Gordon v. Matthew Bender & Co., Inc.

MEMORANDUM OPINION AND ORDER

The plaintiff Joel Gordon (“Gordon”), a citizen of Illinois, has brought a twelve-count First Amended Complaint (“complaint”) against Matthew Bender & Company, Inc. (“Matthew Bender”), a New York corporation with its principal place of business in New York. The Court has subject matter jurisdiction based on diversity of citizenship and the existence of a federal question. 28 U.S.C. §§ 1331 and 1332. Now before the Court is Matthew Bender’s motion to dismiss eight of the twelve counts of the complaint. For the reasons given below, the motion is granted in part and denied in part.

Facts

The Court here will briefly review the facts common to all counts of the complaint, and will discuss the facts relevant to each particular contested count below.

Gordon began working for Matthew Bender on November 5, 1973, as one of its law book sales representatives in a territory which included parts of Chicago and the surrounding areas. The employment agreement between Gordon and Matthew Bender stated no definite period during which the parties remained obligated to each other. Gordon developed into a commendable employee who reached or exceeded the goals set for him by his employer.

On July 24, 1980, Gordon was informed by his superior at Matthew Bender that his territory would be reduced on September 1, 1980. On October 7,1980, he was told that he would be terminated if he failed to achieve in his new territory the same sales goals which had been set for the territory he worked in prior to the September 1 change. Thus though Gordon’s territory had been diminished, his sales goals remained the same. He did not meet the goals and was fired on January 8, 1981.

Counts IV and V of the complaint allege violations of the Age Discrimination in Employment Act, 29 U.S.C. §§ 621 et seq. Count VII alleges that Matthew Bender has failed to pay Gordon commissions due him. Count X alleges an action for an account stated. Matthew Bender has answered these four counts by denying the essential allegations, and has moved to dismiss the balance of the complaint.

Each of the eight counts Matthew Bender challenges here allege causes of action which arguably arise under state law. The parties have not expressly addressed the initial issue of which state’s law applies. However, Gordon and Matthew Bender each have relied heavily on Illinois decisions. Further, Gordon is a citizen of Illinois who has worked for Matthew Bender in this state. The Court assumes that Illinois law governs the state law causes of action asserted here.

The standard applied by a federal court in ruling on a motion to dismiss a complaint for failure to state a claim upon which relief may be granted, brought under Fed. R.Civ.P. 12(b)(6), is stated in Conley v. Gibson, 344 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957): “[A] complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” In ruling on Matthew Bender’s motion to dismiss, the Court applies this firm principle.

Count I

In addition to the general allegations described above, Gordon states that “Matthew Bender maliciously manipulated circumstances to make Mr. Gordon’s job impossible [and that t]his bad faith conduct of Matthew Bender is actionable ...” (Plaintiff’s Response, at 6). In Count I, Gordon claims to sue under both tort and contract theories for the breach by Matthew Bender of its duty and covenant, implied in law, to deal with Gordon in good faith. He says that in Illinois, “every contract includes a duty of good faith and fair dealing. ‘Even though *1289 the express words are absent, performance in good faith will be implied by the court.’ (Dasenbrock v. Interstate Restaurant Corp. (1972), 7 Ill.App.3d 295, 300, 287 N.E.2d 151, 154, leave to appeal denied, 55 Ill.2d 601.).” Pierce v. MacNeal Memorial Hospital Association, 46 Ill.App.3d 42, 51, 4 Ill.Dec. 615, 622, 360 N.E.2d 551, 558 (1st Dist.1977).

In this case, Gordon and Matthew Bender had an employment contract terminable at will by either party at any time (see discussion and rulings on motions to dismiss Counts II and YI, infra). The essence of Gordon’s legal argument is that Matthew Bender’s alleged breach of the obligation (implied in law) to deal in good faith creates an independent cause of action. No decision of which this Court is aware has held this to be true. Instead, the principle of performance in good faith comes into play in defining and modifying duties which grow out of specific contract terms and obligations. It is a derivative principle.

