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Elsener v. Brown

Court of Appeals of Illinois, Second District

September 10, 2013

JAMES ELSENER, Plaintiff-Appellee,
ROY BROWN, Defendant-Appellant Brown Business Ledger, LLC, Defendant.

Appeal from the Circuit Court of Du Page County No. 10-L-172 Honorable Patrick J. Leston, Judge, Presiding.

JUSTICE BIRKETT delivered the judgment of the court, with opinion. Justices Hutchinson and Spence concurred in the judgment and opinion.



¶ 1 Defendant, Roy Brown, appeals from the trial court's judgment finding him personally liable on an employment contract signed by plaintiff, James Elsener, and defendant in his capacity as president of Brown Business Ledger, LLC (BBL). For the following reasons, we affirm.


¶ 3 Plaintiff, a former employee of BBL, filed a three-count complaint in February 2010 against both BBL and defendant. Plaintiff alleged that, on June 2, 2008, he signed a contract with BBL for a three-year term of employment, that he was terminated without cause on August 18, 2009, and that his contract entitled him to his remaining compensation for the three-year term. Plaintiff also sought attorney fees and prejudgment interest. In counts I and II, plaintiff brought claims under the Illinois Wage Payment and Collection Act (Wage Act) (820 ILCS 115/1 et seq. (West 2010)) against both BBL and defendant. Plaintiff alleged that defendant was individually liable under the Wage Act because he "controlled [BBL's] financial decisions" and "knowingly refused to allow [BBL] to pay [plaintiff] the compensation owed him, thereby knowingly permitt[ing] [BBL] to violate the [Wage Act]." Count III, which apparently was brought against BBL alone, alleged breach of contract.

¶ 4 Defendant subsequently moved to dismiss, for lack of personal jurisdiction, the counts against him. On April 30, 2010, while the motion to dismiss was pending, BBL and its parent corporation, Brown Publishing Company (BPC), filed a bankruptcy petition in federal court. On May 3, BBL asserted to the trial court that the proceeding before it was automatically stayed pursuant to section 362(b)(21) of the Bankruptcy Code (11 U.S.C. § 362(b)(21) (2006)). On May 4, the trial court stayed the proceedings against BBL alone. On October 11, BPC and BBL moved the bankruptcy court for an order enforcing the automatic stay against all proceedings in the trial court. Plaintiff responded that the stay did not apply to the proceedings against defendant. On November 30, the bankruptcy court entered a stipulated order lifting the stay in part and permitting plaintiff to "proceed with the Illinois [a]ction solely against defendant Roy Brown." The order further provided: "[Plaintiff] has not filed, will not file, and forever waives and releases his right to file a proof of claim against [BPC and BBL] and each of them and their respective estates."

¶ 5 On June 25, 2010, the trial court denied defendant's motion to dismiss for lack of jurisdiction. Plaintiff later moved for summary judgment, which was denied.

¶ 6 The trial court conducted a bench trial in August 2010. Defendant renewed his jurisdictional motion. Plaintiff and defendant were the sole witnesses at trial.

¶ 7 Plaintiff testified that, in April 1993, he commenced publication of "The Du Page Business Ledger." Later, he changed the name to "The Business Ledger" (The Ledger). Plaintiff was sole owner and manager of The Ledger, which was headquartered in Naperville. In the spring of 2008, BPC expressed interest to plaintiff about purchasing The Ledger. BPC was a publishing conglomerate that owned multiple publications throughout the United States. BPC was headquartered in Ohio, with offices in Cincinnati and Tipp City. Officed in Cincinnati were defendant, BPC's president and chief executive officer; Joe Ellingham, vice president and chief financial officer; and Joel Dempsey, vice president and general counsel. In May 2008, defendant traveled to Illinois and met with plaintiff in Naperville to discuss the sale of The Ledger. Subsequently, on May 26, 2008, defendant sent on behalf of BPC a letter of intent to purchase The Ledger for $900, 000 cash plus a three-year contract of employment for plaintiff. The sale of The Ledger closed in June 2008. Contemporaneously, BBL was formed in Illinois to operate The Ledger. BBL became a wholly owned subsidiary of BPC. Admitted into evidence were the articles of organization for BBL, showing that it was an Illinois limited liability company with its principal place of business in Naperville. Defendant and Dempsey were appointed BBL's president and vice president, respectively. Consistent with the articles of organization, BBL's business offices were in Naperville.

