IN THE APPELLATE COURT OF ILLINOIS

FOR THE FIRST DISTRICT

__________________________________________

No. 08-0695

and

No. 08-0779

__________________________________________

JEFFREY N. COVINSKY

Plaintiff –Appellee / Cross-Appellant,

v.

HANNAH MARINE CORPORATION,

Defendant – Appellant,

and

DONALD C. HANNAH

Defendant-Appellee.

__________________________________________

Appeal from the Circuit Court of Cook County, Illinois

County Department, Law Division

Case No. 06 L 006368

The Honorable Brigid Mary McGrath, Judge Presiding

__________________________________________

INITIAL BRIEF AND RESPONSE BRIEF

FOR PLAINTIFF – APPELLEE / CROSS-APPELLANT

JEFFREY N. COVINSKY

__________________________________________

Ralph J. Schindler, Jr.

Joshua M. Smith

Law Offices of Ralph J. Schindler, Jr.

53 W. Jackson Boulevard, Suite 818

Chicago, Illinois 60604

(312) 554-1040

Attorney for Plaintiff-Appellant-Appellee

Dated: Sept.5, 2008

ORAL ARGUMENT REQUESTED

i

POINTS AND AUTHORITIES

NATURE OF THE CASE................................................................................... 1

ISSUES PRESENTED FOR REVIEW ................................................................ 4

JURISDICTION ............................................................................................... 5

Illinois Supreme Court Rule 303 ................................................................ 5

STATUTES INVOLVED .................................................................................... 5

STATEMENT OF FACTS .................................................................................. 6

A. COVINSKY’S CLAIM FOR BREACH OF CONTRACT BY HMC AND VIOLATION OF THE

WAGE PAYMENT AND COLLECTION ACT BY HMC AND DONALD HANNAH .............. 6

1. COVINSKY’S EMPLOYMENT AGREEMENT AND GOLDEN PARACHUTE ................... 6

2. THERE WAS A “CHANGE IN PRESENT OWNERSHIP” OF HMC WHILE COVINSKY WAS

PRESIDENT AND CHIEF EXECUTIVE OFFICER ................................................ 7

3. COVINSKY’S EMPLOYMENT WITH HMC WAS TERMINATED “AS A RESULT OF” THE

“CHANGE IN PRESENT OWNERSHIP” .......................................................... 8

4. DONALD HANNAH ADMITTED THAT HE WAS IN CONTROL OF THE HMC’S

CHECKING ACCOUNTS AND HMC WAS SOLVENT .......................................... 9

5. THE TRIAL COURT’S ORDER AS TO HMC’S LIABILITY FOR BREACH OF CONTRACT

AND VIOLATIONS OF THE ILLINOIS WAGE PAYMENT AND COLLECTION ACT ........ 10

a. HMC is liable for Count I, Breach of Contract ............................. 10

b. Determination of Damages and the Prove-Up .............................. 10

c. HMC is found liable under Count II, Wage Act Claim, and damages

are awarded – but Donald Hannah is released of liability ............ 11

d. Final Order ................................................................................ 12

6. THE TRIAL COURT LIMITED COVINSKY’S ATTORNEY’S FEES AND BILL OF COSTS 12

B. HMC’S COUNTERCLAIM AND AMENDED COUNTERCLAIM ................................ 13

C. COVINSKY AND HMC TIMELY FILED THEIR NOTICE OF APPEALS ...................... 15

STANDARD OF REVIEW ............................................................................... 15

ii

Dept. of Public Health v. Wiley, 218 Ill. 2d 207, 843 N.E. 2d 259 (2006). .... 15

Avery v. State Farm Mutual Automobile Ins. Co., 216 Ill. 2d 100, 835 N.E. 2d

801 (2005) ........................................................................................... 16

In re Jamie P., 223 Ill.2d 526, 861 N.E.2d 958 (2007) ............................... 16

Bell Leasing Brokerage LLC v. Roger Auto Service, Inc. 372 Ill. App.3d 461,

865 N.E. 2d 558 (1st Dist. 2007). ......................................................... 16

Lyon vs. Dept. of Children & Family Services, 209 Ill.2d 264, 807 N.E. 2d

423 (2004) ........................................................................................... 16

Baker v. Daniel S. Berger, Ltd., 323 Ill. App. 3d 956, 753 N.E.2d 463 (1st

Dist. 2001) ............................................................................................ 16

Technology Innovation Center, Inc. v. Advanced Multiuser Technologies Corp.,

315 Ill. App. 3d 238, 732 N.E.2d 1129, 247 Ill. Dec. 797 (1st Dist. 2000)..

............................................................................................................. 16

ARGUMENT.. ................................................................................................ 17

I. THE TRIAL COURT RULED CORRECTLY THAT COVINSKY'S GOLDEN PARACHUTE

TRIGGERED REGARDLESS OF WHETHER THE TERMINATION WAS VOLUNTARY OR

INVOLUNTARY ............................................................................................... 17

A. THE "GOLDEN PARACHUTE" PROVISION OF THE EMPLOYMENT AGREEMENT

APPLIES TO BOTH VOLUNTARY AND INVOLUNTARY TERMINATIONS..................... 18

Williams v. Interpublic Severance Play Plan, 523 F.3d 819 (7th Cir. 2008)

....................................................................................................... 18

Williams v. Interpublic Severance Pay Plan, 2007 U.S. Dist. LEXIS 57368

(N.D. Ill. Aug. 7, 2007) ....................................................................... 18

Gerow v. Rohm & Haas Co., 308 F.3d 721 (7th Cir. 2002) .................... 19

Robert A. Prentice, “Front-End Loaded, Two-Tiered Tender Offers: An

Examination of the Counterproductive Effects of a Mighty Offensive

Weapon”, 39 CASE W. RES. 389, 420 (1985) ........................................ 19

Charles M. Elson, 57 U. Cin. L. Rev. 699 ............................................. 19

B. PARAGRAPH 8'S DISCUSSION OF RESIGNATION ACTUALLY SUPPORTS COVINSKY,

HMC'S RELIANCE ON PARAGRAPH 8 IS MISPLACED ....................................... 23

iii

C. PARAGRAPH 7(G) IS NOT AMBIGUOUS AND ANY AMBIGUITY THAT RESULTS IS TO BE

RESOLVED AGAINST HMC, THE DRAFTER OF THE AGREEMENT ....................... 25

Newcastle Properties, Inc. v. Shalowitz, 221 Ill. App. 3d 716 (1st

Dist. 1991) ............................................................................... 25

Dowd & Dowd, Ltd. v. Gleason, 181 Ill. 2d 460, 693 N.E.2d 358

(1998). ..................................................................................... 26

II. THE TRIAL COURT'S AWARD OF DAMAGES IS NOT AGAINST THE MANIFEST WEIGHT OF

THE EVIDENCE .............................................................................................. 27

Bell Leasing Brokerage LLC v. Roger Auto Service, Inc. 372 Ill. App.3d 461,

865 N.E. 2d 558 (1st Dist. 2007) ............................................................ 27

A. THE TRIAL COURT CORRECTLY INCLUDED COVINSKY'S BENEFITS AS "WAGES"

UNDER THE ACT ..................................................................................... 28

820 ILCS 115/2 (2007) ................................................................... 28

Zabinsky v. Gelber Group, Inc., 347 Ill. App. 3d 243 (1st Dist. 2004) . 28

Anderson v. First Am. Group of Cos., 353 Ill. App. 3d 403 (1st 2004) 29

Catania v. Local 4250/5050 of the Communications Workers of

America, 359 Ill. App. 3d 718, 834 N.E.2d 966 (1st Dist. 2005) .... 29

820 ILCS 115/2 (2007) ................................................................... 29

B. PARAGRAPH 7(G) OF THE EMPLOYMENT AGREEMENT DOES NOT REQUIRE

COVINSKY TO "OPT-IN" TO THE HMC'S HEALTH INSURANCE COVERAGE ............ 32

Western Casualty & Surety Co. v. Brochu, 105 Ill. 2d 486, 86 Ill. Dec.

493 (1985) ................................................................................... 32

Surestaff, Inc. v. Open Kitchens, Inc., 2008 Ill. App. LEXIS 740 (Ill.

App. Ct. 1st Dist. July 25, 2008) ................................................. 32

III. THERE WAS NO ERROR REGARDING HANNAH'S RIGHT TO A JURY TRIAL ON DAMAGES

.................................................................................................................. 33

Catania v. Local 4250/5050 of the Communications Workers of America, 359

Ill. App. 3d 718, 834 N.E.2d 966 (1st Dist. 2005) .................................. 34

IV. THE TRIAL COURT CORRECTLY DISMISSED THE FIRST AMENDED COUNTERCLAIM FOR

FAILURE TO STATE A CAUSE OF ACTION FOR BREACH OF FIDUCIARY DUTY .............. 35

iv

A. UNDER THE BUSINESS JUDGMENT RULE, HMC'S COUNTERCLAIM WAS NOT WELL

GROUNDED IN FACT OR EXISTING LAW ........................................................ 36

1. COVINSKY DID EVERYTHING THIS COURT REQUIRES OF A CORPORATE OFFICER

WHERE HE CONSULTED WITH HANNAH'S LEGAL COUNSEL THROUGHOUT THE

NEGOTIATION PROCESS, CONSULTED WITH HANNAH'S BOARD OF DIRECTORS,

WHICH INCLUDED THE MAJORITY SHAREHOLDER, AND DID NOT SEEK TO

PERSONALLY BENEFIT FROM THE TRANSACTION ......................................... 36

Stamp v. Touche Ross Co., 263 Ill. App. 3d 1010 (1st Dist. 1993) . 36

a. Covinsky consulted with Hannah's legal counsel throughout the

negotiations ............................................................................... 37

IOS Capital, Inc. v. Phoenix Printing, Inc., 348 Ill. App. 3d 366

(4th Dist. 2004) ................................................................... 37

b. Covinsky acted with the consent of Hannah's board of directors . 38

c. Covinsky did not seek to gain any personal advantage, and did not

gain any personal advantage from this transaction ..................... 38

Swager v. Couri, 77 Ill. 2d 173, 191 (1979)............................. 38

2. THOUGH THE BUSINESS JUDGMENT RULE DOES NOT REQUIRE ADDITIONAL

CONSIDERATION GAINED FROM ALL TRANSACTIONS, TO THE EXTENT ALLOWED

UNDER THE PRIME LEASE, THE HOLNAM SUBLEASE PROVIDED HANNAH WITH

CONSIDERATION .................................................................................. 39

a. The District's Prime Lease Required District Approval for all

Subleases and the District to Retain its Discretion as to th Fair

Market Value.............................................................................. 39

b. The Assignment the HMC Complains of Actually Provides

Additional Consideration to HMC in Section 3 of the Prime

Sublease, to the Extent Allowed by the Water District ................. 43

3. EVEN IF THE CONTRACT DID NOT REQUIRE HOLNAM TO PAY AN AMOUNT ABOVE

THE PAYMENTS TO THE WATER RECLAMATION DISTRICT, THE ASSIGNMENT ADDED

SHAREHOLDER VALUE BECAUSE IT RELIEVED HANNAH OF RECURRING AND

SIGNIFICANT OBLIGATIONS ON A DORMAN ASSET ........................................ 45

Gunter v. Novopharm USA, Inc., 2001 U.S. Dist. LEXIS 2117 (N.D.

Ill. 2001) ................................................................................. 46

v

V. THERE WAS NO DENIAL OF HMC'S DISCOVERY REQUEST RELATIVE TO ITS

COUNTERCLAIM UNTIL AFTER SUCH CLAIM WAS DISMISSED .................................. 47

VI. UNDER EITHER THE ATTORNEY FEE IN WAGES ACT OR RULE 137, COVINSKY SHOULD

HAVE BEEN AWARDED FEES FOR THE COUNTERCLAIM AND THE EMPLOYMENT

CONTRACT CLAIM .......................................................................................... 49

705 ILCS 225/1 (2007) ............................................................................. 49

Schakleton v. Federal Signal Corp., 196 Ill. App. 3d 437, 143 Ill. Dec. 309

(1st Dist. 1989) ....................................................................................... 50

Supreme Court Rule 137 .......................................................................... 50

Baker v. Daniel S. Berger, Ltd., 323 Ill. App. 3d 956, 753 N.E.2d 463 (1st

Dist. 2001) ............................................................................................. 51

Technology Innovation Center, Inc. v. Advanced Multiuser Technologies Corp.,

315 Ill. App. 3d 238, 732 N.E.2d 1129, 247 Ill. Dec. 797 (1st Dist. 2000) 51

Wittekind v. Rusk, 253 Ill. App. 3d 577, 192 Ill. Dec. 467, 625 N.E.2d 427

(3rd Dist. 1993), appeal denied, 155 Ill. 2d 577, 198 Ill. Dec. 554, 633

N.E.2d 16 (1994). ................................................................................... 51

Whitmer v. Munson, 335 Ill. App.3d 501 (1st Dist. 2002) ............................ 51

Shea, Rogal & Assocs. v. Leslie Volkswagen, Inc., 250 Ill. App. 3d 149, 190

Ill. Dec. 208 (1st Dist. 1993) ............................................................... 51-52

Ciampi v. Ogden Chrysler Plymouth, Inc., 262 Ill. App. 3d 94, 634 N.E.2d

448 (2nd Dist. 1994) ......................................................................... 52-54

Robert W. Gray, Sr., “The Applicability of Constructive Eviction, Implied

Warranty of Habitability, Common-Law Fraud, and the Consumer Fraud Act

to Omissions of Material Facts in a Commercial Lease,” 38 J. MARSHALL L.

