Date: 05-04-2015

Case Style: Lawrence J. Hess v. Kanoski Bresney

Case Number: 14-1921

Judge: Kanne

Court: United States Court of Appeals for the Seventh Circuit on appeal from the Central District of Illinois

Plaintiff's Attorney: Nate Neff, Elliot Schiff and Jim Sipchen

Defendant's Attorney: Dave Drake, Don Eckler, Kirk Laudeman

Description: This breach of contract action is before
this court—pursuant to our diversity jurisdiction—a
second time. As a refresher, Lawrence J. Hess, an attorney,
had worked on a number of medical-malpractice cases before
his law firm, Kanoski & Associates, P.C. (“K&A”),1 ter-
1 Per Appellee’s Rule 26.1 Disclosure Statement of December 5, 2014, Kanoski
& Associates is now Kanoski Bresney. As it is the real party in in2
No. 14-1921
minated his employment. Many of these cases settled after
Hess’s termination, and Hess did not see a penny from the
settlements. Hess felt cheated.
So he sued under his employment agreement and under
the Illinois Wage Payment and Collection Act (“IWPCA”) to
remedy the perceived wrong. He also advanced claims of
tortious interference, wrongful discharge, unjust enrichment,
and quantum meruit, among others. In 2011, the district
court dismissed each of Hess’s claims on summary judgment.
Hess v. Kanoski & Assocs., No. 09-3334, 2011 U.S. Dist.
LEXIS 25672, at *35 (C.D. Ill. Mar. 11, 2011) (“Hess I”). The
following year, we affirmed in part and reversed in part.
Hess v. Kanoski & Assocs., 668 F.3d 446, 456 (7th Cir. 2012)
(remanding IWPCA and breach of contract claims) (“Hess
II”). We remanded because the issue that is now squarely
before us—whether Hess is entitled to compensation for
post-termination settlements under either his employment
agreement or the IWPCA—was “not fully briefed” at that
stage of the case. Id. at 454.
On remand, and with the benefit of additional briefing,
the district court held that Hess was not entitled to compensation
for the post-termination settlements. As a result, the
district court once again granted summary judgment in favor
of K&A. Hess v. Kanoski & Assocs., No. 3:09-cv-03334,
2014 U.S. Dist. LEXIS 42584, at *25 (C.D. Ill. Mar. 28, 2014)
(“Hess III”). Hess appealed, and on December 5, 2014, argued
his case on his own behalf.
terest to this lawsuit, we have changed the caption to reflect that fact. For
the sake of consistency, however, we refer to the firm as Kanoski & Associates
or K&A.
No. 14-1921 3
After carefully considering the parties’ oral arguments
and briefing, we affirm the judgment of the district court.
I. BACKGROUND
Lawrence J. Hess is an attorney who is licensed to practice
law in Illinois and Missouri. K&A is a personal-injury
law firm with offices in central Illinois. On May 9, 2001, K&A
hired Hess to handle medical-malpractice cases—Hess’s specialty.
And for nearly six years, Hess did just that. He even
won a significant jury verdict, which triggered a healthy, renegotiated
salary. Then the bottom fell out. On February 14,
2007, the firm terminated Hess. Ronald Kanoski, K&A’s president
and administrator during Hess’s employment, testified
that he based this decision on “economic reasons.”
If you ask Hess, the “economic reasons” included the
firm’s desire to reap a disproportionate share of the fees
earned from the 170 breast-implant cases that Hess had
worked on prior to his termination. These breast-implant
cases stemmed from a nationwide settlement with Dow-
Corning for its silicone-based breast implants. The number
of cases, coupled with the estimated cost of remedies, induced
Dow Corning into bankruptcy. Cf. Editorial, Seeking
Shelter from a Legal Storm, Chicago Tribune, May 22, 1995, at
1:10. Hess also seeks to recover fees from five non-breastimplant
cases on which he had worked before his termination.
Hess theorizes that K&A terminated him to avoid paying
him the fees due on those cases. He asserts that he “successfully
completed all the work necessary for the firm to be
paid fees” on these matters. “Nothing remained to be done,”
4 No. 14-1921
Hess maintains, “except to wait for the receipt of the
checks.”