The four cases which Gordon cites (none of which deals with the “good faith” obligation in the context of an at will employment) point to this conclusion. See Pierce, supra, 4 Ill.Dec. at 622, 360 N.E.2d at 558 (defendants required by settlement agreement to obtain legal opinion; “good faith and fair dealing” principle is an aid in interpreting a specific contractual obligation); Stevenson v. ITT Harper, Inc., 51 Ill.App.3d 568, 9 Ill.Dec. 304, 310, 366 N.E.2d 561, 567 (1st Dist.1977) (plaintiff fired prior to vesting date for receiving pension benefits; Pierce principle “does not aid plaintiff because the record does not suggest that plaintiff’s termination was a bad faith effort by ITT Harper to avoid its conditional duty [under the contract] to pay pension benefits.”); Ledingham v. Blue Cross Plan for Hospital Care, Inc., 29 Ill.App.3d 339, 330 N.E.2d 540, 548 (5th Dist.1975), rev’d on other grounds, 64 Ill.2d 338, 1 Ill.Dec. 75, 356 N.E.2d 75 (1976) (in a “life and health insurer-insured relationship there is a duty upon both parties to act in good faith and deal fairly with the other party to the contract.”); 1 Hardin v. Eska Company, 127 N.W.2d 595 (Iowa 1964) (the defendant granted plaintiff the exclusive right to market items in a specific territory and then began to compete in that same territory, thereby destroying the basis of plaintiff’s bargain; “good faith” obligation prevents defendant from interfering with plaintiff’s firm contract right).

Thus none of the cases upon which Gordon relies hold that in the context of an employment at will, the obligation to deal in good faith which is implied in law is an independent basis for an action. A very recent decision of the New York Court of Appeals squarely holds that no such cause of action will lie.

In Murphy v. American Home Products Corp., No. 35 (N.Y. March 29, 1983), the plaintiff, whose employment was for no definite duration, was fired. Murphy brought suit alleging several theories for recovery, including a tort action for wrongful discharge and a breach of contract action for the employer’s breach of the obligation, implied in law, to deal with an employee in good faith. The court first found that no action for wrongful discharge of an employee at will could be stated under New York law. It then went on to address the plaintiff’s assertion

that in all employment contracts the law implies an obligation on the part of the employer to deal with his employees fairly and in good faith and that a discharge in violation of that implied obligation exposes the employer to liability for breach of contract.

Slip op. at 10. While holding that New York law recognizes that an obligation of good faith and fair dealing may be implied in a contract, the court stated:

In such instances the implied obligation is in aid and furtherance of other terms of the agreement of the parties. No obligation can be implied, however, which *1290 would be inconsistent with other terms of the contractual relationship. Thus, in the case now before us, plaintiff’s employment was at will, a relationship in which the law accords the employer an unfettered right to terminate the employment at any time. In the context of such an employment it would be incongruous to say that an inference may be drawn that the employer impliedly agreed to a provision which would be destructive of his right of termination. The parties may by express agreement limit or restrict the employer’s right of discharge, but to imply such a limitation from the existence of an unrestricted right would be internally .inconsistent.

Slip op. at 11 (emphasis added).

The decision in Murphy strongly suggests that this Court has correctly interpreted the nature of the obligation to deal in good faith, implied in all Illinois contracts. Such an obligation “is in aid and furtherance of other terms of the agreement of the parties.” Id. It does not create an independent cause of action. See also Martin v. Federal Life Ins. Co., 109 Ill.App.3d 596, 65 Ill.Dec. 143, 150, 440 N.E.2d 998, 1005 (1st Dist.1982) (the good faith and fair dealing principle “is essentially used as a construction aid in determining the parties’ intent”; court dismisses tort action based on alleged bad faith termination of employment at will).

Illinois, like New York, does not allow for an action based on a discharge from an employment at will (except in certain circumstances, discussed infra with regard to Count VI, which are not applicable here). If the implied obligation to deal in good faith created such a cause of action, it would eviscerate the at will doctrine altogether. Murphy v. American Home Products, supra. The Court believes that Murphy reflects the decision an Illinois court would reach on these facts.

Since Gordon was an at will employee, the duty to deal in good faith was appended to nothing which had independent life. Therefore no cause of action predicated only on the good faith principle may stand, and Count I is dismissed.

