Wilson v. Career Education Corporation
Filing
99
MEMORANDUM Opinion and Order. Signed by the Honorable Geraldine Soat Brown on 12/18/2015. (et, )
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
RILEY J. WILSON,
Plaintiff,
v.
CAREER EDUCATION
CORPORATION,
Defendant.
)
)
)
)
)
)
)
)
)
)
Case No. 11 C 5453
Magistrate Judge Geraldine Soat Brown
MEMORANDUM OPINION AND ORDER
Before the court is Defendant’s Motion for Summary Judgment. (Def.’s Mot.) [Dkt 79.]
For the reasons set forth below, Defendant’s motion is granted.
PROCEDURAL HISTORY
Plaintiff Riley Wilson filed this case as a class action against his former employer, defendant
Career Education Corporation (“CEC”), alleging that CEC had breached his employment contract
and that of other admissions representatives by depriving them of bonuses that they should have
received. (Compl. ¶ 1.) [Dkt 1.] Wilson also alleged claims under implied contract and unjust
enrichment theories of liability. (Compl. ¶¶ 39-45.) Wilson’s complaint was dismissed for failure
to state a claim. [Dkt 41.]; Wilson v. Career Educ. Corp., No. 11 C 5453, 2012 WL 1246328 at *4
(N.D. Ill. Apr. 13, 2012) (reversed and remanded on other grounds). Wilson appealed, and the
majority of the Seventh Circuit panel concluded in a per curiam decision that there was an
enforceable contract, that CEC had the unambiguous right to terminate the plan and refuse to pay
bonuses, and that an enforceable contract precluded recovery on an unjust enrichment theory. Wilson
v. Career Educ. Corp., 729 F.3d 665, 671 (7th Cir. 2013). However, a majority also concluded that
Wilson successfully pleaded a claim for violation of the implied covenant of good faith and fair
dealing, and remanded the case for further proceedings on that theory. Id.
Discovery has now been completed on the issue of liability.1 CEC moved for summary
judgment and filed a memorandum in support of its motion. (Def.’s Mem.) [Dkt 80.] Wilson filed
a response in opposition to CEC’s motion (Pl.’s Resp.) [dkt 89], and CEC replied (Def.’s Reply) [dkt
96].
JURISDICTION
Wilson invokes federal jurisdiction pursuant to 28 U.S.C. § 1332(d)(2) because he brings this
case as a class action and alleges that damages exceed five million dollars and that at least one
member of the class is diverse from CEC. (Compl. ¶ 4.) Wilson is a citizen of Minnesota; CEC is
incorporated in Delaware and has its principal place of business in Illinois. Wilson, 2012 WL
1246328 at *4. Although a class has not yet been certified, there is jurisdiction because “jurisdiction
attaches when a suit is filed as a class action, and that invariably precedes certification.”
Cunningham Charter Corp. v. Learjet, Inc., 592 F.3d 805, 806 (7th Cir. 2010) (emphasis in
original)). The parties agree that jurisdiction and venue are proper. (Pl.’s LR Resp. ¶ 1.) [Dkt 91.]2
1
The parties agreed to complete discovery regarding liability and reserve discovery
regarding class certification until disposition of CEC’s motion for summary judgment. (Order,
Feb. 19, 2014.) [Dkt 70.]
2
The facts are taken from the parties’ statements made in accordance with Local Rule
56.1: CEC’s Statement of Undisputed Material Facts (Def.’s LR Stmt) [dkt 81], and Wilson’s
Response to CEC’s Statement of Undisputed Material Facts (Pl.’s LR Resp.) [dkt 91].
Additional facts are taken from Wilson’s Statement of Additional Facts Pursuant to Rule 56.1(B)
(Pl.’s Add’l Facts) [dkt 90], as well as CEC’s Response to Wilson’s Statement of Additional
2
FACTS
The relevant facts are largely undisputed. Wilson was an admissions representative for a
wholly-owned subsidiary of CEC from October 6, 2008 until his voluntary resignation on May 18,
2011. (Pl.’s LR Resp. ¶ 2.) CEC is a for-profit entity that offers education services in a variety of
contexts. (Id. ¶¶ 3-4.) As of the end of 2010, CEC employed 2,123 admissions representatives.
(Answer to Compl. ¶ 22.) [Dkt 69.] In 2009, 2010, and 2011, CEC generated revenues of
approximately $1.83 billion, $2.12 billion, and $1.88 billion, respectively, against operating
expenses of approximately $1.61 billion, $1.88 billion, and $1.85 billion, respectively. (Pl.’s LR
Resp. ¶ 4.)