¶ 8 On June 2, 2008, an executive employment contract was entered into between plaintiff as "Employee" and BBL as "Employer." Signing for BBL was defendant, designating himself as the company's president. The contract installed plaintiff as publisher of The Ledger, with an employment term of three years and a base salary of $85, 000 to be paid in biweekly installments. Article 3.1 of the contract specified two means by which BBL could unilaterally terminate plaintiff's employment prior to the end of the three-year term. BBL could terminate for "cause" (referred to as "Termination for Cause") or "for any other reason, whatsoever, with or without cause, at the sole discretion of [BBL]" (referred to as "Involuntary Termination"). Article 3.1(i) stated: "It is expressly acknowledged and agreed that the decision as to whether 'cause' exists for termination of the employment relationship by Employer is delegated to Employer's President." Article 6.1 imposed a mandate of noncompetition that would bind plaintiff "[d]uring the term of this Agreement and for a period of one (1) year after termination of this Agreement, whether terminated by cause or otherwise." Article 3.5 provided:

"Upon an Involuntary Termination of the employment relationship by Employer prior to expiration of the Term, Employee shall be entitled, in consideration of Employee's continuing obligations hereunder after such termination (including, without limitation, Employee's non-competition obligations), to receive his pro rata salary through the date of such termination plus the severance amount set forward in Exhibit A."

Exhibit A provided, with respect to "Severance, " that "Employee shall be entitled to the remaining amount of his base salary [$85, 000] through expiration of the Contract Term if he is terminated not for cause." Article 9 stated that the contract "shall be subject to and construed under the laws of the State of Illinois."

¶ 9 Plaintiff testified that his responsibilities after the sale were much the same as they were before. Plaintiff was responsible for, inter alia, "sales" and "profitability." Payroll operations were moved to Tipp City, and subsequently plaintiff received his biweekly salary payments from there. During plaintiff's tenure at BBL, "financial statements and reporting were in transition to go to Ohio." Ellingham was plaintiff's day-to-day "direct report" at BBL.

¶ 10 According to plaintiff, BBL began to incur losses in the fall of 2008 because of the national economic recession. Plaintiff and Ellingham came under pressure to cut costs at BBL, and plaintiff made proposals to improve the budget. The losses continued into 2009. Plaintiff acknowledged, based on financial statements produced by BBL for 2009, that BBL was running a year-to-date loss of $55, 946 as of May 31, 2009.

¶ 11 Plaintiff testified that, on June 24, 2009, he e-mailed Ellingham a financial update for BBL. The update forecast a cumulative loss of $116, 784 for BBL by August 2009. Plaintiff copied defendant on the e-mail. About an hour later, defendant wrote plaintiff directly: "These expenses are WAY too high for the environment. I am not going to allow losses to mount. Please provide a cost reduction plan to get to break even in July." Defendant copied Ellingham on the message. According to plaintiff, this was his first direct communication from defendant during plaintiff's time at BBL. On the evening of June 24, 2009, plaintiff sent defendant and Ellingham a cost-savings plan that proposed, inter alia, that all accounting work be moved to Tipp City and that all salaries (but plaintiff's) be cut by 20%. Plaintiff noted that the "largest salary" was his and that there were two years remaining on his employment contract. Plaintiff asked, "Would you consider buying me out? Perhaps we can find a win-win." Unbeknownst to plaintiff, however, defendant had earlier that day e-mailed Ellingham a note that read: "Elsener needs to be gone ASAP. Need to breakeven [sic] here and in GSA." Ellingham's e-mailed reply was: "Agreed."

¶ 12 Plaintiff testified that, on August 17, 2009, Ellingham phoned to tell him that BPC had decided to change publishers for The Ledger, that plaintiff was terminated, and that his replacement would begin in two days. Plaintiff asked Ellingham about the "severance plan" in plaintiff's contract, and Ellingham replied that it was "something to discuss with Mr. Brown."

¶ 13 Plaintiff subsequently addressed three messages directly to defendant. First, on August 17, plaintiff e-mailed defendant asking how he "plan[ned] to proceed concerning my employment contract." Plaintiff received no response. On August 23, plaintiff mailed defendant a letter reminding him of the August 17 note. Plaintiff also noted that he had yet to receive written confirmation of his termination. On August 26, Ellingham sent plaintiff a letter confirming that his last day was August 18. Still having received no word on his severance payment, plaintiff retained counsel. On December 31, plaintiff's counsel sent defendant a letter by registered mail demanding payment of $156, 061.12, representing plaintiff's salary for the balance of the three-year contract term. Plaintiff testified that he did not know whether his counsel ever received a response to this letter. Plaintiff received no payment from BBL after August 18. In February 2010, plaintiff filed suit against defendant and BBL.

¶ 14 Plaintiff testified that, after he was terminated, publication of The Ledger continued with the same frequency as before. Publication even continued after BPC and BBL filed for bankruptcy in April 2010. Plaintiff admitted that he filed no claim against BBL or BPC in bankruptcy court. The reason he filed no claim, and in fact agreed to release BBL from any "proof of claim" (according to the November 30, 2010, stipulated order) was that he did not want his state court action "sucked into" the bankruptcy proceeding.