Count II

Gordon alleges in Count II that it was “Matthew Bender’s policy and practice ... to condition its sales representatives’ continued employment on ‘acceptable sales performance’ ” (para. 17). He refers to a letter (Ex. D, attached to the complaint) from Matthew Bender to Gordon placing him on probationary status. This letter states that if Gordon meets his goals, he will be “restored to the same status of acceptable sales performance as other Matthew Bender sales representatives.” Gordon alleges that this letter created a contract for continuous employment conditioned upon acceptable sales performance, which Matthew Bender breached by firing him even though he met or exceeded the requirement of acceptable sales performance.

Matthew Bender has moved to dismiss Count II on a variety of grounds, including: (1) this was a contract terminable at will, and therefore Gordon’s discharge is not actionable; (2) the contract lacks mutuality and therefore is not actionable; (3) the oral contract is unenforceable under the statute of frauds since it is for an indefinite period. Since the Court finds that this was a contract terminable at will, the other arguments will not be addressed.

Gordon claims that though this was a contract for no definite period, it was not a contract without terms governing its duration. Gordon’s length of employment would depend on his “satisfactory performance” or “acceptable sales performance.” Therefore, the argument goes, so long as the condition of acceptable performance was being met — and this is a fact issue which precludes the granting of a motion to dismiss, since the Court must accept the plaintiff’s allegations as true — the contract could not be terminated. See Donahue v. Rockford Showcase & Fixture Co., 87 Ill. App.2d 47, 230 N.E.2d 278 (2nd Dist.1967) (contract of employment with no definite period not an employment at will; existence of specified condition — contract ter *1291 minable by either party if shipments fall below $25,000 — makes it not a contract terminable at will, but one terminable upon the existence of a particular condition). Gordon relies heavily on Scaramuzzo v. Glenmore Distilleries, Co., 501 F.Supp. 727 (N.D.Ill.1980).

In Scaramuzzo, the fired plaintiff alleged that the defendant-employer had promised that Scaramuzzo “would be discharged only for good cause, and [that] he would retain all corporate responsibilities assigned to him as long as he competently executed such responsibilities.” Id. at 732. Defendant moved for summary judgment on grounds that this was an employment agreement terminable at will. The court denied the motion, stating that “[a] contract that fails to specify the length of the term of employment, but that does set conditions upon which termination may be based, is not terminable at will — it is terminated upon the existence of those conditions.” Id. Since there existed a fact question as to whether such conditions existed — whether the plaintiff could be discharged only for good cause, and whether he would retain his responsibilities as long as he executed them competently — summary judgment could not be granted.

Gordon argues that there existed a condition to his employment contract with Matthew Bender — “acceptable sales performance” — so that, as in Scaramuzzo, a legal claim exists which at the very least precludes a dismissal of this count of the complaint. But Gordon cannot distinguish two other cases precisely on point. In Buian v. J.L. Jacobs and Company, 428 F.2d 531 (7th Cir.1970), the court found that the following contract language did not raise any fact issue, and that a contract terminable at will existed: “It is scheduled that your assignment in Saudia Arabia will continue for a period of eighteen (18) months.... It is intended that all staff associates assigned to the Saudi Arabia projects will remain in Saudia Arabia ... throughout the duration of the specified assignments. This of course presumes satisfactory service by each associate ...” Id. at 532 (emphasis added).

In Payne v. AHFI/Netherlands, B. V., 522 F.Supp. 18 (N.D.Ill.1980), the court construed terms similar to those at issue in Buian and also found that a contract at will existed. The duration of the Payne contract was to depend on factors such as “individual performance.” Id. at 22.

Buian and Payne clearly stand for the proposition that satisfactory or acceptable performance language does not transform a contract with no definite period — one at will — into a contract which cannot be terminated by either party at any time for any reason. The Court finds that these cases control. Further, Scaramuzzo is not contrary authority. It is distinguishable on its facts — no discharge except “for good cause” (an objective criterion) has a different meaning, in this employment context, from an employment which lasts as long as performance is “acceptable” (a subjective decision).

