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National Inspection & Repairs, Inc. v. George S. May International Co.

September 24, 2008


The opinion of the court was delivered by: Judge Blanche M. Manning


In this case, the plaintiff, National Inspection & Repairs, Inc. ("NIR"), hired the defendant, George S. May International Company ("May"), to perform a short-term management consulting engagement to develop accounting and inventory controls at NIR. At some point right before or right after the end of the three-week consulting engagement, NIR hired one of the May consultants, co-defendant William Doane, as its controller despite a clause in their agreement stating that NIR could not hire any May employees for at least one year from the date of the agreement. Unbeknownst to both NIR and May, the consultant had earlier pled guilty to a charge of stealing from another company, and soon after arriving at NIR, he embezzled money from NIR. According to NIR, Doane's wrongdoing led to the company's demise and cost it $18 million in lost profits. NIR believes May is responsible for its loss and alleges against May several state law claims under this court's diversity jurisdiction. May has brought a motion for summary judgment on all of the claims, including its counterclaim for breach of contract. For the reasons stated below, the motion is granted.

I. Parties' Submissions

The court notes at the outset that certain challenges arose during its consideration of May's motion for summary judgment based on deficiencies in the parties' briefing. First, NIR tends to make arguments without proper legal or evidentiary support; as a result, the court has concluded that certain of its arguments have been waived. Beamon v. Marshall & Ilsley Trust Co., 411 F.3d 854, 862 (7th Cir. 2005)("[U]nsupported and undeveloped arguments are waived."). At other points, when NIR has provided some authority for the court to consider, the court has limited itself to the arguments as expressly framed by NIR as it is not this court's job to make arguments or marshal evidence for represented parties. Obriecht v. Raemisch, 517 F.3d 489, 4920-93 (7th Cir. 2008) ("conclusory arguments" in summary judgment filings presented to the district court were insufficient, so the district court did not err when it limited its consideration to the arguments and record properly before it).

In addition, NIR's submission repeatedly fails to provide pinpoint cites, forcing the court to sift through the cited case in an effort to ascertain where the quote or relevant discussion is located. Moreover, in its response to the plaintiff's statement of fact, NIR fails to reproduce the paragraph to which it is responding in violation of this court's case management procedures. Further, without prior leave of court, NIR filed 69 additional facts in violation of LR 56.1(b)(3)(C), which states that "[a]bsent prior leave of Court, a respondent to a summary judgment motion shall not file more than 40 separately-numbered statements of additional facts." Despite NIR's untimely request to file more than 40 paragraphs (NIR filed its request only after May's reply alerted NIR to the problem), in the interests of completeness, the court grants NIR's motion for leave to file in excess of 40 additional facts and denies May's motion to strike the additional facts as moot.

May also moved to strike certain statements of fact on the ground that NIR's responses were improper. The court agrees that certain of NIR's responses or additional facts improperly state legal conclusions, assert facts not supported by the record, or misstate the evidence, and has attempted to address these improprieties in the context of its order. For example, in the statement of facts, the court simply has not incorporated asserted statements of fact that are not supported by the record citation. Thus, May's motion to strike certain responses by NIR or certain statements of additional fact is granted in part as discussed in the order. Otherwise, the motion to strike is denied.

As to May, its record citations also do not always support the statement of fact for which they are cited. The court elaborates on this deficiency later in its memorandum opinion and order as relevant.

Finally, the court notes that it had to request tabbed exhibits and an exhibit index from May and an exhibit index from NIR.

While all of the deficiencies discussed above may not individually hamper this court's timely and efficient consideration of the motion, taken altogether, these inadequacies make this court's job much more difficult than need be. In the future, the court will not accept such filings and will require the parties to resubmit them in proper form. Nevertheless, in the interest of judicial efficiency and to prevent the parties from incurring additional costs, the court has considered the motion, the supporting papers, and the parties' arguments in their present form.

II. Facts


Defendant May has its principal place of business in Park Ridge, Illinois, and provides a wide range of business consulting services to its clients. NIR was a Kansas corporation with its principal place of business in Topeka, Kansas. It inspected heavy equipment and machinery owned by its customers to ensure, among other things, that these companies were in compliance with OSHA guidelines. NIR stopped conducting business in approximately 2003 or 2004. As of May 1999, NIR had approximately 40 employees.