REV. 1289 (2005) ........................................................................... 53, fn. 7

TruServ Corp. v. Ernst & Young, LLP, 376 Ill. App.3d 218 (1st Dist. 2007)

......................................................................................................... 54-55

Whitmer v. Munson, 335 Ill. App.3d 501 (1st Dist. 2002) ....................... 56-57

VII. THE TRIAL COURT ERRED IN REFUSING TO ENTER JUDGMENT AGAINST DONALD C.

HANNAH PERSONALLY AS A "RESPONSIBLE PERSON" UNDER THE WAGE ACT ............ 57

vi

A. DONALD HANNAH IS AN OFFICER, WITH KNOWLEDGE OF HANNAH MARINE'S DEBT

TO COVINSKY FOR WAGES, AND HAS FAILED TO CAUSE PAYMENT TO BE MADE ... 57

Andrews v. Kowa Printing Corp.¸ 217 Ill. 2d 101 (2005) ............... 57-61

820 ILCS 115/5 (2007) ................................................................... 58

820 ILCS 115/13 (2007) ................................................................. 58

B. DONALD HANNAH CANNOT BE EXCUSED FROM LIABILITY BECAUSE HE CLAIMS TO

HAVE DISPUTED THIS CASE IN GOOD FAITH ................................................ 63

Andrews v. Kowa Printing Corp.¸ 217 Ill. 2d 101 (2005) .................... 64

VIII. CONCLUSION ............................................................................................ 65

1

NATURE OF THE CASE

Plaintiff/Cross-Appellant, Jeffrey Covinsky, (“Covinsky”) brought

this action to recover damages arising from breach of contract and a

violation of the Illinois Wage Payment and Collection Act, 820 Ill. Comp.

Stat. 115/1, et seq. The trial court granted summary judgment as to

both claims against Covinsky’s former employer, Hannah Marine

Corporation (“HMC”). However, the trial court granted summary

judgment in favor of HMC’s sole owner, Donald C. Hannah, as to

Covinsky’s Illinois Wage Payment and Collection Act claim.

In 1997, Jeffrey Covinsky entered into a contract with Hannah

Marine Corporation (hereafter “HMC”) to serve as its president and chief

executive officer. The company was owned equally by three siblings, all

of whom were members of the Board of Directors. Later Donald C.

Hannah was ousted from the Board in a family dispute. Covinsky’s

contract provided that if there was a “change in the present ownership

which results in the termination of [Covinsky’s] employment”, he would

be entitled to eighteen months severance pay. In May of 2006, Donald

Hannah bought out the interests of his two siblings which constituted a

“change in the present ownership” under the contract. Immediately

following the change in control, Donald Hannah called Covinsky into his

office and “accepted” his resignation but refused to make any final

payment under the contract.

2

Covinsky gave proper notice and demand for payment of his

severance pay under the Illinois Wage Payment and Collection Act (820

ILCS 115/5) and the Illinois Attorneys fees in Wage Actions Act (705

ILCS 225/1) demanding payment of both his employer, HMC, and

Donald Hannah as a responsible person under the Act. His demand was

less than the amount eventually awarded by the trial court.

Receiving no response, Covinsky filed his action in the Circuit

Court of Cook County claiming Breach of Contract in Count I, and claims

against HMC and Donald C. Hannah for failure to pay final “wages”

under the Illinois Wage Payment and Collection Act and Illinois Attorneys

fees in Wage Actions Act in Count II.

On February 7, 2007, the trial court granted summary judgment

against HMC for Count I, the Breach of Contract claim, and set a date for

prove up of damages. On June 12, 2007 the court held a prove up.

Plaintiff flew in from South Carolina to testify at the prove up. At the

hearing, counsel for HMC suddenly moved for a jury trial on the issue of

damages. Yet, Hannah had previously responded to requests to admit as

to the amount of Covinsky’s salary, his 401k contribution, his company

car and his medical care benefit costs all of which were introduced into

evidence. Covinsky testified as to his damages claiming loss of salary

and benefits for 18 months for a total of $311,653. The court took

Covinsky’s testimony and then continued the hearing, allowing Hannah

3

to respond or to supplement facts. HMC filed no response or

supplemental information.

The court proceeded as to Count II, the Illinois Wage Payment and

Collection Act claim. On October 1, 2007 summary judgment was

granted to Covinsky and against HMC and a finding of damages in the

amount of $311,653 was entered against HMC as to liability based on

the prior prove up. Interest was allowed under the Interest Act with

attorney’s fees to be added as “costs”. HMC’s amended counterclaim was

dismissed for failure to state a cause of action in light of the “Business

Judgment Rule”. HMC was granted leave to file a second amended

counterclaim within 28 days which it declined to do.

The matter proceeded as to the remaining issues. On February 19,

2008, the Court renewed its prior order and granted summary judgment

against HMC on the Breach of Contract claim, now finding the same

amount of $311,653 was due Covinsky under the contract. As to the

Illinois Wage Payment and Collection Act claim against Donald Hannah

personally, the court refused to impose personal liability and dismissed

the Wage Act claim against him.

Appeal was duly filed by Covinsky as to the denial of liability of

Donald C. Hannah and partial denial of attorney’s fees, and an appeal

was taken by HMC contesting its liability and dismissal of its amended

counterclaim.

4

ISSUES PRESENTED FOR REVIEW

Issues raised by HMC in its appeal:

1. Whether the trial court erred as a matter of law in finding that

Paragraph 7(g) of Covinsky’s contract applied regardless of whether

Covinsky’s termination of employment following a change in control was

voluntary or involuntary.

2. Whether the trial court’s findings of fact as to the measure of

damages for violation of the Wage Payment Act was against the manifest

weight of the evidence.

3. Whether the trial court erred in denying Hannah Marine

Corporation a jury trial as to damages under the Wage Act where jury

demand was made on the day of the prove up of damages, Plaintiff’s

witnesses were present in court for the hearing and the elements of

damages had been admitted by Hannah in response to Plaintiff’s prior

requests to admit.

4. Whether the trial court erred in dismissing Hannah Marine’s

First Amended Counterclaim for failure to state a cause of action.

5. Whether the trial court erred in denying HMC’s request to

continue discovery as to its counterclaim after the action had been

dismissed?

Issues jointly disputed by HMC and Covinsky:

6. Under the Illinois Attorney’s Fees in Wage Actions Act, is a trial

court correct where it fails to provide recovery of fees incurred for defense

5

of meritless counterclaims and other motions, and prosecution of the

contract action that was part and parcel of the Wage Payment Act claim?

Additional issue raised in Covinsky’s appeal:

7. Whether the trial court erred in refusing to enter judgment

against Donald C. Hannah personally as a “responsible person” under

the Illinois Wage Payment and Collection Act.

JURISDICTION

This court has jurisdiction pursuant to Illinois Supreme Court

Rule 303 in that this is an appeal from a final judgment entered in the

Circuit Court of Cook County on February 19, 2008. (R. C605-607)1 On

March 12, 2008 Covinsky timely filed his notice of appeal (R. C657) and

on March 19, 2008 HMC filed its notice of appeal. (R2. C105).2

STATUTES INVOLVED

705 ILCS 225/1 et seq., The Illinois Attorneys fees in Wage Actions Act

735 ILCS 5/2-1005 (2005) regarding Summary Judgment.

815 ILCS 205/2, The Illinois Interest Act.

820 ILCS 115/1 et seq. (2007), The Illinois Wage Payment Act,

1 All references to the Record on Appeal for Appeal No. 08-0695 are made by the notation “(R. C___)”, with the page(s) of the record referenced to be inserted in the blank. 2 All references to the Record on Appeal for Appeal No. 08-0779 are made by the notation “(R2. C___)”, with the page(s) of the record referenced to be inserted in the blank.

6

STATEMENT OF FACTS

A. COVINSKY’S CLAIM FOR BREACH OF CONTRACT BY HMC AND

VIOLATION OF THE WAGE PAYMENT AND COLLECTION ACT BY HMC AND

DONALD HANNAH

1. Covinsky’s Employment Agreement and Golden

Parachute

In 1997, Jeffrey Covinsky was hired as president and chief

executive officer of HMC. (R. C4; R. C131; R. Tr. 15).3 He entered into

a certain employment contract with HMC, a copy of which was

attached to the complaint and acknowledged by HMC. (R. C4-22; R.

C139). Certain provisions of the contract are at issue:

Section 3 of Covinsky’s Employment Agreement provides:

“During the term of this Agreement and any extensions thereof, Employee shall receive for his services a salary as follows: . . . . (b) during the period from March 1, 2005 to February 28, 2006, a salary at the rate of $170,352 annually; and (c) during the period from March 1, 2006 to February 28, 2007, at a salary to be agreed upon between Employee and Hannah, but not to be less than the amount in 3(b) above. Said salary shall be paid in accordance with the normal payroll schedule and procedures. In addition, Employee shall be entitled during the period of employment hereunder to participate on the same basis as all other employees in all employee benefit programs (including, without limitation, any such programs providing vacation, sick leave, retirement benefits, disability benefits, life insurance, medical insurance or dental insurance) maintained by Hannah from time to time, subject to the eligibility and participation rules in effect from time to time

3 All references to Volume 4 of 4 of the Record on Appeal for Appeal No. 08-0695 are made by the notation “(R. Tr.___)”, with the page(s) of the record referenced to be inserted in the blank.

7

for such programs. Employee shall each year be entitled to a vacation period of five (5) weeks which shall not include more than two (2) consecutive weeks at any one time. Additionally, the Employee shall be entitled to a Company car similar in model and style to the Company cars of other employees of Hannah. Such car shall be used for Company business and the Employee shall be reimbursed in accordance with Company policy for expenses incurred in the operation of the vehicle. (R. C13-14). Section 7 of the contract sets forth the parties rights and

obligations upon “Early Termination.” (R. C15-17). Subsections (a) –

(e) are “for cause” severance clauses, subsection (f) is a “not for cause”

severance clause, and subsection (g) is what has been referred to as a

“golden parachute” clause. (R. C15-17). Paragraph 7(g) of the

contract provides in its entirety:

(g) In the event that Hannah is sold, merged with another corporation, or there is a change in the present ownership which results in the termination of the Employee’s employment as President and Chief Executive Officer and Chief Operating Officer of Hannah, Hannah shall pay to Employee an amount equal to eighteen (18) months salary as set forth under the contract salary rate then in existence. (R. C17).

2. There was a “change in present ownership” of HMC while

Covinsky was President and Chief Executive Officer

HMC admitted that there was a change in control, stating “Hannah

acquired the balance of the shares in HMC on May 9, 2006.” (R. C34).

Further, HMC stated “The parent of HMC, James A. Hannah, Inc.

(“JAH”), was acquired by Donald C. Hannah on May 9, 2006” (R. C47),

and that “at the last board meeting under the prior management of

HMC”. (R. C47).

8

In addition to the pleadings which formed the basis for Covinsky’s

Summary Judgment Motion, on November 16, 2006, HMC filed its

Answer to the Complaint. (R. C131-136). In its answer it admitted the

following allegations of the complaint:

12. On information and belief it is alleged that on or about May 9, 2006, DONALD HANNAH purchased or caused to be purchased all of the outstanding interest of James A. Hannah, Jr. and Margaret Maloney and related family interests, such that his one third interest in the company resulted in his ownership of control of 100% of the company. 13. On information and belief it is alleged that on or about May 9, 2006, as a result of the acquisition of HANNAH MARINE CORPORATION by DONALD HANNAH, James A. Hannah, Jr. and John McNulty resigned as the directors of HANNAH MARINE CORPORATION and DONALD HANNAH became the sole director and Chief Executive Officer. (R. C132).

On April 19, 2007 Donald C. Hannah filed his response to certain

Requests to Admit. (R. C219). In his response, Donald Hannah admitted

that prior to May 9, 2006 HMC was owned in approximately one third

interests by Donald Hannah, James A. Hannah Jr. and Margaret

Maloney. (R. C219). Donald C. Hannah further admitted that on or

about May 10, 2006, he became the officer and sole owner of HMC. (R.

C219).

3. Covinsky’s employment with HMC was terminated “as a

result of” the “change in present ownership” In the Statement of Facts submitted by attorney Christopher

Saternus to the Department of Employment Security and attached as an

Exhibit to its pleadings before the court, HMC alleged that “Covinsky told

9

Christopher Saternus, attorney for Donald C. Hannah, that he would not

work for Donald C. Hannah and would resign on the date which the deal

was concluded.” (R. C47).

Further HMC alleged that, after learning of the change in control,

Covinsky stated in a January 4, 2006 email “I will be resigning the date

the transaction is finalized, unless we have an agreed upon exit

strategy.” (R. C40). Covinsky further stated in a January 9, 2006 email:

I would be remiss, however, by noting that I continue to be disappointed in our lack of conversation regarding my long term situation. . . . I had hoped that we could reach an agreement that would allow you the benefit from my presence for a transitional period of time, while affording me the security that would normally be expected in any situation, where a change of ownership takes place. My offer remains on the table. However, I must reiterate that I am prepared to resign my position as president immediately upon the completion of the ownership change. (R. C42).

HMC admitted that “Mr. Covinsky was told on May 10 [the day

after the change of ownership] that his resignation was accepted and was

allowed pay through the end of the week as a gesture of courtesy.” (R.

C34; R. C47).

4. Donald Hannah admitted that he was in control of the

HMC’s checking accounts and that HMC was solvent

In his response to the Covinsky’s Requests to Admit, Donald

Hannah admitted that he had corporate check signing authority some

time after May 10, 2006 and that he was “the chief executive officer” at

the time of Covinsky’s departure. (R. C219-20; R. C221). Further,

10

Donald Hannah admitted HMC was not insolvent and was current on all

payroll liabilities at the time of Covinsky’s departure and had sufficient

credit available from its commercial lender to pay wages. (R. C222-23).

