United States District Court, N.D. Illinois, Eastern Division
June 25, 2004.
JEFFREY LILLIEN, Plaintiff,
PEAK6 INVESTMENTS, L.P. and PEAK6 L.L.C., Defendants.
The opinion of the court was delivered by: JAMES ZAGEL, District Judge
MEMORANDUM OPINION AND ORDER
In March 2001, Plaintiff Jeffrey Lillien, who had been an
in-house attorney with First Chicago and its successor, Bank One,
for over eighteen years, decided to enter the job market. By May
of that year, Lillien had received two competing offers, one from
UBS, a large multinational financial services company, and one
from Defendants Peak6 Investments, L.P. and Peak6 L.L.C.
(collectively "Peak6"), a smaller options trading firm.
Ultimately, Lillien passed up UBS's offer for a senior position
in its law department, which included a base salary of $150,000,
a guaranteed bonus of $175,000, and $150,000 of UBS stock, to
become Peak6's General Counsel. In its May 4th and May
9th offer letters, Peak6 promised to provide Lillien with a
base salary of $150,000, a discretionary bonus, and stock options
from the company's pending IPO. Lillien alleges that Peak6
principals Matthew Hulsizer and Jennifer Just also promised him
that, barring a catastrophe, he would receive a year-end target
bonus of $100,000 and roughly $500,000 worth of stock options.
Lillien alleges that Hulsizer and Just assured him, during their
negotiations, that the IPO would occur in late May or early June
and that the company was in a strong financial position. According to Lillien, these assurances
led him to accept Peak6's offer on May 9, 2001.
When Lillien started work, he realized that Peak6 was not doing
as well as he had expected. Upon starting, Lillien learned that
the IPO was postponed, Peak6's second quarter revenues were
reported as "flat," Peak6 has suffered severe financial losses in
mid-May, and Peak6's CFO had quit and had not yet been replaced.
In November 2001, Peak6 finally, after many postponements,
cancelled its plans for an IPO. In January 2002, Hulsizer and
Just fired Lillien and informed him that his year-end bonus would
be $30,000, less than a third of what Lillien expected.
Thereafter, Lillien brought this suit claiming breach of contract
and fraudulent inducement.
Peak6 now moves for summary judgment on both of Lillien's
claims. Summary judgment is proper when there is no genuine issue
of material fact and the moving party is entitled to judgment as
a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317,
322-323 (1986). In determining whether any genuine issue of
material fact exists, I must construe all facts in the light most
favorable to the non-moving party and draw all reasonable and
justifiable inferences in its favor. Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 255 (1986). A genuine issue of fact exists
only when, based on the record as a whole, a reasonable jury
could find for the nonmovant. Pipitone v. United States,
180 F.3d 859, 861 (7th Cir. 1999).
A. Lillien's Breach of Contract Claims
In Count I of his complaint, Lillien claims that he was
entitled to a pro-rated bonus in excess of $50,000 and stock
options in the amount of $500,000. Lillien bases these claims on representations made to him by Peak6 principals Hulsizer and
Just. Lillien alleges that Hulsizer assured him that he would
receive a bonus in excess of $100,000 and that both Hulsizer and
Just assured him that Peak6's IPO was a virtual certainty.
1. Lillien's Bonus
With regards to Lillien's bonus, Peak6 argues that Lillien
could not have believed Hulsizer's statements concerning the
bonus target of $100,000 constituted an offer because they ran
contrary to the terms of Peak6's written offers to Lillien. Under
Illinois law, a statement constitutes an employment contract only
if it "set[s] forth a promise in terms clear enough to cause a
reasonable employee to believe that an offer has been made."
Tatom v. Ameritech Corp., 305 F.3d 737, 742 (7th Cir. 2002)
(quoting Duldulao v. St. Mary of Nazareth Hosp. Ctr.,
505 N.E.2d 314, 318 (Ill. 1987)). "Whether a contract exists, and in
particular whether a clear and definite promise has been made,"
is a threshold issue of law for the court. Grottkau v. Sky
Climber, No. 93 C 6277, 1995 U.S. Dist. LEXIS 902 at *48 (N.D.
Ill. Jan. 24, 1995). Absent a "clear promise," summary judgment
must be granted. Stacey v. Insurance Corp. of Ireland,
545 N.E.2d 221, 224 (Ill.App. Ct. 1989).
Thus, it is my job to determine whether Hulsizer's statements
concerning the $100,000 target bonus were part of the offer
extended to Lillien. To support his claim that the statements
were, in fact, part of that offer, Lillien cites Tidwell v.