May's Consulting Engagement at NIR

David Price was NIR's president. In early May 1999, Wayne Dille, a May Survey Analyst, met with David Price at NIR. May Survey Analysts are the first May employees to meet with the client for the purpose of gathering information about the client's issues and offering various consulting solutions provided by May. On May 4, 1999, NIR authorized May to perform certain consulting services pursuant to a document entitled "Authorization for Service and Method of Payment," referred to herein as the Agreement. Per the Agreement, May was to begin performing services for NIR on May 5, 1999.

The Agreement provides that May will, "by discussions, recommendations and progress reports, keep the client informed as to its progress." It further provides that:

In order that there may be continual meeting of the minds between the client and [May] and, particularly, in order that the continuation of the services of [May] is at all times within the client's control, acceptance or rejection of all, or any part, of matters covered in discussions, recommendations and progress reports shall be by client's signature to Progress Reports of [May] under "Examined, Accepted and Approved," specifically excluding by designation any statement not approved. In addition, the Agreement states that:

Achievements realized from Management Service work depend upon many factors, including human aptitudes and cooperation of the client's staff, which factors are not within the control of [May]. Therefore, it is understood and agreed that no express or implied warranty of any general or specific results shall apply to the work done under the agreement.

The Agreement further specifies that all staff members, without exception, are under contract with May and are bonded to the extent of $500,000 for the protection of clients. Moreover, the Agreement states that "[r]ecognizing that all Staff Members of the Company are contractually restricted from working for clients of the Company for a period of one year after leaving the Company's employ, the client agrees not to employ or engage the services, directly or indirectly, of any person now employed by the Company, for a period of one year from date of Survey Authorization." In addition, the Agreement contains a provision stating that "[i]t is expressly agreed that this printed document embodies the entire agreement of the parties in relation to the subject matter of Management Service to be rendered by [May], and that no understandings or agreement, verbal or otherwise, in relation thereto, exist between the parties except as herein expressly set forth." Finally, the Agreement states that the "client will provide suitable working space for the Staff due to the confidential character of the work."

An analysis was done by May which preliminarily identified NIR's problems. The project director for the May consulting project, Vladimir Tigay, received a copy of the Report the night before the engagement started.*fn1 Tigay was employed by May from 1996 until June 1999.

Although not specifically in the context of the NIR engagement, Tigay testified that after reviewing the initial report, the project director would generally meet with the client for the first time and conduct an opening conference in which the project director would go over the terms of the Agreement and ask questions to better understand the client's problems. The project director would then create a recommended program for the client. May provided the general guidelines for creating the different programs to its project directors. However, the programs developed for each client were also informed by the project director's personal observation and interactions with the client. Tigay further testified that after the opening conference, he would be in telephone contact with the staff executives on a project but might never return to the project site if there were no problems.

Further, Tigay generally stated to clients:

During the project, we will make many inquiries about your internal documents that otherwise you might consider confidential and vitally important for business and I understand your concerns about confidentiality with these documents. I want to assure you that these professionals will not abuse your trust; they will work with these documents for your benefit. And for your protection, for the comfort of yours, this company, George S. May Company, that all of us who present [sic], bond each and every one of us for $500,000 in case we present any harm to you.

Tigay recommended two programs for May: Managerial Control Accounting (MCAP) and Profit and Expense Control (PECP). The MCAP relates to managing direct costs as opposed to controlling expenses. The PECP focused on discussing the profitability of the company, its expense controls and building and controlling budgets. These programs, which Tigay developed specifically for NIR, were examined, accepted and approved by David Price on May 7, 1999. The documents provided by May to NIR for each of the projects states that: "The above project is to be completely installed and personnel indoctrinated in its use." It then states:

The above program is the entire program agreed upon for development at this time and this document represents the total description of the project as referred to in the Authorization for Management and Methods of Payment (Form #56), Paragraph Two, between National Inspection and Repair, [sic] Co and George S. May International Company.

In addition, but not as a specified part of the program, our consulting staff will offer suggestions or recommendations, should the occasion occur, for and/or about areas for improvement or corrections not covered by this program. These findings will not be implemented or developed, however, without full approval of our client and only as a separate identity from the program.