5. The Trial Court’s Orders as to HMC’s Liability for Breach of

Contract and Violations of the Illinois Wage Payment and Collection Act.

a. HMC is liable for Count I, Breach of Contract.

On February 7, 2007, the trial court entered its order for summary

judgment against HMC as to Count One of the Complaint, Breach of

Contract. (R. C165-66). The trial court found that there was a change in

ownership of HMC, that “Paragraph 7(g) applies in a situation where,

upon a change in ownership, Covinsky voluntarily resigns,” and that

termination for Paragraph 7(g) of Covinsky’s Employment Agreement

includes “the employee’s voluntary resignation.” (R. C165-166).

b. Determination of Damages and the Prove-Up

In its May 16, 2007 order, the trial court denied HMC’s motion for

reconsideration of the February 7, 2007 order that awarded Covinsky

summary judgment as to Count One. (R. C255). In that same order, the

court set June 12, 2007 as the hearing date on damages for Count One.

(R. C255).

On April 19, 2007 Donald C. Hannah, in his response to Requests

to Admit, stated Covinsky’s salary was $170,352, that Covinsky

participated in HMC’s 401(k) plan for which the company matched the

first 6% of compensation, that Covinsky participated in the company’s

11

family medical program which cost HMC approximately $1,000 per

month. (R. C220-21). Donald Hannah further admitted Covinsky was

provided with a company car at no cost to Covinsky. (R. C220-21).

On June 12, 2007, “commencing at the hour of 10:10 a.m.” (R.

Tr.2) the prove-up of Covinsky’s damage claim started. Covinsky’s

counsel waived his jury demand as to Count One, and counsel for HMC

advised the trial court that “if they’re waiving that right, we’re going to

assert it.” (R. Tr.9). The court was advised that Plaintiff flew to Illinois

from South Carolina for purposes of the prove-up. (R. Tr.8). The court

proceeded to hear evidence much of which comes from various

admissions on the part of HMC. (R. Tr.34; R. C220-221). The court took

evidence relative to the prove up and continued the matter. (R. C291).

No further briefs or supplemental evidentiary evidence was adduced by

HMC.

c. HMC is found liable under Count II, Wage Act Claim, and damages are awarded – but Donald Hannah is released of liability.

On October 1, 2007, the trial court entered summary judgment on

Count Two, the Wage Act Claim, as to HMC alone. (R. C470-72). It

ordered additional briefs as to Donald Hannah’s personal liability under

Count Two. (R. C470-72). Further briefing followed. The briefs related

to the personal liability of Donald Hannah can be found at R. C510-14

and R. C529-40.

12

d. Final Order

On February 19, 2008, the trial court renewed its finding, granting

summary judgment in favor of Covinsky and against HMC for the

contract action, allowed the same measure of damages of $311,653 as it

had found under Count Two, and reaffirmed its prior order denying

judgment against Donald C. Hannah personally. (R. C605-607). The

trial court allowed interest under the Interest Act from the next pay date

following Covinsky’s termination to the date of Judgment. (R. C606).

6. The trial court limited Covinsky’s Attorney Fees and Bill of

Costs

On October 11, 2007, Covinsky filed its motion for approval of first

bill of costs related to an award of attorney fees, as allowed under 705

ILCS 225/1. (R. C475-508). Further briefing followed. (R. C475-508; R.

C516-24; R. C543-551; R. C555-573; R. C574-583).

The trial court refused to grant the entire amount requested in

Covinsky’s motion for bill of costs, which was in excess of $70,000,

ruling that only time specifically allocable to the Wage Act Claim in

Count Two should be awarded, and denied fees relative to the

prosecution of the contract action in Count One or defense of the

counterclaim. (R. C606-607). The trial court did award attorney’s fees in

the amount of $11,103.71 for legal fees and $644.20 in costs based upon

HMC’s Response to Covinsky’s Motion for Approval of Revised First Bill of

Costs. (R. C606).

13

B. HMC’S COUNTERCLAIM AND AMENDED COUNTERCLAIM

On November 16, 2006, HMC filed a counterclaim against

Covinsky alleging conversion. (R. C131-136). HMC’s counterclaim

alleged Covinsky’s actions caused the loss of a lease on 8 acres of

property, which resulted in $600,000 in damages to HMC. (R. C135).

On February 14, 2007, Covinsky filed a motion to dismiss the

counterclaim, pursuant to 735 ILCS 5/2-615, for failure to state a cause

of action upon which relief may be granted. (R. C169-72). On May 16,

2007, the trial court granted Covinsky’s motion, dismissing the

counterclaim and granting HMC twenty-one days to refile. (R. C255).

On May 30, 2007, HMC filed its first amended counterclaim. (R.

C267-270). In its amended counterclaim, HMC alleged that in 1951 it

entered into a 99 year lease with the Metropolitan Sanitary District of

Greater Chicago for the lease of certain waterfront property alongside the

Chicago Sanitary and Ship Canal near Route 83 in Cook County Illinois

(R. C267). Additional properties were leased in 1961. (R. C267). In

1999, Covinsky, as the President of HMC, agreed to sublease a certain

portion of this property to Holnam, Inc. (R. C268). HMC alleged

Covinsky breached his fiduciary duty because “Despite granting Holnam

the right to sublease HMC’s Property, Covinsky did not demand any

consideration for HMC from Holnam.” (R. C269). Damages in excess of

$600,000 were alleged. (R. C270).

14

The Industrial Sublease was attached to the amended

counterclaim. (R. C 278). By its terms, HMC was able to pass its lease

expense to Holnam, Inc. on the property it was not using. (R. C278; par.

3(a)). However, the sublease had to be approved by the Metropolitan

Water Reclamation District (hereafter “Water District”). (R. C278; par.

3(a)). The rent from Holnam, Inc. to HMC was to be the differential of the

“fair market value” and the monthly base rent, as determined by the

master lease between HMC and the Water District. The sublease

between HMC and Holnam, Inc. provided notice must be given to

corporate counsel at “Vedder Price Kaufman & Kammholz” (R. C283).

On July 5, 2007, Covinsky filed his motion to dismiss the amended

counterclaim and sought sanctions under Supreme Court Rule 137. (R.

C294-333; R. C334-44).

Covinsky moved to dismiss the amended counterclaim as the

alleged acts were protected under the Business Judgment Rule – since

Covinsky, an officer, consulted with HMC’s legal counsel in the

negotiations of the lease, presented the lease to HMC’s Board of Directors

for approval, and did not personally benefit from the transaction. (R.

C294-308). Further, Covinsky argued that HMC’s damages were

speculative and the transaction provided HMC with the possibility of

consideration and relieved HMC of a recurring financial obligation on a

dormant asset. (R. C294-308).

15

As to Covinsky’s claim for sanctions, Covinsky gave timely notice

under Supreme Court Rule 137 that he believed HMC’s amended

counterclaim was not filed in good faith but was filed for purposes of

delay. (R. C342-343).

On October 1, 2007, the trial court entered its order as to

Covinsky’s motion to dismiss the amended counterclaim and motion for

sanctions. (R. C470-72). The court found that, “Hannah’s Counterclaim

fails to set forth any actions by Covinsky which would constitute a cause

of action for such Breach in light of the Business Judgment Rule.” (R.

C472). HMC was granted twenty-eight days to file its second amended

counterclaim (R. C472), which HMC did not file. Further, the trial court

denied Covinsky’s motion for sanctions. (R. C472).

C. COVINSKY AND HMC TIMELY FILED THEIR NOTICE OF APPEALS

On March 12, 2008, Covinsky timely filed its Notice of Appeal of

the court’s final order of February 19, 2008, denying liability under the

Wage Act as to Donald C. Hannah and denial of its fee request. (R.

C657). On March 19, 2008, HMC filed its Notice of Appeal of the

judgment entered against it in Counts Two and One and the dismissal of

its amended counterclaim. (R2. C105). On June 26, 2008, this Court

ordered the consolidation of the briefing schedule for the appeals.

STANDARD OF REVIEW

Appellate review of the grant of Summary Judgment is de novo.

Dept. of Public Health v. Wiley, 218 Ill. 2d 207, 220, 843 N.E. 2d 259, 267

16

(2006). Likewise, review of a contract interpretation is de novo. Avery v.

State Farm Mutual Automobile Ins. Co., 216 Ill. 2d 100, 129, 835 N.E. 2d

801, 821 (2005) Similarly, review of issues of statutory construction

regarding the interpretation of The Attorney Fees in Wage Actions Act are

de novo. In re Jamie P., 223 Ill.2d 526, 532, 861 N.E.2d 958, 962 (2007)

The trial court’s award of compensatory damages will be reversed

only if it is against the manifest weight of the evidence. Bell Leasing

Brokerage LLC v. Roger Auto Service, Inc. 372 Ill. App.3d 461, 473, 865

N.E. 2d 558, 568 (1st Dist. 2007). A finding is against the manifest

weight of the evidence if the opposite conclusion is clear from the record

or if the finding is unreasonable, arbitrary, and without a basis in the

evidence. Lyon vs. Dept. of Children & Family Services, 209 Ill.2d 264,

271, 807 N.E. 2d 423, 430 (2004).

When called upon to determine whether Supreme Court Rule 137

sanctions are appropriate in a given case, the appellate court must

employ an abuse of discretion standard of review. Baker v. Daniel S.

Berger, Ltd., 323 Ill. App. 3d 956, 753 N.E.2d 463. A trial court abuses

its discretion when no reasonable person could take the view it adopted.

Technology Innovation Center, Inc. v. Advanced Multiuser Technologies

Corp., 315 Ill. App. 3d 238, 732 N.E.2d 1129, 247 Ill. Dec. 797 (2000).

"When reviewing a decision on a motion for sanctions, the primary

consideration is whether the trial court's decision was informed, based

17

on valid reasoning, and follows logically from the facts." Technology

Innovation Center, Inc., 315 Ill. App. 3d at 244, 732 N.E.2d at 1134.

ARGUMENT

This brief, in parts I though V, responds to HMC’s arguments

raised in its brief under appeal 08-0779, and requests this court affirm

the trial court’s decisions as to these issues. In Part VI, both parties

objected to either the award (HMC) or limitations of the award (Covinsky)

of Plaintiff’s “reasonable attorney’s fees” under the Illinois Attorneys Fees

in Wage Actions Act. Argument is then made at point VII below relating

to Covinsky’s appeal of the trial court’s dismissal of Donald Hannah as a

responsible person under the Illinois Wage Payment and Collection Act.

I

THE TRIAL COURT RULED CORRECTLY THAT COVINSKY’S GOLDEN PARACHUTE TRIGGERED REGARDLESS OF WHETHER THE

TERMINATION WAS VOLUNTARY OR INVOLUNTARY

The issue of whether Covinsky resigned or was fired was disputed

in the trial court. It is undisputed that, immediately following the

change in control, Donald Hannah called Covinsky in and “accepted” his

resignation, a resignation Covinsky asserts he never tendered to Donald

Hannah. Yet the trial court ruled the factual issue was irrelevant because

Covinsky’s golden parachute triggered in either event, whether voluntary

or involuntary. (R. C165-66). Here, HMC argues that paragraph 7(g) of

Covinsky’s employment agreement applies only to involuntary

terminations because of: (1) its interpretation of the use of the term

18

“results”; (2) its comparison of paragraphs 7 and 8 of the contract, and

(3) the alleged ambiguity of the golden parachute provision. Whether by

fact or law, HMC’s arguments must fail.

A. COVINSKY’S GOLDEN PARACHUTE TRIGGERED WHETHER HIS EMPLOYMENT WAS

TERMINATED VOLUNTARILY OR INVOLUNTARILY

HMC’s sole argument, at page 13, that a voluntary resignation

cannot trigger a golden parachute clause is premised on HMC’s

misreading, and misrepresentation to this Court, of the ruling in

Williams v. Interpublic Severance Play Plan, 523 F.3d 819 (7th Cir. 2008).

HMC cites to Williams, 523 F.3d at 820, for the premise that:

[A] golden parachute clause only offers benefits to executives that resign following a change of control when the new owner fails to offer the executive a comparable position at the same salary. (HMC Brief at 13). In actuality, this was not the court’s holding – rather it was the

court’s description of the golden parachute provision contained in the

Interpublic Severance Play Plan which was before the court. (See

Williams v. Interpublic Severance Pay Plan, 2007 U.S. Dist. LEXIS 57368

(N.D. Ill. Aug. 7, 2007) wherein the District Court stated: “The Plan

specifically provides that an employee shall not be entitled to severance

benefits if his employment is terminated as the result of a sale of the

business and the employee is offered a ‘comparable position at a

successor employer at the same or a higher salary.’” (slip opinion p.2))

The Williams opinion turned on the second aspect of the plan, the

issue of whether Mr. Williams had been offered a higher salary and the

19

fact that he had voluntarily terminated his employment as “the result of

a sale of the business” was not in dispute. No such requirement of an

offer of a higher salary is present under these facts or under Covinsky’s

employment agreement.

Contrary to HMC’s position, voluntary terminations are often

covered by an employee’s “golden parachute” clause. As Judge

Easterbrook recognized in Gerow v. Rohm & Haas Co., 308 F.3d 721 (7th

Cir. 2002) at 723:

Golden Parachutes protect executives from surprise insecurity, and thus make them more willing to invest human capital in their firms; by making a change of control profitable to the executive. Moreover, the agreement aligns managers’ interests with those of investors, who usually gain substantially from takeovers and do not want managers to resist in order to protect their positions.