Further, two Illinois eases hold that a “satisfactory performance” contract is terminable at will. See Kendall v. West, 196 Ill. 221, 63 N.E. 683 (1902) (employment contract lasting as long as employee performed “satisfactory services” may be terminated at any time for any reason); Vogel v. Pekoe, 157 Ill. 339, 42 N.E. 386 (1895) (employment agreement “to continue only so long as satisfactory” may be terminated at any time for any reason).

Gordon disparages Kendall and Vogel as “turn-of-the-century cases” (Plaintiff’s Response, at 15). However, it is clear that at least Kendall has continuing vitality as it formed the basis of a recent decision of the Illinois appellate court. Ray v. Georgetown Life Insurance Co., 94 Ill.App.3d 863, 50 Ill.Dec. 613, 419 N.E.2d 721 (3rd Dist.1981) (employee serving under one-year personal service contract which could be terminated on thirty days’ notice if employee “fails to perform satisfactorily in the judgment of” the employer; termination five days after execution of the employment agreement is not actionable since the employer could fire the employee at any time, citing Kendall at 50 Ill.Dec. at 614, 419 N.E.2d, 722.).

*1292 In addition, the Illinois courts have shown no disposition to abandon the at will doctrine except in carefully defined areas. See Palmateer v. International Harvester Co., 85 Ill.2d 124, 128, 52 Ill.Dec. 13, 421 N.E.2d 876 (1981) (tort of retaliatory discharge “is an exception to the general rule that an ‘at will’ employment is terminable at any time for any or no cause”; at will doctrine does not apply when employee terminated for alerting police to in-house thievery; this would violate significant public policy favoring citizen cooperation with law enforcement activities); Kelsay v. Motorola, Inc., 74 Ill.2d 172, 181, 23 Ill.Dec. 559, 384 N.E.2d 353 (1978) (court concludes “that an employer’s otherwise absolute power to terminate an employee at will should [not] prevail where that power is exercised to prevent the employee from asserting his statutory rights” to pursue a workers’ compensation claim). And see Lamb v. Briggs Mfg., a Div. of Celotex Corp., 700 F.2d 1092, 1094 (7th Cir.1983) (at will employment is the “general universe of cases” to which Palmateer and Kelsay public policy exceptions apply).

A “condition” of satisfactory or acceptable performance theoretically could be implied in every employment contract. Such an end-run around the at will doctrine would eviscerate it altogether, and the Illinois courts do not seem inclined to do so. The motion to dismiss Count II is granted.

Count III

Gordon alleges in Count III that as a participant in Matthew Bender’s pension plan he was to become fully vested after eight years of employment, but that he was fired ten months before the vesting date. He charges that Matthew Bender breached its duty of fair dealing by its bad faith termination, intended to deprive Gordon of his benefits. The defendant has moved to dismiss Count III on grounds of preemption and failure to state a cause of action. The Court grants the motion on preemption grounds.

Matthew Bender argues that the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. §§ 1001 et seq., provides that a cause of action such as that brought here has been preempted by federal law. Section 1144 of ERISA states:

(a) ... [T]he provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan [described in the statute and not otherwise exempt] ...

(c) For purposes of this section:

(1) The term “State law” includes all laws, decisions, rules, regulations, or other State action having the effect of law, of any State....

(emphasis added).

Several points are not in dispute. The parties agree that the preemption question is to be decided by applying § 1144. No one has argued that Matthew Bender’s pension plan is not an ERISA plan, that it is not “otherwise exempt,” and that the cause of action Gordon alleges in Count III is not a “State law” within the meaning of the statute.

