Hytel Group, Inc. v. Butler

SUPREME COURT CASES

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State: Illinois

Court: 2nd District Appellate

Docket No: 2-09-1003 Rel

Case Date: 10/20/2010

Preview:No. 2-09-1003 Filed: 10-20-10 ______________________________________________________________________________ IN THE APPELLATE COURT OF ILLINOIS SECOND DISTRICT ______________________________________________________________________________ HYTEL GROUP, INC., ) Appeal from the Circuit Court ) of Kane County. Plaintiff-Appellant and Cross-Appellee, ) ) v. ) No. 08--L--717 ) MICHELLE Z. BUTLER, ) Honorable ) Robert B. Spence, Defendant-Appellee and Cross-Appellant. ) Judge, Presiding. ______________________________________________________________________________ JUSTICE SCHOSTOK delivered the opinion of the court: The plaintiff, Hytel Group, Inc., filed suit against a former employee, the defendant, Michelle Butler, on December 15, 2008, alleging that she breached fiduciary duties and made fraudulent misrepresentations. Butler filed two motions to dismiss the complaint, one based on section 2--615 of the Code of Civil Procedure (Code) (735 ILCS 5/2--615 (West 2008)) and the other premised on the Citizen Participation Act (Act) (735 ILCS 110/1 et seq. (West 2008)), which provides a procedure for early-stage dismissals of certain claims and the opportunity to recover attorney fees expended in defending against those claims. On April 30, 2009, the trial court granted the motion based on the Act. The trial court later awarded Butler some, but not all, of the attorney fees she requested. After its motion to reconsider was denied, Hytel appealed the dismissal of its complaint, and Butler cross-appealed the trial court's refusal to award her certain of her attorney fees. We affirm as modified.

No. 2--09--1003 FACTUAL AND PROCEDURAL BACKGROUND In February 2008, Hytel hired Butler as comptroller for the company. On June 4, 2008, Hytel's lender, GBC Funding, LLC, filed a verified complaint and an emergency motion seeking the appointment of a receiver for Hytel. The complaint alleged that Hytel was in default on several of its obligations under the loan agreement, and that beginning in January 2008 GBC Funding had sent Hytel several notices of default. The complaint also alleged that, in May 2008, Hytel entered into agreements with GBC Funding under which GBC Funding would forbear from exercising its rights under the loan agreement and Hytel would, among other things, "engage and fully cooperate with a Chief Restructuring Officer" who was acceptable to GBC Funding. Jack Cochran was selected as the chief restructuring officer and was retained as of May 21, 2008. However, Hytel's president, Scott Johansen, allegedly did not cooperate with Cochran, refused to permit Cochran to control disbursements, and continued to take money from the company for his own use. The complaint alleged that Cochran therefore resigned on June 3, 2008. GBC Funding filed its suit the following day. On June 10, 2008, Hytel fired Butler. On August 3, 2008, Butler filed a wage claim with the Illinois Department of Labor, seeking the payment of approximately $2,300 in final wages. On December 15, 2008, Hytel filed a two-count complaint against Butler. Count I, titled "Breach of Fiduciary Duty," alleged that, as comptroller, Butler owed Hytel a fiduciary duty of loyalty and had a further duty to disclose "all material information to management." The complaint alleged that Butler breached these duties in that she: "had been unable" to prepare financial statements for the year that ended in December 2007, and also failed to prepare interim financial statements for any month during which she was employed; spoke with Cochran "on multiple