As an initial matter, the record lends some support to
Hess’s theory of motive. K&A abruptly terminated Hess
without any notice, which suggests it was in a rush to get rid
of him. K&A concedes that this swift termination breached
the thirty-day-notice provision of their employment agreement.
But that breach is of no moment to this appeal. For
even if the breach gave rise to some sort of equitable, constructive
employment lasting thirty days after his actual date
of termination, that constructive employment would not
have captured any of the settlements or their resultant bonuses;
the subject cases settled outside the thirty-day window.
2 As a result, Hess still would have been out of luck.
But Hess offers a backstop. Because K&A breached the
notice provision of his employment agreement, he was never
actually terminated—or so the theory goes. Under this theory,
all the income that K&A received for his cases was received
while he was still an employee at the firm. So he
should have been paid the fees. K&A quickly responds with
waiver. K&A contends that Hess waived this argument because
he did not raise it before the district court. We address
these arguments below.
2 In Hess II, we noted that at least one case settled within the thirty-day
window. 668 F.3d at 453. We then held that Hess “is entitled to press his
argument that the contract gave him the right to bonuses in connection
with that settlement … .” Id. On remand, however, Hess conceded that
all cases had, in fact, settled outside the thirty-day window. He therefore
abandoned this path to recovery. We’ll return to this point later. For
now, we add only that it is undisputed that K&A paid bonuses to Hess
for all cases that were resolved during his employment at the firm.
No. 14-1921 5
Before we do, our focus turns to two provisions of the
employment agreement. These provisions—one found in the
original employment agreement and one found in a subsequent
modification letter—are ultimately dispositive. They
address matters related to compensation, and we introduce
them now.
Section 4 of the employment agreement is titled “Compensation.”
It states that Hess will receive bonus pay in the
amount of fifteen percent of all fees “generated over the base
salary (or $5,000 per month) … .” It further states that the
“[b]onus shall increase” to twenty-five percent “on all fees
received annually in excess of $750,000.00.” We emphasize the
words “generated” and “received” because the parties spend
much of their time debating their meaning.
According to K&A, the words “generated” and “received”
are used interchangeably. Under this view, they are
synonymous. “Years of work can go into a case,” K&A contends,
“and yet, there is no fee generated unless or until
there is a recovery for the client … .” Hess disagrees. He argues
that one can generate—i.e. create—something without
ever receiving it. Under that common-usage view, the terms
are not synonymous, and Hess would be entitled to bonuses
or fees for his work that generated the fees, regardless of
when the firm received them.
In Hess II, we flagged this issue for remand. 668 F.3d at
453. Noting the utility of extrinsic evidence in determining
the meaning of the term “generate,” we offered Hess a second
path to recovery: production of extrinsic evidence to
prove his definition is the correct one. Hess supplied no extrinsic
evidence. To be sure, he submitted his deposition testimony
that detailed his performance at the firm. But that
6 No. 14-1921
deposition testimony provided no extrinsic evidence on the
meaning of the term “generate.” No evidence did, in fact. In
failing to supply extrinsic evidence on this key point, Hess
abandoned a second path to recovery offered by our mandate.
Left with no extrinsic evidence, and understanding that
no cases settled thirty days after his termination, the district
court resorted to the parties’ briefs and the terms of the contract.
It sided with K&A. Those terms, coupled with the contingency-
fee nature of the cases at K&A, informed its analysis:
[Hess’s] interpretation of “generated” ignores fundamental
principles underlying these arrangements. An
attorney is not contractually entitled to a fee unless
and until her client wins, and, therefore, always bears
the risk of loss. … When Hess was terminated by
K&A, there was no guarantee that any of his efforts
would result in contingency fees accruing in the cases
at issue. Therefore, the fees could not yet have been
generated.
Hess III, 2014 U.S. Dist. LEXIS 42584, at *13-14. Impliedly,
then, the district court read the terms “generate” and “received”
synonymously, which it believed “accords with the
basic structure of contingency fee arrangements … .” Id. at
*14. Different meanings of the terms would have resulted in
two “messy” bonus schemes, it held, depending on how
much money the firm received in a given year. Id. The district
court further observed that Hess offered no evidence
that the parties intended different meanings of the relevant
terms. Id. at *14-15. And Hess conceded as much at oral argument
on appeal.
