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Westlake Fin. Group, Inc. v. CDH-Delnor Health Sys.

Court of Appeals of Illinois, Second District

January 6, 2015

WESTLAKE FINANCIAL GROUP, INC., Plaintiff-Appellant,
v.
CDH-DELNOR HEALTH SYSTEM, f/k/a Delnor Community Health System, Defendant-Appellee

Page 1167

Appeal from the Circuit Court of Lake County. No. 13-L-747. Honorable Diane E. Winter, Judge, Presiding.

Reversed and remanded.

SYLLABUS

The trial court's dismissal of plaintiff's complaint for breach of contract arising from a brokerage agreement under which defendant hired plaintiff to act as defendant's insurance broker to procure benefits for defendant's employees was reversed, since the trial court erred in determining that a termination clause in a separate contract between the parties permitted defendant to terminate the contract at issue without cause and that plaintiff's damages were barred by a limitation-of-liability clause, especially when the two contracts dealt with different subject matter and the termination clauses did not equally apply to both contracts, and the limitation-of-liability clause barred only consequential damages from lost profits, not direct damages from lost profits.

Robert S. Reda and Kristina A. McClure, both of Reda & Des Jardins, Ltd., of Lake Forest, for appellant.

Alison C. Conlon and Colleen J. Balek, both of Barnes & Thornburg LLP, of Chicago, for appellee.

JUSTICE SPENCE delivered the judgment of the court, with opinion. Justices McLaren and Hudson concurred in the judgment and opinion.

OPINION

SPENCE, JUSTICE

Page 1168

[¶1] Plaintiff, Westlake Financial Group, Inc. (Westlake), appeals from the trial court's dismissal of its amended breach-of-contract complaint against defendant, CDH-Delnor Health System, f/k/a Delnor Community Health System (Delnor). Westlake argues that the trial court erred in ruling that: (1) a termination clause in a separate contract allowed Delnor to terminate the agreement at issue without cause; and (2) all of Westlake's damages were barred under a limitation-of-liability clause. We conclude that, while the contracts should be construed together, their termination clauses do not equally apply to both contracts, which cover different subject matter. We also conclude that the limitation-of-liability clause bars only consequential damages from lost profits and not direct damages from lost profits. We therefore reverse and remand.

[¶2] I. BACKGROUND

[¶3] Westlake filed its initial complaint on October 2, 2013. The trial court granted Delnor's motion to dismiss the complaint, and Westlake was given leave to amend its complaint. Westlake filed an amended complaint on March 18, 2014, alleging as follows in relevant part. On January 1, 2008, Westlake and Delnor entered into a brokerage agreement (General Service Agreement or GSA) whereby Delnor hired Westlake to, inter alia, act as its insurance broker and procure benefits for its employees. Westlake agreed to create and/or provide the following: a confidential and secure website branded and coded for Delnor's employees to manage their healthcare and benefits; use of Westlake's " Online Enrollment System" software through the Delnor website; confidential and secure administration of benefits; a benefit call center; and confidential and secure access to and use of Westlake's " WITS Program," subject to a " WITS Program Service Agreement" (WITS Agreement), through which Delnor employees could track the resolution of issues concerning their individual benefits and claims. In exchange for its services, Westlake would be paid certain fees and receive certain commissions. The terms of the agreement were to begin on January 1, 2010, and terminate on December 31, 2014.[1]

[¶4] Westlake further alleged as follows. It performed all of its duties under the General Service Agreement and the WITS Agreement, as well as a " Non-Disclosure Agreement," excepting only performance prevented by Delnor's actions. The termination clause in paragraph 3.2 of the GSA stated:

" Termination by Delnor. Delnor may terminate this Agreement at any time upon sixty (60) days prior written notice if (i) WestLake[2] is unable to fulfill its responsibilities under this Agreement, or WestLake is otherwise in material breach of any provision of this Agreement, and (ii) Delnor has given WestLake written notice of such failure or breach and WestLake has not cured such deficiency during such sixty (60) day period."

