Enterprise Recovery Systems v. Salmeron ( 2010 )

SECOND DIVISION
MARCH 31, 2010
1-08-2936
ENTERPRISE RECOVERY SYSTEMS, INC., ) Appeal from the
) Circuit Court of
Plaintiff-Appellee, ) Cook County.
)
v. ) No. 06 L 7643
)
RHONDA SALMERON, ) Honorable
) Bill Taylor,
Defendant-Appellant. ) Judge Presiding.
PRESIDING JUSTICE CUNNINGHAM delivered the opinion of the court:
The defendant, Rhonda Salmeron (Salmeron), appeals from the entry of summary judgment
for the plaintiff, Enterprise Recovery Systems, Incorporated (Enterprise), by the circuit court of
Cook County. The circuit court awarded Enterprise $150,000 plus unspecified costs in Enterprise’s
lawsuit against Salmeron for fraud in the inducement and breach of her duty of loyalty to Enterprise,
her former employer. On appeal, Salmeron asserts that the circuit court erred when, as a sanction
for the repeated contumacious behavior of one of her lawyers, the court barred Salmeron from
presenting any evidence supporting her defense or her counterclaim. Salmeron also contends that
Enterprise’s pleadings did not establish the elements for fraud in the inducement, and did not
establish that Salmeron owed or breached a duty of loyalty to Enterprise. Finally, Salmeron contends
that the circuit court erred in failing to grant her postjudgment “emergency motion” to vacate the
judgment against her and dismiss the lawsuit, based on Salmeron’s alleged immunity under section
1–08-2936
15 of the Citizen Participation Act (735 ILCS 110/15 (West 2008)). We affirm the judgment of the
circuit court of Cook County.
BACKGROUND
Salmeron was Enterprise’s general manager and director of operations from July 12, 1998
until she was fired on July 31, 2002. Enterprise is in the business of the recovery and resolution of
delinquent student loans. Enterprise also provides third-party service on loan accounts for the United
States Department of Education (Department of Education). After Salmeron was fired by Enterprise,
she sued Enterprise and its president, Sam Tornatore, for sexual harassment. In March of 2004, the
parties settled the dispute, with Salmeron signing a general release of claims against Enterprise and
Tornatore in return for the payment to her of $300,000.
The release stated in pertinent part that in consideration of the $300,000 payment, Salmeron
forever discharged and released Enterprise from:
“all actions [and] *** claims ***relating in any way to events
occurring prior to and including the date of execution of the
Agreement *** growing out of or related in any way *** to all known
and unknown *** damages or consequences relating to [Salmeron’s]
employment [by Enterprise].” (Emphasis added.)
The money was paid to Salmeron in installments and the final payment was made on April 15, 2005.
2
1–08-2936
Less than four months after that final payment was made, Salmeron brought a qui tam1
lawsuit in federal court against Enterprise on behalf of the federal government and herself. Qui tam
lawsuits typically allege that an individual or entity has defrauded the government. They are brought
by a private individual on behalf of the government, although the government may choose to
intervene in the action and carry the litigation forward in lieu of the individual plaintiff. In that
event, the individual plaintiff is entitled to a share of any funds recovered from the wrongdoer by
the government. Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S.
765, 768-70, 146 L. Ed. 2d 836, 842-44, 120 S. Ct. 1858, 1860-62 (2000). In paragraph one of her
qui tam lawsuit, Salmeron alleged that damages and penalties assessed against Enterprise, by her
estimate, would amount to over $8 million. Salmeron’s complaint alleged that Enterprise had
submitted false statements, false claims, and false records to the Department of Education in
violation of the False Claims Amendments Act of 1986 (31 U.S.C. §§3729 through 3732 (2000)).
Salmeron’s complaint also stated that during her employment with Enterprise, she discovered some
of these allegedly wrongful acts by Enterprise employees, although she never notified anyone at
Enterprise about the wrongdoing during her employment. Salmeron subsequently added several
other corporations and one individual as defendants in the qui tam lawsuit.
The qui tam lawsuit was initially dismissed because of the contumacious and dilatory conduct
1
An abbreviation of the Latin phrase, “qui tam pro domina rege quam pro se ipso in hac
parte sequitor,” which is translated as “[one] who pursues this action on our Lord the King’s
behalf as well as his own.” Vermont Agency of Natural Resources v. United States ex rel.
Stevens, 529 U.S. 765, 768 n. 1, 146 L. Ed. 2d 836, 843 n. 1, 120 S. Ct. 1858, 1860 n.1 (2000).
3
1–08-2936
of one of Salmeron’s lawyers, who, over a period of three years, continually failed to meet discovery
deadlines and filing deadlines, and failed to appear at scheduled status conferences. The federal
district court dismissed the lawsuit because of this behavior, but then reinstated the lawsuit with the
admonishment to the lawyer in question that any further misbehavior would have severe
consequences. The same lawyer was later revealed to have leaked, to a Web site specializing in
publishing leaked documents, a confidential agreement entered into by Enterprise and two of the
other defendant corporations in the pending qui tam lawsuit. The lawyer leaked this document in
direct breach of a confidentiality agreement with the three corporations that were parties to the
agreement. The federal district court then dismissed Salmeron’s qui tam lawsuit with prejudice,
ascribing the lawyer’s behavior to Salmeron. That dismissal was upheld on appeal on the same
basis. Salmeron v. Enterprise Recovery Systems, Inc., 579 F.3d 787 (7th Cir. 2009). In its opinion,
the United States Court of Appeals for the Seventh Circuit also rejected Salmeron’s claim that the
dismissal would harm the interests of the federal government. The federal court of appeals noted
that the federal government chose not to intervene in the qui tam lawsuit, despite its statutory right
to do so. Salmeron, 579 F.2d at 797-98. It is noteworthy that the federal government regularly
intervenes in meritorious qui tam lawsuits.