No. 14-1921 7
Hess nevertheless takes issue with the district court’s
analysis. He points to the modification letter of June 21, 2002,
wherein Ronald Kanoski confirmed to Hess the result of
their “recent salary and bonus negotiations … .” Although
Hess did not sign this letter, he treats it as a binding
amendment to the employment agreement. Given that the
terms of the letter governed his compensation from 2002 until
2007, we accept Hess’s treatment. Cf. Hess II, 668 F.3d at
452–53 (“The critical signature is that of the party against
whom the contract is being enforced, and that signature was
present.”).
“[E]ffectively immediately,” Kanoski wrote, “you will be
eligible to receive as a bonus” forty percent “of all fee revenue
generated … .” (emphasis added). Hess places significant
weight on the fact that this modification foregoes usage of
the term “received.” Because the modification does not use
that word, it follows that a fee need not be “received” before
a “generated” bonus “can be allotted to the employee,” or so
his argument goes. We discuss both the original provision
and its modification in our analysis section below.
Before we do, a third provision is worth mentioning. Section
8 of the employment agreement, entitled “Covenant
Limiting Competition,” addresses competition and client relationships.
It provides that, “where the Corporation retains
clients upon Employees [sic] termination that Employee has
no proprietary interest in fees to be earned since the Employee is
to be fully compensated through his salary and/or bonus for
all work done while an Employee of the Corporation” (emphasis
added).
Both parties claim that this provision supports their arguments;
they just emphasize different parts of the provi8
No. 14-1921
sion. K&A, for example, emphasizes “no propriety interest
in fees to be earned.” It claims that this language imposes a
categorical ban to post-termination compensation. Hess, by
contrast, emphasizes “the Employee is to be fully compensated
through his salary and/or bonus for all work done
while an Employee.” Because he maintains that all the work
for the breast-implant cases was complete before his termination,
he claims that this language entitles him to the fees.
II. ANALYSIS
We review a district court’s grant of summary judgment
de novo. Hanover Ins. Co. v. N. Bldg. Co., 751 F.3d 788, 791 (7th
Cir. 2014). Summary judgment is appropriate where the
admissible evidence reveals no genuine issue of any material
fact. Fed. R. Civ. P. 56(c); Lawson v. CSX Transp., Inc., 245 F.3d
916, 922 (7th Cir. 2001). A fact is “material” if it is one
identified by the law as affecting the outcome of the case.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An
issue of material fact is “genuine” if “the evidence is such
that a reasonable jury could return a verdict for the nonmoving
party.” Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986). We construe all facts and
reasonable inferences in the light most favorable to the nonmoving
party. Apex Digital, Inc. v. Sears, Roebuck, & Co., 735
F.3d 962, 965 (7th Cir. 2013).
In diversity cases, we apply federal procedural law and
state substantive law. Allen v. Cedar Real Estate Grp., LLP, 236
F.3d 374, 380 (7th Cir. 2001) (citing Erie R.R. v. Tompkins, 304
U.S. 64, 78 (1938)). Rules of contract interpretation are
substantive. Allen, 236 F.3d at 380. So our interpretation of
this contract—the employment agreement—must be
according to state law. The parties agree that the applicable
No. 14-1921 9
state law is the law of Illinois. We examine Hess’s breach of
contract claim first.
A. Breach of Contract Claim
Under Illinois law, a breach of contract claim has four elements:
“(1) the existence of a valid and enforceable contract;
(2) performance by the plaintiff; (3) breach of contract by the
defendant; and (4) resultant injury to the plaintiff.” Hess II,
668 F.3d at 452 (quoting Henderson-Smith & Assocs. v. Nahamani
Family Serv. Ctr., 752 N.E.2d 33, 43 (Ill. App. Ct. 2001))
(internal quotation marks omitted). Our focus throughout
this four-element inquiry “is to give effect to the parties’ intentions.”
