Court: District Court, N.D. Illinois; March 18, 2015; Federal District Court
David Zwick claims his former employer, Inteliquent, terminated him without cause, violating his employment contract (Count III), the anti-retaliation provision of the Sarbanes-Oxley Act (Count VII), and Illinois common law (Count VIII). He also asserts that Inteliquent owes him stock and monetary payments under various compensation contracts (Counts IV, V, VI) and the Illinois Wage Payment and Collection Act (IWPCA) (Count IX). Additionally, Zwick holds Inteliquent’s in-house counsel, Richard Monto and John Harrington, liable under the IWPCA (Count IX). Furthermore, he alleges breach of stock grant and options contracts due to Inteliquent’s failure to provide stock and allow exercise of options after a claimed “Change of Control” (Counts I and II). The defendants have moved to dismiss Zwick's breach of contract claims (Counts I and II) and the common law anti-retaliation claim (Count VIII), as well as the claims against Monto and Harrington under the IWPCA (Count IX). The court granted the motion regarding Count VIII but denied it concerning Counts I, II, and IX. The legal standard for a Rule 12(b)(6) motion requires a complaint to present a short and plain statement demonstrating entitlement to relief, providing fair notice to the defendant. While detailed factual allegations are not mandatory, mere labels or formulaic recitations are insufficient; the complaint must contain enough factual matter to support a plausible claim for relief. The court accepts all well-pleaded facts as true and draws reasonable inferences in favor of the non-moving party.
Zwick served as the Chief Financial Officer and Executive Vice-President of Inteliquent. On October 19, 2012, he raised concerns to the CEO about insider share sales, which led to him being directed to report these concerns to the Audit Committee Chair and outside counsel. In the second quarter of 2013, Inteliquent launched an internal investigation into financial forecasting, prompted by anonymous allegations against Zwick. DLA Piper was retained to conduct the investigation, which involved interviews with Zwick on July 16 and August 1, 2013. During these interviews, Zwick highlighted concerns regarding stock trades by Rian Wren, a director and former CEO of Inteliquent. The investigation ultimately found the allegations against Zwick to be unfounded. Despite this, Zwick was terminated on August 22, 2013. He claims that the stated reason for his termination—discussing the internal investigation with another employee and allegedly misleading investigators—is a pretext for retaliation due to his concerns about insider trading.
Zwick contends that Richard Monto and John Harrington, senior officials at Inteliquent, played significant roles in his termination, advising the board and handling discussions about his severance and compensation, which Zwick claims were not paid in violation of the Illinois Wage Payment and Collection Act (IWPCA).
Zwick's compensation was governed by an employment agreement and associated Stock Grant and Stock Option Agreements, which stipulated that 50% of his unvested stock grants and options would vest immediately upon a "Change of Control." The Employment Agreement defines "Change of Control" as a transaction where a person or group acquires assets worth 40% or more of Inteliquent’s total gross fair market value.
The Employment Agreement defines "gross fair market value" in accordance with Treasury Regulations under section 409A(a)(2)(A)(v), specifying that it excludes liabilities associated with the assets. On April 30, 2013, Inteliquent sold assets for approximately $54.5 million, which Zwick claims represents a change of control because it constitutes about 57% of an alleged fair market value of $96 million for Inteliquent at that time. Inteliquent's SEC 10-Q filing for the first quarter of 2013 reports total asset values of $150.627 million, with the sold assets valued at $50.7 million, suggesting only about 33% of assets were sold, countering Zwick's claims. Zwick contends that the asset values from the SEC filings do not invalidate his assertions. Although Zwick, who certified the SEC filing, does not dispute its accuracy, he maintains that the value of Inteliquent's assets was approximately $96 million on April 30. The discrepancy raises questions about how asset values are interpreted regarding the definition of "change of control," with Zwick noting differing economic opinions on valuation methods.
Disagreement regarding the interpretation of "net worth" has been highlighted in cases before the Seventh Circuit, particularly distinguishing between "balance sheet net worth" and "fair market net worth," which can lead to significantly different financial recoveries, as seen in Sanders v. Jackson, 209 F.3d 998 (7th Cir. 2000). The balance sheet reflects asset values as cost minus depreciation, lacking fair market value indications (Fishman v. Estate of Wirtz, 807 F.2d 520, 554 (7th Cir. 1986)). The district court evaluated the teams' market value rather than their balance sheet presentation, rendering Inteliquent's balance sheet asset values insufficient to dismiss Zwick's allegations. Inteliquent asserts that its SEC filings confirm that balance sheet values are "fair market values," but these statements are ambiguous and do not eliminate doubts about the balance sheet's relevance. Inteliquent indicates it considers market value comparisons only when certain events occur, implying that not all assets reflect fair market values. Furthermore, Inteliquent failed to provide authority to establish that its valuation process aligns with the definition of "total gross fair market value" relevant to the "change of control." Consequently, the court denied Inteliquent's motion to dismiss Counts I and II.