Toyota Auto Mart, Inc., 375 N.E.2d 540 (Ill.App. Ct. 1978),
which held that plaintiffs were entitled to an orally set bonus
despite the fact that they had signed a form categorizing the
bonus plan as discretionary. Id. at 541. While Tidwell does
bear certain similarities to this case, key differences exist,
which make it inapplicable. In Tidwell, the court found, from
the wording of the signed bonus form, that the discretionary language dealt with the dealership's decision to
enroll an employee in its bonus plan and not with the amount of
the bonus. Id. at 543. In this case, the language of Lillien's
offer letters leads to the opposite conclusion. Both the May
4th and May 9th offer letters stated that Lillien would
be "eligible for a year-end discretionary bonus . . . distributed
based on both the profitability of the company and [Lillien's]
contribution to the company's success." Unlike the bonus form in
Tiswell, Peak6's offer letter guaranteed Lillien's enrollment
in the bonus program but stated that the bonus amount was
discretionary. Another key difference between Tidwell and this
case is the nature of the respective plaintiffs' employment
contracts. Unlike Lillien who received two written offers of
employment, the plaintiffs in Tidwell were employed under an
oral contract. Thus, it was somewhat more reasonable for the
Tidwell plaintiffs to equate oral statements made by the
defendant as part of their overall employment contract.
Peak6's May 9th offer letter to Lillien detailed all the
basic terms of his employment (it listed his start date, salary,
pay dates, bonus, stock options, 401(k) plan, health insurance,
and vacation), clearly stating the bonus was discretionary.
Viewed in light of the explicit nature of the offer letters, a
reasonable person, let alone an experienced lawyer like Lillien,
could not have interpreted Hulsizer's statements as an offer of a
target or minimum bonus. Furthermore, the overall circumstances
surrounding the offer would not have led a reasonable employee to
conclude that the target bonus was part of Peak6's offer. During
the same conversations in which Hulsizer allegedly promised
Lillien a target bonus of $100,000, he also told Lillien that his
bonus could be $0 or $1M depending on the company's performance,
indicating again the bonus was discretionary. Additionally,
Lillien contacted the Manager of Human Resources and inquired
about setting out a specific bonus amount in the offer letter
itself. She told Lillien that Peak6 did not put specific bonus targets in writing. Given that the offer
letters and Human Resource Manager's statements were wholly
contrary to establishing a set bonus, Hulsizer's statements
indicating that Lillien's bonus would most likely be $100,000 are
not enough to bind Peak6. Creswell v. Bausch & Lomb, Inc., No.
85 C 5822, 1986 U.S. Dist. LEXIS 17414 at *17 (N.D. Ill. Nov 20,
1986) (employer's oral prediction on plaintiff's otherwise
discretionary bonus was not sufficient to bind the company.).
Since Hulsizer's statements could be reasonably found to change
the discretionary nature of Lillien's bonus, I find that summary
judgment is appropriate.
2. Lillien's Stock Options
With regard to the promised stock options, Peak6 argues that it
was not contractually obligated to provide Lillien with stock
options because its promise was based on a condition precedent,
the planned IPO, which never occurred. Under the prevailing
Illinois law, "if the condition [precedent] remains unsatisfied,
the obligations of the parties are at an end." Lyntel Products,
Inc. v. Alcan Aluminum Corp., 437 N.E.2d 653, 657 (Ill.App. Ct.
1981); See Also Albrecht v. North Am. Life Assurance. Co.,
327 N.E.2d 317, 319 (Ill.App. Ct. 1975). When Lillien accepted
Peak6's job offer, he was fully aware that no stock plan existed
and that any future stock plan would be contingent on a
successful IPO. Peak6's May 4th and May 9th offer letters
clearly stated that Lillien would receive stock options "in the
event of an IPO" and that "the particulars of this stock option.
. . . are unwritten at this time." Since the IPO did not occur, I
find that summary judgment on this claim is appropriate.
I am unpersuaded by Lillien's argument that proceeding with the
IPO was a contractual duty owed to him. Generally speaking, IPOs
are subject to regulatory and market forces beyond a company's
control and are often derailed or postponed. Lillien knew that
Peak6 had not fulfilled the SEC's regulatory requirements, undertaken the
requisite road shows to generate market interest, and priced the
security. Understanding that those crucial steps still needed to
be completed, Lillien could not have reasonably believed that
Peak6 was contractually obligated to move forward with its IPO.