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No. 2--09--1003 occasions, including June 6, 2008," during which conversations Cochran told Butler of the status of GBC Funding's litigation against Hytel and assured her that she would be kept informed; and did not advise Johansen of these conversations, or advise Hytel's management that GBC Funding "had promised Butler" that she could remain as comptroller in the event that GBC Funding began exercising control over Hytel through Cochran. The complaint alleged that Butler also breached her fiduciary duty in that she deliberately did not perform her duties (presumably, this refers to not preparing financial reports) "because of the developed relationship with" GBC Funding. Immediately following this allegation, Hytel alleged that Butler "was not capable of performing the work as her resume contained misrepresentations as to her competency." Hytel sought $1 million in compensatory damages for these alleged breaches of fiduciary duty and $3 million in punitive damages, along with the forfeiture and repayment of all of the wages ever paid to Butler. In count II, the fraud claim, Hytel alleged generally that Butler's actions described in count I were done with the intent that Hytel rely on her and further that Butler represented that she was "attempting to prepare financial statements which would cure defaults and also allow the company to obtain alternate financing." The complaint alleged that these representations were knowingly false, "in that at the time she was discussing with [GBC Funding] and Jack Cochran employment that she would be given once management was replaced." The fraud count also contained general allegations that Butler's communications with Cochran, GBC Funding, and its auditors were "to the detriment" of Hytel, that Hytel "reasonably relied on her representations," and that Hytel was "damaged thereby." Like count I, count II prayed for a total of $4 million in damages, plus interest and costs.

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No. 2--09--1003 On February 17, 2009, Butler filed two motions to dismiss the complaint, each arguing a different basis for dismissal. The first motion was based upon section 2--615 of the Code (735 ILCS 5/2--615 (West 2008)) and argued that, even taking the allegations of the complaint as true, they failed to state a cause of action for breach of fiduciary duty or for fraud. Butler also argued that, although Hytel's claims were based in part upon the filing of GBC Funding's receivership action, Hytel failed to attach the relevant pleadings to its complaint. Butler then attached various pleadings and motions from that case that was mentioned by Hytel in its complaint against her (the initial complaint and emergency motion for appointment of a receiver, filed June 4, 2008; and a motion for order of replevin, filed July 24, 2008). Butler argued that these filings contradicted the allegations of Hytel's complaint, showing that she did not cause Hytel's default because Hytel was in default before she was even hired. Butler's second motion was based upon the Act, and it argued that Hytel's suit against her was in retaliation for her wage claim. In support, Butler attached her own affidavit, in which she averred that she had made repeated attempts to obtain her last paycheck but had been turned away by Johansen; that eventually she had told him that if she did not receive her pay she would have to file a wage claim with the Department of Labor; and that Johansen told her that if she did that, he would "sue [her] a--, honey." Hytel filed responses to both motions, arguing among other things that the complaint properly alleged the claims therein and that a "purely private" dispute such as Butler's wage claim was not within the scope of the Act, and attaching an affidavit from Johansen denying that he and Butler ever discussed her wage claim or that he made the alleged statement. The motions were fully briefed and on April 16, 2009, the trial court heard oral argument on the motions.

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No. 2--09--1003 On April 30, 2009, the trial court issued a written decision in which it found that, under the plain language of the Act, the Act applied to Butler's wage claim. The trial court further found that Hytel had not met the burden of proving, by clear and convincing evidence, that Butler's acts were not immunized from liability by the Act. However, the trial court went on to consider the merits of Hytel's complaint, reasoning that a determination of whether Hytel had stated a viable claim against Butler would be an independent indicium of whether its suit was brought for an improper purpose under the Act. The trial court found that Butler did not have a fiduciary relationship with Hytel but rather an employee-employer relationship, and thus the complaint failed to state a cause of action for breach of fiduciary duty. The trial court further found that, even if Butler's representations regarding her competency to prepare financial reports and perform other financial oversight tasks were false, the complaint did not sufficiently allege the remaining elements of fraud. Finally, the court found that the complaint as a whole did not allege any facts supporting the $4 million in damages requested. The court concluded by dismissing the complaint pursuant to the Act and continuing the case for status and for the filing of a motion for attorney fees. On May 14, 2009, Butler filed a motion for attorney fees, seeking $38,233.50. On the same date, Hytel filed a motion to reconsider, in which it argued that Butler's wage claim was not protected conduct under the Act and that it had adequately pled its claims for breach of fiduciary duty and fraud. In its motion to reconsider, Hytel also noted that dismissals pursuant to section 2--615 are usually without prejudice, unless it is apparent that the plaintiff can prove no set of facts that would entitle it to recover, and it asked that the court grant it 28 days in which to file an amended complaint. Hytel did not attach any amended complaint to its brief, nor did it indicate in what manner it proposed to amend its complaint. A few days later, Butler filed a motion seeking "an