Henderson-Smith & Assocs., 752 N.E.2d at 43. In
conducting this task, we review the employment agreement
and the district court’s holding de novo. C.A.M. Affiliates v.
First Am. Title Ins. Co., 715 N.E.2d 778, 782 (Ill. App. Ct.
1999).
We also hold the plaintiff to his burden: i.e. persuading
the court that he should prevail. See Schaffer v. Weast, 546 U.S.
49, 57 (2005) (“[P]laintiffs bear the burden of persuasion regarding
the essential aspects of their claims.”). As noted
above, when we first addressed this case, we provided Hess
with two paths to recovery on remand: (1) press his argument
that he is entitled to recover for the one case that settled
within thirty days of his termination; and (2) offer extrinsic
evidence on the meaning of the term “generate.” Hess
II, 668 F.3d at 453. Hess did neither.
Instead, Hess conceded to the district court that none of
his cases actually settled within thirty days of his termination.
So that path—option one—is out. As for the second
path, Hess’s depositions did not address the meaning of the
10 No. 14-1921
term “generate.” So option two is out as well. The result:
Hess failed to meet his burden. And we cannot rule in his
favor.
Hess’s arguments to the contrary cannot save this result.
Although we might have used different language, we nevertheless
find that the parties intended a simple, straightforward
plan for bonus compensation. See FCC v. Airadigm
Commc’ns, Inc., 616 F.3d 642, 657 (7th Cir. 2010) (“[A] court
should provide the most plausible reading of an ambiguous
contract where parties do not point to extrinsic evidence at
summary judgment.”). That plan does not require K&A to
pay Hess fees for cases that settled after his date of termination—
even if he worked on those cases before his termination.
Because we hold that the employment agreement does
not require such a payment, Hess cannot prove breach. And
because he cannot prove breach, the district court properly
granted summary judgment in favor of K&A on this claim.
Our de novo inquiry of the contract starts with the term
“generate.” While we agree with Hess that “generate” has a
common-usage definition that is different from the term “received,”
compare Webster’s Third New International Dictionary
945 (1986) (defining generate as “to cause to be: bring into
existence”), with id. at 1894 (defining receive as “to take
possession or delivery of: to knowingly accept”), the employment
agreement deploys these terms interchangeably.
As a result, the most plausible reading is that they are synonymous:
fees are not generated until they are received.
Some background on this point is helpful.
Section 4, where both terms first appear, presents a twotier
bonus system. This system incentivizes firm profits by
triggering larger bonuses for Hess once annual fees cross a
No. 14-1921 11
certain threshold. The K&A promise is clear: the more money
Hess brings in, the more money Hess takes home. Section
4 states in relevant part:
Corporation hereby acknowledges that Employee’s
starting salary shall be $60,000. Corporation further
acknowledges that Employee will receive bonus pay
as follows: 15% of all fees generated over the base salary
(or $5,000 per month) with a guarantee of One
Hundred Twenty-Five Thousand ($125,000). Bonus
pay shall increase to 25% on all fees received annually
in excess of $750,000.00.
Thus, Hess’s bonus jumps from fifteen percent to twenty-five
percent when annual fees received exceed $750,000.
By reading “generated” synonymously with “received,”
this formula for bonus compensation is straightforward and
easy to apply. It is so easy, in fact, that even a group of lawyers
could figure it out. Cf. Jackson v. Pollion, 733 F.3d 786, 788
(7th Cir. 2013) (“Innumerable are the lawyers who explain
that they picked law over a technical field because they have
a ‘math block … .’”).
But if Hess has his way, giving distinct meaning to each
term, this simplicity is abandoned. For example, by insisting
on a definition of “generate” that means “to create” rather
than “to receive,” Hess requires the firm to adopt an approach
that measures what he created. This approach is presumably
weighted by unknown quantities and qualities of
work, proportionate to the associates or partners who are
doing the work.
We quickly can think of many factors that would need to
be examined before K&A could determine how much of a
12 No. 14-1921
given fee Hess helped to create: time spent on a matter, type
of matter worked on, ultimate work product, research, writing,
editing, travel time, correspondence, meetings, and so
on. And that is before the firm adjusts the bonus for any
work done by another attorney on the same case. It is telling
that the employment agreement does not mention any of
these guideposts.
