Houben, Susan C. v. Telular Corporation ( 2000 )

In the
United States Court of Appeals
For the Seventh Circuit
Nos. 99-2734 & 99-2892
Susan Cooper Houben,
Plaintiff-Appellee/Cross-Appellant,
v.
Telular Corporation,
Defendant-Appellant/Cross-Appellee.
Appeals from the United States District Court
for the Northern District of Illinois, Eastern
Division.
No. 97 C 1489--Ruben Castillo, Judge.
Argued May 18, 2000--Decided November 3, 2000
Before Posner, Diane P. Wood, and Williams,
Circuit Judges.
Diane P. Wood, Circuit Judge. This case
is principally about the commissions
Susan Cooper Houben claimed she earned
working as the director of corporate
development for Telular Corporation, a
manufacturer of coupling devices for
telephones and cellular radios. Houben’s
employment with Telular came to a rather
abrupt end around the same time that she
sought to take a second maternity leave,
and she later sued for damages under a
number of theories. Five claims went to
trial, and a jury awarded Houben $98,364
in damages on two of them. Both sides
have appealed, Telular from the denial of
its motions for summary judgment,
judgment as a matter of law, and a new
trial, and Houben from the grant of
summary judgment in Telular’s favor on
two of her fraud claims. We find no
reversible error in any of the district
court’s rulings and therefore affirm
across the board.
I
Houben became director of corporate
development for Telular in 1994. The next
year Telular asked her to head the
"Motorola Account Team" and focus her
energies on selling Telular products to
Motorola. As director of corporate
development, she was a salaried employee;
in her new sales position, however, her
compensation changed to a mix of salary
and commissions. In August 1995, Houben
received a memorandum explaining her new
compensation package. In addition to her
base annual salary of $75,000, she was
eligible to receive monthly sales
commissions, an annual bonus, and stock
options. The memo described monthly sales
commissions as follows:
#2 Monthly Sales Commission
Your monthly sales commission will equal
one percent of all Motorola generated
revenues attributed to the Motorola team.
Unless specified differently in writing
the Telular team will be credited with
80% of Motorola revenues with the
remaining 20% being credit [sic] to the
geographic field organization where the
equipment was installed.
The maximum amount you can earn from
monthly commissions in any one fiscal
year is $90,000. Should such a cap be
invoked and should you continue to excel
in generating revenue above and beyond
the point where the cap takes effect,
management will recognize such
performance when considering the amounts
to be granted under items #3 [annual
bonus] and #4 [stock options].
An April 19, 1995 memorandum titled
"Managing House Account" describes the
general operation of Telular’s commission
plan, including Telular’s policy on
revenue sharing: "Telular is prepared to
pay up to 3% of sales revenue whether
that revenue be generated by the
geographic field sales force or the
Corporate Development staff. . . ." The
memorandum went on to explain how the 3%
of sales revenues would be allocated
among various Telular teams. Neither the
general April 1995 memorandum nor
thespecific August 1995 memorandum to
Houben define the term "revenues."
During Houben’s tenure, Motorola was
competing for a large order from the
telecommunications agency in Hungary.
Houben and her team worked to have
Telular selected as Motorola’s supplier
for the deal. For three months of the
time leading up to Telular’s selection as
the supplier (from May 27 to August 21,
1995, to be exact) Houben was out on
maternity leave; even then, however, she
remained in touch with her team, speaking
with them over the telephone and at her
home.
The efforts of Houben and her team paid
off, as the Hungarian supply contract
eventually went to Telular. In the fall
of 1995, Telular announced the news that
Motorola had agreed to purchase $100
million in Telular products to service
the Hungarian deal. (The full $100
million in sales never materialized, but
Telular eventually shipped $8.586 million
of product to Motorola in 1996 and
$21.190 million in 1997.) On January 4,
1996, Houben informed Telular that she
was pregnant and would be taking a second
maternity leave in August of that year.
Later that month Houben was told she was
being fired; her employment was
terminated on February 2.
Houben never received commission
payments related to the sales
attributable to the Motorola deal in
Hungary. Even though the initial purchase
order did not issue until March 1996--
after Houben had been terminated and left
Telular--she nonetheless believed that
she was entitled to commission payments
on the sales that were actually made,
because she and her team were responsible
for securing the underlying deal.