As explained by Professor Robert A. Prentice, “Frequently, the hostile

bidder need not even fire the managers; they may voluntarily quit and

still receive the benefits.” Robert A. Prentice, “Front-End Loaded, Two-

Tiered Tender Offers: An Examination of the Counterproductive Effects of

a Mighty Offensive Weapon”, 39 CASE W. RES. 389, 420 (1985). As stated

by Professor Charles M. Elson, 57 U. Cin. L. Rev. 699 at 699-700:

Golden parachutes typically have three basic clauses. These three components are: 1) A trigger clause based on a change of control; 2) a termination clause; and 3) a compensation clause. The trigger clause sets forth the conditions that must occur before the golden parachute becomes operative. The conditions are usually based on some objective standard such as the accumulation of stock by a potential corporate raider, a fundamental change in the corporate asset structure, or a change in the composition of the board of directors. . .

20

After the golden parachute has been triggered, the termination clause determines if and when the benefits provided in the compensation clause will be paid out to the executive. Typically, the termination clause provides that an executive can claim benefits only after actual termination by the corporation after a change of control, or that he may resign if his position and responsibilities have been materially reduced by the new corporation.

The golden parachute section of Covinsky’s contract is set forth

in Paragraph 7(g) of the contract and provides:

(g) In the event that . . . there is a change in the present ownership which results in the termination of the Employee’s employment as President and Chief Executive Officer and Chief Operating Officer of Hannah . . .” (R. C17).

then HMC is liable for eighteen months of salary.

The plain language of Section 7 (g) shows that it contains all three

clauses of the model golden parachute: 1.) the trigger clause (“there is a

change in the present ownership”), 2.) the termination clause (“which

results in the termination of the Employee’s employment as…”), and 3.)

the compensation clause (“shall pay an amount equal to eighteen (18)

months salary . . “). This plain language also shows that Covinsky’s

termination clause is not concerned with who initiated the termination,

this clause only requires that the termination be the result of: (1) a

change of control or ownership (2) followed by the termination of the

employment relationship.

Absent from (g) is the requirement that the termination be caused

by Hannah or be involuntary in any fashion. Paragraph (g) does not

state “if Hannah or the new owner terminates Covinsky” then payment is

21

due nor does it use words like “discharge” or “release”, whose definition

implies Employer termination. This is especially apparent when (g) is

compared to the severance paragraphs under Early Termination, which

clearly express the power and requirement of an Employer initiated

termination. (“Hannah may terminate” Paragraph 7(a) – (f)). The

termination described in 7(g) is modified only by the phrase “results in”,

further indicating that this clause is not concerned with who initiates the

contract termination – only that the employment relationship is ended.

Also absent from 7(g) is the detailed reasons that would give rise to a

termination for cause or not for cause as described in the severance

sections (a) – (f). Instead, Covinsky’s golden parachute, like most

executive agreements, puts the ripcord in Covinsky’s hand.

Contrary to HMC’s position, the use of the term “results” in

Section 7(g) does not require an involuntary termination of the

Employment Agreement. Here the facts are clear that Donald Hannah

purchased his sibling’s interest in HMC, acquiring complete control of

the company. Under the Employment Agreement, Covinsky’s

termination must be merely the “result” of the change of control. (R.

C17). The result is without regard to the voluntariness of the

termination. HMC’s request to incorporate a “voluntary” requirement

would require this Court to write in a new term for this contract, which

the parties never contemplated at the time of execution.

22

The dictionary defines “results” to mean “to spring, arise or

proceed as a consequence of actions, circumstances, premises, etc.; be

the outcome” (www.dictionary.com). Covinsky’s employment agreement

simply provides that Covinsky shall be entitled to 18 months severance

pay in the event of “a change in the present ownership which results in

the termination of the Employee’s employment as President and Chief

Executive Officer and Chief Operating Officer of Hannah.” (R. C17).

The plain reading of the contract does not state which party, HMC

or Covinsky, must initiate the termination of the employment agreement.

The contract simply requires the termination to result (or spring, arise, or

proceed) from a change in control, or present ownership. It is clear that

a change of control occurred and what sprung, arose, and proceeded was

Covinsky’s termination. HMC’s suggestion that the “result” can be

derived only from HMC’s firing of Covinsky is not what the Agreement

states, nor is such reading logical.

As Judge Easterbrrok noted, golden parachutes align

management’s interest with the stock holder or ownership’s interest. If

there is a change in control, as occurred here, the language gives

Covinsky the option to work for the new owner or claim his severance.

But the option is Covinsky’s, not Hannah’s. If he chooses to work for the

new Buyer, he may do so. However, if he chooses to rest on his contract,

he may do so as well.

23

Here the facts are clear that a change in present ownership

occurred, which resulted in Covinsky’s termination, and triggered the

“golden parachute” clause under Paragraph 7(g) of Covinsky’s

employment agreement.

B. PARAGRAPH 8’S DISCUSSION OF RESIGNATION ACTUALLY SUPPORTS COVINSKY

HMC’S RELIANCE ON PARAGRAPH 8 IS MISPLACED

As used in Paragraph 7(g) of the Employment Agreement, the term

“termination” includes both voluntary and involuntary terminations. (R.

C165-66). HMC’s contention otherwise is an attempt to rewrite the

agreement after the fact. The trial court fully reviewed the Employment

Agreement, including Paragraph 8 upon which HMC relies.

Hannah argues that, because section 8 of the contract contains the

phrase “or should Employee resign or otherwise terminate his

employment” (HMC Brief p. 10), this language indicates that the parties

distinguished between a resignation and a termination. Covinsky

submits the language in Paragraph 8 suggests just the opposite, i.e., that

the word “terminate” includes a resignation. To “resign or otherwise

terminate” suggests that a resignation is one way to terminate one’s

employment. Since paragraph 7(g), the golden parachute clause actually

at issue in the case sub judice does not distinguish between the two

types of termination, HMC’s argument to the contrary is not compelling.

HMC’s interpretation and application of Section 8 is further

misplaced. Section 8 is a non-compete clause which becomes effective

“after termination of Employee’s employment with Hannah for any reason

24

with cause or should Employee resign or otherwise terminate his

Employment . . .” Different periods for the non-compete provisions apply

based on the form of termination. In essence, the clause becomes

effective upon an involuntary termination, with limitations, and a

voluntary termination. HMC posits that because the parties

contemplated a voluntary termination here – it should be referenced in

all other termination provisions in the agreement. HMC fails to address

that the “termination” used in Section 7(g) and 8 are different. Moreover,

HMC fails to provide any analysis of the provisions contained in Section

7 itself. HMC’s argument that the trial court disregarded the evidence of

the parties’ intent fails in light of the consistencies within Section 7

where distinctions between voluntary and involuntary terminations are

made.

Paragraphs 7(a) through 7(f) specifically address involuntary

terminations.

7. Early Termination . . . .

(a) If Employee dies during the term of this Agreement . . . (b) If, after a period of six months and because of any illness

or disability . . . this Agreement may be terminated by Hannah. . . . .

(c) If Employee has failed to perform . . .Hannah may terminate Employee’s employment . . .

(d) In the event of an act of Employee involving dishonesty . . . Hannah may terminate Employee’s employment . . .

(e) After termination pursuant to any foregoing provisions . . . (f) Hannah may terminate Employee’s employment at any

time . . .

25

As the trial court found, much of Section 7 calls for Hannah to be

the active party and allows Hannah the power to terminate to trigger

those clauses. As the trial court found, Section 7(g) is different, it

requires merely “a change in control which results in the termination”

and does not require the termination to be involuntary. If the parties

intended Paragraph 7(g) to be limited in its application to involuntary

terminations, such language could have been included—as it was in

Paragraphs 7(a) through 7(f). Since this language was not included, the

trial court’s finding that Paragraph 7(g) includes both voluntary and

involuntary termination is the only reasonable interpretation, and it is

wholly consistent with Section 7 and the entire contract.

C. PARAGRAPH 7(G) IS NOT AMBIGUOUS AND ANY AMBIGUITY THAT RESULTS IS TO

BE RESOLVED AGAINST HMC, THE DRAFTER OF THE AGREEMENT Covinsky posits that there is nothing ambiguous about the “golden

parachute” provision. Had the parties intended for the term

“termination” to be solely an involuntary termination – the parties could

have used the language present in Paragraphs 7(a) –(f). The parties did

not include such language. As such, the provision lacks ambiguity and

the trial court’s ruling was reasonable.

This Court has stated, in Newcastle Properties, Inc. v. Shalowitz,

221 Ill. App. 3d 716, 722-723 (1st Dist. 1991), that:

The mere fact that the parties do not agree upon the meaning of the terms of a contract does not create an ambiguity. Where the question [before the court] involves one of contract construction, a court of review may ascertain the meaning of contract provisions from the instrument itself as a matter of law. [C]ontract terms

26

must be given their plain, ordinary, popular and natural meaning. (Citations omitted). The Mirriam-Webster Dictionary defines “termination” as an “end

in time or existence.” The plain, ordinary meaning of an employment

termination is merely the “end in time” of the employee-employer

relationship, regardless of whether the employee or employer initiated the

termination. Even if this plain language can somehow be infused with

ambiguity, this ambiguity must be resolved against Hannah as the

drafter of the contract because it is black letter law in Illinois and nearly

every jurisdiction that when deciding contract rights:

the terms of an agreement, if not ambiguous, should generally be enforced as they appear (P.A. Bergner & Co. v. Lloyds Jewelers, Inc., 112 Ill. 2d 196, 203, 492 N.E.2d 1288 (1986)), and those terms will control the rights of the parties (Midland Management Co. v. Helgason, 158 Ill. 2d 98, 103, 630 N.E.2d 836 (1994)). Moreover, any ambiguity in the terms of a contract must be resolved against the drafter of the disputed provision. Duldulao v. St. Mary of Nazareth Hospital Center, 115 Ill. 2d 482, 493, 505 N.E.2d 314 (1987). Dowd & Dowd, Ltd. v. Gleason, 181 Ill. 2d 460, 479, 693 N.E.2d 358 (1998).

Covinsky requests the Court affirm summary judgment on breach of

contract because there was a change in present ownership that resulted in the

termination of Covinsky’s employment at HMC. The golden parachute in

Paragraph 7(g) does not require involuntary termination, other sections of

Paragraph 7 supports this reading, and Paragraph 8 also supports this

reading. Finally, there is no ambiguity, and if there were, it would be held

against HMC.

27

II

THE TRIAL COURT’S AWARD OF DAMAGES IS NOT AGAINST THE MANIFEST WEIGHT OF THE EVIDENCE

Hannah next argues there exists genuine issues of material fact

relative to the trial court’s finding of damages. On June 12, 2007 the

court heard evidence at a prove-up of damages. Covinsky testified as to

the components of the “salary” which he was receiving prior to his

termination. Under the contract, his “salary” included his wages,

medical benefits, pension benefits, and a company car. Covinsky valued

the package for 18 months as being worth $311,653. (R. Tr. 22).

Hannah’s attorney participated in the hearing and was given an

opportunity to make further inquiry or objection as to damages (R. Tr.

38-39). Hannah did nothing, and on October 1, 2007 judgment was

entered for this amount under the Wage Act claim.

Covinsky submits that the terms of the Employment Agreement

speak for themselves and the lower court correctly determined the award

of damages, and those findings should not be disturbed unless against

the manifest weight of the evidence. Bell Leasing Brokerage LLC v. Roger

Auto Service, Inc. 372 Ill. App.3d 461, 473, 865 N.E. 2d 558, 568 (1st

Dist. 2007). Hannah disputes the trial court’s findings of fact relative to

the measure of damages. Hannah objects that the fringe benefits should

not be considered “wages” under the Wage Act.

Further, HMC argues that Paragraph 7(f) of the agreement requires

that Covinsky exercise an option to be included in HMC’s health

28

insurance coverage before it can be awarded as damages under

Paragraph 7(g). Covinsky submits this argument was not raised in this

trial court and should be considered waived for appeal. In the event

such argument was not waived, Paragraph 7(g) contains its own damage

clause provision, HMC’s interpretation is inconsistent with traditional

contract interpretation, and is frivolous.

A. THE TRIAL COURT CORRECTLY INCLUDED COVINSKY’S BENEFITS AS “WAGES”

UNDER THE ACT The Trial Court correctly awarded Covinsky the value of 18 months

of regular pay and the value of his participation in HMC’s 401(k) plan,

medical insurance program, and use of the corporate vehicle – pursuant

to Paragraph 7(g) and Section 3 of the Employment Agreement. The trial

court’s finding of the additional benefits as “wages” under the Illinois

Wage Payment and Collection Act (820 ILCS 115/1, et seq.) is supported

by both statute and case law. Section 2 of the Illinois Wage Payment Act,

820 ILCS 115/2 (2007) states:

For all employees, other than separated employees, "wages" shall be defined as any compensation owed an employee by an employer pursuant to an employment contract or agreement between the 2 parties, whether the amount is determined on a time, task, piece, or any other basis of calculation. Payments to separated employees shall be termed "final compensation" and shall be defined as wages, salaries, earned commissions, earned bonuses, and the monetary equivalent of earned vacation and earned holidays, and any other compensation owed the employee by the employer pursuant to an employment contract or agreement between the 2 parties. . . . (emphasis added).

In Zabinsky v. Gelber Group, Inc., 347 Ill. App. 3d 243 (1st Dist.

2004), this Court upheld a verdict awarding Plaintiff salary, a quarterly

29

bonus, retirement benefits under a pension plan, and medical benefits,

as allowed under 820 ILCS 115/1 stating:

The terms of plaintiff's employment contract classified "relocation expenses" as part of plaintiff's compensation package. The Wage Act includes "any other compensation owed" as part of an employment contract within the statutory definition of "wages." It properly follows that plaintiff's relocation expenses were part of the compensation owed under his employment contract and the Wage Act.” Anderson v. First Am. Group of Cos., 353 Ill. App. 3d 403, 415 (Ill. App. Ct. 2004)

Further, in Catania v. Local 4250/5050 of the Communications

Workers of America, 359 Ill. App. 3d 718, 834 N.E.2d 966 (1st Dist.

