute to such plans, if any. Should Qualified Plan Benefits include funds under which [plaintiff] managed or participated in the choice of investment activity for his own account, it is assumed for purposes of computing the amount of Additional Compensation under this Agreement that employer contributions earned an annual investment return of not less than six (6) percent or the actual amount earned, whichever is greater.

2. To the extent that [plaintiff's] Actuarial Equivalent of his Qualified Plan Benefits is less than a monthly benefit of $7,083.33, RSI will pay on a monthly basis, or fund for such payments should RSI so choose, the amount of Additional Compensation needed to provide [plaintiff] with a combined monthly benefit of $7,083.33.

3. Commencing the month after [plaintiff] attains age 65, (March 1, 2001), and whether or not [plaintiff] chooses to retire, RSI will commence paying to [plaintiff] said Additional Compensation on a monthly basis for the remainder of his life.

4. On [plaintiff's] retirement earlier than age 65, due to total disability, or his early retirement prior to age 65 with the written consent of RSI, RSI will pay to [plaintiff] said Additional Compensation for a period of 120 months following the month of [plaintiff's] retirement.

9. Should both Larry M. and Patricia B. Donovan die prior to March 1, 2001, the number of hours worked by [plaintiff] will not Exceed [sic] Fifty (50) hours per week unless he elects to work additional hours.

10. It is further agreed that [plaintiff's] compensation cannot be substantially reduced prior to his retirement provided he is capable of performing as General Manager for Recreational Services, Inc."

On February 10, 1997, Donovan sent a letter to Brunswick Corporation expressing his intent to sell RSI's operating assets to Brunswick. One of the conditions of the sale was:

"[T]hat a same compensation agreement, through March 1, 2001, be offered by Brunswick to [plaintiff], presently the general manager and Vice-President of RSI, with the provisions that if he rejects the employment offer, or his employment is terminated early, or he decides to terminate early, Brunswick will pay fifty percent of his present salary and benefits from date of separation through March 1, 2001."

In a February 14, 1997, letter to Brunswick, John Ridge, RSI's attorney, wrote: "Fifty (50%) percent of [plaintiff's] compensation is $300,000--this includes salary, bonus, health insurance, automobile, employer FICA--said amount to be paid over four years."

On April 2, 1997, RSI sold all of its assets, excluding the real estate on which the entertainment centers were located, to Brunswick. RSI leased the real estate to Brunswick. The leases were still in effect at the time of trial. RSI retained a small number of employees after the sale, including plaintiff. On April 2, 1997, RSI and Brunswick executed a consulting agreement, which provided that plaintiff would remain an employee of RSI and, in that capacity, would provide consulting services to Brunswick for a one-year period commencing April 3, 1997, for which Brunswick would pay RSI $150,000.

On April 15, 1997, RSI removed plaintiff from his position as vice-president and general manager, although plaintiff remained an employee of RSI. In an April 30, 1997, letter to Ridge, Larry Cassano, plaintiff's attorney, stated:

"I understand that [plaintiff's] compensation--which includes payments by RSI for health insurance and an automobile--was substantially reduced by RSI after its recent sale of three of its locations to Brunswick. *** We ask that [plaintiff's] compensation be immediately returned to its former level."

On May 8, 1997, Ridge informed Cassano that RSI terminated plaintiff's employment. In a May 12, 1997, letter to Cassano, Ridge stated:

"RSI would like to continue to pay [plaintiff] as a consultant for consulting work that he would do for Brunswick if [plaintiff] agrees to perform this function. As RSI would not control his activities he would be a third party contractor and not an employee. As yet, I have not heard any response to this offer. As a benefit to [plaintiff] and at great cost to RSI, the company procured a one year contract to benefit [plaintiff]. [Plaintiff's] behavior regarding this consulting contract is a mystery to us. The contract was for $150,000 for a one year period." Cassano replied as follows on May 16, 1997:

"I have received your letter dated May 12, 1997, and believe that it lacks certain important and necessary information. For instance, what is RSI's position concerning [plaintiff's] deferred compensation and pension benefits? When will payment be initiated in the event your offer of a one-year consulting contract is accepted? When will payments pursuant to the Agreement *** be initiated if your offer is rejected?"

Replying on May 28, 1997, Ridge wrote: "We suggest that [plaintiff] file a claim with [RSI] *** for any benefits he believes he is entitled to under the [Agreement]."

Plaintiff was 61 years old when RSI fired him. Brunswick had made only one quarterly payment under the consulting agreement before RSI fired plaintiff. When it learned that plaintiff had been fired, Brunswick made no further payments. In a July 21, 1997, letter to Ridge, Jeffrey Paulson, vice-president and general counsel for Brunswick, wrote:

"[RSI] has breached its agreement with [Brunswick]. It is clear within [the consulting agreement] that the intent of the parties was that payment of the $150,000 was in consideration of [plaintiff's] services. Since these services are no longer available, payment will not be forthcoming."

