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Randall S. Degeer v. M. Scott Gillis; Joseph R. Shalleck; and Leroy J. Mergy

January 19, 2012

RANDALL S. DEGEER, PLAINTIFF,
v.
M. SCOTT GILLIS; JOSEPH R. SHALLECK; AND LEROY J. MERGY,
DEFENDANTS.



The opinion of the court was delivered by: Elaine E. Bucklo United States District Judge

MEMORANDUM OPINION AND ORDER

Now before me are cross motions for summary judgment in this hard-fought dispute, which arises out of the parties' relationship with each other and with their erstwhile employer, Huron Consulting Services. Plaintiff moves for summary judgment on his breach of contract, breach of partnership agreement, and breach of fiduciary duty claims, and on all of defendants' counterclaims, which assert breach of joint venture agreement, breach of fiduciary duty, tortious interference with business expectancy, and breach of non-disclosure agreement. Defendants move for summary judgment on all of plaintiffs' claims, which include, in addition to those identified above, claims for promissory estoppel and for quantum meruit. For the reasons that follow, I grant both motions in part.

I. Defendants are the founders of a management consulting firm called Galt & Company, which operated independently until it was acquired by, and became a division of, Huron Consulting Services through an Asset Purchase Agreement ("APA") signed in March of 2006. At that point, defendants became employees of Huron pursuant to their respective Senior Management Agreements ("SMAs") with the firm, but they continued to conduct the day-to-day business of Galt, as a division of Huron, with autonomy.

In early July of 2006, the parties negotiated an agreement for plaintiff to join them in managing the Galt practice, and later that month plaintiff likewise became a Managing Director of Huron pursuant to his own SMA with Huron. The parties agree that plaintiff had "two separate and distinct agreements" governing his relationship with defendants, on the one hand, and with Huron, on the other. See, e.g., 03/01/2011 Gillis Dep. at 53:3-6 (DN 306-1); PX 6 (DN 248-4); see also Def.'s Opp. at 2 (DN 282) (agreeing that in addition to plaintiff's employment agreement with Huron, a "separate partnership agreement" existed among the parties). There is a fundamental dispute, however, over whether the agreement among the parties established a partnership entitling each of the parties to an annual distribution of Galt's profits (plaintiff's view), or instead a joint venture (i.e., "a partnership carried on for a single enterprise," Ioerger v. Halverson Constr. Co., Inc., 902 N.E.2d 645, 648 (Ill. 2009)), which did not entitle plaintiff generally to share in the firm's profits, but merely entitled him to accrue "phantom equity" in the proceeds of a future "capital event" (defendants' view).

II.

Summary judgment is proper where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party bears the burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U .S. 317, 323 (1986). When a summary judgment motion is made and supported by evidence as provided in Rule 56(c), however, the nonmoving party may not rest on mere allegations or denials in its pleadings but "must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e).

A genuine issue of material fact exists if "there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). Some alleged factual dispute that does not rise to a genuine issue of material fact will not alone defeat a summary judgment motion. Id. at 247-48.

As the parties' prolix and exhibit-laden submissions suggest,*fn1 there are too many factual disputes at too many levels for summary disposition of plaintiff's first three claims to be appropriate. To begin with, whether the parties' relationship constituted a partnership or a joint venture is a question of fact, see Peterson v. Prince, 430 N.E. 2d 297, 300 (Ill. App. Ct. 1981)(existence of a partnership "normally a question of fact for the fact finder"), and "[w]hether the alleged partners share profits is the essential test" of a partnership. Barratt v. Implementation Specialists for Healthcare, No. 99 C 3514, 1999 WL 967513, at *1 (N. D. Ill. Oct. 6, 1999) (Gettleman, J.)(citing Rizzo v. Rizzo, 120 N.E. 2d 546, 551 (1954)). Having reviewed the extensive record in this case, I conclude that a reasonable jury could agree with either side's view of the nature of the parties' relationship.