2005), the court noted that the definition of Wages under the Wage

Payment Act is to be broadly construed, stating at 359 Ill. App. 3d at

725:

In addition to the expansive meaning given to the term "employer"

under the Wage Payment Act, a separated employee is entitled to recover

much more than contractual wages. Under the act, an employee is

entitled to "final compensation", which includes not only wages, but also

encompasses earned commissions, earned bonuses, the monetary

equivalent of earned vacation and earned holidays, and "any other

compensation owed the employee by the employer pursuant to an

employment contract or agreement between the 2 parties." 820 ILCS

115/2 (West 1998). Because a separated employee is entitled to more

than just contractual wages, we believe that the legislature created new

rights for employees upon the termination of their employment.

30

The benefits present under Plaintiff’s Employment Agreement are

consistent with the term “wages” or “final compensation” as addressed in

Section 2 of the Act. As such, Covinsky’s damages under the Act can

include both the annual compensation received and the monetary value

of his denied employee benefits.

Here the contract is clear. Under Section 7(g) of the contract, the

change in control triggered Hannah’s obligation to “pay to Employee an

amount equal to eighteen (18) months’ salary as set forth under the

contract salary rate then in existence.” Thus at a minimum, Covinsky

was entitled to $255,528 in salary.4 Yet, it is submitted that the

Agreement contemplates more than a simple “salary” calculation.

Section 3(c) of the employment agreement defines “salary” not only to the

cash portion but to the fringe benefits as well. Specifically, Section 3(c)

states:

“During the term of this Agreement and any extensions thereof, Employee shall receive for his services a salary as follows: (c) during the period from March 1, 2006 to February 28, 2007, at a salary to be agreed upon between Employee and Hannah, but not to be less than the amount in 3(b) above ($170,352) Said salary shall be paid in accordance with the normal payroll schedule and procedures. In addition, Employee shall be entitled during the period of employment hereunder to participate on the same basis as all other employees in all employee benefit programs (including, without limitation, any such programs providing vacation, sick leave, retirement benefits, disability benefits,

4 This calculation is based upon 18 months of Covinsky’s annual cash salary of $170,352.

31

life insurance, medical insurance or dental insurance) maintained by Hannah from time to time, subject to the eligibility and participation rules in effect from time to time for such programs. Employee shall each year be entitled to a vacation period of five (5) weeks which shall not include more than two (2) consecutive weeks at any one time. Additionally, the Employee shall be entitled to a Company car similar in model and style to the Company cars of other employees of Hannah. Such car shall be used for Company business and the Employee shall be reimbursed in accordance with Company policy for expenses incurred in the operation of the vehicle. (Emphasis added)

The language of “in addition” and “additionally” fall within Section

3(c). It is submitted that the language of the Agreement includes the

benefits in the definition of “salary” as the trial court found. The term is

expanded beyond the monetary amount and provides that “in addition”

he is to receive benefits under the 401-k plan, the medical insurance

plan and “Additionally” he is to receive the use of a company car. Donald

Hannah admitted that Covinsky participated in the 401-k plan with a 6%

match (R. C220-21), which was valued at $852 per month. Donald

Hannah admitted the value of Covinsky’s medical insurance was

approximately $1,000 per month. (R. C220-21). Donald Hannah further

admitted Covinsky was provided a company automobile for his personal

and business use at no cost to Covinsky. (R. C220-21). These were

considered in the trial court’s findings of fact as to the measure of

damages and should not be disturbed on appeal. It is the exact measure

of damages to which Covinsky testified and the only evidence available.

Thus it is submitted that the trial court’s construction of the

contract was correct, that the trial court’s finding of the measure of

32

damages comported with the definition of “salary” under the contract and

that such “salary” constituted “wages” under the Wage Payment Act. The

trial court’s finding should not be disturbed unless against the manifest

weight of the evidence.

B. PARAGRAPH 7(G) OF THE EMPLOYMENT AGREEMENT DOES NOT

REQUIRE COVINSKY TO “OPT-IN” TO THE HMC’S HEALTH

INSURANCE COVERAGE Further, HMC argues the trial court erred in awarding damages for

loss of medical insurance coverage under Paragraph 7(g), as Covinsky

failed to exercise his “option to participate” in such plan. (HMC Brief p.

14). This argument was not raised in the trial court and should be

considered waived for purposes of this appeal. Western Casualty &

Surety Co. v. Brochu, 105 Ill. 2d 486, 500-01, 86 Ill. Dec. 493 (1985);

Surestaff, Inc. v. Open Kitchens, Inc., 2008 Ill. App. LEXIS 740 (Ill. App.

Ct. 1st Dist. July 25, 2008).

HMC relies on Paragraph 7(f), which is the early termination

provision applicable if HMC terminated Covinsky without cause, a

provision inapplicable in this case. Similar to Paragraphs 7(e) and (g),

paragraph 7(f) contains a separate and unique damages provision

applicable solely to that provision. Finally, Covinsky offered the only

evidence into the record on damages, and included the health insurance

in that measure.

33

III

THERE WAS NO ERROR REGARDING HANNAH’S RIGHT TO A JURY TRIAL ON DAMAGES

HMC next argues that it had a right to a jury trial as to damages

under the Contract action in Count I because of the demand it made

orally on the day of the prove up of damages. As the transcript indicates,

the hearing began at 10:10 a.m. on June 12, 2007. At some time

following the hearing, at 11:25 a.m. on June 12, 2007, Hannah filed its

“Amended Jury Demand” (R. C290). At the prove up, the court ruled

that it would accept the testimony of Mr. Covinsky since he was present

that day in court for the hearing and the elements of damages had been

admitted by Hannah in its prior responses to Plaintiff’s Requests to

Admit.

The court reserved final ruling on the motion pending briefing by

the parties or supplemental filings. The order entered June 12, 2007

stated that the “prove-up is entered and continued.” Yet Hannah filed no

briefs regarding its jury demand until it filed its brief in the appellate

court. The trial court then moved on to the Wage Act claim in Count II

and awarded Summary Judgment as to liability on Count II and found

damages in the amount of $311,653 based on the prove up. These

findings were entered by order of October 1, 2007. HMC filed no brief or

discovery request relative to the damage issue between the June 12,

2007 hearing and the October 1, 2007 ruling.

34

In the October ruling, the trial court found there was “no genuine

issue as to any material fact regarding Covinsky’s compliance with the

terms and provisions of the Act, that the balance due Covinsky under

Paragraph 7(g) of the Employment Agreement constituted the final

compensation due Covinsky under the Act, that the amount due

Covinsky pursuant to such Employment Agreement was $311,653” (R.

C470). The order makes no mention of Hannah’s jury demand. It is

neither granted nor denied.

As to the Wage Act claim, the law is clear that HMC had no right to

a jury trial. This court stated in Catania v. Local 4250/5050, 359 Ill.

App. 3d 718, 296 Ill. Dec. 161 at 168 (1st Dist. 2005):

[W]e conclude that the Wage Payment Act created a cause of action distinct from a common law action for breach of contract. We therefore hold that the Illinois Constitution does not confer the right to a jury trial for actions filed pursuant to the Wage Payment Act and, in the absence of a jury conferring the right to a jury trial, no such right exists. (citations omitted).

Since damages were found first under this count to which HMC had no

jury right, the matter was res judicata and could not be relitigated. The

same measure of damages applied both to Count II and Count I.

Further, HMC admitted all the elements that comprised the measure of

damages under the Act as would be at issue under the contract claim. In

short, there was no issue left for a jury to decide because of Covinsky’s

assertions, HMC admissions and waivers, and the contract itself. Thus,

HMC’s claim that the court erred in denying it a right to a jury trial as to

the measure of damages is without basis in fact or law.

35

IV THE TRIAL COURT CORRECTLY DISMISSED THE FIRST AMENDED

COUNTERCLAIM FOR FAILURE TO STATE A CAUSE OF ACTION FOR BREACH OF FIDUCIARY DUTY

HMC next objects that the trial court erred in dismissing its First

Amended Counterclaim. The trial court ruled the Counterclaim failed to

allege sufficient facts to overcome Covinsky’s defense of the Business

Judgment Rule. While there is no question that Covinsky, as President

of HMC, owed the fiduciary duties of loyalty, good faith and fair dealing,

the trial court found that HMC failed to plead any facts that indicated

that he breached such obligation. The First Amended Complaint does

not allege Covinsky was negligent in his duties, operated under a conflict

of interest, or personally benefitted from any decision he made relative to

a sublease of corporate property.

The only allegation was that Covinsky should have obtained a

better bargain for HMC through the sublease. In response to the First

Amended Counterclaim Covinsky filed an affidavit (R. C333) in support of

his Motion to Dismiss wherein he states that he “was the President of

HMC at the time of the assignment, that he received advice of corporate

counsel and input from the Board of Directors on this issue” (R. C295)

and that, in his opinion HMC benefitted by the lease in that “Hannah

had not used the property in question since at least 1997. Under its

lease with the Water Reclamation District, Hannah was required to pay

real estate taxes, EPA fees, canal wall repair and other maintenance, and

36

rent for this asset. The sublease relieved Hannah of this financial drain.”

(R. C304).

A. UNDER THE BUSINESS JUDGMENT RULE, HMC’S COUNTERCLAIM WAS

NOT WELL GROUNDED IN FACT OR EXISTING LAW

The counterclaim was based on a contract negotiated by Covinsky

on Hannah’s behalf, through which Hannah sublet a parcel of land to its

neighbor, Holnam, Inc. Under the business judgment rule, this

counterclaim was without merit, on its face, because a) Covinsky did

everything required of an officer or director of a corporation, b) to the

extent consideration was allowed under the Prime Lease with the Water

Reclamation District, the sublease granted Hannah that consideration,

and c) even if the sublease provided Hannah with no additional

consideration, it still served the legitimate business purpose of

eliminating significant operating costs on a dormant asset. As such, the

business judgment rule required that the counterclaim be dismissed.

1. Covinsky did everything this Court requires of a corporate officer where he consulted with Hannah’s legal counsel throughout

the negotiation process, consulted with Hannah’s Board of Directors, which included the majority shareholder, and did not

seek to personally benefit from the transaction

The Business Judgment Rule does not require that officers and

directors make perfect decisions, it simply requires that officers and

directors make reasonable decisions, free from personal conflicts of

interest, and after proper steps are taken to ensure a reasonable

decision. See Stamp v. Touche Ross Co., 263 Ill. App. 3d 1010, 1015

(1993)(holding that an officer or director of a corporation should not be

37

held liable for the performance of his duties if performed in good faith

and in a manner he reasonably believes to be in the best interests of the

corporation). In the instant matter, Covinsky complied with the law.

a. Covinsky consulted with Hannah’s legal counsel throughout the negotiations

HMC’s counterclaim failed to mention that throughout the entire

negotiation process, Covinsky sought and reasonably relied on the advice

of Hannah’s legal counsel, Mr. Michael Igoe at the law firm Vedder, Price,

Kaufman & Kammholz. Exhibit A attached to HMC’s counterclaim,

showed that when Covinsky sought the Water Reclamation District’s

consent to the sublease, a copy of the letter was sent to legal counsel.

Exhibit C of the counterclaim, the sublease, actually lists Vedder Price as

the law firm to be copied with any notice pertaining to the lease. There

can be no dispute that Covinsky consulted with and reasonably relied on

the advice of counsel and that this reliance is dispositive of the issue. As

stated in IOS Capital, Inc. v. Phoenix Printing, Inc., 348 Ill. App. 3d 366,

375 (Ill. App. Ct. 4th Dist. 2004):

The reasonableness of acting on advice of legal counsel applies in the corporate context as in other areas of the law. While an officer or director may not blindly accept counsel's advice to avoid liability, he may rely on such advice when he does not have knowledge of his actions causing such reliance to be unwarranted. (internal citations and string citations omitted).

Here it was apparent from the document itself that Covinsky employed

Hannah’s corporate counsel in the lease negotiations.

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b.Covinsky acted with the consent of Hannah’s Board of Directors

Covinsky’s affidavit asserted that, though the explicit approval may

not appear in the Minutes of the Director’s Meetings, the Board was

aware of the assignment and took no action to prevent the assignment.

As such, it is reasonable to assume the former Board of Directors, like

Covinsky, saw the assignment for what it was: an agreement which

eliminated the operating expenses of holding an asset that was dormant

since before 1997, granted some potential benefit to Hannah by a referral

of additional business and retained a possibility of an increase in fair

market rental value for HMC (to the extent allowed under the Prime

Lease).

c.Covinsky did not seek to gain any personal advantage, and did not gain any personal advantage from this transaction

Under the duty of loyalty, Covinsky could be liable if he sought to

gain an advantage to himself that could, or should, have flowed to

Hannah Marine. See Swager v. Couri, 77 Ill. 2d 173, 191 (1979). In the

instant case, however, the counterclaim did not allege that Covinsky

personally gained from the transaction and thus there is not even an

allegation that Covinsky breached the duty of loyalty. If there were such

an accusation, Covinsky would seek sanctions for that accusation as

well, because there is no true set of facts that could show Covinsky

placed any interest in front of his duty to HMC. Covinsky sought to

receive nothing for himself from this transaction and received nothing for

39

himself for this transaction. The counterclaim makes no claim that

Covinsky personally benefited from the alleged action.