Lillien does point out that for Peak6's offer to be competitive
with UBS's offer, it had to include some equity in the
compensation. However, when the amount of equity offered by UBS
and Peak6 is compared, it is clear that the amount of equity
offered by Peak6 had been adjusted for the inherent riskiness of
the potential IPO. According to Lillien, Hulsizer and Just
offered him $500,000 worth of stock options, more than three
times the equity UBS was willing to provide.
B. Lillien's Fraudulent Inducement Claim
To support a claim of fraudulent inducement, Lillien must show
that Peak6 made a false statement of material fact, Peak6 knew
the statement was false, he reasonably relied on the truth of the
statement, the statement was made for the purposes of causing him
to act, and his damage resulted from reliance on the statement.
LaScola v. US Sprint Communications, 946 F.2d 559, 567-68
(7th Cir. 1991). Lillien must support each of these elements
with clear and convincing evidence. Ackerman v. Northwestern
Mut. Life Ins. Co., 172 F.3d 467, 469-70 (7th Cir. 1999).
Peak6 argues that Lillien cannot establish either that Peak6's
representatives made false statements of material fact or that he
reasonably relied on the alleged false statements. Alternatively,
Peak6 argues that Lillien waived any right to assert that claim
by continuing to work for Peak6 after learning of the alleged
fraud. 1. False Statements of Material Fact
First, Peak6 argues that Lillien's fraudulent inducement claim
is deficient because no actionable fraudulent statements of
material facts were made to him. Under Illinois law, a fraudulent
statement "must relate to a past or present fact." Bommelman v.
Transfer Print Foils, Inc., No. 97 C 2082, 2000 U.S. Dist. LEXIS
9003 at *13-14 (N.D. Ill. June 20, 2000). A statement "which is
merely an expression of opinion or which relates to future or
contingent events, expectations or probabilities . . . ordinarily
does not constitute an actionable misrepresentation." Id.
(citing Continental Bank, N.A. v. Meyer, 10 F.3d 1293, 1298
(7th Cir. 1993)). Thus, where the underlying statement
"merely expresses an opinion or that relates to future or
contingent events, rather than past or present facts," a
fraudulent inducement claim must be dismissed. LaScola, 946
F.2d at 568. (affirming summary judgment for defendant where
allegedly fraudulent statement did "not constitute an actionable
Here, Lillien does not dispute that Hulsizer's and Just's
statements concerning the potential IPO related to a future event
and are not, without more, actionable fraudulent statements.
Instead, Lillien argues that his case falls under a
well-established exception for situations where the statements
were part of an overall scheme to accomplish a fraud. HPI Health
Care Services, Inc. v. Mt. Vernon Hospital, Inc., 545 N.E.2d 672
(Ill. 1989); Steinberg v. Chicago Med. Sch., 371 N.E.2d 634,
641 (Ill. 1977). The scheme exception applies where "a party
makes a promise of performance, not intending to keep the
promise." Bower v. Jones, 978 F.2d 1004, 1011 (7th Cir.
1992) (quoting Concord Industries, Inc. Harvel Indus. Corp.,
462 N.E.2d 1252, 1255 (Ill.App. Ct. 1984)). Lillien claims that Peak6, in an effort to entice him to accept
its offer, made assurances that its IPO would close in May,
failed to disclose the loss of its CFO, and failed to disclose
its disappointing financial results. To make his case, Lillien
faces an intentionally high burden. Bower, 978 F.2d at 1012.
Because promissory "fraud is easy to allege and difficult to
prove" it is a disfavored cause of action in Illinois. Id. In
order to survive a motion for summary judgment, a plaintiff "must
be able to point to specific, objective manifestations of
fraudulent intent . . . If the rule were otherwise, anyone with a
breach of contract claim could open the door to tort damages by
alleging that the promises broken were never intended to be
Unfortunately for Lillien, the record falls well short of
showing that Just and Hulsizer never intended to close the IPO.
Instead, the evidence tends to show that Hulsizer and Just wanted
to close the IPO but were unable to do so for financial reasons
beyond their control. There is significant evidence showing that
Peak6 was actively pursuing an IPO during the spring of 2001.