In the qui tam lawsuit, Enterprise had filed a cross-claim against Salmeron for fraud in the
inducement and breach of fiduciary duty. It also asserted an affirmative defense based on the release
signed by Salmeron when she settled her sexual harassment lawsuit against Enterprise and Tornatore.
The federal district court found that this defense was not “a predicate for dismissal” of Salmeron’s
lawsuit. However, two additional events occurred. First, at the federal district court’s suggestion,
4
1–08-2936
Enterprise withdrew its cross-claim against Salmeron and instead filed this lawsuit in the circuit
court of Cook County, making the same allegations against Salmeron as previously made in the
federal case. Second, Salmeron’s qui tam lawsuit was dismissed with prejudice.2
The instant lawsuit now on appeal before us was filed by Enterprise on July 20, 2006. In the
lawsuit, Enterprise alleged that Salmeron had committed fraud in the inducement against Enterprise
and had breached her duty of loyalty to Enterprise. Enterprise alleged that Salmeron committed
fraud by signing a general release of liability while knowing that she had uncovered evidence which
purportedly showed that Enterprise had defrauded the Department of Education and which she
planned to use as one basis for filing a qui tam lawsuit against Enterprise in federal court.
Enterprise alleged that Salmeron had breached a duty of loyalty which she owed to Enterprise by
failing to disclose to Enterprise the evidence of fraud that some Enterprise employees had defrauded
the Department of Education.
Salmeron filed a five-count counterclaim against Enterprise in the circuit court lawsuit. But
during the course of pretrial activities in the lawsuit, Salmeron was sanctioned because of
contumacious behavior by her trial lawyer. This is the same lawyer who represented Salmeron in
the qui tam lawsuit, in which his misconduct also resulted in sanctions against Salmeron. The
lawyer and his law firm represented Salmeron in the circuit court lawsuit filed against her by
2
No issue of res judicata or collateral estoppel was raised by any of the parties with
respect to the effect of the federal dismissal on any claims or cross-claims in the State lawsuit.
5
1–08-2936
Enterprise and, initially, on appeal before this court.3 It was the behavior of this lawyer, as the case
progressed in the circuit court of Cook County, which prompted the trial court to bar Salmeron from
presenting any evidence in support of her defense or her counterclaim. That lawyer repeatedly failed
to answer Enterprise’s discovery requests, including requests for admission, even when ordered to
do so by the trial court. The lawyer also failed to appear at several hearings scheduled by the trial
court. As a consequence of these cumulative actions in violation of the court’s orders, and pursuant
to Supreme Court Rule 219 (134 Ill. 2d R. 219), the trial court barred Salmeron from presenting any
evidence in support of her defense or her counterclaim. Enterprise then moved for summary
judgment on both counts of its complaint. Enterprise’s motion for summary judgment was supported
by an affidavit of Enterprise’s president, Sam Tornatore. In his affidavit, Tornatore stated that in the
qui tam lawsuit, Salmeron had produced Enterprise company log reports purporting to document her
claim that certain employees of Enterprise were engaged in a pattern or practice of falsifying billing
to the Department of Education by claiming telephone calls and skip trace activities which had not
occurred. Tornatore’s affidavit stated that these log reports were the property of Enterprise and must
have been stolen by Salmeron while she was employed by Enterprise. Copies of the reports were
attached as exhibits to Enterprise’s motion for summary judgment. Tornatore also stated that by
failing to alert him to these alleged activities by Enterprise employees, Salmeron deprived Enterprise
of the opportunity to stop the alleged improper activities. Tornatore further asserted that in making
the full payment of $300,000 to Salmeron, Enterprise and he had relied on Salmeron’s
3
During the course of this appeal, we granted the motion of the lawyer and his law firm to
withdraw from representing Salmeron on appeal.
6
1–08-2936
representations in the release which she signed.
As additional support for its summary judgment motion, Enterprise appended as an exhibit
its requests for admission, which Salmeron had never answered. As Salmeron concedes on appeal,
the failure to answer requests for admission meant that all factual statements in the requests were
deemed to be admitted by Salmeron. 134 Ill. 2d R. 216; Robbins v. Allstate Insurance Co., 362 Ill.
App. 3d 540, 542-43, 841 N.E.2d 22, 25 (2005). Thus, Salmeron admitted the following facts.