Starting in 2007, CEC implemented a bonus incentive program for admissions
representatives (the “ARSC Plan” or the “Plan”) that complied with the Higher Education Act
(“HEA”). (Id. ¶ 12.) Wilson was informed before he was hired that there was an incentive
compensation plan, and he learned more about the details of the Plan after he was hired. (Def.’s
Add’l Facts Resp. ¶¶ 1-2.)
The relevant terms of the Plan were set out in the Seventh Circuit’s opinion. See Wilson, 729
F. 3d at 669-70. Several conditions had to be met for an admissions representative to receive
supplemental compensation under the Plan: (1) the admissions representative had to enroll students
in excess of a specified number; (2) the students had to successfully complete their academic
program or one year of their program; (3) the student completion requirements had to occur during
a specified period of time; and (4) the admissions representative had to be an active employee when
the requirements were met. (Pl.’s LR Resp. ¶ 13.) The ARSC Plan also provided:
Facts Pursuant to Rule 56.1(B) (Def.’s Add’l Facts Resp.) [dkt 97].
3
If CEC determines at any time that this Plan should be modified due to the
requirements or standards of the U.S. Department of Education or any state agency
or accrediting commission, then CEC may be obligated to modify this Plan. CEC
reserves the right to terminate or amend the terms of this Plan at any time, for
regulatory compliance purposes or for any other reason that CEC determines, in its
sole discretion. Any interpretation of any provision of this Plan or of any regulatory
authority may be made by CEC in its sole discretion.
(Def.’s LR Stmt., Ex. 18 at 3.) The version of the Plan relevant to this case was “effective as of
January 1, 2010 for the 2010 calendar year only.” (Pl.’s LR Resp. ¶ 12; Def.’s LR Stmt., Ex. 18 at
1.) The parties agree, however, that it was possible that payments under the 2010 ARSC Plan would
be made in 2011 to admissions representatives who were still employed, for students who graduated
in 2011. (Def.’s Add’l Facts Resp. ¶ 9.)
Wilson received a copy of the Plan, although he could not recall whether he read it during
the time he was employed by CEC. (Pl.’s Add’l Facts, Ex. 1, Dep. of Riley Wilson at 40 - 41.) He
testified that “it was just understood with – amongst the admissions representatives that [this] is how
it works. . . . We [have] a threshold of students, a specific number of students we had to enroll for
each start. And anything above and beyond that you’d receive $400 compensation for that student.”
(Id. at 39.) He understood that the student had to stay in school for a certain number of credits, and
the admissions representative had to remain employed as of the time the student completed the
number of credits. (Id. at 40.) CEC acknowledges that the employees enjoying the incentive
bonuses viewed compensation from the Plan as an important element. (Pl.’s Add’l Facts, Ex. 2 at
70-71.) Over time there had been small changes in the Plan but no significant changes until its
termination in 2011. (Def’s Add’l Facts Resp. ¶ 6.) Changes in the incentive program had been
discussed among some officers of CEC as early as February 2010, but no decisions had been made.
(Pl.’s Add’l Facts, Ex. 4, Dep. of Maureen Cahill at 45-48; Ex. 15, Dep. of Jennifer Campe Ex. 12.)
4
In June 2010, the Department of Education published a Notice of Proposed Rulemaking that
would disallow incentive compensation. (Pl.’s LR Resp. ¶ 25.) On June 17, 2010, then-president
and CEO of CEC, Gary E. McCullough, sent a memorandum to all employees regarding the
proposed changes. (Id. ¶¶ 5, 26.) A CEC vice-president testified that McCullough’s message was
intended to notify employees that there were changes coming and that CEC was determining how
to react. (See id. ¶¶ 7, 27.) The memorandum said, among other things:
Two potential changes that could affect our industry the most are in the areas of
“gainful employment” and “incentive compensation.” . . . CEC is also reviewing the
“incentive compensation” and other rules proposed by the Department, whose goal
is to finalize new rules by November 1 of this year so that they can go into effect in
July 2011.
(Def.’s LR Stmt, Ex. 25 at 1.)
As CEC awaited the final changes to the Department of Education rules, the for-profit
education sector was the subject of Senate hearings and media attention, which created a sense that
companies like CEC were at risk. (Pl.’s LR Resp. ¶¶ 19-20.) Wilson was generally aware of the
increased scrutiny of the industry because he “‘kept [himself] in the loop as far as what other
admissions people were hearing’ and had seen negative media coverage ‘referring to undercover
students at the University of Phoenix and some similar online for-profit schools.’” (Id. ¶ 21.)