Peak6 spent roughly $775,000, engaged underwriters who produced
multiple schedules with an anticipated closing date in May, took
on additional capital positions, filed its Form S-1, had
attorneys working on an Amendment to its Form S-1, and was trying
to hire both a General Counsel and CFO to make the transaction go
Despite the evidence that the IPO was progressing during the
time period that Lillien was negotiating with Peak6, Lillien
claims that Hulsizer and Just knew the IPO would not be completed
on time because the CFO quit on April 25th and because
Hulsizer had reported "flat" financial results for Peak6's second
quarter. These two events, however, were not enough to forestall
the possibility of a May IPO. First, Hulsizer's and Just's belief
that Peak6 could proceed with either a new CFO or with Sue
Hendrick, the woman who had historically been responsible for Peak6's financials, was not unreasonable. The CFO
had held his position for only a matter of weeks, hardly enough
time to make him indispensable to the IPO process, and Peak6's
bankers explicitly told Hulsizer and Just that Peak6 could
proceed after the CFO's departure. Second, Lillien has taken
Hulsizer's report of "flat" financials out of context. What
Hulsizer actually said was that net revenues would be "flat
compared to the first quarter." The $24 million in expected
earnings for the second quarter of 2001 still substantially
exceed the second quarter earnings for the prior year. Peak6's
real financial trouble did not begin until mid-May, after Lillien
had accepted Peak6's offer, and was caused by changes in market
volatility, something that Hulsizer and Just could not predict.
Since Lillien has not shown that Hulsizer and Just lacked the
intent to close the IPO, I find that summary judgment is
appropriate on this claim.*fn1
2. Reasonable Reliance
Second, Peak6 argues that Lillien's fraudulent inducement claim
is deficient because he cannot establish that he reasonably
relied on Hulsizer's and Just's assurances that the IPO would
close in May. It is undisputed that Hulsizer and Just told
Lillien they expected to close the IPO in late May or early June.
Peak6 claims that Lillien, an experienced corporate lawyer, knew
there were still many important hurdles that remained before the
IPO could take place and would not have relied on Hulsizer's and
Just's assurances. Generally speaking, justifiable reliance is "a
question of fact . . . properly decided by the trier of fact.
Bommerlman v. Transfer Print Foils, Inc., 2000 U.S. Dist. LEXIS 9003 at *22 (N.D. Ill. Jun. 20, 2000);
Calvin v. Leitner Thomas Group, No. 00 C 8055, 2003 U.S. Dist.
LEXIS 5077 at *7 (N.D. Ill. Mar. 31, 2003). While it may not have
been wise for Lillien to rely on Hulsizer's and Just's
statements, it was not, as a matter of law, unreasonable.
Therefore, I find that summary judgment, on these grounds, would
Finally, Peak6 argues that Lillien waived his right to claim
fraudulent inducement. Under Illinois law, "a person who has been
misled by fraud or misrepresentation is required, as soon as he
learns the truth, to disaffirm or abandon the transaction with
all reasonable diligence." DeSantis v. Brauvin Realty Partners,
618 N.E.2d 548, 553 (Ill.App. Ct. 1993); See Also City of
Chicago v. Michigan Beach Hous. Coop., 696 N.E.2d 804, 809 (Ill.
App. Ct., 1998); Payne v. AHFI/Netherlands, B.V., No. 79 C
1108, 522 F. Supp. 18, 24 (N.D. Ill. 1980) (plaintiff waived his
claim by remaining with his employer for six months after
learning of the employer's fraudulent statement.). Should a
person fail to do so, he waives his ability to later claim
fraudulent inducement. DeSantis, 618 N.E.2d at 553. The waiver
rule exists to prevent a plaintiff from "[lying] back and
speculat[ing] as to whether avoidance or affirmance of a contract
will ultimately prove more profitable." Id.
Lillien learned of the IPO's postponement almost immediately
after he started with Peak6 on May 30, 2001. Rather than
abandoning his relationship, commencing a job search, or even
objecting to the delay after learning of the alleged fraud,
Lillien chose to remain with Peak6 until he was fired in January
2002. By staying with Peak6 for nearly seven months after the IPO
was initially delayed and nearly three months after it was
ultimately cancelled, Lillien was doing exactly what the Illinois
law concerning waiver tries to prevent waiting to determine
which is the more profitable course of action. Thus, I find that Lillien
waived his fraudulent inducement claim by staying with Peak6 and
grant summary judgment on these grounds as well.
For the reasons stated herein, Peak6's Motion for Summary
Judgment is GRANTED.