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ABC Acquisition Company LLC v. Koziel

United States District Court, N.D. Illinois, Eastern Division

August 8, 2019

ABC Acquisition Company, LLC, Plaintiff/Counter-Defendant,
v.
Donald Koziel, et al., Defendant/Counter-Claimant.

          MEMORANDUM OPINION AND ORDER

          Manish S. Shah United States District Judge

         Defendant (and counter-claimant) Donald Koziel entered into an employment agreement with plaintiff (and counter-defendant) ABC Acquisition Company, LLC (the parties refer to ABC as Aetna Bearing Company, a name it uses to conduct business). That agreement automatically renewed each year unless either party sent timely written notice of their intent not to renew. Aetna issued timely notice and eventually sued Koziel, advancing claims not at issue here. Koziel has raised an affirmative defense and filed a counterclaim, both of which allege that Aetna breached the agreement (in part by violating an implied covenant of good faith and fair dealing) when it issued notice of nonrenewal and refused to pay him severance. Aetna says that the contract distinguishes between nonrenewal and termination, and there is no obligation to pay severance for a nonrenewal. It moves to strike Koziel's affirmative defense and dismiss his counterclaim.

         I. Legal Standards

         A complaint must contain a short and plain statement that plausibly suggests a right to relief. Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009); Fed.R.Civ.P. 8(a)(2). In ruling on a motion to dismiss, although a court must accept all factual allegations as true and draw all reasonable inferences in the plaintiff's favor, the court need not do the same for legal conclusions or “threadbare recitals” supported by only “conclusory statements.” Ashcroft, 556 U.S. at 678, 80-82. The plaintiff must provide “more than labels” or “a formulaic recitation of a cause of action's elements, ” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007), and the complaint must “contain either direct or inferential allegations respecting all the material elements necessary to sustain recovery under some viable legal theory.” Id. at 562. When ruling on a motion to dismiss, the court may consider the allegations in the counterclaim and documents attached thereto. Geinosky v. City of Chicago, 675 F.3d 743, 745 n.1 (7th Cir. 2012); N. Tr. Co. v. Peters, 69 F.3d 123, 128 (7th Cir. 1995).

         Motions to strike are disfavored, and affirmative defenses will only be struck when they are “insufficient on the face of the pleadings.” Heller Fin., Inc. v. Midwhey Powder Co., 883 F.2d 1286, 1294 (7th Cir. 1989). See also Fed. R. Civ. P. 12(f) (“The court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.”)

         II. Facts

         Koziel entered into an employment agreement with Aetna on April 11, 2016. [19] at 27, ¶ 5.[1] That agreement had an initial term of one year and “automatically renew[ed] for consecutive one (1) year periods unless (a) either party provide[d] the other party thirty (30) days advance written notice of nonrenewal before the end of the then-current term, or (b) sooner terminated in accordance with the terms of this Agreement.” [19-1] § 2.

         A different section of the agreement ([19-1] § 5.4) reads,

§ 5.4 Termination Without Cause or Good Reason. At any time the Company shall have the right to terminate the Employee's employment hereunder without Cause by written notice to the Employee, and the Employee shall have the right to terminate the Employee's employment hereunder for Good Reason (defined below) by written notice to the Company; provided, however, that in either case the Company shall (a) … (b) subject to the execution by the Employee of a release agreement containing standard terms in the form generally used by the Company, pay to the Employee, in monthly installments consistent with the Company's normal payroll schedule during the twelve (12) month period following termination (the end of such period, the “Severance Date”), an amount equal to twelve (12) months of the Employee's Base Salary at the time of termination.

         On March 6, 2018, Aetna told Koziel in writing that it would not renew his employment agreement. [19] at 28, ¶ 7; [19-2]. The then-current term expired around April 11, 2018. See [19] at 27, ¶ 5; [19-2]. Nonetheless, Koziel continued working for Aetna until that September. [19] at 28, ¶ 9. Koziel alleges that Aetna served the written notice in bad faith, [19] at 28, ¶ 10, abused their contractual discretion in violation of the covenant of good faith and fair dealing, id. ¶ 12, and breached the agreement by failing to pay him severance. Id. ¶ 14. His counterclaim does not allege that he executed the release agreement described in § 5.4(b), nor that all conditions precedent to the enforcement of the agreement have occurred or been performed. [31] at 11; [19] at 28-29.

         III. Analysis

         The employment agreement is governed by Illinois law. Aetna argues that Illinois law applies, [25] at 5 n.1, and Koziel does not cite any law other than Illinois's. McCoy v. Iberdrola Renewables, Inc., 760 F.3d 674, 684 (7th Cir. 2014) (parties can waive the choice of law issue by failing to assert it, so long as they “submit[] to Illinois law and rel[y] solely on it”) (quoting Lott v. Levitt, 556 F.3d 564, 568 (7th Cir. 2009)). The employment agreement is in accord. [19-1] § 10 (“[t]his Agreement shall be governed by and construed in accordance with the laws of the State of Illinois”).

         Although a “breach of the covenant of good faith and fair dealing is not an independent cause of action” outside of the insurance context, APS Sports Collectibles, Inc. v. Sports Time, Inc., 299 F.3d 624, 628 (7th Cir. 2002), breach of contract is. See, e.g., Pepper Const. Co. v. Palmolive Tower Condominiums, LLC, 2016 IL App (1st) 142754, ¶ 85. Koziel's counterclaim (titled, “Breach of Contract, ” [19] at 27) cites a breach of the explicit terms of the agreement (as well as a breach of the covenant of good faith and fair dealing). Id. at 28, ¶¶ 12, 14. See also [31] at 4 (Koziel's briefing clarifies that his claim is based on an explicit breach of the agreement).

         That said, the counterclaim fails to state a claim for breach of the explicit terms of the agreement. Those terms were not ambiguous. The agreement lasted for automatically renewing one-year terms until either party provided thirty-days' written notice of non-renewal. [19-1] § 2. Written notice was provided on March 6, 2018, [19] at 28, ¶ 7; [19-2], a little more than thirty days before the second term ended. See [19] at 28, ¶ 7; [19-2] (“Please accept this … formal written notice by ABC Acquisition Company, LLC not to renew the Employment Agreement.”). The notice made no mention of termination, said that it was a notice “not to renew” the ...


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