Court: District Court, S.D. Illinois; September 29, 2017; Federal District Court
Oliver Wyman, Inc. has initiated legal proceedings against former employees John Eielson and Alastair Adam, claiming fraud and breach of contract related to the acquisition of their consulting business in 2014. In response, the Defendants have filed counterclaims alleging they were fraudulently induced to sell their business. The court is currently considering three motions: the Defendants' motion for summary judgment on Oliver Wyman's breach of contract claims, Oliver Wyman's motion for summary judgment on the Defendants' counterclaims, and various motions to seal certain documents related to these motions. The court has denied the Defendants' motion, granted Oliver Wyman's motion in part, and approved the sealing motions with minor exceptions.
The facts reveal that Eielson and Adam co-founded OCC Boston, a boutique consulting firm, and began exploring a sale in early 2013 due to industry trends favoring larger firms. They engaged financial advisors, who in March 2014 approached Oliver Wyman about an acquisition. Throughout negotiations, Oliver Wyman representatives indicated confidence in supporting OCC Boston's growth. Meanwhile, the Defendants sought details about Oliver Wyman's compensation system and various economic metrics. During discussions, Oliver Wyman's executives provided flow-through rate and compensation figures, which later turned out to be disappointing to the Defendants when they received more detailed information in October 2014, particularly regarding the higher compensation for non-partner employees and the deferred bonus program.
Defendants expressed concerns that Oliver Wyman was evading inquiries about the comparative profitability of CIVT and CMT, leading them to question Oliver Wyman's strength as a firm. To address these concerns, Oliver Wyman exempted Defendants and other OCC Boston Partners from a deferred bonus program for their first two years. Despite ongoing worries about profitability, Defendants proceeded with the sale of OCC Boston to Oliver Wyman for $16.5 million, formalized in an Asset Purchase Agreement on October 29, 2014, with a closing date of December 2, 2014. They signed identical four-year employment agreements at an annual salary of $425,000 and non-solicitation agreements prohibiting them from soliciting clients or influencing employee departures.
After the acquisition, Defendants' compensation issues resurfaced due to a reduction in profits stemming from the integration of OCC Boston projects into Oliver Wyman’s compensation structure. Despite Oliver Wyman's efforts to alleviate the shortfall, Defendants were dissatisfied, leading Eielson to consider the sale a mistake and express a desire to leave the firm as early as late December 2014. Communication between Eielson and Adam revealed mutual discontent with their situation. Eielson's promotion in March 2015 did not improve their outlook, as their billable hours declined, culminating in no billable work in April 2015.
In April, Eielson learned of a potential acquisition opportunity and shared his intentions with Adam, who also wished to leave. They announced their resignations on April 21, 2016, and left Oliver Wyman on May 8, 2015, to pursue this new venture. Although they actively sought the acquisition opportunity, it ultimately did not succeed, and neither has attempted to re-enter the consulting industry since departing from Oliver Wyman.
On June 16, 2015, Oliver Wyman filed a lawsuit against Defendants in New York State Supreme Court, which was subsequently removed to federal court on July 9, 2015, based on diversity jurisdiction. Oliver Wyman, a Delaware corporation with its principal office in New York, asserted multiple claims in its first amended complaint, including fraudulent inducement, fraud, breach of contract, breach of fiduciary duty, tortious interference, and violations of Massachusetts General Laws, among others. The Court granted Defendants’ motion to dismiss most claims on September 22, 2016, allowing only the breach of contract claims to proceed. In response, Defendants filed counterclaims for fraud and related allegations on March 17, 2016, to which Oliver Wyman replied on May 6, 2016. Following the conclusion of discovery on June 20, 2016, both parties filed for summary judgment by December 16, 2016, with briefs completed by February 3, 2017.
Under Rule 56(a) of the Federal Rules of Civil Procedure, summary judgment is appropriate when there are no genuine disputes regarding material facts. A fact is not genuinely disputed if all parties agree on it, or if the evidence favors the moving party such that a reasonable factfinder could not accept the nonmoving party's version. The court must view evidence in the light most favorable to the nonmoving party and may not make credibility assessments. However, to demonstrate a genuine dispute, the nonmoving party must present substantial evidence, not mere speculation or minimal evidence.
