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Spectrum Systems, Inc. v. Eng

September 1, 2010

SPECTRUM SYSTEMS, INC. PLAINTIFF / COUNTER-DEFENDANT,
v.
JOSEPH ENG DEFENDANT / COUNTER-PLAINTIFF.



The opinion of the court was delivered by: Virginia M. Kendall United States District Court Judge Northern District of Illinois

Judge Virginia M. Kendall

MEMORANDUM OPINION AND ORDER

Plaintiff Spectrum Systems, Inc. ("Spectrum") filed this suit against Defendant Joseph Eng ("Eng") alleging that Eng breached his employment contract with Spectrum, and seeking damages arising from the alleged breach as well as a declaratory judgment that Spectrum does not owe Eng any additional compensation. Eng filed a Counterclaim seeking a judgment for damages in the amount of unpaid post-separation compensation, in the form of shares of Spectrum's profits, allegedly due under his employment agreement. Eng now moves for summary judgment on both the Complaint and his Counterclaim. For the reasons set forth below, Eng's Motion for Summary Judgment is granted as to both Counts of Spectrum's Complaint and as to his Counterclaim; however, his request for attorneys' fees is denied.

STATEMENT OF UNDISPUTED FACTS*fn1

Spectrum, an information technology firm, is incorporated and headquartered in Illinois. (Pl. 56.1 Resp. ¶ 1.) Spectrum had approximately eight clients at the time that Eng joined the company, and has provided services to approximately fifteen clients during its existence. (Pl. 56.1 Resp. ¶ 24.)

Eng is an executive who served from August 2006 through February 2008 as Spectrum's President and CEO. (Pl. 56.1 Resp. ¶¶ 17, 36.) Prior to his tenure at Spectrum, from 1999 through 2006 Eng was the Chief Information Officer for SWIFT, a communication enterprise serving the financial services industry. (Pl. 56.1 Resp. ¶¶ 7, 9.) SWIFT is Spectrum's largest client. (Def. 56.1 Resp. ¶ 1.) In 2005, Eng was interviewed by the SWIFT Board of Directors for SWIFT's Chief Executive Officer position, but was not offered that position. (Def. 56.1 Resp. ¶ 2.)

In November 2005, Eng began discussions with Spectrum's principals,*fn2 Vit Kantor ("Kantor") and Yuri Rabinovitch ("Rabinovitch"), about a possible move to Spectrum. (Pl. 56.1 Resp. ¶ 8; Def. 56.1 Resp. ¶ 3.) Kantor and Rabinovitch told Eng that Spectrum needed someone for "business development." (Def. 56.1 Resp. ¶ 3.) Kantor engaged in a series of positive emails with Eng about the possibility of Eng joining Spectrum, and presented Eng with at least one personal gift during the course of the ongoing discussions. (Pl. 56.1 Resp. ¶¶ 10-12.)

Eng's subsequent resignation from SWIFT was dated May 22, 2006, and stated that Eng planned to take "some extended time to be with his family and have a long summer vacation." (Pl. 56.1 Resp. ¶ 22.) On July 24, 2006, Rabinovitch sent Eng an email with detailed information about Spectrum's 2005 revenues and profits attached. (Pl. 56.1 Resp. ¶ 13.) On August 24, 2006, Rabinovitch sent a written agreement (the "2006 Agreement") via email to Eng confirming the parties' prior discussions concerning Eng's employment with Spectrum. (Pl. 56.1 Resp. ¶ 17.) The 2006 Agreement, which had been drafted by Kantor and Rabinovitch with comments from Eng, included provisions regarding Eng's title, responsibilities, and compensation, and was signed by Kantor and Rabinovitch. (Pl. 56.1 Resp. ¶¶ 15-17.) Eng did not sign the 2006 Agreement but does not now dispute its contractual validity and enforceability. (Pl. 56.1 Resp. ¶ 21.)

With respect to Eng's job responsibilities, the 2006 Agreement provided that Eng would be President and CEO of Spectrum, that he would become a partner in the company, and that his primary role would be to generate new business for Spectrum, provide guidance, and serve as the "public face" of the company. (Pl. 56.1 Resp. ¶ 22.) The 2006 Agreement also stated that Eng would decide "how much he works, when he takes a vacation and what are the best activities for him to undertake to reach" the agreed-upon goals. (Pl. 56.1 Resp. ¶ 22.) To his knowledge, Eng was the first executive hired by Spectrum. (Def. 56.1 Resp. ¶ 11.)