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No. 2--09--1003 express order of dismissal of the complaint, with prejudice," pursuant to section 2--615, as an alternative basis for dismissal in the event that the dismissal under the Act was later invalidated on appeal. Butler also sought to recover attorney fees (beyond those imposed under the Act) pursuant to Supreme Court Rule 137 (155 Ill. 2d R. 137), on the ground that the entire action was frivolous. Each party filed written responses to the other's motions. On July 10, 2009, the trial court heard argument on the motions and then ruled. The trial court denied Hytel's motion to reconsider and Butler's motion for Rule 137 sanctions. The trial court granted Butler's motion for a ruling on her motion to dismiss pursuant to section 2--615, and ruled that section 2--615 provided an alternate ground for dismissal of the complaint (in addition to the dismissal under the Act). However, it held that the dismissal under section 2--615 would be with prejudice only as to count I (the claim for breach of fiduciary duty), while the dismissal of count II (the fraud claim) would be without prejudice. As to attorney fees, the trial court ordered Butler to refile her motion for attorney fees pursuant to the Act, distinguishing between the time spent on each of her motions to dismiss, "granting that there may be some overlap." Butler refiled her motion for fees, subtracting over $14,000 in fees incurred solely in connection with the section 2--615 motion but also including a roughly equivalent amount of fees incurred since the date of the earlier motion for fees. Hytel responded, objecting that the reduced fees still were not reasonable and that no new fees should be permitted. On August 20, 2009, the trial court disallowed $4,306 of the requested fees because they had been incurred in preparing and presenting the two motions for fees, but it granted the remainder of the fees requested ($34,998.27), finding that the attorney's time spent and hourly rates were reasonable. Hytel filed a timely notice of appeal, appealing from the trial court's orders of April 30, July 10, and August 20, 2009. Butler cross-appealed, arguing that the Act

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No. 2--09--1003 allowed her to recover the attorney fees incurred in preparing her section 2--615 motion to dismiss and the motions for fees. ANALYSIS The Appeal We begin by addressing the issues raised in Hytel's appeal. Hytel first argues that the trial court erred in holding that Butler's act of filing a wage claim with the Department of Labor was protected under the Act. As this is an issue of statutory interpretation, and additionally involves the review of a dismissal, our review is de novo. Lee v. John Deere Insurance Co., 208 Ill. 2d 38, 43 (2003). The Act became law in August 2007. Section 5 of the Act provides some background on the impetus behind the Act: "Pursuant to the fundamental philosophy of the American constitutional form of government, it is declared to be the public policy of the State of Illinois that the constitutional rights of citizens and organizations to be involved and participate freely in the process of government must be encouraged and safeguarded with great diligence. The information, reports, opinions, claims, arguments, and other expressions provided by citizens are vital to effective law enforcement, the operation of government, the making of public policy and decisions, and the continuation of representative democracy. The laws, courts, and other agencies of this State must provide the utmost protection for the free exercise of these rights of petition, speech, association, and government participation. Civil actions for money damages have been filed against citizens and organizations of this State as a result of their valid exercise of their constitutional rights to petition, speak

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No. 2--09--1003 freely, associate freely, and otherwise participate in and communicate with government. There has been a disturbing increase in lawsuits termed 'Strategic Lawsuits Against Public Participation' in government or 'SLAPPs' as they are popularly called. The threat of SLAPPs significantly chills and diminishes citizen participation in government, voluntary public service, and the exercise of these important constitutional rights. This abuse of the judicial process can and has been used as a means of intimidating, harassing, or punishing citizens and organizations for involving themselves in public affairs." 735 ILCS 110/5 (West 2008). The Act is one of many anti-SLAPP statutes enacted by states in the last several years. The archetypal SLAPP arises out of a scenario in which a group of citizens voices to government officials its objections to a project by a developer, who then sues the group of citizens for defamation, intentional interference with economic interest, or some similar cause of action, alleging extraordinarily high damages. The purpose of the lawsuit is not necessarily to prevail on the claim (the lawsuit may well be meritless) but to silence the citizens through the threat of damages and litigation expenses. E. Madiar & T. Sheahan, Illinois' New Anti-SLAPP Statute, 96 Ill. B.J. 620 (December 2008). However, the Act (like most other anti-SLAPP statutes) is written broadly enough to apply to the exercise of the constitutional rights of speech and petition outside of the archetypal scenario. See 96 Ill. B.J. at 621. The Act is designed to permit the summary dismissal of a SLAPP and the recovery of some of the attorney fees and costs incurred as a result of defending against a SLAPP. As an initial matter, the Act immunizes from liability all "[a]cts in furtherance of the constitutional rights to petition, speech, association, and participation in government," unless those acts were "not genuinely aimed