Houben filed suit in March 1997. In
addition to alleging federal claims under
Title VII, the Pregnancy Discrimination
Act, and the Family and Medical Leave
Act, she alleged various state law claims
related to the breach of her employment
contract (e.g., breach of written
employment agreement, fraud, accounting,
etc.). In the end, only the three federal
claims and the state claims for breach of
employment contract and commissions under
the Illinois Wage Payment and Collection
Act (IWPCA), 820 ILCS 115/14, went to
trial. The jury returned a verdict in
favor of Telular on the federal claims
and in favor of Houben on the state law
claims, awarding her damages totaling
$98,364.
II
Before turning to the merits of the two
appeals, we must discuss an issue
concerning our appellate jurisdiction.
One of the theories under which Houben
proceeded, and for which the jury awarded
her damages, arose under the IWPCA. Under
that statute, an employer who is ordered,
either by the Illinois Department of
Labor or a court, to pay wages due an
employee and fails to do so within an
allotted time, is liable for statutory
penalties of 1% per calendar day of
delay. 820 ILCS 115/14(b). After the
district court denied Telular’s post-
trial motions, including a motion to set
aside the IWPCA award, Houben argued that
Telular owed her statutory penalties
because it had failed to pay its damages
immediately. The district court did not
resolve the question of Telular’s
liability for penalties; instead, it
imposed a supersedeas bond of $200,000 on
Telular. Telular responded with a motion
to stay judgment and for a revised
supersedeas bond, requesting a ruling
that the IWPCA penalty provision did not
apply to this case. Again the district
court declined to rule on this issue, but
it stayed any penalties from accruing.
Normally the failure to rule on an issue
would deprive this court of jurisdiction,
as we have jurisdiction only over final
judgments of the district courts, 28
U.S.C. sec. 1291, which means that all
issues in the litigation must be
resolved. Alternatively, the district
court may enter a Rule 54(b) judgment if
there has been a final resolution of one
or more (but not all) claims, allowing
the parties to appeal from those parts of
the judgment while allowing the district
court and the parties to continue working
on the remaining issues in district
court. See, e.g., Union Oil Co. v. John
Brown E&C, 121 F.3d 305, 310-12 (7th Cir.
1997); King v. Gibbs, 876 F.2d 1275, 1277
(7th Cir. 1989).
Even without a Rule 54(b) order,
however, there are narrow circumstances
in which the existence of unresolved
issues in the district court does not
defeat the finality of the judgment. The
most well known of these is the
collateral issue of attorneys’ fees,
where the failure to issue a final order
on fees does not mean that appellate
jurisdiction is lacking over the merits
appeal. Budinich v. Becton Dickinson &
Co., 486 U.S. 196, 200-01 (1988) (a
post-judgment award of attorneys’ fees is
separate from the judgment on the merits
for purposes of 28 U.S.C. sec. 1291 and
appeals can be taken separately from
each). Whether penalties under the IWPCA
should be treated the same way as fees is
the question now before us./1
There are important functional
similarities between the IWPCA penalties
and attorneys’ fees. Like fees, IWPCA
penalties "cannot be quantified until the
entry of final judgment. So, if the
pendency of such a claim prevented the
judgment from becoming final, it could
never become final." Alonzi v. Budget
Constr. Co., 55 F.3d 331, 333 (7th Cir.
1995). See Budinich, supra; Patzer v.
Board of Regents of the University of
Wisconsin System, 763 F.2d 851, 859 (7th
Cir. 1985) (same). An outstanding request
for costs similarly does not defeat
finality. See Wielgos v. Commonwealth
Edison Co., 892 F.2d 509, 511 (7th Cir.
1989). Furthermore, unlike a subject like
prejudgment interest, which must be
resolved before the judgment and
incorporated into the judgment, see
Osterneck v. Ernst & Whinney, 489 U.S.
169, 175-76 (1989), penalties under the
IWPCA do not belong in the judgment. They
relate instead to the collection proceed
ings; indeed, a right to IWPCA penalties
may never even arise--a right to such a
payment depends entirely on post-judgment
facts. We conclude that the unresolved
nature of the IWPCA question does not
defeat our appellate jurisdiction, see
generally 15B Wright, Miller & Cooper,
Federal Practice and Procedure 2d sec.
3915.6, at 347-49 (1992), and we
therefore proceed to the merits of the
appeal and cross-appeal.