2.Though the Business Judgment Rule does not Require Additional Consideration gained from all transactions, to the extent allowed under the Prime Lease, the Holnam sublease provided Hannah with

consideration

As stated previously, Hannah had a commercial lease with the

Chicago Sanitary District dating back to 1951. Though Hannah did not

present the original lease, Exhibits B & C of the counterclaim provided

the trial court with sufficient evidence to show that Hannah was required

to seek and obtain the District’s approval before entering any sublease or

collecting additional rents from any sublease. The counterclaim was

based entirely on the notion that Hannah received no consideration for

the sublease. Such a claim is without merit where the sublease provides

consideration to the extent allowed under the Prime Lease, both in the

rent and additional business opportunities.

a.The District’s Prime Lease Required District Approval for all Subleases and the District to Retain its Discretion as to the Fair Market Value

In Paragraph 10 of the Amended Counterclaim (R. C268), HMC

alleged:

10. The Industrial Sublease provides for a term commencing on October 1, 1999 and ending on August 30, 2050, the date the 1951 lease terminates. The Industrial Sublease also provides that, as rent for HMC’s Property, Holnam pays HMC: an amount equal to the differential between the monthly base rent, paid by [HMC] to the [District] and the rent to be acceptable by [Holnam] determined to be the additional rent to be paid under the [District’s] determination of the fair

40

market value rent to be paid by [HMC] upon approval by the [District] of this sublease. [HMC] shall pay the total monthly rental as calculated above to the [District] and then bill [Holnam] for the amount of the differential.

As was argued to the trial court, the sublease is clear that any

additional rent up to the supposed fair market value had to be based on

“the [District’s]” determination of fair market value, not HMC’s

determination. The Industrial Sublease, which was attached as Exhibit

C to the Amended Counterclaim (R. C278-85), contained the above

language under the “rent” section at paragraph 3(a). (R. C278). The

adjustment is further clarified in Paragraph 3(c) of such Exhibit C of the

Amended Counterclaim. (R. C278). The Agreement passed through any

increases in the rent to the Sublessee. These increases are to be

determined by the Water District based on the Water District

determination of fair market value. Apparently, under the Prime Lease

between HMC and the Water District, there was a provision to adjust the

lease periodically and raise the rent based on the District’s determination

of fair market value. Further, at page 8 of the Industrial Sublease at

Exhibit C of the Amended Counterclaim (R. C285), the approval of the

District was required for the Sublease to occur. It is clear that if the

lease was a bargain lease by $600,000 as alleged by HMC, wouldn’t the

Water District have breached its fiduciary duty to allow Hannah to

benefit by such sublease? Thus, it is submitted that the lease actually

stated the “fair market value” and that such fair market value was

properly determined by the Water District as the prime landlord. It was

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impossible for HMC to charge Holnam a higher rental unless it would be

higher than “fair market value” and such amount would have to have

been approved by the Water District in order for the lease to be assigned

to Holnam!

The methodology used for the determination of fair market rent

was set forth in Exhibit B of the Amended Counterclaim at paragraph

1(c). (R. C273). Under this document, entitled “consent to Sublease”,

the Water Reclamation District set out the method the parties were to

use to determine the “fair market value”. (R. C273). In essence, the

agreement required that on September 1, 2001, HMC was to obtain two

appraisals of the fair market value of the underlying property. The

agreement then stated that the rental value was to be set at 10% of the

fair market value of the property as determined by the two appraisal

reports obtained by HMC. If the Water District disapproves of the

appraisal, then the Water District may obtain its own appraisal of value.

After noting that the rental is $32,402.88 the Consent at Exhibit B of the

Amended Counterclaim goes on to note in Paragraph 1(c) (R. C273-74):

The Prime Lease provides for an adjustment of rental on September 1, 2001, and every 15 years thereafter, and at said times an adjustment of the sublease rental shall also be made and determined as follows: (1) No later than 90 days prior to September 1, 2001, and September 1st every 15 years thereafter, sublessee shall obtain, at its sole cost and expense, and submit to the District two appraisals of the fair market value of the fee simple interest of the sublease premises. The District, at its option, may obtain a third appraisal. The District, at its sole discretion, shall accept one of the appraised values as the fair market value of the sublease premises and the

42

adjusted annual sublease rental shall be established at 10% of the selected appraised value and shall then be in effect for the next 15 years. In the event that the rental readjustment process set forth in this paragraph is not completed by the date the new sublease rental is scheduled to take effect, the new adjusted sublease rental shall be applied retroactive to the scheduled sublease rental adjustment date—September 1st. In the event the sublessee fails to provide its appraisals as required by Paragraph 1 c.(1) above, then the District shall determine the new sublease rental without first obtaining the sublessee’s appraisals.

Finally, a copy of the invoice to Holcim from the Water District was

attached to the lease at Exhibit C of the Amended Counterclaim showing

the District’s direct billing of the lease to Holcim for $35,348.60 for the

period 09/01/03 to 08/31/04. (R. C287). Thus, the billing at “fair

market value” is actually coming from the Water District to Holcim.

Again, based on the formula at Exhibit B of the counterclaim, HMC was

required to submit an appraisal of the property. The rent was to be 10%

of the appraised value. Since the rent was $35,348.60, HMC’s appraisal

submitted to the Water District would have been ten times such annual

rental or $353,486. Yet HMC sought $600,000 in damages from

Covinsky for his alleged failure to get a higher rent on a property worth

approximately $350,000! Clearly the claim was without merit and the

documents submitted by HMC as its exhibits to the Amended

Counterclaim told the lie.

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b. The Assignment HMC Complains of Actually Provides Additional Consideration to HMC in Section 3 of the Prime Sublease, to the Extent

Allowed by the Water District

The Amended Counterclaim, at paragraph 11 (R. C269),

complained “Despite granting Holnam the right to sublease HMC’s

Property, Covinsky did not demand any consideration for HMC from

Holnam.”5

Yet consideration can be found on the face of the exhibits attached

to the Amended Counterclaim. In Section 3(d) of Exhibit C, Industrial

Sublease, Holnam gave HMC “the right of first refusal to provide to

[Holnam] any barging services for granules and/or finished product

(“Grancem”) from Inland, U.S. Steel or Skyway Facilities to Lemont

terminal at competitive prices.” (R. C278-79). Thus HMC received

additional barging business.

In addition, sublease stated that additional rents payable on the

property could not be collected by HMC without the District’s approval.

(R. C278). Thus, as Exhibit B attached to the counterclaim showed,

Covinsky was required to request the District’s approval for the sublease,

as provided in the lease with Holnam. (R. C273-74).

Section 3 of the sublease (R. C278-79) stated as follows:

(a) Lessee [Holnam] shall pay to Lessor [Hannah], as rent for the Premises, an amount equal to the differential between the monthly base rent paid by Lessor to the Prime Landlord [Water District], and the rent to be acceptable by the Lessee determined by the Prime Landlord to be the additional rent

5 Holnam and Holcim are the same company and are used interchangeably.

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to be paid under the Prime Landlord’s determination of the fair market value rent to be paid by the Lessee upon approval by the Prime Landlord of this sublease. Lessor shall pay the total monthly rental as calculated above to the Prime Landlord and then bill the Lessee for the amount of the differential. (b) The Parties recognize and agree that from the commencement date of this lease through August 31, 2001 the payment method as set forth in subsection (a) shall be the rental and reimbursement method between Lessor and Lessee. They further agree that the Prime Lease provides for an adjustment of base rent payable by Lessor under the Prime Lease on September 1, 2001 and in accordance with the terms of the Prime Lease every 15 years thereafter. The parties agree that they will have to adjust between themselves a new rental rate upon the adjustment of the monthly base rental rate payable to the Prime Landlord hereunder when the base rent is adjusted under the Prime Lease on September 1, 2001. (c) If as a result of the provision of base rent adjustment as provided for in the Prime Lease, the base rental payable under the adjustment is increased, then Lessee’s rent shall be increased by same amount of the increase by the Prime Landlord to the Lessor and the Lessee shall then pay as rent an amount of the difference between the base rent amount prior to September 1, 2001 and the new rental amount consisting of the increase in 2001 to the Lessor plus the fair market value rent which is established by the Prime Landlord upon approval of this sublease and subsequent increases thereof. (d) Lessee hereby gives to Lessor during the term of this lease, the right of first refusal to provide to Lessee, any barging services for granules and/or finished product (“Grancerm”) from Inland, U.S. Steel or Skyway Facilities to Lemont terminal at competitive prices.

The result was clear: HMC assigned its interest in this real

property and was relieved of all its rent obligations to the Prime Landlord

or any other obligations related to the ownership of the property. In

addition, any amount of fair market value over and above the rent owed to

45

the Sanitary District was and is still due to HMC from Holnam. Thus, as

the contract states, “Lessor shall pay the total monthly rental as

calculated above to the Prime Landlord and then bill the Lessee for the

amount of the differential.” (R. C278). In legal terms, we generally call

this consideration. In business terms, this contract maintains HMC’s

interest in the property should the real estate value increase before the

expiration of HMC’s lease. In short, this contract of which the Amended

Counterclaim complained could hardly be more advantageous to HMC

and certainly provided HMC with consideration, without breaking the

lease between HMC and the Water District.

3. Even if the Contract did not Require Holnam to pay an amount above the payments to the Water Reclamation District,

the Assignment added Shareholder Value because it Relieved Hannah of Recurring and Significant Obligations on a Dormant

Asset

The Amended Counterclaim complained, at paragraph 16 (R.

C269), that Covinsky breached his fiduciary duty because the

assignment did not provide for consideration to HMC. In short, the

argument was that Covinsky was required, in all circumstances, to

obtain additional consideration for any HMC asset. Such a notion is

foolish. Sometimes, it makes sound business sense to assign a

corporate asset without receiving anything from the assignee – like

when the asset has maintenance costs and is not being used.

Moreover, without a clear violation of the triad of fiduciary obligations:

the [business judgment] rule operates as both a procedural guide for litigants and a substantive rule of law. As a rule of

46

evidence, it creates a "presumption that in making a business decision, the directors of a corporation acted on an informed basis [i.e., with due care], in good faith and in the honest belief that the action taken was in the best interest of the company. Thus, a litigant challenging a decision by a corporate officer has the burden at the outset to rebut the rule's presumption by providing evidence that the officer, in reaching their challenged decision, breached any one of the triads of their fiduciary duty--good faith, loyalty or due care. Id. If a litigant fails to meet this evidentiary burden, the business judgment rule attaches to protect corporate officers and directors and the decisions that they make. The courts will not second-guess these business judgments. Gunter v. Novopharm USA, Inc., 2001 U.S. Dist. LEXIS 2117, (N.D. Ill. 2001)(internal citations omitted).

In the instant matter HMC had not used the property in

question since at least 1997. Under its lease with the Water District,

HMC was required to pay real estate taxes, EPA fees, canal wall repair

and other maintenance, and rent for this asset. (R. C279-80). The

sublease relieved HMC of this financial drain. The sublease required

the sublessee to pay all of the real estate taxes on the premises (R.

C279) and required the sublessee to maintain the seawall (R. C280).

From all of the above, it is clear that Covinsky acted under

advice of counsel and with the Board and shareholders, gained

consideration to the extent allowed by the Prime Landlord and

alleviated HMC’s cost associated with the unused property.

Covinsky’s business decision benefited a neighbor who was also a

customer of HMC and gave HMC additional business. Under the

47

business judgment rule, HMC’s Amended Counterclaim was properly

dismissed.

V THERE WAS NO DENIAL OF HMC’S DISCOVERY REQUEST

RELATIVE TO ITS COUNTERCLAIM UNTIL AFTER SUCH CLAIM WAS DISMISSED

HMC next argues that the trial court erred in denying HMC’s

requests for Discovery (HMC Brief 18). It is respectfully submitted that

the discovery process is not a tool to be abused or used as a methodology

to harass a former employee. Nor is it to be a fishing expedition used to

create a cause of action when you fail to allege sufficient facts to make

your case.

HMC filed its initial counterclaim on Nov. 16, 2006. On Feb. 14,

2007 Covinsky filed its 2-619 Motion. On April 19, 2007 HMC served

Covinsky with Document Production Requests and Interrogatories

directed both at the Counterclaim and at Counts I and II. On May 16,

2007 the court dismissed the counterclaim. Five days later, on May 22,

2007 Covinsky responded to the interrogatory requests but refused to

answer any questions regarding the counterclaim because it had been

dismissed.

On May 30, 2007 HMC filed its First Amended Counterclaim and

on June 5, 2007 sent its 201(k) letter objecting to Covinsky’s refusal to

answer the interrogatories regarding the counterclaim. Covinsky

objected to the 201(k) demand that there was no counterclaim on file at

the time response was due and that HMC should refile its discovery

48

requests addressing the new facts alleged in the First Amended

Counterclaim. On July 5, 2007 Covinsky filed its second Motion to

Dismiss the Counterclaim. On September 11, 2007 HMC filed its Motion

to Compel, but on October 1, 2007 the court granted Covinsky’s Motion

to dismiss the First Amended Counterclaim and ruled that the Motion to

Compel answers to interrogatories and to take Covinsky’s deposition

regarding the First Amended Counterclaim was moot in light of her

ruling on the Motion to Dismiss.

It should be noted that at the time of the request, Covinsky was no

longer in control of the corporate books and records of HMC and had

moved out of state. Yet, HMC sought information relative to a 1999 lease

and sublease with its neighbor, Holnam – albeit HMC was in possession

of these documents. (R. C271-288). There is no allegation that Covinsky

stole any of the corporate records or correspondence. All such

information was contained on the premises of HMC or in the offices of

Vedder Price, the corporate attorney for HMC during Covinsky’s period as

President. (R. C283). Covinsky had no records regarding the frivolous

counterclaim. HMC was aware of this at all times and the court merely

prevented HMC from further harassment of Covinsky.