But the parties disagree on the construction to be given to the statute, and the precedential value of the case law interpreting the preemption provisions of ERISA. At the outset the Court notes that the Supreme Court has recently held that the preemption provision must be broadly construed. Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 101 S.Ct. 1895, 68 L.Ed.2d 402 (1981) (New Jersey statute prohibiting a pension plan from offsetting workers’ compensation benefits preempted by ERI-SA). See also Bucyrus-Erie Company v. Dept. of Industry, Labor, 599 F.2d 205 (7th Cir.1979), cert. denied, 444 U.S. 1031, 100 S.Ct. 701, 62 L.Ed.2d 667 (1980) (complaint that company’s benefit plan is sex discriminatory; Wisconsin Fair Employment Act barring sex discrimination would be preempted by ERISA but for saving clause, § 1144(d), exempting from ERISA preemption state statutes which would affect other federal statutes, such as Title VII; court *1293 accepts expansive view of ERISA preemption based on broad language of statute and clear legislative history favoring preemption). Cf . Amer. Tel. & Tel. Co. v. Merry, 592 F.2d 118 (2d Cir.1979) (court finds implied congressional exception to ERISA preemption in state court judgment ordering garnishment of employee’s pension income to satisfy a divorce obligation; implied exception to ERISA preemption found in traditional federal deference to state regulation of family law matters).

Gordon argues that the cause of action alleged in Count III does not “relate to” Matthew Bender’s pension plan and therefore is not preempted. In support of his proposition, he cites two examples of employees fired prior to vesting dates who brought actions under state law to recover pension benefits allegedly due them. Moore v. Home Insurance Co., 601 F.2d 1072 (9th Cir.1979); Savodnick v. Korvette’s, Inc., 488 F.Supp. 822 (E.D.N.Y.1980). However, since the courts in Moore and Savodnick never addressed the issue of preemption, these cases are not precedent to support Gordon’s contention.

Gordon also cites Provience v. Valley Clerks Trust Fund, 509 F.Supp. 388 (E.D. Cal.1981), for the proposition that his state law cause of action is not preempted by § 1144. In Provience, the court found that the plaintiff’s state law actions brought against a pension fund for fraud, bad faith, and the intentional infliction of emotional harm were not preempted by ERISA. The court rested its decision on the theory that “where the state law has only an indirect effect on the plan and where it is one of general application which pertains to an area of important state concern, the court should find there has been no preemption” (emphasis in original). Finding the two steps met on the facts before it, the court denied the motion to dismiss. Id. at 391. No court has cited Provience for this proposition. Further, the theory underlying Provience was implicitly rejected in a carefully written opinion from the Eighth Circuit.

Dependahl v. Falstaff Brewing Corp., 653 F.2d 1208 (8th Cir.), cert. denied, 454 U.S. 968, 102 S.Ct. 512, 70 L.Ed.2d 384 (1981), looked to the Supreme Court’s Alessi decision in finding that a state law claim was preempted by ERISA. The plaintiffs in Dependahl alleged that the defendants tortiously interfered with rights guaranteed under certain ERISA plans. The Eighth Circuit concluded that Congress had unmistakably intended to “occupy the field” of employee benefit plans, and that ERISA preempts state laws which either directly or indirectly relate to a plan. The court squarely rejected the plaintiffs’ argument that their state law claim would not cause substantial damage to the overall purpose of ERISA, and therefore it should not be preempted.

This argument, however, misses the point. If Congress has already provided a remedy for the violation of the former executives’ benefit plans, then once Congress has expressed its intention to occupy the field, the state law is preempted, regardless of whether or not a conflict exists which involves a direct interference by the state law with the substantive federal legislation. Here, Congress has provided a remedy for the wrong allegedly done the former executives by [one of the defendants]. 29 U.S.C. § 1140 (1976) provides, in relevant part:

It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan, this subehapter, section 1201 of this title, or the Welfare and Pension Plans Disclosure Act, or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan, this subchapter, or the Welfare and Pension Plans Disclosure Act. * * * The provisions of section 1132 of this title shall be applicable in the enforcement of this section.

Congress has preempted state law claims of tortious interference with employee *1294 benefit plans. The district court’s judgment in favor of the former executives on this issue is reversed.

653 F.2d at 1215-16 (emphasis added).

Gordon attempts to distinguish Dependa hi by arguing that there, the cause of action “related to” the ERISA plan because the defendants were alleged to have altered the plan, while in this case Gordon is not alleging any such alteration of the plan. 2 This ignores the clear holding of Dependahl. Congress has “occupied” the pension benefits field, and has provided a remedy for Gordon: it is unlawful

for any person to discharge ... a participant or beneficiary ... for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan ...