Defendants seek summary judgment on Oliver Wyman's remaining breach of contract claims, asserting that Oliver Wyman failed to prove Eielson breached the non-solicitation agreement, that the agreement is unenforceable on public policy grounds, that Defendants did not act in bad faith regarding the employment agreements, and that Oliver Wyman's failure to adhere to the notice-and-cure provision undermines its breach claim.
The Court will evaluate the arguments regarding Eielson's alleged breach of a non-solicitation agreement. Section 2 of the agreement prohibits Eielson from soliciting any Oliver Wyman employees, including his partner Adam, for twelve months post-employment, due to the confidential information gained during his tenure. Evidence presented by Oliver Wyman includes email exchanges between Eielson and Adam discussing plans to leave the firm for a new business opportunity, as well as their simultaneous resignation on April 21, 2015, to pursue this venture. Oliver Wyman contends that these communications and the timing of their departure indicate a breach of the non-solicitation clause.
Conversely, Eielson and Adam argue that Eielson had advised Adam to stay at Oliver Wyman because of the risks associated with the new opportunity, and that Adam was already dissatisfied with his position, requiring no persuasion to leave. The Court finds a material dispute regarding whether Eielson solicited Adam to leave. Additionally, the enforceability of the non-recruitment clause under New York law is questioned, as such restrictive covenants face heightened scrutiny due to their impact on an employee's ability to earn a living. New York courts typically assess the reasonableness of these covenants using a three-factor test established in BDO Seidman v. Hirshberg.
The BDO Seidman test evaluates the reasonableness of a restraint based on three criteria: it must be necessary for protecting the employer's legitimate interests, not impose undue hardship on the employee, and not be harmful to the public. New York courts recognize four legitimate interests for restrictive covenants: protection of trade secrets, confidential customer information, the employer's client base, and prevention of irreparable harm from unique employee services. Oliver Wyman asserts two interests for its non-recruitment clause: retaining unique employees and protecting its client base, supported by expert testimony highlighting the significance of client relationships in consulting.
Defendants argue that restrictive covenants exist solely to guard against competition, but the potential harm from recruiting employees, even without direct competition, is acknowledged. The departure of a respected consultant could lead to client dissatisfaction, thereby harming Oliver Wyman's valid interests. The court affirms that Oliver Wyman has legitimate interests justifying the clause's enforceability. However, the non-recruitment clause is broad, prohibiting any solicitation of employees, which could restrict even harmless discussions among colleagues.
The clause does contain language that limits its scope to solicitation for direct employment opportunities, suggesting a narrower interpretation intended to prevent poaching without discouraging casual interactions. The court opts for this interpretation to balance protecting the employer's interests while allowing for benign workplace conversations. New York law permits courts to modify restrictive covenants to ensure they align with the legitimate interests of the employer without being overly broad.
The non-recruitment clause has been determined to comply with the BDO Seidman test, as it is necessary to protect the employer's legitimate interests without imposing undue hardship on Eielson, who is a well-compensated employee. The clause's duration, extending through Eielson's employment and for one year thereafter, is deemed reasonable in line with New York court precedents. While the clause is enforceable, there are unresolved factual issues regarding whether Eielson breached it. Eielson claims he encouraged Adam to remain at Oliver Wyman, arguing that the emails presented by the Plaintiff misrepresent the situation. However, the timing of their departure and email exchanges suggest Eielson may have encouraged Adam to leave, leaving it to the jury to determine which narrative is credible.
Additionally, Oliver Wyman accuses the Defendants of breaching their employment agreements by failing to commit fully to their roles from the onset. Defendants counter that Oliver Wyman has not substantiated these claims and assert that any potential breach is excused due to the lack of prior notice regarding performance issues. The agreements require Defendants to act in good faith and dedicate substantial time to Oliver Wyman's business. Disputes exist regarding whether the Defendants fulfilled these obligations, with evidence indicating a decline in their billable hours and a suggestion they were planning to leave the firm prior to their employment. Notably, communications from December 2014 and January 2015 imply that they were contemplating an exit strategy while still responsible for significant practice groups at Oliver Wyman.