In Count VIII, Zwick alleges retaliatory discharge by Inteliquent for raising concerns about insider share sales, claiming violations of the Sarbanes-Oxley Act and Illinois common law. Inteliquent does not dispute the statutory protection of Zwick's actions but argues that Illinois law does not allow common law claims for retaliatory discharge when adequate statutory remedies exist. This position is supported by previous court decisions that have dismissed retaliatory discharge claims when statutory violations were also alleged.
Zwick contends that his retaliatory discharge claims should be allowed to proceed under both federal and state law due to the availability of punitive damages under Illinois common law, which are not provided by Sarbanes-Oxley. However, Illinois courts require only that a statute offer an alternative remedy for a common law remedy to be prohibited, not that they be identical. The penalties under Sarbanes-Oxley, including reinstatement, back pay, and compensatory damages, are deemed sufficient deterrents, leading to the dismissal of Zwick's Illinois common law retaliatory discharge claim.
Regarding Zwick's IWPCA claim against Monto and Harrington, Zwick acknowledges that his initial allegations are inadequate and seeks permission to amend his complaint, providing proposed new allegations. Monto and Harrington oppose this amendment, arguing it fails to address the deficiencies, as Illinois law requires personal liability for individuals who knowingly permitted Wage Act violations. They maintain Zwick's allegations show they were not decision-makers, as they merely executed decisions made by Inteliquent. However, the court interprets the allegations and the IWPCA's application broadly, noting that liability could still be imposed on individual officers if they knowingly permitted violations, regardless of whether the corporate employer made the ultimate decision. Thus, the court grants Zwick leave to amend his complaint, considering the merits of his proposed allegations.
Monto and Harrington's assertion that Zwick only claims they participated in the decision-making process overlooks multiple allegations in Zwick’s amendments that identify them as key decision-makers regarding his severance compensation. Zwick contends that both individuals were officers of Inteliquent and played a significant role in his termination and in deciding against compensating him per the Illinois Wage Payment and Collection Act (IWPCA). Specifically, Zwick claims they managed discussions about the minimal severance offered and the failure to provide his final compensation. The plausibility of these claims is supported by Zwick’s assertion that Harrington was responsible for human resources, particularly concerning the final pay of departing executives, and Monto's position as general counsel.
Monto and Harrington argue that liability under the IWPCA should only extend to Inteliquent and its Board members, claiming they lacked authority to direct the Board on the matter. However, this viewpoint misinterprets the Illinois Supreme Court’s interpretation of the IWPCA, which allows for personal liability of individuals who knowingly permit violations, not just those with direct authority. The court clarified that Section 2 of the IWPCA encompasses broader liability, while Section 13 specifically delineates who can be considered an “employer” and therefore liable. The court's intention was to establish that corporate officers or agents who knowingly allow IWPCA violations can be held personally liable, while others without such authority cannot. Case law suggests that Monto and Harrington's narrow interpretation of who can be liable under these circumstances is insufficient.
In Ziccarelli v. Phillips, the plaintiff claimed wrongful termination by his supervisor, asserting that the company president was also liable due to his necessary involvement in the supervisor's actions, which required the president's consent. The court found that the president “knowingly permitted” violations of the Illinois Wage Payment and Collection Act (IWPCA), suggesting potential personal liability despite the president's indirect role in the decision-making process. Similarly, in Corso v. Suburban Bank & Trust Co., the court granted summary judgment to individual directors who were not members of the compensation committee responsible for a bonus decision, concluding they could not be held personally liable since they did not influence the committee’s decision or participate in its meetings. The courts' analyses highlight that, under the IWPCA, direct decision-making is not necessary for liability; instead, being in a position to “knowingly permit” a violation suffices. This interpretation indicates that advising or consenting can fulfill the criteria for individual liability. Zwick has alleged that Monto and Harrington, as officers of Inteliquent, played a role in advising and affecting the Board's decision to terminate him and were directly responsible for decisions regarding his severance payments. Therefore, Zwick has sufficiently stated a claim for IWPCA violations against Monto and Harrington.
The Defendants’ motion to dismiss is partially granted and partially denied. Count VIII is dismissed with prejudice, while Counts I and II are retained. Count IX is dismissed without prejudice in its original form but retained in its amended form. Zwick is required to file a second amended complaint that incorporates allegations from document R. 23-3. The Court takes judicial notice of Inteliquent's SEC filings, affirming that such notice does not convert a motion to dismiss into a motion for summary judgment. Judicial notice may include public records like stock prices and SEC filings. Zwick contends that he should be allowed to pursue both federal and state retaliation claims under Sarbanes-Oxley, which does not preempt state law. However, the critical issue is whether Illinois law restricts common law remedies due to the existence of a statutory remedy, making Congressional intent irrelevant.