III
A. Telular Appeal
The jury found that Telular breached its
contract with Houben and that it had
violated the IWPCA for failing to pay her
the commissions to which she was
entitled. The jury was instructed that it
could find for Houben on the breach of
contract claim if the contract provided
that commissions were earned as soon as a
conditional sales agreement was entered
into or if it concluded that the contract
entitled Houben to commissions if she was
the "procuring cause" of the sales to
Motorola. Telular challenges both
theories on appeal.
Telular contends that the district court
erred in not finding as a matter of law--
in either its motions for summary
judgment or judgment as a matter of law--
that under the language of the Telular
commission plan, Houben was not entitled
to a commission for her work on the
Hungary Motorola project. Telular first
argues that the court should have found
that the commission plan was unambiguous,
and that it clearly barred Houben’s
claim. It thinks this turns on the
meaning of the term "revenue," which it
then argues can only be interpreted as
"income received after product was
shipped." Alternatively, it argues that
even if the term "revenue" in the
commission plan is ambiguous, the
extrinsic evidence so overwhelmingly
supported Telular’s interpretation that
the court should have found it to be the
only one supported by the facts. Finally,
it urges that even under Houben’s
interpretation of the commission plan, no
event giving rise to a right to
commissions occurred during Houben’s
tenure at Telular, because no orders were
received during that time period, and
that this fact alone should have
precluded her claim.
We begin with the well-accepted
principle that when contract construction
is at issue, the question whether
contractual terms are ambiguous or not is
a question of law for the court to
decide. See, e.g., Independent
Construction Equipment Builders Union v.
Hyster-Yale Materials Handling, Inc., 83
F.3d 930, 932 (7th Cir. 1996). (We note
that the allocation of responsibilties
between judge and jury is a question of
federal law, see Mayer v. Gary Partners &
Co., 29 F.3d 330, 333-35 (7th Cir. 1994),
even though it is uncontested that the
substance of this contract is governed by
Illinois law.) If the contract is
ambiguous, the proper construction of the
contract’s terms--that which accords with
the intent of the parties--is a question
of fact, and we may turn to extrinsic
evidence to determine the intent of the
parties. See Rossetto v. Pabst Brewing
Co., 217 F.3d 539, 542 (7th Cir. 2000);
see also C.A.M. Affiliates, Inc. v. First
Am. Title Ins. Co., 715 N.E.2d 778, 782
(Ill. App. Ct. 1999).
Although as we noted, the parties have
argued about the meaning of the term
revenue in these instruments, we believe
that debate misses the central point
here. Telular is not really arguing about
the meaning of the term "revenue" in
itself; its point has to do with the
questions of who is entitled to a
commission and at what time is that right
earned. The written instruments offer no
guidance on either point.
The silence of the contract requires us
to turn to the extrinsic evidence, as we
did in Rossetto, supra. The evidence of
Telular’s long-standing practice
indicates that commissions were earned on
revenues actually generated from products
shipped. Houben has no quarrel with this
interpretation. She does not claim, for
example, that she is owed commissions on
the announced potential sales of $100
million on the Motorola Hungary project;
instead, she claims only commissions
based on the sales that actually went
through. Granting that Telular indeed
earned money from the Hungarian project,
the only dispute is about what events
entitled Houben to commission payments,
when those events occurred, and whether
such events had to occur during the time
of her employment in order for her to
receive a commission for those sales.
Telular contends that all of the
extrinsic evidence demonstrates that
under the commission plan, commissions
were not earned until the product was
shipped. It then concludes that because
no products for the Motorola Hungary
project were shipped during the time that
Houben was still employed with Telular,
she earned no commissions for that
project.
Even if we assume that the event
triggering a right to a commission was
the shipment of the product, there was
sufficient evidence for the jury to
conclude that the commission was
attributed to the salesperson or team
responsible for the sale at the time the
deal was struck, not at the time of
shipment. The evidence does not
demonstrate that commissions were as a
matter of practice no longer attributable
to the employee who did the legwork on
the sale simply because she left the
company, was fired, or moved to a
different job within the company between
the time the sale was closed and the
shipment of the product. One Telular
executive testified that "when the deal
is struck, you make your decision then as
to who the commissions--who is entitled
to commissions; but you physically don’t
pay the money until cash is received." In
addition, although Telular normally did
not pay a commission on a sale until it
had the money from the sale in hand,
there were exceptions to this practice.