In February 2015, Eielson communicated to his wife that he no longer worked, which supports Oliver Wyman's assertion that the Defendants did not exert their "best efforts" as stipulated in their employment agreements. Defendants contend that any breaches of these agreements are excused due to Oliver Wyman's failure to adhere to the notice-and-cure provision, which requires prompt written notice of any violations and an opportunity to remedy them. It is acknowledged that Oliver Wyman did not provide such notice before the Defendants' departure in April 2015, which would preclude the opportunity for cure. Under New York law, a breach of contract claim necessitates proof of an agreement, adequate performance by the plaintiff, breach by the defendant, and damages. Defendants argue that Oliver Wyman cannot demonstrate adequate performance. However, the Court noted that strict compliance with the notice-and-cure provision is not required if providing notice would be futile. Therefore, the Court found a genuine factual dispute regarding the futility of notice, indicating that Oliver Wyman may be excused from compliance with the notice requirement. The determination of whether Oliver Wyman adequately performed under the contract is a factual issue for the jury, thus denying summary judgment on Oliver Wyman's breach of contract claim.
Additionally, Defendants have filed counterclaims for fraud, fraudulent inducement, negligent misrepresentation, deceit, and violations of Massachusetts General Laws based on alleged false statements by Oliver Wyman regarding its flow-through rate, partner-compensation figures, and the strength of its platforms. Oliver Wyman seeks summary judgment, asserting that the statements are non-actionable as they are opinions, true, or not relied upon by Defendants. The Court will evaluate these claims collectively, noting that under Massachusetts law, fraud and fraudulent inducement require demonstrating a knowingly false representation of material fact made to induce action, which the listener relied upon to their detriment. Deceit similarly requires a false representation but does not necessitate knowledge of its falsity. A representation is deemed material if a reasonable person would consider it important in deciding on the transaction. Conversely, representations based on opinion, estimate, or judgment that cannot be known at the time are not actionable as material facts.
Massachusetts courts deem it unreasonable to rely on oral statements that contradict a written contract. Defendants allege that Oliver Wyman committed fraud by representing a 30% flow-through rate as a benchmark. Oliver Wyman counters that its representatives only provided an average rate of 30% and a range of 20-40%, characterizing these as historical figures rather than predictions. Under Massachusetts law, such statements can be actionable if they are materially false. However, evidence shows that the overall flow-through rates at Oliver Wyman were consistent with the figures provided, undermining the fraud claim. Defendants also claim Oliver Wyman misrepresented the flow-through rate for a specific unit, CIVT, as "fairly similar" to the firm average, while actual rates were 24-27%. The parties agree that no specific representations about CIVT's flow-through rate were made; only that its overall compensation was similar. Therefore, the Defendants failed to demonstrate falsity in this claim. Lastly, while Defendants argue that Oliver Wyman's representatives knew the 30% rate was unrealistic, the evidence indicates that Oliver Wyman was transparent about the contingent nature of that estimate, negating implications of falsehood.
The record indicates that both parties were aware of factors affecting actual flow-through rates at OCC Boston prior to the sale, including compensation structures, benefit calculations, and deferred bonuses. The defendants recognized that flow-through rates at Oliver Wyman varied from 20% to 40%, highlighting the uncertainty in predictions. This awareness negates claims that Oliver Wyman's forward-looking "benchmark" opinion constituted actionable statements of fact, leading the Court to grant summary judgment on any representations regarding expected flow-through rates.
Regarding partner compensation, defendants contend that Oliver Wyman misrepresented average partner compensation as $1.1 million and claimed that CIVT partner compensation was similar to this average. While Oliver Wyman acknowledged a representation of "around $1 million," it argued this was an estimate, true, too indefinite to rely upon, or superseded by employment agreements. The Court disagreed, stating that the $1 million figure was an approximation of historical performance, not a forward-looking estimate. There exists a material dispute over the accuracy of this figure, as defendants provided evidence suggesting actual average compensation was lower. Additionally, data indicated that in 2013, the year before the OCC Boston acquisition, average compensation was below the stated figure, raising questions about whether the $1 million claim was misleading. The determination of whether these figures were "fairly similar" or if the statement obscured lower compensation trends is reserved for a jury.