Before signing the release in settlement of the sexual harassment lawsuit against Enterprise and
Tornatore, Salmeron believed, and told her lawyer, that Enterprise was submitting false claims, false
statements, and false records to the Department of Education. Before signing the release, Salmeron
gathered documentation from Enterprise to support this belief and provided her lawyer with that
documentation. When she signed the release, Salmeron did not intend to release all claims arising
from her employment with Enterprise, as the release stated she was doing. She knew that she would
be bringing a qui tam lawsuit against Enterprise. After receiving the final payment required by the
release, Salmeron contacted the Department of Education about her belief that Enterprise was
submitting false claims, false statements, and false records. During her employment with Enterprise,
Salmeron never notified Enterprise’s president, Sam Tornatore, about her belief that certain
employees of Enterprise were submitting false claims, false statements and false records to the
Department of Education.
Salmeron did not respond to Enterprise’s motion for summary judgment, despite a briefing
schedule ordered by the trial court. On May 1, 2008, the trial court granted Enterprise’s motion for
summary judgment on both counts of its complaint: fraud in the inducement and breach of
7
1–08-2936
Salmeron’s duty of loyalty to Enterprise. A prove-up hearing was held on June 2, 2008, to determine
damages, and the trial court awarded Enterprise $150,000 in damages, plus unspecified costs.
Salmeron has not included a transcript of that hearing in the record on appeal to this court. On
September 19, 2008, Salmeron filed an “emergency motion” in the trial court to dismiss the circuit
court lawsuit, asserting for the first time that the Citizen Participation Act (735 ILCS 110/15 (West
2008)) granted her immunity from liability for filing the qui tam lawsuit and also asserting that her
immunity extended to the lawsuit filed against her by Enterprise in the circuit court of Cook County.
The trial court denied that motion. On September 25, 2008, the trial court entered a final and
appealable order on the summary judgment entered in favor of Enterprise. On that date the court
also granted Enterprise’s motion to dismiss all of the remaining counts of Salmeron’s counterclaim.
On appeal to this court, Salmeron has not sought to overturn the dismissal of her counterclaim but
rather focuses on the court’s imposition of sanctions against her and its entry of summary judgment
for Enterprise. Salmeron filed a timely appeal in this court from the judgment of the circuit court
of Cook County.
ANALYSIS
We first consider whether the trial court erred in the sanctions it imposed on Salmeron for
the conduct of her trial lawyer. The imposition of sanctions is a matter left primarily to the
discretion of the trial court, and only upon a showing of clear abuse of that discretion will the trial
court’s decision be overturned on appeal. Illinois case law documents the great power placed in a
trial court’s hands to enforce its authority with respect to contumacious behavior by a party or the
party’s lawyer. Lavaja v. Carter, 153 Ill. App. 3d 317, 323-24, 505 N.E.2d 694, 698-99 (1987) (no
8
1–08-2936
abuse of discretion in striking the defendant’s pleadings and entering a default judgment against him
because he failed to comply with the trial court’s orders and discovery rules); In re Marriage of
Gluszek, 168 Ill. App. 3d 987, 992, 523 N.E.2d 126, 129 (1988) (trial court did not abuse its
discretion by striking the defendant’s pleadings and barring his testimony because the defendant
repeatedly failed to respond to interrogatories); Smith v. Black & Decker (U.S.), Inc., 272 Ill. App.
3d 451, 460-61, 650 N.E.2d 1108, 1115-16 (1995) (no abuse of discretion by the trial court in
barring the testimony of witnesses who were not disclosed in a timely fashion).
The record establishes that Salmeron’s trial lawyer repeatedly and without explanation failed
to respond to Enterprise’s requests for discovery and requests for admission, even when ordered to
respond by the trial court. The lawyer did not answer, object, or request an extension of time to
respond to any of Enterprise’s requests. The lawyer also, without explanation, failed to appear for
hearings scheduled by the trial court. As Enterprise argues, these actions by Salmeron’s trial lawyer
prevented Enterprise from preparing for and properly prosecuting its lawsuit. On appeal to this
court, Salmeron’s briefs have failed to disclose any satisfactory explanation for the behavior of her
trial lawyer. As we have noted, this same type of conduct, by this same lawyer, resulted in the
dismissal of Salmeron’s qui tam lawsuit in federal court. Given the broad discretion afforded to trial
courts, we find no abuse of discretion in the trial court’s ruling that barred Salmeron from presenting
any evidence in her defense or in support of her counterclaim.
Turning to the entry of summary judgment in favor of Enterprise, our review is de novo.
Bagent v. Blessing, 224 Ill. 2d 154, 163, 862 N.E.2d 985, 991 (2007). Upon examination of the
pleadings, depositions, and admissions, if no question of material fact exists, then we must determine
9
1–08-2936
whether the movant is entitled to judgment as a matter of law. Outboard Marine Corp. v. Liberty
Mutual Insurance Co., 154 Ill. 2d 90, 102, 607 N.E.2d 1204, 1209 (1992); Gaston v. City of
Danville, 393 Ill. App. 3d 591, 601, 912 N.E.2d 771, 779-80 (2009). In this case, the trial court
found that Enterprise had sufficiently alleged that Salmeron committed fraud in the inducement. The
elements of that tort are: a false representation of material fact, made with knowledge or belief of
that representation’s falsity, and made with the purpose of inducing another party to act or to refrain
from acting, where the other party reasonably relies upon the representation to its detriment. Phil
Dressler & Associates, Inc. v. Old Oak Brook Investment Corp., 192 Ill. App. 3d 577, 584, 548
N.E.2d 1343, 1347 (1989). Enterprise alleged that Salmeron committed fraud in the inducement by
entering into a purported release of all her claims against Enterprise and Tornatore which arose out
of her employment with Enterprise. At the same time, she knew that she had gathered information
against Enterprise in support of a planned qui tam lawsuit in federal court. She held this
information in confidence and did not mention it until after reaching a settlement agreement with
Enterprise and Tornatore. Four months after receiving the final payment pursuant to the settlement
agreement, which included a release of all future claims against Enterprise, Salmeron did indeed file
a qui tam lawsuit against Enterprise.