Indicating that it regarded the right to
the commission as having accrued, even if
the money had not yet been paid out,
Telular allowed salespersons to take out
advances on expected commissions in order
to ease their cash flow. The company
treated the advance like a loan and
deducted it from the salesperson’s
eventual commissions; if the salesperson
was terminated before the commission came
through, however, the advance would be
forgiven. To similar effect (though also
susceptible to interpretation in
Telular’s favor), when Telular was
downsizing and asking people to leave,
the company paid the person "half
thecommissions he would have been
entitled to" as a type of severance
package.
In short, although the evidence in
Houben’s favor was not overwhelming, it
was enough for a reasonable jury to
conclude--as this one did--that Houben
was entitled to a commission on those
sales she helped to procure even though
she was no longer employed by Telular at
the time the products were shipped. We
therefore find that the district court
did not err in denying Telular’s motions
for summary judgment and judgment as a
matter of law, nor did it abuse its
discretion in denying Telular’s motion
for a new trial.
We would reach the same result under the
procuring cause doctrine, which entitles
a party "to commission on sales made
after termination of a contract if that
party procured the sales through its
activities prior to termination." Hammond
Group, Ltd. v. Spalding & Evenflo Cos.,
69 F.3d 845, 850 (7th Cir. 1995), quoting
Scheduling Corp. of Am. v. Massello, 503
N.E.2d 806, 809 (Ill. App. Ct. 1987).
"The purpose of this rule is to protect a
salesperson who is discharged prior to
the culmination of a sale, but after he
or she has done everything that is
necessary to effect the sale." Furth v.
Inc. Publ’g Corp., 823 F.2d 1178, 1180
(7th Cir. 1987), citing Schroeder v.
Meier-Templeton Assocs., Inc., 474 N.E.2d
744, 750 (Ill. App. Ct. 1984). Telular
argues that Houben should not have been
able to present the "procuring cause"
theory to the jury, because the procuring
cause doctrine is unavailable if the
parties have specifically contracted
about when commissions were to be paid.
See Scheduling Corp., 503 N.E.2d at 809.
As explained above, however, the parties
to this contract did not specifically
contract as to when commissions were to
be paid, given the silence of the
contract regarding the accrual of the
right to a commission and the timing of
commission payments.
On the merits, Telular contends there
was insufficient evidence for the jury to
find that Houben was the "procuring
cause" of Telular’s sales to Motorola on
the Hungary project. Telular argues that
no firm commitment from Motorola was
received during Houben’s tenure, and that
Houben was only a minor participant in
the actual sales effort, as her duties
were largely administrative.
The jury was not compelled to see things
as Telular now portrays them. Although
Motorola placed no actual purchase order
during Houben’s tenure, Telular did win
the competition to be Motorola’s supplier
on the deal and it publicized that fact
several months before Houben’s departure.
One Telular executive testified that
Telular’s "victory" in the Motorola
Hungary deal constituted a "firm order":
"You would never go public like this
[with a press release] if you didn’t
believe [the order] was firm." Telular’s
argument that Houben was a minor
participant in the sale runs up against
the fact that the company created a
special sales team to focus on the
Hungary deal and placed Houben at its
head. She may not have been the
salesperson on the ground in Hungary, but
she was responsible for overseeing the
work of the sales team and figuring out
how to position Telular to get the
contract.
Ultimately, whether Houben was the
procuring cause of the Motorola Hungary
sales was a question of fact to be
decided by the jury. Again, although the
evidence was not overwhelming, it was
sufficient for a reasonable jury to find
that Houben deserved credit--and a
commission--for the sale under Illinois’s
procuring cause doctrine.
B. Houben Cross-Appeal
On her cross-appeal, Houben argues that
the district court erred in granting
summary judgment for Telular on her fraud
and constructive fraud claims. Briefly,
the basis for those claims was as
follows, taking the facts in the light
most favorable to Houben. At the same
time as Telular announced the first
Motorola contract for the Hungary deal,
it secretly decided not to continue
employing an in-house sales force, but
instead to outsource the sales function
and to stop paying commissions to its
sales people. It also decided to downsize
its workforce more generally. In
furtherance of this plan, it terminated
its relationship with an outside
consultant that had administered its
computerized commission payment system.
In November 1995, one of Houben’s
subordinates asked her what was afoot,
because he had seen troublesome documents
on another person’s desk. When Houben
inquired, however, her supervisor told
her (up through mid-January 1996) that
"nothing will change." Houben continued
to perform her job on that assumption.
In order to establish fraud under
Illinois law, a plaintiff must prove that
(1) defendant made a false statement; (2)
of material fact; (3) which defendant
knew or believed to be false; (4) with
the intent to induce plaintiff to act;
(5) the plaintiff justifiably relied on
the statement; and (6) the plaintiff
suffered damage from such reliance.