Oliver Wyman contends that its compensation formula was under revision during the relevant time, rendering the average compensation figures cited too vague to support reliance. This argument is dismissed, as there is no evidence indicating that changes to the formula would fundamentally alter the annual compensation of Oliver Wyman partners. Unlike previous cases cited by Oliver Wyman, where ambiguities justified non-reliance, the situation here lacks similar uncertainty. Oliver Wyman continued to assert average compensation figures without indicating that changes to the formula affected the relevance of past performance data for future earnings assessments.
Additionally, Oliver Wyman argues that the Defendants cannot reasonably rely on its statements about average compensation because these were contradicted by their employment agreements, which specified a base salary of $425,000 with potential upward adjustments. Massachusetts law generally prohibits reliance on prior oral representations that are explicitly contradicted by written contracts. However, courts have clarified that this principle applies only when the alleged misrepresentation is directly opposed by the written terms. In this case, Oliver Wyman's claim that average partner compensation is approximately $1 million does not directly contradict the salary cap of $425,000 in the contracts. Therefore, while the contracts guarantee a minimum salary, Defendants could reasonably rely on the historical compensation figures when assessing Oliver Wyman's profitability and strength.
The existence of material fact disputes regarding the accuracy of Oliver Wyman's historical compensation statements and the reasonableness of the Defendants' reliance on them precludes granting summary judgment on these claims.
Defendants claim they were misled by Oliver Wyman's representations about the strength of its platform to support the OCC Boston business, which they argue were false and portrayed an overly optimistic view of the company's potential. Internal communications from Oliver Wyman reportedly indicated issues with profitability and morale in key groups, undermining the claims of a strong platform. However, the court finds that these statements are considered puffery—general, positive affirmations that are not sufficiently specific or actionable for fraud claims. Such statements, characterized as opinions rather than factual representations, do not support a legal claim of misrepresentation. Additionally, the court concludes that the vague terms used in internal communications lack measurable substance, making them non-actionable. Consequently, the court grants summary judgment regarding the claims based on these statements. Defendants also allege negligent misrepresentation, requiring them to demonstrate that Oliver Wyman provided false information in the course of business, but the court's findings on puffery apply here as well.
Pecuniary loss resulting from justifiable reliance on information and failure to exercise reasonable care in obtaining or communicating that information is established as a basis for negligent misrepresentation, as outlined in *First Marblehead Corp. v. House*. Defendants failed to provide evidence that Oliver Wyman's representations about the flow-through rate were false, as required for a negligent misrepresentation claim. Additionally, Oliver Wyman's statements regarding the strength of its platform are deemed non-actionable opinions or puffery, thus cannot support such claims. However, Oliver Wyman's statements about average partner compensation could support claims for fraud and deceit, and also remain valid for the negligent misrepresentation claim.
Defendants also assert a counterclaim under Chapter 93A of the Massachusetts General Laws, which prohibits unfair or deceptive acts in trade or commerce. To qualify as unfair or deceptive under this statute, practices must fall within established concepts of unfairness, be immoral or unethical, or cause substantial injury to others. Since Oliver Wyman's statements about average partner compensation may relate to common law unfairness, Defendants' Chapter 93A claims survive summary judgment.
Furthermore, Oliver Wyman has filed multiple motions to seal portions of various legal documents, including memoranda and declarations related to the summary judgment motions. Defendants do not oppose these sealing motions.
The Court must evaluate whether Oliver Wyman has successfully rebutted the presumption of open records in federal civil cases, as established in Lugosch v. Pyramid Co. of Onondaga. After reviewing the documents, the Court finds that Oliver Wyman has rebutted this presumption for most of its proposed redactions, which include: 1) average partner compensation, 2) payout rates and overall compensation for current and former partners, 3) internal assessments on the competitiveness of practice groups, 4) investment-return payments to its parent company, Marsh & McLennan Companies, 5) identities of clients and potential clients, 6) assessments concerning a non-party employee, and 7) internal cost structure data.
The Second Circuit outlines a three-step process for sealing documents against the presumption of open access. First, the documents must be classified as "judicial documents," relevant to judicial functions. Second, the Court assesses the weight of the presumption of access, considering the information's value in exercising Article III judicial power. Finally, the Court balances the presumption against countervailing factors, such as privacy interests and judicial efficiency. The Court is required to make specific findings before sealing documents and must ensure that any sealing is essential to protect higher values and is narrowly tailored. The burden of proof lies with the party seeking to seal documents, which must provide specific facts to justify the closure.