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No. 2--09--1003 at procuring favorable government action, result, or outcome." 735 ILCS 110/15 (West 2008). The Act permits anyone who is defending against a claim in a judicial proceeding to file a "motion to dispose of [the] claim *** on the grounds that the claim is based on, relates to, or is in response to any act *** of the moving party in furtherance of the moving party's rights of petition, speech, association, or to otherwise participate in government." 735 ILCS 110/15 (West 2008). Upon the filing of such a motion, discovery is stayed except in very limited circumstances, and the court must hear and decide the motion within 90 days. 735 ILCS 110/20(a), (b) (West 2008). The court must grant the motion and dismiss the claim unless the nonmovant "has produced clear and convincing evidence that the acts of the moving party are not immunized from, or are not in furtherance of acts immunized from, liability by this Act." 735 ILCS 110/20(c) (West 2008). If the motion is successful and the case is dismissed, the court must award the moving party reasonable attorney fees and costs "incurred in connection with the motion." 735 ILCS 110/25 (West 2008). Hytel argues that the legislature did not intend the Act to cover persons filing "private" claims such as Butler's wage claim, but only those persons who exercise their rights of free speech and petition in connection with an issue of public concern. Hytel points to section 5 of the Act, which outlines the Act's purpose: "It is in the public interest and it is the purpose of this Act to strike a balance between the rights of persons to file lawsuits for injury and the constitutional rights of persons to petition, speak freely, associate freely, and otherwise participate in government; to protect and encourage public participation in government to the maximum extent permitted by law; to establish an efficient process for identification and adjudication of SLAPPs; and to

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No. 2--09--1003 provide for attorney's fees and costs to prevailing movants." 735 ILCS 110/5 (West 2008).

Hytel argues that this section demonstrates that the Act is concerned only with citizen participation in governmental decisionmaking. Thus, it argues, the Act should not be read as allowing a litigant to bring a motion to dismiss under the Act in response to what it characterizes as a purely private dispute. In construing a statute, our task is to "ascertain and give effect to the legislature's intent." Lieb v. Judges' Retirement System, 314 Ill. App. 3d 87, 92 (2000). The best indicator of the legislature's intent is the plain language of the statute. Lee, 208 Ill. 2d at 43. "When the statute's language is clear, it will be given effect without resort to other aids of statutory construction." Lee, 208 Ill. 2d at 43. Here, the language of the Act does not restrict its application to those situations in which the person seeking its shelter exercised his or her rights of free speech and petition to advance some issue of public concern. To the contrary, the scope of the Act is expressed in broad terms, protecting "[a]cts in furtherance of the constitutional rights to petition, speech, association, and participation in government *** regardless of intent or purpose." (Emphasis added.) 735 ILCS 110/15 (West 2008). Moreover, section 5 of the Act specifically lists "claims" as a protected type of communication with the government. 735 ILCS 110/5 (West 2008) ("The information, reports, opinions, claims, arguments, and other expressions provided by citizens are vital to *** the operation of government *** and the continuation of representative democracy"). Finally, section 30(b) of the Act commands that the Act is to "be construed liberally to effectuate its purposes and intent fully." 735 ILCS 110/30(b) (West 2008).