Salmeron’s admissions establish that she signed the release agreement with Enterprise with
no intention of honoring it. Furthermore, she had in her possession, at the time of the settlement
agreement, documentation which purportedly established fraudulent billing practices by Enterprise
employees. She signed the release agreement knowing that she would shortly bring a qui tam
lawsuit against Enterprise in federal court. Under these facts, we find that Enterprise’s complaint
10
1–08-2936
sufficiently alleged facts supporting fraud in the inducement. By signing the release, Salmeron
knowingly misrepresented that she would not make any future claims against Enterprise which were
related to her employment with Enterprise. Specifically, as we have previously noted, the agreement
stated that it covered:
“all actions [and] *** claims *** relating in any way to events
occurring prior to and including the date of execution of the
Agreement *** growing out of or related in any way *** to all known
and unknown *** damages or consequences relating to [Salmeron’s]
employment [by Enterprise].” (Emphasis added.)
This induced Enterprise to pay Salmeron $300,000 in reasonable reliance on her agreement to release
Enterprise from all future claims related to her employment with Enterprise.
We disagree with any assertion that the parties did not intend that this release cover possible
future qui tam actions by Salmeron. We also disagree that the release only applied to future actions
or claims by Salmeron arising out of her allegations of sexual harassment related to her employment.
Any other conclusion is pure speculation, which is contradicted by the broad language of the release
itself. The release lists a number of possible actions which are specifically covered by the release,
many of which relate to Salmeron’s claim of sexual harassment. But the specific language of the
release also states, at the beginning of the listing of claims for relief which are included, that the
claims are listed “without in any way limiting the generality” of the broad terms of the release. The
clear terms of the release state that it applies to “all actions [and] *** claims ***relating in any way
*** to [Salmeron’s] employment [by Enterprise].” The more natural construction of this broad
11
1–08-2936
language and the list of possible actions is that Enterprise wished to foreclose Salmeron from
bringing any future action against it arising out of her employment. Indeed, as established by
Salmeron’s admissions, she gathered the information for the qui tam complaint while she was
employed by Enterprise. For these reasons, we find that the broad language of the release applies
to Salmeron’s subsequent filing of a qui tam complaint.
In its complaint in the circuit court, Enterprise also alleged that Salmeron breached her duty
of loyalty to Enterprise by failing to disclose to Enterprise, while she was an employee in a position
of trust, the fraud that she had allegedly uncovered. Such a breach is established when a person with
a fiduciary duty to a party breaches that duty in a manner which is the proximate cause of injury to
the party to whom that duty is owed. Alpha School Bus Co. v. Wagner, 391 Ill. App. 3d 722, 747,
910 N.E.2d 1134, 1158 (2009). Enterprise alleged that Salmeron failed to disclose to Enterprise the
fraudulent activity she allegedly discovered while working for Enterprise in order to enrich herself
by later bringing a qui tam lawsuit against Enterprise, without ever having given Enterprise the
opportunity to rectify the problem. As a high-level member of Enterprise’s management team,
Salmeron owed Enterprise a duty of loyalty. Salmeron’s duty of loyalty to Enterprise was much
more than a singular duty of acting to preserve the corporate res for the benefit of the shareholders.
We note that disclosure of the alleged fraud arguably may have indirectly benefitted Enterprise from
an ethical perspective by enabling it to remove corrupt elements from its company. Salmeron also
owed Enterprise a duty not to improperly profit or seek to profit from the knowledge she acquired
while in a position of trust at the company, to the detriment of the company. Salmeron’s actions
12
1–08-2936
were in competition and conflict with Enterprise’s interests. Specifically, it was in Enterprise’s
interest to root out fraud and corruption within the company. On the other hand, it was in
Salmeron’s interest not to stop the corrupt activities until she was able to gather sufficient
information in order to bring a qui tam lawsuit against Enterprise. There is no doubt that she could
personally profit by sharing in the proceeds of a successful prosecution of that lawsuit. It was
reasonable for Enterprise to expect that Salmeron would not exploit her management position within
the company for her own personal benefit. Enterprise reasonably expected that Salmeron would not
do anything to hinder the corporation in its business operations. Alpha School Bus Co., 391 Ill. App.
3d at 736-37, 910 N.E.2d at 1149-50; Comedy Cottage, Inc. v. Berk, 145 Ill. App. 3d 355, 359-60,
495 N.E.2d 1006, 1011 (1986). We agree that Salmeron’s position of authority and trust at
Enterprise, serving as its general manager and director of operations, imposed upon her a duty of
loyalty to Enterprise. That duty included the requirement that she not seek to profit at the expense
of the corporation. Comedy Cottage, 145 Ill. App. 3d at 359-60, 495 N.E.2d at 1011. The fact that
Enterprise’s corporate by-laws do not enumerate the duties owed to Enterprise by Salmeron does not
negate the duty of loyalty which Salmeron owed to Enterprise. She clearly breached that duty when,
as her own admission establishes, she lied to Enterprise in signing the general release in order to
induce a significant settlement payment knowing at the time that she had no intention of honoring
it. Further, she failed to give Enterprise the opportunity to act against the employees allegedly
engaging in violation of the False Claims Act by failing to inform Enterprise of the fraud she had
supposedly uncovered.