Williams v. Chicago Osteopathic Health
Sys., 654 N.E.2d 613, 619 (Ill. App. Ct.
1995); Dresser Indus., Inc. v. Pyrrhus
AG, 936 F.2d 921, 934 (7th Cir. 1991).
"Promissory fraud" is a false
representation of intent concerning
future conduct, such as a promise to
perform a contract when there is no
actual intent to do so. Doherty v. Kahn,
682 N.E.2d 163, 176 (Ill. App. Ct. 1997).
As a general rule, promissory fraud is
not actionable in Illinois unless the
promise is part of a "scheme" to defraud.
Id.In granting Telular’s motion for summary
judgment, the district court reasoned
that Houben had failed to present any
facts demonstrating that Telular intended
to defraud her. In particular, Houben
presented no evidence that when Telular
promised her that she would receive sales
commissions the company in fact had no
intention of making those payments.
Houben argues that Telular’s decision to
restructure its sales operation and stop
paying commissions to its salespeople
provides the missing evidence of
Telular’s intent to defraud her. She also
points to company managers’ reassuring
statements that "nothing would change" as
further proof of a fraudulent scheme
designed to induce her to continue
working despite the planned changes in
sales force structure and compensation.
Like the district court, we find that
Houben’s evidence was not enough to
create a jury issue on either the
question of Telular’s fraudulent intent
or the "scheme to defraud" requirement of
promissory fraud. Evidence
regardingTelular’s decision not to pay
commissions relates to events beginning
in October 1995--after the commission
plan was released in April 1995 and after
Houben’s individual compensation memo was
drafted in August 1995. The comment that
"nothing would change" seems to be no
more than the general sort of platitude
that company managers are prone to utter
when a workforce is being restructured.
It cannot be stretched into evidence of a
fraudulent scheme. And even if the
comments could be seen as the kind of
intentional and false statements of
material fact Illinois requires, Houben’s
claim would also fail because she has
offered no evidence of any reliance on
those statements.
Houben’s constructive fraud theory was
also properly rejected. Constructive
fraud "is a breach of a legal or
equitable duty that the law declares
fraudulent because of its tendency to
deceive others, irrespective of the moral
guilt of the wrongdoer." Beaton &
Associates, Ltd. v. Joslyn Mfg. & Supply
Co., 512 N.E.2d 1286, 1291 (Ill. App. Ct.
1987). An essential element of the claim
is "a breach of duty, especially
fiduciary duty." Kohler v. Leslie
Hindman, Inc., 80 F.3d 1181, 1188 (7th
Cir. 1996). Such a breach can be shown
where there is great inequality between
the parties. See In re Estate of
Neprozatis, 378 N.E.2d 1345, 1349-50
(Ill. App. Ct. 1978). But the mere breach
of an employment contract is insufficient
to give rise to a claim of constructive
fraud. See Gross v. University of
Chicago, 302 N.E.2d 444, 453-54 (Ill.
App. Ct. 1973) (employer/employee
relationship does not create fiduciary
duty on the part of the employer). Houben
argues that constructive fraud
nonetheless applies because Telular was
clearly dominant in the relationship: the
company had "superior knowledge" and
"overmastering influence." See Mitchell
v. Norman James Constr. Co., 684 N.E.2d
872, 879 (Ill. App. Ct. 1997). At bottom,
however, Houben’s case is
indistinguishable from any other case in
which an employer allegedly breached an
employment contract. She offers no legal
authority that would justify treating
this breach (assuming that is how it
should be viewed for these purposes)
differently from any other breach. We
therefore find that the district court
correctly granted summary judgment on
this claim.
* * * *
The judgment of the district court is
AFFIRMED.
/1 For the sake of completeness, we note that the
district court’s decision not to rule on Telular-
’s argument that the IWPCA does not apply to this
case may leave open the question whether the
IWPCA was pre-empted by federal laws governing
the payment of judgments, such as 28 U.S.C. sec.
1961 and Fed. R. Civ. P. 62(d). In light of our
ruling here that this entire subject is a collat-
eral issue analogous to attorneys’ fees, we leave
consideration of that question to the district
court in future proceedings. We express no opin-
ion on the question whether Telular has properly
preserved such an argument, or if it was waived,
as that too is better addressed by the district
court in the first instance and it has not been
briefed in this court.