Page 1169

The WITS Agreement also had a termination clause, but its integration clause stated that the termination clause was limited to the WITS Agreement only. On about March 31, 2011, Delnor breached the GSA's termination clause by one or more of the following acts: (1) notifying Westlake in a letter dated April 18, 2011, that it had replaced Westlake as its insurance broker effective March 31, 2011; (2) merging into CDH-Delnor Health System and ceasing to exist as a separate corporate entity; and (3) hiring another company to provide it brokerage services. Delnor confirmed the March breach on December 30, 2011, by discontinuing use of Westlake's brokerage services, switching to another broker, and refusing to make any further payments under the GSA. As a direct result, Westlake suffered the loss of at least 24 months of commissions on benefits as guaranteed by the GSA, leading to damages exceeding $350,000. The costs saved by Westlake in not having to perform the remainder of the agreement were nominal because it had already completed the Delnor website and because Westlake's support center and WITS program were already staffed as fixed costs of Westlake's operations. Alternatively, Westlake lost " the value of creating and providing the Delnor Website and the WITS Service," which Westlake believed exceeded $100,000.

[¶5] On April 15, 2014, Delnor filed a motion to dismiss the amended complaint under section 2-615 of the Code of Civil Procedure (Code) ( 735 ILCS 5/2-615 (West 2012)). It argued that, based on the GSA's integration clause and the fact that the parties contemporaneously executed both the GSA and the WITS Agreement, the agreements should be read together and thus Delnor properly terminated the GSA by giving Westlake more than 60 days' written notice under the WITS Agreement's termination clause, which stated:

" Term: Termination. This Agreement will commence on January 1, 2008, and continue for a five year period until December 31, 2012, unless terminated earlier in accordance with this Section 5 of the Agreement [(the same paragraph)]. Either party may terminate this Agreement by written notice if the other party materially defaults in the performance of any of its material duties or obligations hereunder, and such default is not substantially cured within sixty (60) days after written notice from the other party describing the material default. Either party may terminate this Agreement for any reason by providing sixty (60) days prior written notice to the other party." (Emphasis added.)

Delnor alternatively argued that Westlake could not recover for breach of contract because its damages claim was uncertain, speculative, and limited by the GSA's clear language.

[¶6] The trial court granted Delnor's motion to dismiss on May 21, 2014. The trial court found as follows. The GSA and the WITS Agreement were to be read together, as they were executed at the same time and by the same parties as part of the same transaction. Further, the agreements' termination clauses were not inconsistent or contradictory. Delnor was allowed to terminate the contracts without cause by giving at least 60 days' notice to Westlake. Moreover, Westlake failed to sufficiently allege its damages, as lost profits were not recoverable under the GSA's limitation-of-liability clause.

[¶7] Westlake timely appealed.

[¶8] II. ANALYSIS

[¶9] A. Standard of Review

[¶10] On appeal, Westlake argues that the trial court erred in granting Delnor's

Page 1170

motion to dismiss under section 2-615 of the Code. A section 2-615 motion to dismiss attacks the legal sufficiency of the complaint. DeHart v. DeHart, 2013 IL 114137, ¶ 18, 986 N.E.2d 85, 369 Ill.Dec. 136. In ruling on a section 2-615 motion, a court must accept as true all well-pleaded facts in the complaint as well as all reasonable inferences. Id. A cause of action should not be dismissed under section 2-615 unless no set of facts can be proved entitling the plaintiff to recover. Id. The central inquiry is whether the allegations, when construed in the light most favorable to the plaintiff, sufficiently state a cause of action upon which relief can be granted. Id. We review de novo an order granting a section 2-615 motion to dismiss. Id.

[¶11] This case also involves the interpretation of contracts. In construing a contract, the primary objective is to give effect to the parties' intent, and we will first look to the contract's language to determine that intent. Thompson v. Gordon, 241 Ill.2d 428, 441, 948 N.E.2d 39, 349 Ill.Dec. 936 (2011). We construe a contract as a whole, viewing each provision in light of other provisions. Id. If the contract's words are clear and unambiguous, they will be given their plain, ordinary, and popular meaning. Id. We review a contract's interpretation de novo. Carr v. Gateway, Inc., 241 Ill.2d 15, 20, 944 N.E.2d 327, 348 Ill.Dec. 374 (2011).

[¶12] B. Termination Clauses

[¶13] Westlake notes that, in Delnor's April 18, 2011, letter, Delnor stated that effective March 31, 2011, Delnor Community Health System officially merged with Central Du Page Health to form a new, yet-to-be-named health system. The letter stated that the new health system had " engaged Towers Watson to facilitate and serve as Broker of Record for the benefits integration process from this date forward." The letter stated that any changes to the existing program, including vendor relationships, would become effective January 1, 2012. Westlake argues that the merger with another company, under which Delnor Community ...


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