Under the facts of this case, unlike the dissent, we decline to follow the federal district
13
1–08-2936
court’s nonbinding suggestion that the release agreement signed between Salmeron and Enterprise
did not apply to Salmeron’s filing of a qui tam lawsuit. The plain language of the release stated that
Salmeron would release Enterprise from all claims relating to her employment with Enterprise. As
the general manager and director of operations for Enterprise, it is evident that Salmeron’s
employment put her in a position to uncover the alleged fraud. It is also undisputed that the qui tam
lawsuit which she brought in federal court, alleging that employees of Enterprise had committed
fraud against the Department of Education, was based upon information which she learned while
working for Enterprise in her management capacity. It was Salmeron’s duty to reveal such alleged
fraud to Enterprise. She also had a duty to refrain from seeking to personally benefit by her
nondisclosure of the activity which clearly put the company at risk. However, we do not imply nor
suggest that an employee who files a qui tam action instead of informing their employer of alleged
fraud within the company commits a breach of their duty of loyalty. The unique facts of this case,
measured against applicable case law informs our analysis. Thus, our holding is based upon the
unique facts of this case. Accordingly, we hold that the trial court did not err in granting summary
judgment for Enterprise on both counts of its complaint.
In an “emergency motion” filed in the circuit court of Cook County on September 19, 2008,
after the entry of summary judgment for Enterprise, Salmeron sought dismissal of Enterprise’s
lawsuit on the basis that it was brought in violation of section 15 of the Citizen Participation Act (the
Act), which became effective in August, 2007. 735 ILCS 110/15 (West 2008). Thus the Act was
in effect for over one year before Salmeron cited it as the basis for her motion to dismiss Enterprise’s
lawsuit, after the trial court had ruled against her. Salmeron presented no valid reason for failing to
14
1–08-2936
raise this defense during the lengthy pendency of the case in the circuit court, before judgment was
entered. Ordinarily, affirmative defenses must be set forth in the answer or reply to a complaint.
735 ILCS 5/2-613 (West 2006). This requirement is to prevent a plaintiff from being taken by
surprise, and a defendant who fails to timely file an affirmative defense is deemed to have forfeited
that defense. Cordeck Sales, Inc. v. Construction Systems, Inc., 382 Ill. App. 3d 334, 376, 887
N.E.2d 474, 515 (2008); Spagat v. Schak, 130 Ill. App. 3d 130, 134, 473 N.E.2d 988, 991-92 (1985).
The Act relied upon by Salmeron was not in effect when Enterprise filed its lawsuit against Salmeron
in the circuit court in 2006. The Act became effective in 2007, a year after the instant lawsuit was
filed. Yet Salmeron did not seek to invoke the immunity of the Act which she now claims. In fact,
she waited until after judgment was entered against her and the case was concluded in the trial court
before raising the affirmative defense. Accordingly, she has forfeited that defense. Furthermore,
she had already been barred by the trial court’s order from presenting any defense to the lawsuit.
For these reasons, we hold that the trial court did not err in denying Salmeron’s post-judgment
motion to dismiss Enterprise’s lawsuit.
The judgment of the circuit court of Cook County is affirmed.
Affirmed.
HOFFMAN, J., concurs.
THEIS, J., dissenting in part.
15
1–08-2936
JUSTICE THEIS, dissenting in part:
I respectfully disagree with the majority’s opinion affirming summary judgment for
Enterprise. First, I do not believe that Enterprise produced sufficient evidence to establish as a
matter of law that Salmeron fraudulently induced it to sign the release. Additionally, Enterprise
cannot maintain its claim that Salmeron breached her fiduciary duty. Therefore, I dissent.
Summary judgment is a drastic means of disposing of litigation and should not be granted
unless the movant’s right to judgment is clear and free from doubt. Adams v. Northern Illinois Gas
Co., 211 Ill. 2d 32, 43 (2004). In determining whether summary judgment is appropriate, we must
construe the evidence strictly against the movant and liberally in favor of the nonmoving party.
Adams, 211 Ill. 2d at 43.
First, Enterprise contended that it was entitled to summary judgment on its claim for fraud
in the inducement. Fraud in the inducement of a contract is a defect which renders a contract
voidable at the election of the innocent party. Tower Investors, LLC v. 111 East Chestnut
Consultants, Inc., 371 Ill. App. 3d 1019, 1030 (2007). In order for a misrepresentation to constitute
fraud that would permit a court to set aside a contract, the party seeking to do so must establish that
there was “ ‘ “a representation in the form *** of a material fact, made for the purpose of inducing
a party to act; it must be false and known by the party making it to be false, or not actually believed
by him, on reasonable grounds, to be true; and the party to whom it is made must be ignorant of its
falsity, must reasonably believe it to be true, must act thereon to his damage, and in so acting must
rely on the truth of the statement.” ’ ” Tower Investors, 371 Ill. App. 3d at 1030-31, quoting James
v. Lifeline Mobile Medics, 341 Ill. App. 3d 451, 456 (2003), quoting Wilkinson v. Appleton, 28 Ill.