In Wells Fargo Bank, N.A. v. Wales LLC, the court determined that the memoranda and supporting documents are judicial documents, as they were relied upon in ruling on summary judgment motions. The presumption of openness for these documents varies in weight: it is high for the memoranda of law and Rule 56.1 statements, as they are crucial for resolving the motions; it is middling to high for supporting exhibits that substantiate party assertions regarding Oliver Wyman's alleged fraudulent actions; and low for certain exhibits Oliver Wyman wishes to seal, as they contain information collateral to the primary issues at hand.
The court further evaluated the competing considerations for proposed redactions, particularly regarding partner compensation information. Oliver Wyman contended that public disclosure of partner compensation would harm its competitive position, supported by declarations from its CFO, Matthew Cunningham. The court found merit in this argument, agreeing that such disclosure could jeopardize a litigant's competitive standing, referencing precedents that support the protection of sensitive business information from public disclosure.
Defendants' claim that competitors could exploit certain undisclosed information to harm their business justifies granting the motion to seal, at least temporarily. Concerns regarding individual partner compensation involve unique privacy issues, as the Second Circuit emphasizes that the privacy interests of innocent third parties are significant and can justify limiting access to information. This precedent supports redaction of sensitive salary details to protect non-parties’ privacy interests, which outweigh public interests in disclosure.
Oliver Wyman seeks to seal its internal analysis of competitive practice groups, arguing that public access could harm its competitive position. The firm also asserts a strong interest in keeping confidential its payments to the parent company, client identities, and cost structures, as disclosure could negatively impact competitive dynamics and client relationships. The court acknowledges the potential embarrassment to third parties from the internal employee evaluations included in the exhibits, further supporting the privacy arguments against disclosure.
Overall, Oliver Wyman has provided sufficient justification to warrant sealing most of the requested information, having demonstrated specific facts that indicate disclosure would cause significant harm. However, the court denies the request for complete redaction of Exhibit 11 to the Pappas Declaration, finding that such a measure is not justified.
Oliver Wyman's request to seal certain information in an email chain is deemed overbroad by the Court, which concludes that only specific figures regarding average partner compensation warrant sealing. The Court finds that the second and third proposed redactions do not pertain to internal assessments about practice group competitiveness and that the information is already available elsewhere in the document. As a result, the proposed redactions are considered unwarranted. The sealing request is granted in part, with exceptions for three documents requiring excessive redactions. Oliver Wyman has until October 9, 2017, to submit revised redactions for these documents. The presumption of open records is rebutted concerning the specified information, leading to a publicly redacted version of the opinion while the unredacted opinion will be filed under seal. The Court denies the defendant's motion for summary judgment on breach of contract claims but grants Oliver Wyman's motion to dismiss allegations related to misrepresentations regarding flow-through rates and platform strength, while denying dismissal regarding average partner compensation. A trial is scheduled for February 5, 2018, with additional pretrial deadlines to follow. The Clerk of Court is instructed to terminate several pending motions.
Defendants filed a memorandum of law supporting their motion (Doc. No. 82) and a reply brief (Doc. No. 111), while Oliver Wyman submitted an opposition brief (Doc. No. 95) and various sealing motions (Doc. Nos. 86, 92, 106, 116). The flow-through rate, defined as a "backward-looking metric," reflects the percentage of project revenue received as partner compensation. The Court's prior ruling on September 22, 2016, established that the employment and non-solicitation agreements contain enforceable New York choice-of-law clauses, leading to the application of New York law to Oliver Wyman's breach of contract claims. However, for tort claims, Massachusetts law applies, as both Defendants are Massachusetts citizens and the parties have implicitly consented to Massachusetts law in their briefs. Oliver Wyman's request to seal a document due to its reference to "non-public events" within the CIVT group is primarily focused on compensation figures. Although Oliver Wyman listed Exhibit I for redaction, it did not provide a clear rationale for sealing portions of this document, which pertains to internal assessments of a non-party employee.