Project 2.3 in the MCAP document stated: "Identify critical process points and establish mechanisms for control over accuracy of the process." Project 2.8 in the MCAP document stated: "Assist in interviewing candidates for the position of NIR controller" with the objective of "help[ing] the client choose an appropriate employee." On May 3, 1999, Price, NIR's president, wrote to May that one of his objectives was to "[f]ind a good in-house account [sic]" and further stated that "[t]his is the utmost priority."

The May Field Service Manual states:

NOT JUST "RECOMMENDATIONS" BUT ACTIONS AND RESULTS. Under this principle, [May] is prepared to install what it claims should be done to aid a business. After a company has been thoroughly analyzed and its problems identified, a program is designed to address those problems. [May] Consultants carry out this program to the last detail.... The consulting staff teaches and trains the client and key staff people all the new systems and controls...."

May assigned two staff executives to the NIR project: Fred Metzger and William Doane.*fn2

Staff executives report directly to the Project Director who supervises their work and is ultimately responsible for the success or failure of the project. Tigay would provide the staff executives with a plan of action and discuss it with them. He would then remain at the client's office until he believed that the client was comfortable with the staff executives and vice versa. Doane was the only May employee at NIR for 21 days of the 25-day consulting engagement.

Over the course of the work performed by May, May submitted a total of five Progress Reports to NIR, as required by the Agreement. The Progress Reports provided May with a formal method of communicating the project status and critical points of the project to the client and to May headquarters. Tigay stated in his deposition that the progress reports were a way to "capture the level of client satisfaction" to determine if any problems existed which could then be addressed as soon as possible.

If the project director was not working on site, it was the staff executive's responsibility to complete the progress reports and review them with the client. May provided Progress Report One ("PR1") to NIR on May 7, 1999, covering the period May 5, 1999 through May 7, 1999. PR1 discusses the initial meetings between May and NIR and notes that the two programs recommended by May, MCAP and PECP, were approved by NIR on May 7, 1999. PR1 indicates that it was "Examined, Accepted and Approved" by David Price on May 7, 1999. PR1 also includes a statement that "[d]uring the first days of the project, we got acquainted with the company's operations, designed organizational structures, initiated distribution of responsibilities, [and] analyzed your financial information and office organization." In addition, PR1 includes a handwritten note on the report which states, "Analyst garanteed [sic] company's profitability of 18.6% as the result of using tools developed through the project. Quantified savings expressed in our recommendations will be at least 2:1 to fees paid."

May provided NIR with Progress Report Two ("PR2") on May 14, 1999. While May contends that PR2 accurately states the work that May, through Doane, performed during that period, NIR disputes this. PR2 indicates that it was "Examined, Accepted and Approved" by David Price on May 14, 1999. Progress Report Three ("PR3") was provided to NIR on May 21, 1999. As with PR2, while May contends that PR3 accurately states the work that May, through Doane, performed during that period, NIR disputes this. PR3 indicates that it was "Examined, Accepted and Approved" by David Price on May 21, 1999.

May provided Progress Report Four ("PR4") to NIR on May 28, 1999 and covered the period of May 21, 1999 through May 28, 1999. As with the PR2 and PR3, while May contends that PR4 accurately states the work that May, through Doane, performed during that period, NIR disputes this. PR4 indicates that it was "Examined, Accepted and Approved" by David Price on May 28, 1999. May provided Progress Report Five ("PR5") to NIR on June 2, 1999.

PR5 summarizes the action items from the MCAP and PCEP programs. It states that "[y]ou have stated that you are satisfied with the work completed and the final project results," and it is signed by David Price for NIR. The second page of the report indicates that it was "Examined, Accepted and Approved" by David Price on June 2, 1999.

While Doane testified he was responsible for hiring NIR's new controller pursuant to Project 2.8, David Price and Ken Burkhead, another NIR employee, also sat in on several of the interviews. Doane testified that Price untimately asked him to work as NIR's controller.*fn3 Price testified that Doane also interviewed and hired people for the position of bookkeeper and secretary. However, Doane testified that while he may have recommended people, Price hired everyone.

On June 2, 1999, David Price, as president of NIR, sent a letter to May stating that:

This letter is to inform you that the consulting work performed by your firm has been to my satisfaction. I am satisfied with the work. My employees are trained in the concepts established by your consultants and they are beginning to implement them. I believe that the various recommendations presented ...

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