¶ 15 Plaintiff acknowledged that, in the event of an "Involuntary Termination" as defined in the employment contract, he had a one-year noncompetition duty. Plaintiff also acknowledged that his "continuing obligation [not to compete] would be met with a continuing payment by [BBL]." Plaintiff assumed that, if BBL were unable to meet its payroll, BPC would cover the expense because it owned BBL. Plaintiff was unaware, however, of any "guarantee made by [BPC] to cover the losses of [BBL]." Asked if had "any evidence that Mr. Brown knowingly refused to pay [the] severance, " plaintiff answered, "No, I do not. Mr. Brown never responded to anything."

¶ 16 Defendant testified that he became president and chief executive officer of BPC in January 2000 and president of BBL in May 2008. Defendant remained in those positions until his termination at some point during the bankruptcy proceedings. BPC, defendant recounted, was founded by his grandfather in 1920. Eventually, BPC grew to own 10 separate subsidiaries publishing over 90 newspapers. According to defendant, BPC funded the operations of these subsidiaries but was not obligated to do so. In a declaration that defendant filed in bankruptcy court in April 2010, which plaintiff introduced into evidence, defendant stated that he was "currently responsible for all functions of [BPC's] management" and, in his "capacit[ies] as [BPC's and BBL's] President and Chief Executive Officer, [was] familiar with [BPC's and BBL's] books and records, financial affairs, business[, ] and operations."

¶ 17 Defendant claimed that he is a citizen of Ohio and has never lived or voted in, or paid taxes to, Illinois. Defendant's sole visit to Illinois in connection with his work for BPC was the meeting with plaintiff in 2008 to discuss the purchase of The Ledger. Defendant never traveled to BBL while he was president of that company.

¶ 18 Defendant stated that Dempsey drafted plaintiff's employment contract in conjunction with plaintiff's counsel. Defendant did not know who drafted which provisions. Defendant denied that plaintiff's severance was to be paid in a single sum following the termination of his employment. Rather, the intent was that plaintiff would be paid "over the period of [the] noncompete period." This was necessary, defendant explained, to enforce the noncompetition requirement.

¶ 19 Defendant testified that, shortly after BPC purchased The Ledger and BBL was formed, the national economy declined. BPC experienced a sharp decline in revenue, necessitating "drastic cost reductions" throughout the company and its subsidiaries. On June 24, 2009, defendant wrote plaintiff an e-mail directing him to devise a plan for BBL to balance its budget by the end of the next month. Defendant testified that this was his first communication to plaintiff since the letter of intent in May 2008. Defendant acknowledged that, later in the day on June 24, he directed Ellingham to terminate plaintiff's employment. Asked about article 3.1 of the employment contract, which "delegated" to him the determination of whether a unilateral termination of plaintiff's employment was for cause, defendant replied that the authority was vested in him but that "the call was counsel's, " namely Dempsey's, because "that's why we have a general counsel." Defendant could not recall any conversation he had at BBL or BPC as to whether cause existed for plaintiff's termination. Defendant would have relied on Dempsey to review the parties' respective obligations under the employment contract and determine whether cause existed. Defendant also testified that, when a publisher was terminated, the "point person" was Ellingham, who along with Dempsey would handle any "claims or legal issues [that] arose out of those terminations." According to defendant, he handled severance issues concerning only BPC personnel who reported directly to him.

¶ 20 Defendant testified that, when he received plaintiff's August 17 e-mail query about the employment contract, he discussed it with Dempsey and Ellingham because "it was effectively their responsibility to resolve [the issue] on the contract side." All defendant recalled was that he directed Dempsey and Ellingham to "resolve it, if we had the ability." Defendant agreed that "basically the issue landed on [his] desk and [he] sent it downstream to Mr. Dempsey and to Mr. Ellingham." Defendant had no communication with Dempsey or Ellingham about the severance issue until defendant received plaintiff's December 31, 2009, demand letter. Defendant assumed from the letter that plaintiff had not been paid his severance. As with the August 17 e-mail, defendant forwarded the demand letter to Dempsey and Ellingham and directed them to resolve it. Defendant testified: "[I]t was not something that I could resolve. I needed those guys to resolve it." Defendant himself made no decision whether to pay plaintiff his severance.