29 U.S.C. § 1140. This is what Gordon complains of in Count III. Dependahl clearly shows that Count III is preempted by ERISA, and the motion to dismiss Count III is granted.

Count VI

Gordon attempts to avoid the at will doctrine in yet another way. He states that he received a letter from Matthew Bender on March 22, 1979, which states:

As a Sales Representative for Matthew Bender & Co. you are paid on a straight commission basis. You are expected to operate out of your home and as such, set aside part of your home as an office wherein you are to maintain supplies, books, records, etc. with which to discharge your responsibilities. A necessary part of these responsibilities includes frequent use of your telephone in your home for which you are not specifically reimbursed.

(Ex. H, attached to the complaint). Gordon established, equipped, and maintained an office, incurring expenses of $8,410. He states that he “expended this sum in reliance upon the implicit promise of continued employment by Matthew Bender” (para. 19).

In Count VI, Gordon sues for breach of an implied contract created by Matthew Bender’s promise of continued employment and Gordon’s detrimental reliance on it. He prays for relief including an award of $8,410; an injunction ordering Matthew Bender to put him back to work; an award of $70,000 for lost compensation; punitive damages; and attorneys’ fees.

Matthew Bender has moved to dismiss Count VI for failure to state a cause of action. Two things must be mentioned at the outset. First, Gordon agrees that his contract for employment stated no definite term. Second, Gordon has not alleged that any general promise of continuous employment was made to him. He claims that Ex. H embodies the promise upon which he relied to his detriment.

A contract with no definite term is, of course, terminable at will. There are three exceptions: (1) the firing contravenes public policy (Palmateer, supra); (2) the employee is terminated in violation of particular conditions stated by the parties (Donahue v. Rockford Showcase & Fixture Co., 87 Ill.App.2d 47, 230 N.E.2d 278 (2nd Dist. 1967); and see cases discussed supra relating to Count II); and (3) “Under certain *1295 circumstances, a clear and definite oral agreement for permanent employment based on sufficient consideration may be enforced” even where the agreement does not mention a definite term. Titchener v. Avery Coonley School, 39 Ill.App.3d 871, 350 N.E.2d 502, 507 (2nd Dist.1976). “Sufficient consideration” means consideration in addition to the mere performance of regular services required by the employment agreement itself. Ryan v. J.C. Penney Co., Inc., 627 F.2d 836, 837 (7th Cir.1980) (applying Indiana law).

Gordon cites Allied Equipment Co. v. Weber Engineered Products, 237 F.2d 879 (4th Cir.1956) (interpreting Virginia law), for the proposition that though consideration in addition to the mere performance of regular services is required, see Ryan v. J.C. Penney Co., Inc., supra, the fact that Gordon expended $8,410 in equipping an office in his home shows consideration in addition to the performance of regular services.

Gordon has cited Allied for a proposition which does not support the theory presented in Count VI. In Allied, the plaintiff was given an exclusive wholesale distributorship by the defendant covering 85 counties in Virginia. The agreement had no fixed duration. In four years the plaintiff spent large sums to increase the number of dealers carrying the defendant’s products from four or five in 1949 to more than 100 in 1953. Also, the plaintiff entered into a 15 year lease in 1953 at the rate of $500/month to allow it to continue to perform under its agreement with the defendant, and this was done with the defendant’s knowledge. Late in 1953, the defendant terminated the agreement.

Gordon is correct that Allied is a case where the consideration included substantial capital expenditures in addition to the performance of services. However, even if this Court were to equate the huge capital expenditures of the Allied plaintiff with Gordon’s $8,410 acquisition of telephones and office supplies to be used in his home, Allied provides no support. In that case the issue was not whether the expenditure of funds was sufficient consideration to support a permanent contract: the issue was whether the plaintiff was entitled to the continuation of the distributorship agreement for a reasonable period of time to allow it to recoup its expenditures made in alleged reliance on the defendant’s promises. In Count VI Gordon does not seek the continuation of his employment for a reasonable period of time to allow him to recoup his $8,410 investment. Instead, he wants the Court to find that his period of employment is permanent. Allied supports no such cause of action.

Further, Plaskitt v. Black Diamond Trailer Company,