After the Department of Education published the proposed rules, CEC’s executive leadership
team engaged in collaborative discussions about the options for terminating the incentive plan,
including timing and logistics of the process. (Id. ¶¶ 30-35.) When important decisions were to be
made, the executive leadership team would discuss it, with McCullough making the ultimate
decision. (Id. ¶ 11.) McCullough testified that he had the final decision making authority about
issues relating to compensation, and that he made recommendations to CEC’s board which was
5
responsible for approving or rejecting those recommendations. (Pl.’s Add’l Facts, Ex. 3, Dep. of
Gary McCullough at 25-26.)
It is undisputed that throughout the summer and fall of 2010, there was no consensus among
the CEC leadership team as to when the Plan should be terminated. (Pl.’s LR Resp. ¶ 45.) The
members of the team testified that many factors were considered, including whether the Plan should
be terminated as early as possible or let to run as long as possible or somewhere in the middle, what
the Plan would be replaced with, what had to be added to the admissions representatives’ salaries
to replace the Plan compensation, the ability to execute the change in time to be compliant with the
regulations, and the fact that some competitors had changed at different times. (Id. ¶¶ 30-35.)3 One
executive team member testified that McCullough “wanted to be conservative, he wanted to be
compliant, [and] he wanted to be seen as a good company that offered value to our students, in terms
of an educational experience and job placement.” (Id. ¶ 29.)
CEC leaders met on August 27, 2010, to discuss strategies to end the ARSC Plan, concluding
that their preference was to make all eligible payments through June 30, 2011. (Id. ¶ 36.)4 Vice
President Maureen Cahill’s summary of the meeting reflects agreement that CEC would move to a
“base pay only program effective 1/1/11 or earlier,” and that “[a] one time adjustment would be
made at time of transition based on a combination of tenure and historical ARSC results; then
annually from that point forward.” (Def.’s LR Stmt, Ex. 31.) She reported, “Key Assumption –
3
CEC’s competitors ended their incentive compensation programs at dates ranging
from September 1, 2010 to April 1, 2011. (Pl.’s LR Resp. ¶ 67.)
4
Attendees at that meeting included Chief Human Resources Officer Colon McLean,
Senior Vice President and Chief Administration Officer Tom Budlong, Vice President of Total
Rewards and HR Administration Maureen Cahill, and then-Director of Compensation Jackie
Barry. (Pl.’s LR Resp. ¶¶ 6, 7, 36.)
6
CEC will reinvest $7.5 milion in ARSC funds (2010 projected total payouts) into base pay and/or
tenure bonuses if allowed.” (Id.) The 2010 budgeted Plan payouts were $7.5 million, but by
September 2010 the projections for 2011 Plan payouts were up to $9 million. (Def.’s Add’l Facts
Resp. ¶ 36.)
At a meeting on October 5, 2010, the leadership decided to “adopt a more conservative
interpretation of the final regulations regarding incentive compensation and the elimination of the
safe harbors [for bonus compensation to recruiters]; CEC does not want to be the test case for
litigation related to admissions compensation.” (Pl.’s LR Resp. ¶ 37.)5 There was concern that
stretching bonus compensation to July 1, 2011 would be seen by the Department of Education as
“pushing the limits” and inviting Department scrutiny. (Id. ¶¶ 38-39.) There was support within
the group for ending the ARSC plan as early as December 31, 2010, or as late as June 30, 2011. (Id.
¶¶ 37-45.)
Wilson focuses on the testimony by and about George Grayeb, a Senior Vice President of one
of the Strategic Business Units, who advocated for the December 31, 2010 date. Grayeb recalled that
he was the only one asking for that termination date. (Def’s LR Stmt, Ex. 15, Dep. of George
Grayeb at 37.) He had a target of saving “roughly, over a million dollars” for his business unit by
early termination of the Plan. (Id. at 25-26.)6
5
This meeting included Cahill, McLean, and Jackie Barry, in addition to Strategic
Business Units Senior Vice Presidents George Grayeb and Brian Williams, and Vice President of
Human Resources for the University Strategic Business Unit, Jen Campe. (Pl.’s LR Resp. ¶¶ 7,
9.) After October 2011, Campe became the Vice President of Human Resources Business
Consulting, and then became Chief Human Resources Officer for CEC from July 2014 until
November 2014. (Id. ¶ 7.)
6
Grayeb left CEC in March 2011. (Def’s LR Stmt, Ex. 15, Grayeb Dep at 6.)