¶ 21 Defendant described the financial condition that BPC was in when plaintiff was terminated. In the summer of 2009, BPC was losing $300, 000 to $400, 000 each month. There were two credit liens on BPC. BPC owed the first-priority lienholder $70 million and the second lienholder $25 million. On April 13, 2009, the first lienholder declared BPC in default. On June 5 of that year, the second lienholder declared BPC in default. Defendant characterized the defaults as "the beginning of the end of [his] control over the affairs of the company." On July 20, BPC signed, on behalf of itself and all its subsidiaries, a forbearance agreement with the first lienholder. Section 3(a) of the agreement required BPC to

" cooperate with and provide prompt and complete access to the Lenders' financial advisors, including Huron Consulting Services, LLC (each, an 'FA'), in order to allow such financial advisor(s) to assess and monitor Borrowers' operations, financial position, cash flow and such other items as any Lender shall require, including but not limited to access to all of Borrowers' books and records. Each FA shall be permitted to review all financial reports to be delivered by the Borrowers ."

The agreement specified that it would terminate July 31, 2009, or earlier in case there were further defaults. In defendant's words, the agreement allowed Huron to "come in and effectively give marching orders to [BPC's] management on what needed to be done." Subsequently, Huron came to BPC and began "looking over [its] shoulder." Huron's

"job [was] to come in, do a full assessment of the company, interact with publishers directly, employees directly, have access to all of the company, and then to monitor and suggest and direct ultimately aspects of the operations of the company, if not ultimately the operations." According to defendant, Huron "interacted directly with just about everybody at [BPC] but [him]."

¶ 22 Defendant testified that, on August 3, 2009, BPC received notice that the initial period of the forbearance agreement had expired and that the first lienholder had declined to renew it. As of that date, according to defendant, the first lienholder could at any time accelerate the debt and liquidate BPC's assets. As it happened, the first lienholder relented for several more months. (Apparently, even after the expiration of the forbearance agreement, Huron was still reviewing BPC's financial activities.) After receiving the August 3 notice, BPC retained bankruptcy counsel and, on its advice, hired its own financial consultant, Mesirow Financial, to speak with Huron as BPC's representative. With the retention of Mesirow, defendant was "frozen out"; he had "no control to pay anything at that point. It had to be agreed. And without, frankly, [his] input having much, if any, import." Ellingham became the point of contact for Mesirow, and defendant was not "access[ed] at all in that process." Plaintiff's claim for severance became "one of just a lot of potential claims that ultimately materialized."

¶ 23 Defendant testified that, when he received plaintiff's December 2009 demand letter, he had no knowledge of whether BPC could pay plaintiff his severance:

"I didn't know if we had the money and I didn't know if we were going to file bankruptcy the next day and I didn't know what Huron and the banks and/or Mesirow might allow at any point because, frankly, Mr. Dempsey and Mr. Ellingham were there [sic] direct points of contact. And I don't know why it was not ultimately paid, but I assume someone made a determination in that connection not to pay it at that time. I directed them to resolve it." Defendant claimed that it was not until plaintiff filed suit in February 2010 that defendant learned that BPC had made a decision not to pay plaintiff his severance.

¶ 24 Defendant acknowledged that, between plaintiff's termination and the April 2010 bankruptcy filing, "the ongoing business expenses [of BBL] were being paid." Specifically, "decisions were being made as to who-which creditors were going to be [sic] receive how much and when." According to a "summary of schedules" filed in the bankruptcy court, BPC had assets of $951, 073 and liabilities of $101, 504, 725.81. On May 5, 2010, the bankruptcy court entered an order finding that it was "essential to [BPC's and BBL's] continued viability" that they "pay their employees and otherwise finance their operations." The court therefore permitted BPC and BBL to use their cash collateral in keeping with their prospective 13-week budget, which allocated an average of $449, 000 per week for employee compensation. Also pursuant to that order, a "chief restructuring officer" was appointed for BPC. His function, defendant described, was to "administer the company while in bankruptcy." At this point, defendant claimed, he "really didn't have [a function]" at BPC. Eventually, defendant was let go from BPC. He had a severance agreement with BPC, but never received any such payments.

¶ 25 Defendant acknowledged that BBL replaced plaintiff with a new publisher and that publication of The Ledger continued even after BPC and BBL filed for bankruptcy. The replacement improved BBL's financial status, though the company still operated at a loss.

¶ 26 In closing argument, defendant's threshold contention was that the trial court lacked personal jurisdiction over him because he was neither "a resident, voter, taxpayer, worker, [nor] property owner in Illinois." Defendant also relied on the "fiduciary shield" doctrine recognized by the supreme court in Rollins v. Ellwood, 141 Ill.2d 244 (1990). Second, defendant claimed that, as he was a resident of Ohio, the Wage Act lacked the extraterritorial reach to bind him. Third, citing Andrews v. Kowa Printing Corp., 217 Ill.2d 101 (2005), defendant asserted that, even if the Wage Act applied to him, he was not personally liable on the severance obligation because he did not knowingly permit BBL's failure to make the payment. Defendant claimed that it was reasonable for him to delegate the severance issue to Ellingham and Dempsey, and that he was not privy to the ...

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