16
1–08-2936
2d 184, 187 (1963). The defendant’s knowledge of the falsity of the statement, or his deliberate
concealment with the intent to deceive, is an essential element of a common law fraud claim. Fox
v. Heimann, 375 Ill. App. 3d 35, 47 (2007). The plaintiff must prove such fraud claims by clear and
convincing evidence. Fox, 375 Ill. App. 3d at 47.
Enterprise contended that Salmeron falsely represented that she would release all claims
against Enterprise, while knowing that she intended to file the qui tam action against it. Enterprise
submitted Tornatore’s affidavit in support, in which he stated that Salmeron agreed to release
Enterprise and Tornatore from “any and all actions *** of whatsoever nature, growing out of or
related in any way to any and all known and unknown[,] foreseen and unforeseen damages or
consequences relating to her employment,” which language is taken directly from the release.
Implicit in Enterprise’s argument is the premise that the release bars the filing of a qui tam lawsuit.
To evaluate that claim, we must examine the scope of the release.
A release is a contract whereby a party relinquishes a claim to the person against whom the
claim exists. Farmers Automobile Insurance Ass’n v. Kraemer, 367 Ill. App. 3d 1071, 1073 (2006).
Accordingly, a release is subject to the rules governing the construction of contracts. Fuller Family
Holdings, LLC v. Northern Trust Co., 371 Ill. App. 3d 605, 614 (2007). Construction of a release
is a question of law. Fuller Family Holdings, 371 Ill. App. 3d at 614.
The intention of the parties controls the scope and effect of a release, and this intent is
discerned from the express language of the release as well as the circumstances of its execution.
Fuller Family Holdings, 371 Ill. App. 3d at 614; Kraemer, 367 Ill. App. 3d at 1074. The release must
spell out the intention of the parties with great particularity and must be strictly construed against
17
1–08-2936
the benefitting party. Fuller Family Holdings, 371 Ill. App. 3d at 614. Where the terms of a release
are clear and explicit, the court must enforce them as written. Fuller Family Holdings, 371 Ill. App.
3d at 614. However, the release will not be construed to include claims not within the contemplation
of the parties at the time the agreement was executed. Kraemer, 367 Ill. App. 3d at 1074.
Where a release contains words of general release in addition to recitals of specific claims,
the words of general release are limited to the particular claim to which reference is made. Carona
v. Illinois Central Gulf R.R. Co., 203 Ill. App. 3d 947, 951 (1990); Fuller Family Holdings, 371 Ill.
App. 3d at 614. That is, we must give effect to a more specific clause and qualify or reject a more
general clause as the specific clause makes necessary. American Federation of State, County &
Municipal Employees v. State Labor Relations Board, 274 Ill. App. 3d 327, 337 (1995); Kraemer,
367 Ill. App. 3d at 1073 (“general words [of release] are limited to things or persons of the same kind
or class as those which are particularly mentioned”). In any event, no language of a release, “no
matter how all-encompassing,” will prevent a reviewing court from inquiring into the circumstances
surrounding the execution of the release to ascertain whether it accurately reflected the parties’
intention. Kraemer, 367 Ill. App. 3d at 1074, citing Carlile v. Snap-on Tools, 271 Ill. App. 3d 833,
838 (1995).
In this case, the majority focuses on the following language in the release:
“The parties hereby fully and forever discharge and release each other ***
from any and all actions [and] *** claims *** relating in any way to events occurring
prior to and including the date of execution of the Agreement *** growing out of or
related in any way *** to all known and unknown *** damages or consequences
18
1–08-2936
relating to [Salmeron’s] employment [by Enterprise.]”
The majority tacitly concludes, with no analysis, that the qui tam claim was sufficiently “related to
[Salmeron’s] employment” to be barred by the release.
However, the release continues:
“[W]ithout in any way limiting the generality of the foregoing language,
Salmeron’s release shall include any claims for relief or causes of action under Title
VII of the Civil Rights Act of 1964 ***; the Family and Medical Leave Act of 1993
[FMLA]***; the Americans with Disabilities Act [ADA]***; the Rehabilitation Act
of 1973 ***; the Civil Rights Enforcement Statutes ***; the Age Discrimination in
Employment Act [ADEA]***; the Older Workers Benefit Protection Act ***; the
Fair Labor Standards Act of 1938 ***; the National Labor Relations Act
[NLRA]***; the Illinois Human Rights Act ***; and any other federal, state, or local
statute *** dealing in any respect with discrimination in employment, and in
addition, from any claims *** brought on the basis of wrongful discharge, breach of
an oral or written agreement or contract, misrepresentation, defamation, interference
with contract, intentional or negligent infliction of emotional distress ***, or sexual
harassment.
The release also states that it was intended to resolve “the issues between the parties *** concerning
Salmeron’s employment with [Enterprise] and resolving all claims and/or potential claims *** for
sexual harassment and discrimination as more fully set forth in Salmeron’s complaint filed in
Rhonda Salmeron v. Enterprise Recovery System, Inc. and Sam Tornatore, case number 03 C 3332.”