7
Wilson also suggests that Chief Financial Officer Michael Graham advocated for early
termination to save money (Pl.’s Resp. at 6), citing testimony by Cahill (See Pl.’s Add’l Facts ¶ 32).
Cahill testified, however, that there were two “primary reasons” why Graham thought the Plan
should be terminated earlier than Cahill herself advocated:
One was financial. They saw, you know, a decline in enrollment very likely, and the
financial impact of that; but, secondly, they were trying to respect this new
legislation, and they were uncertain how, you know, payment beyond – you know
further into the year, would that be perceived as, you know, a violation of the new
regulations? It was so unknown.
(Cahill Dep. at 22-23.)
On October 29, 2010, the Department of Education published the final regulations to be
effective July 1, 2011. (Pl.’s LR Resp. ¶ 46.) Those regulations officially removed the safe harbor
provision relating to the incentive compensation for a person or entity involved with student
recruitment or admission activity. (Id.) McCullough sent another employee update stating that the
Departnment’s new rule would require CEC to make changes to the compensation practices in order
to remain in compliance. (Id. ¶ 47.)
The leadership team met again on November 17, 2010 to discuss “the ARSC Transition and
Ongoing Compensation Program.” (Id. ¶ 48.) At the time, some admissions representatives had a
March 1 annual review date and some were reviewed on the anniversary of their hiring. (Id. ¶ 48.)
There were discussions at the meeting about moving all admissions representatives to a common
annual review date of either March 1 or June 1 for uniformity. (Id.) McCullough testified that using
a March 1 date would align everyone in the company on the same bonus schedule. (Id. ¶ 58.) He
further testified that he was unsure whether CEC would administratively be able to complete paying
supplemental compensation before July 1, 2011, as the new regulations would require, if they waited
8
to implement the changes until the end of May. (Id. ¶ 59.)7 Several replacements for the ARSC Plan
were discussed at the November 17 meeting, including paying supplemental compensation to
admissions representatives who were still employed with CEC when the new federal regulations
went into effect, reinvesting some of ARSC Plan payments into employees’ base salaries, and
awarding retention bonuses and merit increases. (Id. ¶¶ 49-50.)
McCullough and the executive leadership team met again on December 3, 2010. (Id. ¶ 51.)
Cahill circulated a document for that meeting entitled “Admissions Re-design Overview of New
Model.” (Pl.’s Add’l Facts, Ex. 28.) “Near Term Actions” were to include “Migrate the
Advisors/Reps into the new model” and “Address the lost $$ opportunity for Advisors/Reps who
have benefitted from ARSC payments over the past two years.” Id. She made the following
presentation to the group:
ARSC Payouts will continue through 5/31/11 (last payment will be made 6/15/11);
Pay increases for all Admissions Representatives/Advisors will be deferred until
6/1/11 (regularly scheduled 3/1 merit increases and those on anniversary review date
schedule from 1/1 through 5/31) and prorated accordingly; using a 75% ARSC ‘reinvestment’ rate, all Admissions Represetatives/Adivsors will be slotted to a role and
a point on the wage scale; and [a] one-time tenure-based retention bonus paid on
6/1/11 to any Admissions Representative/Advisor who is at CEC on date of
announcement (@ 1/3/11) and active on date of payment[.]
(Pl.’s LR Resp. ¶ 51.) Cahill testified that the recommendation to end at May 31 rather than June
30 reflected the need to process payments before July 1, 2011. (Id. ¶ 53.) This recommendation
differed from the executive leadership team’s previous recommendation for terminating the ARSC
Plan on June 30, 2011, and from Grayeb’s preference for terminating the plan on December 31,
7
Events confirmed his concern. Although CEC ultimately adopted February 28 as the
last date for earning bonuses, it was still making the bonus payments in April because of the
administrative process of “true ups” for those who recruited across campuses. (Pl.’s LR Resp. ¶
78.)
9
2010. (Id. ¶¶ 40-41.) She presented estimates for admissions representatives’ compensation
showing that 2010 base salary plus ten months of actual 2010 Plan bonuses and two months of
projected 2010 bonus payments would cost $93,683,793. (Id. ¶ 69.) The estimated cost for Cahill’s
suggestion of making bonus payments through May 31, plus adding a 4% merit increase to the
admissions’ representatives’ salaries, and adding 75% of the admissions representatives’ prior two
year average of bonus payments, was $95,318,443. (Id. ¶ 70.)