As to Eng's compensation, the 2006 Agreement provided that Eng would receive an annual salary of $90,000. (Def. 56.1 Resp. ¶ 6.) The 2006 Agreement further provided that while Eng was with Spectrum, he would receive a share of the company's profits gradually stepping up from 1/54th of the profits during his first month to 18/54ths of the profits after 18 months. (Def. 56.1 Resp. ¶ 7.) At the end of Eng's time with Spectrum, his share of the profits would decrease by 1/54th each month until reaching zero. (Def. 56.1 Resp. ¶ 8.) The "step-up" and "step-down" formulas were intended to be mirror images of each other. (Def. 56.1 Resp. ¶ 9.) Pursuant to the 2006 Agreement, Eng was paid a regular salary and a share of Spectrum's profits, increasing according to the step-up formula described above, from August of 2006 through the end of September of 2007. (Def. 56.1 Resp. ¶ 10.)

Eng has referred to his role at Spectrum prior to October 2007 as a full-time one; however, he devoted fewer than forty hours per week to the position. (Def. 56.1 Resp. ¶¶ 12, 14.) While working as Spectrum's President and CEO, Eng was also on the advisory boards of two other companies and was actively involved with family real estate and insurance businesses. (Def. 56.1 Resp. ¶ 13.) However, acting on Spectrum's behalf during this time period, Eng communicated with a number of individuals at other corporations; at least some of those contacts are documented as including discussion of potential new business for Spectrum. (Pl. 56.1 Resp. ¶ 25.) From August 2006 through July 2007, Eng contacted approximately a dozen potential customers. (Def. 56.1 Resp. ¶ 22.) Eng traveled on at least two occasions to meet potential clients. (Pl. 56.1 Resp. ¶ 31.) Eng also arranged meetings between himself, Kantor, and at least two other potential clients. (Pl. 56.1 Resp. ¶ 28.) Due at least in part to Eng's work, two new clients-Lockheed Martin (a multibillion dollar company) and Act3Tech-began using Spectrum's services during Eng's time at Spectrum. (Pl. 56.1 Resp. ¶¶ 26-27.)

In his role as Spectrum's "public face," Eng directed Spectrum to send out public announcements about staff achievements (including, if not exclusively, his own) and drafted an announcement of his receipt of the "CIO Award" in November 2006 in order to have the announcement posted on Spectrum's website. (Pl. 56.1 Resp. ¶¶ 23, 30; Def. 56.1 Ex. 1-E.) Eng also suggested changes to Spectrum's website and marketing literature. (Pl. 56.1 Resp. ¶ 29.) In his advisory and guidance-providing capacity, Eng participated in numerous telephone conversations with Rabinovitch and Kantor about Spectrum's business strategies. (Pl. 56.1 Resp. ¶ 31.)

On July 30, 2007, Eng emailed Kantor and Rabinovitch suggesting that he move to "more of an advisor[y] role" and that he was "not comfortable with what [he was] doing and the compensation relative to how that impacts [Spectrum] from a financial perspective." (Def. 56.1 Resp. ¶ 24.) Eng felt both that he had exhausted his best leads for potential business for Spectrum and that he needed to focus on certain family and health issues. (Def. 56.1 Resp. ¶ 25.) In October 2007, Kantor, Eng, and Rabinovitch sent a series of emails resulting in Eng's reduction of his involvement with Spectrum to an advisory role (the "2007 Agreement"). (Pl. 56.1 Resp. ¶¶ 33-34.) The parties agreed that Eng's compensation would change to a total of $2,500 per month during the time that his duties were purely advisory, regardless of Spectrum's profits during that period. (Pl. 56.1 Resp. ¶ 34; Def. 56.1 Resp. ¶ 29.) Eng retained his title of President and CEO. (Pl. 56.1 ¶ 36.) Kantor stated to Eng that Spectrum would thereafter "leave it up to [him] to decide how often [he] need[ed] to touch base" during the advisory period and that once a month would do "if nothing special comes up". (Def. 56.1 Resp. ¶ 27.) The 2007 Agreement did not specifically set an end date for the advisory period, nor did it include any provisions regarding post-separation payments. (Def. 56.1 Ex. G.)

Although the parties had apparently contemplated that the advisory period would end at the end of 2007, Eng wrote to Kantor and Rabinovitch on December 13, 2007 and stated that the timing was not right for him to consider returning to a full-time position with Spectrum. (Def. 56.1 Resp. ΒΆ 31.) Pursuant to this understanding, Eng was paid $2,500 per month from October 2007 until his resignation from Spectrum in February 2008, and was not paid ...


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