Plaintiff testified that Donovan informed him in February 1997 that he (Donovan) had Parkinson's disease and that he was negotiating with Brunswick for the sale of RSI. Donovan assured plaintiff that Donovan "would not forget" plaintiff's years of service at RSI and would "take very good care" of him. Following the sale, Donovan informed plaintiff of RSI's agreement with Brunswick whereby plaintiff would provide consulting services to Brunswick for one year at $150,000, or $12,500 a month. Donovan told plaintiff that the consulting would involve "nothing more than what [plaintiff] was doing now" as general manager of RSI. Donovan told plaintiff to "do what [Brunswick] ask[s] and satisfy them." Plaintiff testified that he agreed to the consulting arrangement. Plaintiff denied that Donovan ever told him to submit written or oral reports to RSI concerning his consultation work with Brunswick.

Plaintiff testified that he was hospitalized in March 1997 for colon surgery. Upon his release, he followed Donovan's instructions and began consulting for Brunswick. He was available to provide in-person assistance to Brunswick at all times from April 3, 1997, through May 8, 1997, with the exception of a four-day trip he took to Arizona to assist his mother-in-law. He received advance permission for the trip from Rick Barbera, regional manager for Brunswick. Plaintiff left a phone number where he could be contacted and phoned Brunswick each day while he was away to "touch base."

Plaintiff testified that while he was in Arizona, Ridge left a message on plaintiff's answering machine asking where plaintiff had been and demanding that plaintiff call Ridge or "something serious is going to happen." Plaintiff returned the call and left a message for Ridge. Ridge subsequently phoned plaintiff six times. Plaintiff testified that the calls were "berating" and "demeaning" and left him feeling "harassed and hassled." Plaintiff was not specific about the content of the conversations. Plaintiff testified that he received a check in April 1997 for $11,500. When he asked John Ridge why he received $11,500 instead of the $12,500 promised by Donovan, Ridge said that the difference represented "the employer's share of FICA."

Plaintiff testified that his attorney phoned him on May 8, 1997, and said that RSI had faxed him a notice that plaintiff's employment was terminated. RSI also terminated plaintiff's health insurance effective June 30, 1997. Plaintiff testified that he has received no income or benefits from RSI since his termination. Plaintiff testified that, although RSI's policy was to issue a warning notice before terminating an employee, he received no notice prior to his termination on May 8, 1997.

Plaintiff testified that he spoke to Donovan only three times by phone between the sale of RSI and his termination. On the first occasion, Donovan phoned him and asked why RSI's accountants had quit despite their agreement to remain with RSI for a few weeks after the sale. Plaintiff did not recall how he responded. Plaintiff testified that he subsequently phoned Donovan on two occasions to ask work-related questions. On cross-examination, plaintiff acknowledged that during discovery he stated in writing that he did not speak to Donovan at all after the sale to Brunswick.

Plaintiff testified that the termination was "traumatic" and "humiliating." He became depressed, and the antidepressants he took caused drowsiness and reduced his sex drive. He suffered four or five anxiety attacks. Plaintiff attempted unsuccessfully to find employment. The loss of income forced him to live on savings and to sell his house in Naperville and his condominium in Florida. Eventually, he was forced to draw on his IRA.

On cross-examination, plaintiff admitted that he did not pursue the consulting opportunity offered in Ridge's letter of May 12, 1997; he had assumed that his termination entailed that he could no longer consult for Brunswick. He admitted, however, that RSI never told him he could not consult with Brunswick after his termination.

Michael Davito testified that in 1997 he was Brunswick's director of real estate development and negotiated on behalf of Brunswick for the purchase of RSI's assets. During meetings with Donovan and Ridge, Davito was told that plaintiff was the only RSI employee who was under contract. Davito testified that his understanding of the February 10, 1997, letter of intent from Donovan to Brunswick was that plaintiff had a four-year employment contract with RSI. Davito testified that Brunswick ceased paying RSI under the consulting agreement once plaintiff was fired by RSI.

Kurt Harz, director of sales for Brunswick, testified that during Brunswick's negotiations with RSI, Donovan asked Harz if he thought Brunswick would assume half of RSI's employment contract with plaintiff as part of the sale.

Richard Barbera, regional manager for Brunswick, testified that plaintiff provided valuable consultation to Brunswick after the sale. Plaintiff was readily available for phone or in-site consultation. Barbera testified that after plaintiff was fired by RSI, he continued to assist Brunswick free of charge for two years.

Donovan testified that, in his opinion, the purpose of the Agreement was to provide plaintiff with retirement benefits, not to promise him employment. Donovan testified that when he signed the Agreement with plaintiff, his intention was to work "almost forever, if health would allow it." Donovan was diagnosed with Parkinson's disease in October 1996 and thereafter began to consider selling RSI. While Donovan and plaintiff were discussing the proposed consulting arrangement, plaintiff asked if he would be provided health insurance under the agreement. As of the date of the sale, there were no employees left on RSI's health insurance plan; Donovan and his wife were on Medicare. RSI's insurance agent told Donovan that the RSI policy could be continued only if at least four people were insured under it. The agent also told Donovan that plaintiff would have difficulty procuring insurance from a new carrier because of his health problems. After "crossing some loopholes," Donovan and his wife enrolled in the RSI plan and, together with plaintiff and his wife, comprised the minimum of four insurers needed to continue the plan.