McCullough testified that he “had to make a decision that would work for the company that
would ensure that we remain compliant and that we can be conservative, so I wouldn’t put – put the
company at risk.” (Id. ¶ 56.) McCullough further testified:
I made a decision that I thought would be one that we could execute, that I thought
would be in the best interests . . . of everyone concerned, and that ultimately would
work with the corporate calendar that we had, with regard to giving pay raises and
doing all those administrative functions that happened typically in the first quarter
of the year. And so I made a decision to terminate it, I want to say, on February the
28th.
(Id. ¶ 57.) McCullough acknowledged that the solution was not perfect and some people would
benefit and some people would be hurt. (Pl.’s Add’l Facts, Ex. 3, Dep. of Gary McCullough at 14849.)
His decision to end the Plan on February 28 considered the fact that bonuses were paid to
other employees of CEC in the month of March. Ending the Plan in February would allow CEC to
pay admissions representatives bonuses at the same time as everyone else. (Pl.’s LR Resp. ¶ 58.)
It would also allow CEC to give the admissions representatives their pay increases on March 1, in
line with everyone else in the company. (Id.)
Cahill recalled that McCullough had the Human Resources people arguing to extend the date,
10
while the business leaders were feeling pressure related to cost. (Cahill Dep. at 106.) She felt that
his decision to end the Plan on February 28 was “splitting the baby.” (Id.)
On December 9, 2010, CEC announced to all admissions representatives that, as a result of
the ED’s revised regulations, CEC would discontinue the ARSC Plan, but CEC would continue to
pay bonuses according to the Plan for compensation earned through February 28, 2011. (Pl.’s LR
Resp. ¶ 63.) It is undisputed that, as a result of terminating the plan on February 28, 2011, no
admissions representative’s third quarter 2010 student enrollment would yield supplemental
compensation. (Def.’s Add’l Facts Resp. ¶ 24.)
Wilson sent an email to a co-worker on December 9, 2010, stating: “Yeah I always thought
they would get rid of suppy [supplemental compensation]. But it hurts that it had to come before my
big payday.” (Pl.’s LR Resp. ¶ 64.) Wilson explained this by saying that he expected the ARSC
Plan would end, but did not know “if they got rid of it, how they would get rid of it and when it
would happen, that kind of thing.” (Def’s LR Stmt, Ex. 2, Wilson Dep. at 109-10.) He testified:
It was a big surprise for me. I guess part of me didn’t want to believe the whispers
that, you know, a large portion of my income was going to go away. But I think the
whispers softened the blow a little bit, but still it was a little bit hard to swallow when
it happened.
(Id. at 110.) 2010 had been his biggest start ever. (Id.) According to Wilson, in 2009, his recruiting
threshold was 15 students and he recruited 23 students. (Answer to Compl. ¶ 13.) In 2010, his
threshold was 13 students and he enrolled 41 students. (Id. ¶ 16.)
The details of the revised compensation plan were still not finalized as of February 10, 2011.
(Def.’s Add’l Facts Resp. ¶ 38.) The decision ultimately reached was not simply to stop paying the
incentive bonuses. Rather, CEC revamped the compensation program for all current admissions
11
representatives.
(Id. ¶ 39.)
Under the revised program, currently employed admissions
representatives like Wilson received an adjusted salary based on current pay plus a 3% merit increase
plus 75% of the average of their last two years of ARCS bonus payments. (Pl.’s LR Resp. ¶¶ 71-72.)
Managers were also given the ability to do a “qualitative assessment” relative to pay. (Id. ¶ 74.)
Unlike the previous bonuses, the increase in base pay would have the ripple effect of increasing other
benefits like severance and vacation pay. (Id. ¶ 80.)
Wilson observes that the amount calculated for reinvestment did not include bonus amounts
paid in the previous years to non-current employees, but he does not suggest why those amounts
would be considered since an admissions representative had to be a current employee to receive a
bonus. (Id. ¶ 72.) He also points out that the reinvestment amount did not extrapolate for
admissions representatives with less than two years’ tenure, but he does not suggest how many
employees would be affected by that. (Id.) Wilson admits that CEC was not obligated to reinvest
prior supplemental compensation into base pay. (Id. ¶ 73.)