19
1–08-2936
Applying the aforementioned principles of contract construction, I do not believe that the
parties intended to include the qui tam claim within the scope of this release and, therefore, Salmeron
was not barred from filing her qui tam claim. Although the release purports to bar “any and all
actions *** of whatsoever nature, growing out of or *** relating to her employment,” such broad
language, “no matter how all-encompassing,” cannot bar claims that were not within the
contemplation of the parties at the time the release was drafted. See Kraemer, 367 Ill. App. 3d at
1074; Carlile, 271 Ill. App. 3d at 838. This broad language must be circumscribed by the specific
causes of action enumerated in the release. See American Federation of State, County & Municipal
Employees, 274 Ill. App. 3d at 337. Those causes of action – including actions under Title VII,
FMLA, ADA, ADEA, civil rights enforcement statutes, the Illinois Human Rights Act, and actions
“dealing in any respect with discrimination in employment” under the common law – concern the
type of harassment and employment discrimination claims that were the subject matter of Salmeron’s
then-pending sexual harassment lawsuit that gave rise to this release. See Carona, 203 Ill. App. 3d
at 951. The release specifically prohibits Salmeron from bringing such harassment and employment
discrimination causes of action, which is consistent with the parties’ stated intention that the release
resolved “all claims and/or potential claims *** for sexual harassment and discrimination as more
fully set forth in Rhonda Salmeron v. Enterprise Recovery System, Inc. and Sam Tornatore, case
number 03 C 3332.”
Although Salmeron apparently learned of the activities underlying her qui tam claim while
she was employed at Enterprise, that claim cannot be said to be “related to her employment” in the
20
1–08-2936
context of the release as the parties originally intended. As discussed, the release seeks waiver of
any statutory or common law harassment or employment discrimination claims Salmeron may have.
The qui tam claim derives from Enterprise’s alleged violation of the federal False Claims Act, which
imposes civil liability on those who knowingly defraud the federal government by presenting and
receiving payment for false or fraudulent claims. 31 U.S.C. §3729(a)(1) (2006); see also Rockwell
International Corp. v. United States, 549 U.S. 457, 463, 167 L. Ed. 2d 190, 200, 127 S. Ct. 1397,
1403 (2007). The nature of the qui tam claim is unrelated to employment discrimination and
harassment and cannot be construed to come within the scope of the release. See Fuller Family
Holdings, 371 Ill. App. 3d at 615.
Therefore, because Salmeron was not prohibited from bringing the qui tam claim under the
terms of the release, she could not have made the misrepresentation asserted by Enterprise in this
case. Salmeron’s admissions do indeed establish that she was gathering documentation in support
of the qui tam claim before she signed the release and that she “did not intend to release the [qui tam]
claim.” However, those admissions are not inconsistent with the language of the release, in which
the parties only intended for Salmeron to relinquish any pending and future harassment or
employment discrimination claims against Enterprise and Tornatore. Thus, Salmeron could
reasonably have believed that she could pursue her qui tam without violating the terms of the release
and did not knowingly make the claimed false statement. See Tower Investors, 371 Ill. App. 3d at
1030-31. Therefore, I believe that Enterprise has failed meet its burden to establish by clear and
convincing evidence that Salmeron fraudulently induced it to enter into the release and summary
judgment was inappropriate. See Fox, 375 Ill. App. 3d at 47; Tower Investors, 371 Ill. App. 3d at
21
1–08-2936
1030-31.
In addition, I do not believe that Enterprise is entitled to summary judgment on its breach of
fiduciary duty claim. To prevail on a breach of fiduciary duty claim, a plaintiff must establish: (1)
a fiduciary duty on the part of the defendant; (2) the defendant’s breach of that duty; (3) an injury;
and (4) proximate cause between the breach and the injury. Alpha School Bus Co. v. Wagner, 391
Ill. App. 3d 722, 747 (2009). I do not believe that Enterprise has established Salmeron’s fiduciary
duty, nor has it demonstrated that it suffered any injury.
In its complaint, Enterprise alleged that Salmeron was “an employee and/or corporate officer”
of Enterprise and as such, she owed Enterprise a fiduciary duty of loyalty. However, it has not
demonstrated that Salmeron violated any duty of loyalty as an employee or that she owed Enterprise
a fiduciary duty as an officer of the corporation.
Employees and corporate officers are held to different standards with respect to their
fiduciary duties to a corporation. Cooper Linse Hallman Capital Management, Inc. v. Hallman, 368
Ill. App. 3d 353, 357 (2006). An employee’s duty to a company generally resembles a principal-
agency relationship. Corroon & Black of Illinois, Inc. v. Magner, 145 Ill. App. 3d 151, 160 (1986).
An employee’s duty of loyalty most frequently arises in the context of the employee’s duty to not
compete with the employer while still employed by it. See, e.g., Hallman, 368 Ill. App. 3d at 357;
Wagner, 391 Ill. App. 3d at 747. In such cases, an employee may plan, form, and outfit a rival
company in the same industry as the employer while employed, so long as he does not engage in
competition until after his resignation. Hallman, 368 Ill. App. 3d at 356-57.