Donovan testified that he feared that the morale of RSI employees would diminish when they learned of the sale. Donovan asked plaintiff to "represent" him vis-a-vis the employees and "allay any misapprehensions." The two decided on a particular date on which to inform the employees of the sale. Sometime later, but prior to the date of the announcement, plaintiff told Donovan that Donovan had "erred grievously" by not informing the employees of the sale earlier. Subsequently, news of the sale was leaked by a Brunswick employee in South Dakota and then spread quickly to RSI. Donovan testified that RSI employees became "very cool" toward him and manifested "almost a dislike, hatred" for him. Donovan felt that plaintiff "was personally responsible for not correcting that." Donovan was "very upset" with plaintiff because he felt plaintiff "betrayed a confidence and a trust." Donovan expressed his displeasure to plaintiff over the phone but never submitted any written reprimand. Because Donovan felt that plaintiff had not represented Donovan's interests in dealing with the other employees, Donovan demoted plaintiff from general manager and vice-president to a regular employee on April 15, 1997. Donovan did not himself communicate this to plaintiff, but did so through Ridge. Donovan testified that there was no need to retain plaintiff as an officer of RSI after the sale because there was nothing left for him to do. Donovan testified that, in his interpretation, the statement in paragraph 10 of the Agreement that plaintiff's salary could not be substantially reduced provided he was capable of performing as general manager for RSI was contingent on there being work available for plaintiff to perform, which there was not after the sale.

Donovan testified that on May 8, 1997, Donovan, through Ridge, informed plaintiff that his employment with RSI was terminated. Asked what reason he had for demoting and then terminating plaintiff other than his belief that plaintiff had been disloyal, Donovan testified that plaintiff failed to submit to RSI written reports concerning his consultations with Brunswick, as was required. Donovan admitted, however, that plaintiff was not informed of the requirement of written updates until the May 12, 1997, letter from Ridge to Cassano, which was after plaintiff was fired. Still, Donovan testified, he expected from the beginning of plaintiff's consulting with Brunswick that plaintiff would submit some sort of updates, which plaintiff failed to do. Donovan also testified that he was displeased because plaintiff traveled to Arizona in April without Donovan's permission.

Donovan testified that he believed plaintiff had already abandoned his employment before he was officially terminated because he had failed to communicate with RSI about his consulting. Donovan admitted, however, that he disagreed with nothing in Davito's assessment of the quality of plaintiff's consulting. On cross-examination, Donovan testified plaintiff had been a "key employee" and a "critical asset" who contributed highly to RSI's profitability. Donovan testified that any money that RSI does not disburse belongs to him and his wife as sole shareholders of RSI. Donovan admitted that RSI's failure to pay plaintiff "leaves just that much more for" Donovan and his wife. Donovan testified that he was aware of plaintiff's health problems and his March 1997 hospitalization when he fired plaintiff.

Over defendants' objection, plaintiff introduced evidence that Donovan sold RSI's assets to Brunswick for $3 million and that the real estate leases between RSI and Brunswick each required annual payments ranging from $100,000 to $675,000 over 15 years. In response, Donovan testified that the sale proceeds were entirely absorbed by RSI's debts. Donovan also testified that there are outstanding mortgages on the real estate leased to Brunswick. Asked what he invested in the entertainment centers, Donovan testified that the Carol Stream center and the land it occupies have a combined value of $8 million compared with the annual lease payment of $425,000 for Brunswick's use of the land--which yields a rate of return of 5.3% per year.

Plaintiff's and Donovan's testimony established that, prior to the sale of RSI to Brunswick, plaintiff's yearly compensation was $151,521.76, which consisted of salary ($140,601.76), car allowance ($6,300), and health insurance ($4,620).

During Donovan's testimony, plaintiff asked the court to reconsider its ruling barring evidence of the value of the retirement benefits provided for in the Agreement. The court held that plaintiff could introduce evidence of the value of the retirement benefits for the purpose of disputing the likelihood that plaintiff, as Donovan claimed, elected to relinquish his retirement benefits by abandoning his employment with RSI before age 65. The court, however, adhered to its previous ruling that plaintiff could not introduce evidence that RSI had not paid the retirement benefits.

Later, the following colloquy occurred during the examination of Donovan by plaintiff's attorney:

"Q. Turning to the retirement income, the deferred compensation, that was to commence after age 65, correct?

A. Yes.

Q. That was a substantial amount of money promised to him, right?

A. Yes.

Q. Now, we're not going to go into whether [plaintiff] is entitled to any deferred compensation. That's for another day.

But is it not a fact, Mr. Donovan, that RSI has refused to pay the retirement income as well, and that's ...


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