Wilson states that, as a result of CEC’s termination of the Plan bonuses as of February 28,
he was not paid incentive bonuses for approximately 24 students he recruited who remained
successfully enrolled for the time period required under the ARSC Plan. (Pl.’s Add’l Facts, Ex. 31,
Decl. Riley Wilson ¶ 11.) He states that, as a result, he did not receive more than $9,000 in bonus
payments to which he was entitled. (Id. ¶ 12.) It is not clear from the record where those numbers
come from. Wilson’s Statement of Additional Facts cites only his declaration and his deposition
transcript in which he refers to the allegations in his complaint. (See Pl.’s Add’l Facts ¶ 40.) CEC
admits that Wilson did not receive $9,200 for students who started in the third quarter but does not
admit that was what he would have earned. (See Def.’s Add’l Facts Resp. ¶ 40.) The parties agree,
12
however, that under the revised compensation program, Wilson received a 6% increase in his base
salary – a $2,447.83 raise added to his $39,360.17 annual salary. (Id.)
For CEC, the revised compensation program resulted in an increase in the cost of admissions
representatives’ compensation, although the parties dispute how much of an increase. As noted
above, the projected total for admissions representatives’ base salary, ten months of ARSC Plan
payments, and two months of projected ARSC Plan payments was more than $93.6 million. CEC
states that the actual total compensation to admissions representatives for 2011, including $1.27
million in bonus payments, was $96.7 million. (Def.’s LR Stmt, Ex. 5, Decl. Jennifer Campe ¶ 12.)
Wilson cites Campe’s deposition testimony that the total compensation was $95.8 million (Pl.’s LR
Resp. ¶ 79), and argues that the $1.27 million in bonus payments should be charged back to 2010,
resulting in total compensation cost in 2011 of $94.5 million. (Pl.’s Resp. at 14.) That cost does not
include the effect of increased salaries on other benefits like severance and vacation pay. (Pl.’s LR
Resp. ¶ 80.)
Chief Human Resources Officer Colon McLean recalled that Grayeb argued to end the Plan
early for cost reduction, but ultimately cost reduction was not part of the proposal because CEC used
a financial model that took what had been spent on bonuses in the past and reinvested it in base
salaries in the future. (Def.’s Add’l Facts Resp., Ex. 50, Dep. of Colon McLean at 70-71.) “[T]he
cost of the admissions advisors was flat year over year as a result of that.” (Id. at 71.)
LEGAL STANDARD
Summary judgment on all or part of a claim or defense is proper “if the movant shows that
13
there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter
of law.” Fed. R. Civ. P. 56(a). To oppose a motion for summary judgment successfully, the
responding party may not simply rest on its pleadings, but rather must submit evidentiary materials
showing that a material fact is genuinely disputed. Fed. R. Civ. P. 56(c). A genuine dispute of
material fact exists when there is “sufficient evidence favoring the nonmoving party for a jury to
return a verdict for that party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). The
nonmoving party bears the responsibility of identifying applicable evidence. Bombard v. Ft. Wayne
Newspapers, Inc., 92 F.3d 560, 562 (7th Cir.1996). In determining whether a genuine dispute of
material fact exists, the court construes all facts and draws all reasonable and justifiable inferences
in favor of the nonmoving party. Anderson, 477 U.S. at 255.
As a threshold matter, CEC argues that the court should disregard Wilson’s responses to
CEC’s statements of fact because Wilson responded with improper argument and additional,
unresponsive facts. (Def.’s Reply at 4.) Local Rule 56.1(a)(3) requires the party moving for
summary judgment to provide “a statement of material facts as to which the moving party contends
there is no genuine issue and that entitle the moving party to a judgment as a matter of law.” That
rule also requires that an opposing party respond to each paragraph in the moving party’s statement,
“including, in the case of any disagreement, specific references to the affidavits, parts of the record,
and other supporting materials relied upon.” N.D. Ill. L.R. 56(b)(3)(B). The rule has been
interpreted to allow a court to disregard statements in responses that go beyond what is necessary
to justify a denial, including additional legal conclusions and arguments. Ross v. RJM Acquisitions
Funding, LLC, 2006 WL 752953 at *1 n.2 (N.D. Ill. Mar. 16, 2006), aff’d, 480 F.3d 493 (7th Cir.
2007); Gross v. Radioshack Corp., 2007 WL 917387 at *14 n. 20 (N.D. Ill. Mar. 26, 2007).