As a result, Hess’s interpretation of the agreement is not
as plausible as K&A’s. Given there is no extrinsic evidence to
compel a different result, we find in favor of K&A. This interpretation
conforms to the “fundamental principles” that
underlie contingency-fee arrangements at K&A. Hess III,
2013 U.S. Dist. LEXIS 42854, at *14. Hess has no right under
the employment agreement to fees received from cases that
settled after his termination.
The June 21, 2002, modification letter does not mandate a
different result. That modification states, in relevant part:
Your annual salary will, starting immediately, be adjusted
to $100,000. Also effective immediately you will
be eligible to receive as a bonus 40% of all fee revenue
generated except as follows: a) no bonus will be paid
on the first $100,000 of annual fee revenue generated;
and, b) if it is otherwise eligible, only a 10% bonus
will be paid for fees generated on the Robert Thompson
file.
Hess argues that this modification supports his position.
Specifically, Hess argues that “generated” and “received”
cannot be synonymous because the last-in-time document—
the modification—does not deploy them interchangeably.
We reject this argument.
No. 14-1921 13
To be sure, the modification foregoes usage of the term
“received.” But it does not follow that Hess’s definition of
“generate” springs into effect. Section 2 of the original employment
agreement has never been modified, and it deploys
the term “received” in the same manner as Section 4.
Entitled “Establishment of Employment,” Section 2 provides
in relevant part, “All proceeds received by [Hess] for professional
services rendered for Corporation clients shall be the
property of the Corporation” (emphasis added).
Consistent with the rest of the contract, “generated”
could be substituted with the term “received,” and the overall
meaning of the provision would remain the same. Henderson
v. Roadway Express, 720 N.E.2d 1108, 1111 (Ill. App. Ct.
1999) (noting that courts should harmonize provisions of a
contract to avoid conflict). Hess cannot overcome this fact. In
sum, fees are not “generated” at K&A until they are “received.”
What is more, although the numbers are different, the
bonus formula presented in the modification letter is consistent
with the original formula presented in Section 4 of the
agreement: cross a certain threshold of fee revenue and receive
a certain percentage of bonus compensation. In this
case, once the generated fee revenue exceeds $100,000, then
the forty-percent bonus is triggered.
If anything, this latter formula is even simpler than the
original formula because it consists of only one tier, albeit
with a caveat—the Thompson file. It is probative, moreover,
that this modification—like the employment agreement—
does not explain the complex rubric that would result from
adopting Hess’s interpretation of the term “generate.” In the
14 No. 14-1921
end, K&A’s interpretation of the contract is the most plausible
one. We adopt it today.
Attempting to save his case, Hess argues that the district
court acted outside our mandate from Hess II by failing to
consider extrinsic evidence. But what was the district court
supposed to consider? Hess offered no extrinsic evidence on
the meaning of the key term—“generate.” His depositions
did not speak to that issue. Hess cannot attack the district
court for failing to consider evidence that he never offered.
Consequently, we reject this argument.
Hess finally contends that K&A never effectively terminated
him because it breached the thirty-day-notice provision
of the employment agreement. As a result, Hess argues,
he remained an employee at K&A when the firm received all
the income from his remaining cases, which entitles him to
compensation. As we noted above, K&A contends that Hess
waived this argument by not briefing it before the district
court.
We agree with K&A. It is well settled that arguments not
developed before the district court are deemed waived on
appeal. Puffer v. Allstate Ins. Co., 675 F.3d 709, 718 (7th Cir.
2014). And even if it was not waived, Hess still could not
prevail under this theory. Taken to its logical conclusion, it
would mean that Hess remained an employee of K&A for a
period of time lasting well after his termination. Given the
time spent away from the firm, and considering his employment
elsewhere, under this theory, Hess might find
himself defending, rather than advancing, claims against
K&A. Surely Hess does not desire this result.
No. 14-1921 15
In sum, the district court adopted the most plausible interpretation
of the contract. Having conducted our own de
novo review, we agree with that interpretation. Because we
find Section 4 and the modification letter to be on point, we
need not examine Section 8, addressing competition. We
turn, instead, to Hess’s remaining claim under the IWPCA.