Further, the record indicates that HMC never refiled its discovery

request after the filing of its First Amended Counterclaim inquiring about

the new facts alleged therein. Thus it is submitted that the trial court’s

order was correct and HMC has failed to point to any facts in the record

49

which would indicate that the trial court abused its discretion in denying

HMC its belated discovery request.

VI UNDER EITHER THE ATTORNEY FEE IN WAGES ACT OR RULE 137,

COVINSKY SHOULD HAVE BEEN AWARDED FEES FOR THE COUNTERCLAIM AND THE EMPLOYMENT CONTRACT CLAIM

HMC next objects to the trial court’s award of attorney’s fees under

the Illinois Attorneys fees in Wage Actions Act (705 ILCS 225/1). HMC

suggests that the court should have rejected the fee request “in toto”

(HMC’s Brief p. 16).

This issue is also the subject of Covinsky’s appeal arguing that the

court erred in limiting the approximately $70,000 in legal fees incurred

as of the motion date to an award of only approximately $11,000.6

The pertinent section of the Illinois Attorneys fees in Wage Actions

Act, 705 ILCS 225/1, provides:

Whenever a . . employee brings an action for wages earned and due and owing according to the terms of the employment, and establishes by the decision of the court or jury that the amount for which he or she has brought the action is justly due and owing, and that a demand was made in writing at least 3 days before the action was brought, for a sum not exceeding the amount so found due and owing, then the court shall allow to the plaintiff a reasonable attorney fee of not less than $ 10, in addition to the amount found due and owing for wages, to be taxed as costs of the action.

There is no factual dispute that Covinsky made his demand in the

amount of approximately $255,528 at least three days prior to the

6 It should be noted that supplemental Bills of Costs are allowed under the Illinois Attorney’s Fees in Wage Actions Act including reasonable attorneys fees incurred in this appeal.

50

commencement of the action and such demand was less than the

amount awarded by the court of $311,653. (R. C387). Thus the only

issue is whether the court’s award of attorney’s fees was “reasonable”

under the facts of this case.

This Court has interpreted this Act to be a mandatory requirement

to order payment of attorney fees. Schakleton v. Federal Signal Corp.,

196 Ill. App. 3d 437, 143 Ill. Dec. 309 (1st Dist. 1989). There is nothing

in the statute that appear to limit attorney fees to just a recovery action

for the wage, and not for defense of counterclaim, or prosecution of

alternate legal theories with the exact same evidence (like proof of

payment due under a contract action). Covinsky submits the trial

court’s reasoning would encourage employers to interject frivolous

counterclaims to defeat or derail an employees Wage Act claim. Thus,

public policy should require that the court grant “reasonable” attorney

fees for the defense of any such frivolous counterclaim as well as the

prosecution of the Wage Act claim. To do otherwise would not make

terminated employees whole and defeat the purpose of the Act.

Alternatively, Covinsky asks this court to review the trial court’s

denial of attorney fees under Supreme Court Rule 137 relative to the

defense of the counterclaim. Proper notice was given to HMC requesting

that they withdraw the Counterclaim or that sanctions would be sought,

that the counterclaim was without merit and was not brought in good

51

faith. HMC refused to withdraw the claim and continues to prosecute its

frivolous claim even before this court.

When called upon to determine whether Rule 137 sanctions are

appropriate in a given case, the appellate court must employ an abuse of

discretion standard of review. Baker v. Daniel S. Berger, Ltd., 323 Ill. App.

3d 956, 753 N.E.2d 463 (1st Dist. 2001). A trial court abuses its

discretion when no reasonable person could take the view it adopted.

Technology Innovation Center, Inc. v. Advanced Multiuser Technologies

Corp., 315 Ill. App. 3d 238, 732 N.E.2d 1129, 247 Ill. Dec. 797 (1st Dist.

2000). "When reviewing a decision on a motion for sanctions, the primary

consideration is whether the trial court's decision was informed, based

on valid reasoning, and follows logically from the facts." Technology

Innovation Center, Inc., 315 Ill. App. 3d at 244.

The test to be utilized in determining whether the rule has been

violated is an objective standard of what was reasonable under the

circumstances at the time the assertions were made. Wittekind v. Rusk,

253 Ill. App. 3d 577, 192 Ill. Dec. 467, 625 N.E.2d 427 (3rd Dist. 1993),

appeal denied, 155 Ill. 2d 577, 198 Ill. Dec. 554, 633 N.E.2d 16 (1994).

The standard to be employed is an objective one; it is not sufficient that

the attorney honestly believed the case was well-grounded in fact or law.

Whitmer v. Munson, 335 Ill. App.3d 501, 513 (1st Dist. 2002).

Furthermore, an attorney has an obligation to promptly dismiss a

lawsuit once it becomes evident that it is baseless. Shea, Rogal & Assocs.

52

v. Leslie Volkswagen, Inc., 250 Ill. App. 3d 149, 190 Ill. Dec. 208, 621

N.E.2d 77 (1st Dist. 1993).

On October 11, 2007, Covinsky, in compliance with the trial

court’s order of October 1, 2007, filed a Motion for Approval of its First

Bill of Costs. The fee petition sought legal fees in excess of $70,000 to

prosecute the wage action and defend the counterclaim. The fee petition

and reply are contained in the Appendix at A122 and A154. In its

February 19, 2008 order, the trial court approved only approximately

$11,000 of the total of approximately $70,000 in fees and expenses

claimed based on the limitation of the claim to Count II legal fees only.

(A164).

As this Court is aware, “the most important factor in determining

whether fees are reasonable is the amount of time necessarily spent on

the case. Ciampi v. Ogden Chrysler Plymouth, Inc., 262 Ill. App. 3d 94,

634 N.E.2d 448 (2nd Dist. 1994). Notably, Hannah, at no point,

disputed the reasonableness of either the time or the rate but only the

matters worked upon.

Since proof of the contract allegedly breached in Count I was

required to prove the Wage Act Claim set forth in Count II, it is submitted

that the claims are based on the same evidence. Thus fees to prosecute

both counts should have been granted. In short, like Siamese twins,

Counts I and Count II are inseparably intertwined. Thus, all time and

expense related to Count I should have been allowed in the fee petition

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since the same effort and proof were required to proceed if Count II were

the only count of the Complaint.

Such argument was recognized in claims for attorneys’ fees under

the Consumer Fraud Act. In Ciampi v. Ogden Chrysler Plymouth, Inc.,

262 Ill. App. 3d 94, 634 N.E.2d 448 (2nd Dist. 1994) the Plaintiff filed

suit, alleging fraud under the Consumer Fraud Act (815 ILCS 505/1) and

common law fraud for changing a car’s odometer. It has been noted that

a common law fraud claim encompasses all elements of a statutory

consumer fraud claim, except that common law fraud requires a

heightened mental state and reliance requirement.7 In Ciampi, the jury

returned a verdict in Plaintiff’s favor as to the common law fraud. The

Consumer Fraud Act was tried by the court, which also entered

judgment against Defendant on that count. In Ciampi, the trial court

awarded Plaintiff attorney fees under the Consumer Fraud Act for time

on both the statutory fraud, common law fraud, and the odometer claim.

On appeal, Defendant argued the trial court awarded Plaintiff attorney’s

fees spent on all claims, and such fees should be limited to the

prosecution of the Consumer Fraud Act claim. The appellate court

affirmed the trial court’s decision, stating “[w]e agree with [Plaintiff’s]

argument that the fraud claims and the odometer claim were based on

7 See, e.g., Robert W. Gray, Sr., “The Applicability of Constructive Eviction, Implied Warranty of Habitability, Common-Law Fraud, and the Consumer Fraud Act to Omissions of Material Facts in a Commercial Lease,” 38 J. MARSHALL L. REV. 1289 (2005)

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the same evidence and time spent on each issue could not be

distinguished.” 262 Ill. App. 3d at 115.

In the case at bar, as in a case proving consumer fraud and

common law fraud (Ciampi) all elements of Count I are included in Count

II. To prevail on Count I, Covinsky was required to show that an

employment contract existed, that he was entitled to payment under the

contract, and that payment was not made. To prevail under Count II,

Covinsky was required to show those same elements plus 1) the required

statutory demand and 3 day notice in an amount equal to or less than

the amount found to be due and owing; 2) that HMC and Donald Hannah

(as an officer with knowledge of the contract and its non-payment) were

Covinsky’s employers, 3) that HMC was able to pay the debt at the time it

arose, and 4) (for Donald Hannah personally) that Donald Hannah knew

it was not paid and had control over its payment. Thus all the elements

of Count I were required in order to prevail on Count II.

Like Ciampi (and Covinsky), in TruServ Corp. v. Ernst & Young, LLP,

376 Ill. App.3d 218 (1st Dist. 2007), judgment was entered in Ernst &

Young’s favor on both the count with less elements, Consumer Fraud,

and the count with more elements, common law fraud. The arbitration

panel awarded, and the trial court affirmed, shifting Ernst & Young’s

attorney fees to Truserv for both the common law fraud claim and the

Consumer Fraud claim. Id. at 235. The First District Appellate Court

rejected Truserv’s appeal and held:

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TruServ contends that the award was improper because Ernst & Young did not demonstrate that the requested attorney fees and costs were attributable to work specifically related to the consumer fraud claim. This argument is unpersuasive. Illinois courts have held that when a party prevails on multiple claims, including a claim for consumer fraud, an award of all reasonable attorney fees and costs is proper where the claims were "based on the same evidence and the time spent on each issue could not be distinguished." Ciampi v. Ogden Chrysler Plymouth, Inc., 262 Ill. App. 3d 94, 115, 634 N.E.2d 448, 199 Ill. Dec. 609 (1994); see also Berlak v. Villa Scalabrini Home for the Aged, Inc., 284 Ill. App. 3d 231, 238-39, 671 N.E.2d 768, 219 Ill. Dec. 601 (1996). In awarding Ernst & Young $ 12,191,000 pursuant to section 10a(c) of the Consumer Fraud Act, the arbitration panel specifically found that the attorney fees and costs incurred in defending the consumer fraud count could not be differentiated from those incurred in defending the other counts because all of TruServ's claims were premised on the same central factual issues. Therefore, the arbitration award is not subject to vacatur on this ground where no gross error of law is apparent on the face of the award. Id.

As shown in Covinsky’s prove up and Motion, and reiterated here, “the

attorney fees and costs incurred [in prosecuting Count I] could not be

differentiated from those incurred in [prosecuting Count II] because all of

[Covinsky’s] claims were premised on the same central factual issues.”

Id.

Likewise the reasonable attorney fees to defend the counterclaim

filed by HMC should be allowed as well under the Attorney’s Fees in

Wage Actions Act. It should be noted that HMC did not file a Second

Amended Counterclaim although given leave to do so. HMC filed its

original counterclaim, which was stricken, and a First Amended

Counterclaim, which was also dismissed with leave to refile if it could

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cure the defects relating to the Business Judgment Rule. Covinsky has

always contended and continues to argue that such counterclaims were

raised without merit and for the sole purpose of delay in violation of

Supreme Court Rule 137. Covinsky included his time relative to the

defense of the counterclaim in its bill of costs since defense of the

counterclaim was an integral part of the prosecution of Covinsky’s claim.

To deny Covinsky reasonable attorney fees to defend a frivolous

counterclaim would deny him full recovery of what he is due. But for

HMC’s obstructionist behavior, such costs would never have been

incurred. A counterclaim is often an integral part of a defense to the

wage claim. In order to be successful on the wage claim, the

counterclaim had to be responded to and quashed. This was done and it

is submitted that the trial court’s denial of fees to defend the frivolous

counterclaim was error.

While reversal of the attorney fees for the contract action and the

counterclaim seems warranted under the de novo review analysis of

statutory interpretation, even under the more stringent standard of Rule

137 Covinsky submits the trial court’s decision denying reasonable

attorney’s fees for defense of the counterclaim was in error. As stated by

this court in Whitmer v. Munson, supra at 516-7:

We have held that, even where the initiating party "'honestly believed' his or her case was well grounded in fact or law," it is still unreasonable to file the suit if its falsity could have been uncovered through reasonable inquiry. Fremarek, 272 Ill. App. 3d at 1074-75, 651 N.E.2d at 601. In this case, Whitmer initiated a lawsuit based on facts that he had to have known were false.

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. . . Accordingly, we find that the trial court abused its discretion in relying on these factors to deny the Munsons' motion for sanctions and that a reasonable person, relying on the language and guidance of Rule 137, could not have reached the court's conclusion.

Here it was apparent Donald C. Hannah did not bring his counterclaim

in good faith but merely to further harass Covinsky and to increase the

cost of litigation. The counterclaim is totally without factual basis,

frivolous and was properly dismissed by the trial court for failure to state

a cause of action. Reasonable attorney’s fees should have been awarded

for Covinsky’s defense either under the Attorney’s fees in Wage Actions

Act or under Rule 137 and for prosecution of the contract action. The

trial court’s decision was in error.

VII THE TRIAL COURT ERRED IN REFUSING TO ENTER JUDGMENT AGAINST DONALD C. HANNAH PERSONALLY AS A “RESPONSIBLE

PERSON” UNDER THE WAGE ACT.

In its ruling of February 19, 2008, the trial court dismissed Donald

C. Hannah from personal liability. Covinsky timely appealed this order.

It is submitted that, as a matter of law, Donald C. Hannah was a

responsible person under the Illinois Wage Act and should be held

personally liable, jointly with HMC.

A. DONALD HANNAH IS AN OFFICER, WITH KNOWLEDGE OF HANNAH

MARINE’S DEBT TO COVINSKY FOR WAGES, AND HAS FAILED TO CAUSE

PAYMENT TO BE MADE

The issue of an officer’s personal responsibility for failure to pay an

employee his wages was recently discussed in Andrews v. Kowa Printing

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Corp.¸ 217 Ill. 2d 101 (2005). Under those authorities and these facts,

Covinsky submits Donald Hannah’s personal liability is clear for HMC’s

failure to pay Covinsky’s wages.