14
CEC observes that in several responses Wilson either first admits or does not dispute the
statement, but then adds argument and facts. (Def.’s Reply at 4.) After reviewing the challenged
responses, the court concludes that they will not be disregarded. The responses that CEC lists
dispute each statement. The responses then cite to the record to clarify why the dispute was made
and to what extent the statement was disputed, including disputing possible inferences that could be
made from CEC’s statement. While portions of Wilson’s responses would have perhaps been more
properly placed in his own statement of additional facts, they were responsive to CEC’s statements
and cited affidavits, the record, and other supporting materials to clarify Wilson’s disagreement. To
the extent that Wilson added argument rather than factual support for his dispute, the court has
disregarded the argument. Wilson’s responses here are not as egregious as the Local Rule 56.1
response discussed in Ciomber v. Cooperative Plus, Inc., 527 F.3d 635, 643-44 (7th Cir. 2008), cited
by CEC.
DISCUSSION
The question is whether, construing all facts and all reasonable and justifiable inferences in
favor of Wilson, there is sufficient evidence favoring Wilson that a reasonable jury could return a
verdict in his favor on his claim that, in deciding to limit bonus payments to those earned as of
February 28, 2011, CEC exercised its discretion to terminate the Plan in violation of its obligation
of good faith and fair dealing. The court concludes that a reasonable jury could not, and, therefore,
CEC is entitled to summary judgment.
“The Illinois courts have stated that every contract implies good faith and fair dealing
between the parties to it.” Beraha v. Baxter Health Care Corp., 956 F.2d 1436, 1443 (7th Cir.
15
1992).8 When the contractual obligation of one party is contingent upon a condition peculiarly
within the power of that party, the implied covenant of good faith and fair dealing “limits the
controlling party’s discretion and the controlling party must exercise that discretion reasonably and
with proper motive, and may not do so arbitrarily, capriciously, or in a manner inconsistent with the
reasonable expectations of the parties.” Id. (internal citation omitted). While “the element of good
faith dealing implied in a contract is not an enforceable legal duty to be nice or to behave decently
in a general way. . . . [a]vowedly opportunistic conduct has been treated differently.” Jordan v. Duff
and Phelps, Inc., 815 F.2d 429, 438 (7th Cir. 1987) (internal quotation omitted).
In the Seventh Circuit’s decision in this case, the two opinions that agreed to remand differ
somewhat in expressing how the obligation applies here. Judge Darrow stated that it would be
unreasonable for Wilson to expect that CEC would only terminate the ARSC Plan for good cause
because the express terms of the Plan precluded such an expectation. But it was reasonable for
Wilson to expect that avoiding the conditions required for Wilson to earn a bonus on a recruited
student would not be “the but-for reason” for CEC exercising its discretion to terminate the bonus
payments as of February 28, 2011. Wilson, 729 F.3d at 675-76 (citing Martindell v. Lake Shore
Nat’l Bank, 154 N.E.2d 683, 691(Ill. 1958) (defendant acted in bad faith under the terms of the
contract to avoid the plaintiff’s option rights); LaScola v. U.S. Sprint Commc’ns, 946 F.2d 559, 566
(7th Cir. 1991) (recognizing that an employer cannot exercise its discretion in bad faith to fire an atwill employee so to deprive that employee of commissions)).
8
Although the parties initially disputed whether Illinois or Minnesota law applies to
Wilson’s claim, the Seventh Circuit previously determined that there is no substantive difference
between the laws of Minnesota and Illinois regarding contracts and the implied covenant of good
faith and fair dealing, and analyzed the issue under the laws of the forum state, Illinois. Wilson,
729 F.3d at 673.
16
Judge Hamilton’s opinion reflects his concern, based on the pleadings in Wilson’s
complaint, that CEC terminated bonuses as of February 28 in an “opportunistic grab to keep the
pipeline bonuses.” Wilson, 729 F.3d at 680 (Hamilton, J., concurring). The Plan, he observed, did
not discuss the possibility that “the employer would simply decide one day to keep all the
employees’ pipeline bonuses for itself.” Id. at 678. He referred to “[t]he transparent unfairness of
CEC’s cancellation of the pipeline bonuses,” based on the inference from the complaint that CEC
induced the admissions representatives to work harder and “then decided to keep for itself as much
of that benefit as it thought it could get away with.” Id. at 679. By changing as of February 28,
“Wilson alleges, CEC simply kept for itself more than $5 million it should have paid to its
admissions representatives. That looks like the ‘avowedly opportunistic conduct’ that we recognized
as actionable in Jordan v. Duff and Phelps, Inc.” Id. at 681 (citation omitted.) He was concerned
that CEC’s reliance on the regulations was “a pretext for simple greed at the expense of the
admissions representatives who contributed to its success.” Id. In evaluating the reasonable
expectations of the parties, “[t]he relevant expectations are those based on the objective indications
of CEC's promises and behavior, including CEC's past course of dealing with Plan amendments.”
(Id. at 682.)