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No. 2--09--1003 The right to petition for redress of grievances is guaranteed by the first amendment to the United States constitution (U.S. Const., amend. I), and it includes the right to file a claim before a judicial or administrative body. California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 510, 30 L. Ed. 2d 642, 646, 92 S. Ct. 609, 611-12 (1972) (the right of access to the courts is an aspect of the first amendment right to petition the government for redress of grievances, and one that extends to "all departments of the Government," including administrative agencies). Although the right to petition overlaps in many respects with the right of free speech also guaranteed by the first amendment, it provides additional protection for communication specifically aimed at the redress of grievances. "By separately preserving this right, the Petition Clause helps to give persons a sense of participation in their government, to better inform the government, and to provide the opportunity for a peaceful settlement of disputes, advancement of the law, and correction of social problems." C. Andrews, Motive Restrictions on Court Access: A First Amendment Challenge, 61 Ohio St. L.J. 665, 674 (2000). We have no difficulty in concluding, as the trial court did, that Butler's wage claim filed with the Department of Labor was an exercise of her right to petition for redress of grievances. See California Motor Transport, 404 U.S. at 510, 30 L. Ed. 2d at 646, 92 S. Ct. at 611-12; see also 735 ILCS 110/10 (West 2008) (defining "government" to include departments and agencies of the state). The express language of the Act protects any action taken in furtherance of a person's right to petition, regardless of the person's possibly selfish motivation1 or the fact that the action might

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There is one exception to this rule that the motivation for the action is irrelevant: if an action

that would otherwise be protected under the Act was "not genuinely aimed at procuring favorable government action, result, or outcome"--that is, the actor had no reasonable expectation of success -11-

No. 2--09--1003 involve a personal claim before an administrative agency rather than testimony before a legislative body, as in the archetypal example. 735 ILCS 110/15 (West 2008). As we have said, the language of the Act is the best evidence of the legislature's intent in enacting it. Lee, 208 Ill. 2d at 43. The Act contains no "public concern" requirement. Thus, regardless of whether Butler's wage claim raised an issue of public concern, it is within the language of the Act and was therefore intended to be protected by the Act.2 In reaching the conclusion that the Act does not require that the actor exercised his or her constitutional rights in connection with an issue of public concern, we are not holding that Butler's wage claim was a purely private dispute, as Hytel claims. Although Illinois courts have held that wage claims do not sufficiently "strike at the heart of a citizen's social rights, duties, and responsibilities" (Palmateer v. International Harvester Co., 85 Ill. 2d 124, 130 (1981)) such that the tort of retaliatory discharge should be expanded to encompass such claims (McGrath v. CCC Information Services, Inc., 314 Ill. App. 3d 431, 440 (2000)), the prompt payment of wages by employers is not a matter entirely devoid of public concern (People ex rel. Martin v. Lipkowitz, 225 Ill. App. 3d 980, 985 (1992) ("[a]n employer's denial of benefits earned by its employees burdens the State financially and socially, *** by decreasing the tax base and potentially depleting State

in its petition or speech, but wished solely to injure the other party through harassment, the imposition of costs, or delay--the action is not immunized. 735 ILCS 110/15 (West 2008). Hytel has not argued that this exception applies to Butler's wage claim.
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The lack of a "public concern" restriction in the Act is not unusual among anti-SLAPP

statutes. Of the 27 states (at last count) that have anti-SLAPP statutes, perhaps one-third restrict protection to communications involving a matter of public concern. -12-

No. 2--09--1003 assistance funds")). Indeed, we presume that such public concerns underlie the decision to authorize the Department of Labor to pursue wage claims, rather than requiring unpaid employees to pursue their employers themselves. However, we ultimately express no opinion on whether Butler's wage claim involves a matter of public concern because such public concern is not dispositive under the Act. Hytel cites California case law in support of its public concern argument, but its reliance on that case law is misplaced. California was one of the first states to enact anti-SLAPP legislation, and it has a comparatively well-developed body of case law in connection with its statute. For this reason, California law may be useful in shedding light on issues arising under anti-SLAPP statutes, including the Act. On this particular issue, however, California law is inapplicable because the language of its anti-SLAPP statute differs from that of our Act, imposing in some instances a requirement that the communication involve a public concern in order to be protected. See Cal. Civ. Proc. Code

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