The record reflects a genuine, material dispute as to whether the parties agreed that plaintiff's incentive compensation would be calculated as a portion of the same residual profit pool as defendants' incentive compensation and distributed annually according to an objective, agreed-upon formula, or whether, instead, it was calculated out of a distinct, discretionary, "Galt bonus pool," from which the bonuses of all Galt employees, including plaintiff, were calculated prior to determining the firm's residual profit, which was then shared only by defendants. The former view is reasonably supported by, e.g., a 02/21/2007 email from Gillis to DeGeer, Shalleck, and Mergy ("[t]he next step is to get final costs and earn-out calculations from Huron so we know exactly our total partner profits. Those profits will be distributed in proportion to the revenue attribution splits"), PX 22 (DN 248-14); PX 24 (DN 248-16); and the 02/24/2011 DeGeer Dep. at 222-225 (DN 302-1)). The latter view, meanwhile, is reasonably supported by, e.g., a 07/04/2006 email from DeGeer to Gillis, Exh. 7 to the 02/24/2012 DeGeer Dep. ("[w]ith no upside performance incentive, any revenues I help generate over the next four years will only benefit Huron"), Beck Decl., Exh. K (DN 256-13); and the 05/12/2011 Shalleck Dep. at 64:9-67:3, 75:3-8 ("we were not splitting the profit pool. We were paying bonuses to all employees and Mr. DeGeer from the bonus pool, and then residual profits were split among the owners of the LLC.")(DN 308-3)). Accordingly, the factual record does not permit me to conclude, as a matter of law, either that the parties' agreement entitles plaintiff to the specific amount of incentive compensation he claims, or that plaintiff is not entitled to those amounts.*fn2

Defendants' various legal arguments for summary judgment of plaintiff's first three claims are unavailing. Their previously rehearsed argument that plaintiff's SMA supersedes and contradicts the parties' separate agreement fails for reasons I discussed in my Memorandum Opinion and Order of April 21, 2010. DeGeer v. Gillis, 707 F. Supp. 2d 784, 792 (N.D. Ill. 2010). There is also no merit to defendants' argument that plaintiff's reference to, and attachment of, his SMA to his complaint in this case constitutes a judicial admission that defendants properly exercised their discretion in withholding the compensation to which plaintiff claims entitlement. Under plaintiff's theory of the case, his SMA is not inconsistent with the terms of the parties' agreement. Accordingly, defendants' judicial estoppel argument also rings hollow. For the same reason, and because plaintiff does not rely on the SMA in any material respect, the parties' disagreement over whether defendants are third party beneficiaries of plaintiff's SMA is immaterial: even assuming defendants are entitled to enforce that agreement, its enforcement does not warrant summary judgment of plaintiff's claims in defendants' favor.

I am likewise unpersuaded by defendants' argument that plaintiff's claims are barred by the statute of frauds. Among other reasons, plaintiff points to evidence that the parties agreed to revisit, "as an annual exercise," their agreement regarding their "partner attribution and distribution formula." PX 41.*fn3 This evidence lends support to plaintiff's argument that the parties' 2006 agreement was re-confirmed each year, and was thus capable of being performed within a year.

I do conclude, however, that summary judgment of plaintiff's alternatively-pleaded claims for promissory estoppel and quantum meruit is appropriate in view of the undisputed existence of an express contract governing the parties' relationship. In an earlier opinion in this case, I noted that "[p]romissory estoppel is meant for cases in which a promise, not being supported by consideration, would be unenforceable under conventional principles of contract law. When there is an express contract governing the relationship out of which the promise emerged, and no issue of consideration, there is no gap in the remedial system for promissory estoppel to fill." DeGeer v. Gillis, 707 F. Supp. 2d 784, 797 (N.D. Ill. 2010) (quoting All--Tech Telecom, Inc. v. Amway Corp., 174 F.3d 862, 869 (7th Cir. 1999)). I likewise held that a quantum meruit claim cannot be pursued where the parties have entered into an express contract, 707 F. Supp. 2d. at 798-99, which they have undisputedly done in this case.*fn4

Turning now to defendants' counterclaims, I conclude that summary judgment of each claim is appropriate. As to the first claim, even assuming that the parties' agreement was for a joint venture to participate in "the next Galt capital event," and that plaintiff's unilateral withdrawal from the joint venture was, as defendants insist, wrongful pursuant to 805 ILCS 206/602(b),*fn5 I

nevertheless agree with plaintiff that the undisputed evidence reveals that neither plaintiff's "dissociation" from the joint venture, nor indeed his dispute with defendants over the payment of incentive compensation, caused the failure of the "Galt capital event" the parties anticipated in their agreement. That is, the evidence ...


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