B. IWPCA Claim
The IWPCA is designed “to provide employees with a
cause of action for the timely and complete payment of
earned wages or final compensation, without retaliation
from employers.” Byung Moo Soh v. Target Mktg. Sys., Inc. 817
N.E.2d 1105, 1107 (Ill. App. Ct. 2004). It states that final
compensation “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 … .” 820 Ill. Comp. Stat. 115/2
(emphasis added).
Because the IWPCA does not define the term “earned
bonuses,” Illinois courts analogize them to “earned
vacation.” See Camillo v. Wal-Mart Stores, Inc., 582 N.E.2d 729,
734 (Ill. App. Ct. 1991) (“’[E]arned vacation’ and ‘earned
bonus’ should be interpreted similarly... .”). Where there is
an unequivocal promise that a bonus will be paid, at least
one court has awarded a pro rata share of that bonus to the
terminated employee. See Camillo, 582 N.E.2d at 731–35.
Where, by contrast, there is no unequivocal promise that a
bonus will be paid, three courts have denied recovery under
the IWPCA. See McLaughlin v. Sternberg Lanterns, Inc., 917
N.E.2d 1065, 1071 (Ill. App. Ct. 2009); In re Comdisco, Nos. 02
C 7030 & 02 C 7031, 2003 U.S. Dist. LEXIS 2982, at *17 (N.D.
16 No. 14-1921
Ill. Feb. 27, 2003); Tatom v. Ameritech Corp., No. 99 C 683, 2000
U.S. Dist. LEXIS 16720, at *26-27(N.D. Ill. Sept. 28, 2000).
These decisions are consistent with regulations
promulgated by the Illinois Department of Labor, which
define “earned bonuses” under the IWPCA:
An employee has a right to an earned bonus when
there is an unequivocal promise by the employer and the
employee has performed the requirements set forth in
the bonus agreement between the parties and all of the
required conditions for receiving the bonus set forth in the
bonus agreement have been met.
56 Ill. Adm. Code § 300.500 (2014) (emphasis added). Under
Illinois law, this regulation is entitled to “substantial weight
and deference.” McLaughlin, 917 N.E.2d at 1071.
Here, Hess’s claim under the IWPCA fails for two
reasons. First, there is no unequivocal promise that a bonus
will be paid. On this point, we look to the terms of the
modification letter, which, despite not having been signed
by Hess, both parties agree governs the terms of Hess’s
compensation from June 21, 2002, until the date of his
termination on February 14, 2007. The modification states
that Hess “will be eligible to receive as a bonus” a certain
percentage of all fee revenue generated over $100,000
(emphasis added).
Eligibility, of course, is no guarantee. Hess might very
well be eligible for a bonus, but due to a host of factors, not
receive one. As a result, we do not find this bonus provision
to be the kind of unequivocal promise that is required under
applicable Illinois law. McLaughlin, 917 N.E.2d at 1071 (“If no
such unequivocal promise was made, then the employee is
No. 14-1921 17
not entitled to any part of the bonus pursuant to section 2 of
the Wage Act [IWPCA].”). So on this ground alone, Hess’s
claim under the IWPCA for post-termination settlement fees
fails.
But even assuming, for the sake of argument, that the
parties intended eligibility to equate to a guarantee, Hess
still would not be entitled to recovery under the IWPCA. For
as we have already found, the employment agreement only
provides for bonuses once a certain amount of fee revenue is
received. Here, Hess acknowledges that K&A did not receive
the settlement fees from his medical-malpractice cases until
after his termination. That means not “all of the required
conditions for receiving the bonus set forth in the bonus
agreement have been met.” 56 Ill. Adm. Code § 300.500
(2014). This second reason, then, independently denies relief
to Hess under the IWPCA. As there exists no genuine issue
of material fact on which to proceed to trial, summary
judgment was appropriately granted in favor of K&A on
Hess’s IWPCA claim.

Outcome: For the foregoing reasons, Hess cannot recover any fees
from the post-termination settlements. The judgment of the
district court is AFFIRMED.

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