The present case does not involve Salmeron’s establishment of a rival company; Enterprise
22
1–08-2936
has not alleged or presented any evidence of Salmeron’s prohibited competition. Rather, Enterprise
has erroneously asserted that Salmeron’s breach of fiduciary duty arose in her capacity as an
employee. Therefore, Salmeron’s duty of loyalty as an employee cannot be the basis of her liability
here.
On the other hand, corporate officers owe a heightened fiduciary duty of loyalty to their
corporate employer not to: (1) actively exploit their positions within the corporation for their own
personal benefit; or (2) hinder the ability of the corporation to continue the business for which it was
developed. Hallman, 368 Ill. App. 3d at 358. Here, Enterprise contended that Salmeron breached
her duty by: (1) allegedly using Enterprise’s corporate assets in the form of its confidential and
proprietary documents for her own benefit by submitting them in support of her qui tam claim, in
which she would stand to collect part of the monetary judgment, if successful; and (2) failing to
inform Tornatore or any other corporate officer of her suspicion that Enterprise was submitting false
claims, which allegedly hindered Enterprise from continuing its business of performing collection
activities for the United States Department of Education. Thus, Enterprise intended to allege that
Salmeron violated her fiduciary duty as an officer of the company.
Although Enterprise seeks to impose this heightened fiduciary duty upon Salmeron, it has
failed to demonstrate that that standard applies in this case. It has long been held that the directors
and officers of a corporation are those entrusted with the management of corporate property for the
benefit of the shareholders. Price v. State, 79 Ill. App. 3d 143, 149 (1979). The burden of pleading
and proving the existence of the fiduciary relationship lies with the party seeking to establish it.
Citicorp Savings of Illinois v. Rucker, 295 Ill. App. 3d 801, 809 (1998).
23
1–08-2936
In its motion for summary judgment, Enterprise admitted that Salmeron was “technically not
an officer or director of [Enterprise]” but, rather, was a general manager. Nevertheless, it claimed
that Comedy Cottage, Inc. v. Berk, 145 Ill. App. 3d 355, 360-61 (1986), imposes the same
heightened fiduciary duty owed by directors and officers upon a general manager of a corporation.
However, Enterprise’s reliance on Comedy Cottage is entirely misplaced. The defendant in
that case was vice president of the corporation as well as the general manager. The holding in that
case concerned a corporate officer’s liability for breaching his fiduciary duty – after resigning his
corporate post but retaining a managerial position – when the offending transaction began during his
tenure as a corporate officer. Comedy Cottage, 145 Ill. App. 3d at 360. The court made clear that
the defendant learned of certain ongoing contract negotiations because of his “confidential position”
as vice president. He then “used the knowledge gained as a result of his position [as vice president]”
to enter into an agreement in violation of his fiduciary duty to the corporation. Comedy Cottage, 145
Ill. App. 3d at 360-61. In this case, there is no allegation that Salmeron ever served as a corporate
director or officer, and Comedy Cottage does not independently expand the corporate duty of loyalty
to general managers.
Notwithstanding Enterprise’s admission that Salmeron was not a corporate officer or director,
the evidence presented by Enterprise fails to establish that Salmeron’s duties came within the scope
of those performed by corporate officers. Corporate officers are elected by the board of directors and
“perform such duties in the management of the property and affairs of the corporation as may be
provided in the by-laws, or as may be determined by resolution of the board of directors.” 805 ILCS
5/8.50 (West 2006).
24
1–08-2936
Enterprise did not submit a copy of the by-laws or any other evidence that would establish
the duties of a corporate officer. It merely alleged that Salmeron’s duties included maintaining
industry-specific computer software, training employees in the use of the software, and supervising
employees responsible for collecting revenue. By Enterprise’s own description, Salmeron’s duties
were limited to management of computer software and those employees who used it. It makes no
assertion, and likewise offers no proof, that Salmeron was responsible in any way to the shareholders
for the management of the property of the corporation as a whole. Salmeron’s duties, as enumerated
by Enterprise, are insufficient to classify her as a corporate director or officer. See Price, 79 Ill. App.
3d at 149, Rucker, 295 Ill. App. 3d at 809. Thus, there is no basis upon which to impose the
fiduciary duty of loyalty owed by corporate officers and directors upon Salmeron.
Even if Enterprise could establish that Salmeron breached a fiduciary duty of loyalty of
whatever degree, it did not demonstrate that it suffered any injury resulting from the breach.
Enterprise claimed that Salmeron misappropriated its corporate assets, in the form of documents, for
her personal benefit because she would receive a portion of any judgment awarded in the qui tam
lawsuit in which the documents were used. However, Enterprise failed to allege how it was thereby
harmed. The False Claims Act claim filed by Salmeron was dismissed and Enterprise was not
ordered to pay any judgment. Nor did Enterprise seek to recover the de minimus value of the
documents themselves.
Additionally, Enterprise claimed that because Salmeron failed to inform Tornatore of the
suspected fraud, it was hindered from continuing its business of performing collection activities for
the United States Department of Education. However, it produced no evidence demonstrating that
25
1–08-2936
it lost its contract with the Department of Education, or any other client, or that it was otherwise
prevented from continuing its collection business. Therefore, Enterprise has not established that it
suffered any injury as a result of Salmeron’s alleged breach of fiduciary duty.
For all of the foregoing reasons, I would reverse the circuit court’s judgment and remand for
further proceedings.
26