The critical issue on remand is whether CEC acted in bad faith in deciding to
terminate the Plan earlier than required so as to seize for itself the pipeline bonuses
that Wilson and other admissions representatives were reasonably expecting to be
paid as students completed their studies. . . . [T]he decision on the bad faith claim
should focus on CEC’s motives, applicable to all, and not on circumstances unique
to each employee.
Id. (emphasis added).
The Plan and its bonus payments had to end no later than June 30, 2011. The “whispers,”
17
as Wilson phrased it, that bonus payments were coming to the end were in the wind as early as June
2010. Those whispers were reinforced by a message from the CEO McCullough to all employees
on June 17, 2010, informing them that the Department of Education had issued a Notice of Proposed
Rulemaking regarding incentive compensation (among other things), and that CEC was reviewing
those rules. That message was sent at the beginning of the third quarter, while Wilson was
undertaking his recruiting efforts. Wilson admitted that he thought the Plan would be discontinued;
he just did not know when or how.
CEC’s leadership team initially had a range of viewpoints in deciding how to proceed in light
of the anticipated rule prohibiting bonus payments. Wilson emphasizes the fact that some members
of the team, including Grayeb, argued for a termination date as early as December 2010, based on
hoped-for cost savings that would benefit the business units. That view, however, did not prevail.
From the meeting in August 2010, the “Key Assumption” was that CEC would “reinvest” the $7.5
million (the amount of the then-anticipated bonus payments) back into the admissions
representatives’ base pay or tenure payment.
Wilson argues that “cost savings was the primary driver in terminating the Plan in February
2011.” (Pl.’s Resp. at 12.) The facts do not support that argument. In deciding when to end the
bonuses, McCullough had business unit executives like Grayeb arguing for an earlier date and
Human Resources executives arguing for a later date. Going until June 30 was unrealistic because
the administrative work could not be completed in time to get the payments made before the cut-off
date set by the Department of Education. McCullough made the decision to end on February 28, he
testified, because it would bring all of the admissions representatives to the same review and bonus
time as everyone else in the company (March 1). It would also provide sufficient time to finish all
18
administrative work to make bonus payments before the ED deadline. Further, it was in line with
the termination dates of incentive programs set by CEC’s competitors. Those facts are undisputed.
March 1, 2011 was not just the end of the bonuses; it was the beginning of the revised
compensation program. Under that program, every currently-employed admissions representative
got a raise in base salary of at least the total of 3% plus 75% of his or her previous two years’
bonuses. As Wilson points out, some admissions representatives did better under the revised
program than they would have under the Plan. (Pl.’s Resp. at 15.) His corollary argument – that
“high performing Admissions Representatives” like himself “bore the financial brunt” (id.) – is not
necessarily so. Wilson personally faired less well under this calculus because his one exceptionally
good year was 2010-11. Other representatives who had consistently high previous years (on which
the 75% salary increase was based) could have done just as well if not better under the revised
program.
Moreover, whether any one among the 2,123 admissions representatives did better or worse
is not the ultimate question on the issue of whether CEC acted in bad faith. “[T]he decision on the
bad faith claim should focus on CEC’s motives, applicable to all, and not on circumstances unique
to each employee.” Wilson, 729 F.3d at 682 (Hamilton, J., concurring).
The most important fact is that there is no evidence that CEC retained for itself $5 million
in bonus payments that were due to admissions representatives, as Wilson alleged. Although Wilson
argues that cost savings was the primary driver of the decision to end the Plan as of February 28,
Wilson admits there was no cost savings to CEC. The result, he acknowledges, left “macro-costs
stagnant.” (Pl.’s Resp. at 15.)
Under the law of the case here, CEC had a contract right to terminate the Plan at any time,
19
but had an implied obligation not to do so in bad faith for the purpose of keeping for itself the
bonuses for students who were “in the pipeline.” The evidence shows that cost saving was not the
“but-for” of the decision to terminate the Plan bonuses on February 28, 2011. No reasonable jury
could conclude that CEC chose February 28 as the date to end the Plan bonuses for the purpose of
keeping the admissions representatives’ bonuses for itself. Accordingly, CEC’s motion for summary
judgment is granted.
CONCLUSION
For the foregoing reasons, Defendant’s motion for summary judgment [dkt 79] is granted.
Judgment is entered for defendant Career Education Corporation and against plaintiff Riley Wilson.
IT IS SO ORDERED.
__________________________
Geraldine Soat Brown
United States Magistrate Judge
Dated: December 18, 2015
20
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?