Lawrence Hess v. Kanoski & Associat
33 I.E.R. Cas. (BNA) 687, 18 Wage & Hour Cas.2d (BNA) 1230, 668 F.3d 446 (2012)
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Rule of Law:
When a key term in an employment contract, such as when compensation is 'generated,' is ambiguous and susceptible to more than one reasonable interpretation, its meaning becomes a question of fact for a trial court to decide, making summary judgment improper.
Facts:
- Kanoski & Associates hired Lawrence Hess as an associate attorney on May 9, 2001, under an employment agreement.
- The agreement, later modified, entitled Hess to a bonus of '40% of all fee revenue generated' and required the firm to provide 30 days' notice before termination.
- On February 14, 2007, Ronald Kanoski, the firm's president, terminated Hess's employment effective immediately, without providing the required 30-day notice.
- After Hess's termination, the firm assigned his cases to another attorney, Kennith Blan, Jr.
- Over the subsequent year and a half, the firm settled numerous cases on which Hess had performed substantial work, including at least one case that settled within 30 days of his termination.
- Kanoski & Associates refused to pay Hess any bonus compensation based on the fees received from these post-termination settlements.
Procedural Posture:
- Lawrence Hess first attempted to recover fees by filing attorney's liens in Illinois state court on two settled cases.
- The Illinois trial and appellate courts rejected Hess's lien claims because he no longer had an attorney-client relationship with the parties involved.
- Hess then filed an eleven-count complaint against Kanoski & Associates, its president, and another attorney in the U.S. District Court for the Central District of Illinois, asserting diversity jurisdiction.
- The defendants filed a motion for summary judgment on all counts.
- The district court granted the defendants' motion for summary judgment, concluding Hess's claims were barred by issue preclusion and that he had admitted he was fully compensated.
- Hess (plaintiff-appellant) appealed the district court's grant of summary judgment to the U.S. Court of Appeals for the Seventh Circuit.
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Issue:
Does an ambiguous term in an employment contract regarding when fees are 'generated' create a genuine issue of material fact as to whether a terminated employee is entitled to bonuses from post-termination settlements, thereby precluding summary judgment on the employee's contract and wage claims?
Opinions:
Majority - Wood, Circuit Judge.
Yes. An ambiguous term in an employment agreement regarding when fees are 'generated' creates a genuine issue of material fact that precludes summary judgment. The district court erred by granting summary judgment because it misinterpreted Hess's deposition testimony and improperly applied issue preclusion based on prior state court lien litigation. The state court cases only addressed Hess's ability to file a lien against former clients, not his contractual rights against his former employer. The central issue is the meaning of the term 'generated' in the employment contract, which is ambiguous; it could mean when work is performed or when payment is received. Under Illinois law, where a contractual term is susceptible to more than one meaning, its interpretation is a question of fact that requires the consideration of extrinsic evidence, making summary judgment inappropriate. Furthermore, the firm's failure to provide the contractually required 30-day notice independently entitles Hess to argue for compensation he would have earned during that notice period.
Analysis:
This decision reinforces the fundamental contract law principle that summary judgment is inappropriate when a material term of a contract is ambiguous. It clarifies that the meaning of vague compensation terms like 'generated' is a question of fact for the trial court, requiring an inquiry into the parties' intent through extrinsic evidence. The ruling also narrowly construes the doctrine of issue preclusion, emphasizing that it only applies when the precise issue has been litigated and decided in a prior case. For employment law, this case serves as a strong precedent for employees seeking post-termination compensation under ambiguously worded agreements and highlights the direct financial liability employers face for breaching contractual notice provisions.