The Illinois Wage Payment Act, 820 ILL. COMP. STAT. 115, et seq.,

provides:

Sec. 5. Every employer is required to pay the final compensation of separated employees in full, at the time of separation, if possible, but in no case later than the next regularly scheduled payday for such employee. Sec. 13. Any officers of a corporation or agents of an employer who knowingly permit such employer to violate the provisions of this Act shall be deemed to be the employers of the employees of the corporation.

The Andrews Court specifically interpreted these statutory

sections, and analyzed whether Kowa Printing’s president and sole

shareholder, Thomas Kowa, may be held personally liable where Kowa

Printing’s accountant embezzled sufficient funds to put Kowa Printing in

dire financial straits, and Kowa, nonetheless, paid all salaries while he

had control over corporate assets. Andrews v. Kowa Printing Corp., 217

Ill. 2d at 104. While the Illinois Supreme Court reversed the trial court’s

decision finding Thomas Kowa personally liable, it did so because Kowa

was not in control of the assets when the company failed to pay its debts.

In response to the accountant’s actions - and the subsequent bank

default and foreclosure notices - Thomas Kowa:

entered into negotiations and eventually executed a forbearance agreement . . . [whereby] Thomas Kowa agreed to personally guarantee all of Kowa Printing's loans [to Bank Illinois - for the sole purpose of allowing] . . . the corporation

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time to find a buyer, to try to save all the jobs and the money that was involved, and get appraisals of the equipment, get the company in as good a position for a seller as possible. Id.

Subsequent to Thomas Kowa’s personal guarantee of bank loans to

continue operations after an intervening criminal act by an unrelated

party, Kowa negotiated with a buyer and required the buyer to maintain

the current staff. Id. The buyer was negotiating wage payments with the

union for the Plaintiff, Nancy Andrews, when “Bank Illinois foreclosed on

the loans, seized the Kowa Printing facility, and sent plaintiffs home.

From that point forward, neither Thomas Kowa nor Huston-Patterson [a

related entity] had access to Kowa Printing's assets or accounts. The

parties stipulate that plaintiffs never received their final vacation and

severance pay.” Id. at 105. Additionally, the Andrews trial court found,

no party on appeal disputed, and the Illinois Supreme Court specifically

relied on the fact that:

as long as Thomas Kowa was in control of Kowa Printing and its accounts, plaintiffs were paid on time and in full, even at the expense of other Kowa Printing creditors. As importantly, the specific Wage Act violation alleged in this case did not occur until after Thomas Kowa lost control of the business. Plaintiffs allege that Thomas Kowa violated Section 5 of the Wage Act by permitting the unlawful withholding of their accrued vacation and severance pay. Section 5, however, provides that an employee's final compensation is payable "at the time of separation, if possible, but in no case later than the next regularly scheduled payday for such employee." 820 ILCS 115/5 (West 2004). At the time of plaintiffs' separation from Kowa Printing, Thomas Kowa was no longer in control of Kowa Printing. Plaintiffs' employment was terminated on April 16, 1998, after Bank Illinois seized Kowa Printing and all of its assets. At this point, Bank Illinois was calling the shots, and a violation of section 5

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simply was not within Thomas Kowa's ability to permit, knowingly or otherwise. Id at 112-113.

In rebuking Nancy Andrews’ final argument to attempt to hold Thomas

Kowa liable, the Illinois Supreme Court noted and summarized the

relevant evidence showed:

that, upon receiving the April 9, 1997, default notice, Thomas Kowa immediately negotiated a forbearance agreement "to allow the corporation time to find a buyer, to try to save all the jobs." Within the forbearance period, Thomas Kowa located a buyer who was willing both to continue operations and to retain plaintiffs under their existing terms of employment, provided a compromise could be reached concerning plaintiffs' accrued vacation time. On the day of foreclosure, the buyer and plaintiffs' union were one concession away from a deal that would secure both the company's future and plaintiffs' continued employment. If an agreement had been reached, operations would have continued, plaintiffs would have kept their jobs, and this case never would have been filed. And once negotiations broke down, it was too late for Thomas Kowa to do anything, as Bank Illinois immediately moved in and seized all of Kowa Printing's assets. Nothing in this story supports the inference that Thomas Kowa knowingly set out to deprive plaintiffs of their accrued vacation and severance pay. If anything, the evidence suggests that Thomas Kowa made every effort to ensure that plaintiffs' livelihoods survived Kowa Printing's unexpected financial downturn. Id. at 113.

In short, and not surprisingly, the Illinois Supreme Court reversed on

personal liability because Thomas Kowa did everything an employee, a

legislature, or a court could ask of an individual to protect the employee’s

wages and continuing employment.

Clearly, unlike Thomas Kowa, where “Nothing [supported] the

inference that Thomas Kowa knowingly set out to deprive plaintiffs of

their accrued vacation and severance pay” everything in the instant

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matter shows that Donald Hannah, from the instant he took control of

Hannah Marine Corporation, has made “every effort to ensure” that

Covinsky did not get paid. Andrews, 217 Ill. 2d at 112-113. Since the

moment Donald Hannah undertook to purchase Hannah Marine, he has

continually attempted to “shield [himself] from responsibility” for

Hannah’s wage and salary debt. Id. at 108.

Unlike Andrews, Donald Hannah admitted that at all times

Hannah Marine had the wherewithal to make the required severance

payments. Hannah submitted an affidavit from William Piotrowski, its

Certified Public Accountant, to the affect that HMC currently had

tugboats and barges valued over $21million, its bank debt was only

$14million, and that HMC was able to pay its bills. (R. C403). This

affidavit was submitted in response to Covinsky’s assertion that Hannah

should be liable for sanctions; that the counterclaim filed was without

merit and filed for an improper purpose, i.e., to delay enforcement of the

Judgment while Donald Hannah depleted the assets of Hannah Marine.

It is submitted that the evidence that Donald Hannah had personal

knowledge of Hannah Marine’s obligation under the contract are clear:

a) Donald Hannah was a director in 1997 when the contract was entered into; b) In his “due diligence” it is clear that Donald Hannah reviewed HMC’s liability under the employment contract; c) Covinsky, in a series of emails dated January 2006 through May 2006, and presented to the Court in Hannah’s Motion to Dismiss specifically discussed

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Hannah Marine’s obligations to Covinsky under his employment contract; d) At corporate meetings before May 10, 2006, and also raised in Hannah’s original Motion to Dismiss, Covinsky put Donald Hannah on notice that Hannah Marine owed Covinsky “over $400,000” under his contract; e) Covinsky, upon termination of his employment, immediately sent a demand notice for his wages to Donald Hannah and Hannah Marine Corporation which letter was delivered to Donald Hannah personally;

Likewise, Covinsky submitted evidence to the trial court that

Donald Hannah was divesting assets from the corporation for his

personal benefit for the possible detriment of judgment creditors

such as Covinsky. Among the arguments and evidence presented

to the trial court were the following assertions from Kathy

Bowman, the former controller of HMC found at R. C344 of the

record:

a) Donald Hannah personally withdrew over $1,500,000 in cash from HMC following the change in ownership between May 10, 2006 and May 20, 2007; b) Donald Hannah draws, at least $70,000 per month from Hannah Marine Corporation for his personal obligations; c) Donald Hannah’s son, David Hannah, received a $250,000 bonus from Hannah Marine in August 2006; d) David Hannah also receives a monthly stipend of at least $10,000 from Hannah Marine;

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The record is clear that Donald Hannah received the official

demand letter from Covinsky prior to the commencement of this action.

The affidavit, at R. C387 (appendix A 118), states:

That on or about June 6, 2006, upon the advise of my attorney, Ralph J. Schindler, Jr., I prepared and signed the attached Demand Letter for the payment of wages due me following my termination of employment as President of Hannah Marine Corporation. A true and correct copy of such letter is attached as Exhibit A to this Affidavit. That I mailed the Demand Letter by certified mail, Return Receipt Requested on or about the same date.

Thus, it is clear that Donald Hannah personally was served with

Covinsky’s statutory demand for payment of his wages but chose to

ignore the demand. Under the statute, he must be held personally liable.

B. DONALD HANNAH CANNOT BE EXCUSED FROM LIABILITY BECAUSE HE

CLAIMS TO HAVE DISPUTED THIS CASE IN GOOD FAITH

On February 7, 2007, the trial court announced it had completed

an exhaustive review of Covinsky’s employment contract and could not

find any support in the contract for HMC’s refusal to pay Covinsky’s

severance pay. (A73). In short, the trial court announced this was not a

close case. This was a fairly simple reading of the plain language of the

contract.

Not only does Donald Hannah’s argument fly in the face of the

facts, such a position would, of course, nullify the statute and its

provisions. The policy expressed in the statute is clear – responsible

officers of a corporation must pay employees what they are due, when

they are due, or be held personally liable, if you control sufficient assets

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to make payments. To allow corporate officers to have a new defense –

Hannah’s claimed subjective “good faith” belief in his “legitimate” dispute

– would mean every corporate officer could simply claim they had a good

faith belief and the statute is completely ineffective. There is no such

defense provided by the statute, or the case law, and this Court should

not invent a new one for Donald Hannah.

Before the trial court Donald Hannah presented Andrews v. Kowa

Printing Corp., 217 Ill. 2d 101 (2005), discussed above, as support for his

proposition that the Act does not cover his refusal to pay because “the

amount claimed is legitimately disputed.” (R. C512). Andrews, as the

above discussion clearly shows, does not support Donald Hannah’s

position; Andrews was about Kowa’s control of assets and ability to pay

at the time the debt arose. Thomas Kowa had no control over the funds

when the liability was incurred and therefore had no personal liability for

its non-payment. In the instant matter, Donald Hannah has remained in

control of Hannah Marine’s ability to pay since his acquisition of control

on May 10, 2006 and his termination of Covinsky’s employment. That is

not in dispute.

Moreover, Donald Hannah’s argument to the trial court that

finding him personally liable would have a “chilling effect on corporate

decision-making” is superfluous. (R. C513). The chilling effect on

employment of allowing corporate officers to escape personal liability on

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employee’s wages is much more likely than any chilling effect on

corporate officers for simply following the law.

Finally, Donald Hannah should have no worries, so long as his

representations to the trial Court in opposition to Covinsky’s request for

sanctions are true. In his affidavit – and that of his accountant –

Hannah represented to the trial court that HMC remains solvent. If that

is the case, Donald Hannah need only have HMC pay the judgment (as

the Act requires) and there is no more debt owed by Donald Hannah

personally. The liability is joint and several. To the extent HMC pays the

liability, Donald Hannah’s debt is discharged. As sole shareholder and

CEO, he has the ability to cause HMC to fulfill its obligations under the

contract. He holds the key to his own release from personal liability.

Any other ruling violates the public policy of Illinois as set forth in the

Illinois Wage Payment Act.

VIII CONCLUSION

In summary, Covinsky requests this Court affirm the trial court on

all issues except the limitation of attorney fees and costs and Donald

Hannah’s personal liability. The golden parachute was triggered,

demand was properly made, and damages properly assessed. HMC had

no legitimate counterclaim, waived any right to jury trial, and had no

right to discovery on the dismissed counterclaim. Attorney fees spent on

defense of the counterclaim and prosecution of the contract action,

inextricably intertwined with the Wage Payment Act, are recoverable

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under the Act and therefore a reversal and remand for findings on those

fees seems proper. Finally, Donald Hannah admitted he was in charge of

HMC’s assets, which were sufficient to pay Covinsky’s wages, and that he

refused to make payment. Covinsky, therefore, asks this Court to

recognize his personal liability under the Act and reverse the trial court.

Respectfully Submitted,

Ralph J. Schindler, Jr. Attorney for Jeffrey N. Covinsky Law Offices of Ralph J. Schindler, Jr. 53 W. Jackson Blvd., Suite 818 Chicago, IL 60604 (312) 554-1040

CERTIFICATE OF COMPLIANCE

I certify that this brief conforms to the requirements of Rules

341(a) and (b). The length of this brief, excluding the pages containing

the Rule 341(d) cover, the Rule 341(h)(1) statement of points and

authorities, the Rule 341(c) certificate of compliance, the certificate of

service, and those matters to be appended to the brief under Rule 342(a),

is 66 pages.

Respectfully submitted, _______________________ Ralph J. Schindler, Jr. The Law Office of Ralph J. Schindler, Jr. 53 West Jackson Boulevard, Suite 818 Chicago, IL 60604 (312) 554-1040 Attorneys for Jeffrey N. Covinsky Date: September 5, 2008

CERTIFICATE OF SERVICE

The undersigned attorney certifies that three copies of the attached

INITIAL BRIEF, RESPONSE BRIEF FOR PLAINTIFF-APPELLEE / CROSS-

APPELLANT JEFFREY N. COVINSKY, and three copies of the SEPARATE

APPENDIX FOR PLAINTIFF-APPELLEE / CROSS-APPELLANT JEFFREY

N. COVINSKY, were served upon:

Paul J. Kozacky Kozacky & Weitzel, P.C.

Attorneys for Hannah Marine Corporation and Donald C. Hannah

55 West Monroe Street, Suite 2400 Chicago, IL 60603

by personal service of such copies to the receptionist at such office on or

before 5:00 p.m. on the 5th day of September 2008.

Respectfully submitted, _______________________ Ralph J. Schindler, Jr. The Law Office of Ralph J. Schindler, Jr. 53 West Jackson Boulevard, Suite 818 Chicago, IL 60604 (312) 554-1040 Attorneys for Jeffrey N. Covinsky

Date: September 5, 2008