In Kennedy v. Intraspectrum Counseling, Ltd., No. 22-cv-05204, 2023 WL 6879485 (N.D.Ill. October 18, 2023), the court denied plaintiff’s motion to dismiss defendant’s counterclaims for breach of contract and conversion – which it alleged in response to plaintiff’s complaint alleging retaliation in violation of Title VII of the Civil Rights Act of 1964.
In sum, in this case plaintiff alleged that the defendant engaged in unlawful retaliation by terminating her days after she reported sexual harassment by her supervisor. Defendant responded by interposing counterclaims for breach of contract and conversion, on the alleged ground that “after plaintiff’s termination, defendant discovered that she had not performed the job duties specified in her employment agreement.”
In ruling that the counterclaims were sufficiently alleged, the court explained:
Plaintiff argues that defendant’s contracts claim is legally defective because absent specific terms in the parties’ employment contract entitling defendant to liquidated damages or consequential damages in the event plaintiff fails to perform her job duties, defendant’s only remedy under Illinois law is to terminate her. She cites two cases for this argument, but neither supports dismissal on the facts alleged here. Urological Group, Ltd. v. Petersen (In re Petersen), 296 B.R. 766, 780-781 (Bankr. C.D. Ill. 2003), is a bankruptcy case in which the debtor’s former employer sought to bar the discharge of a claim it asserted against her for lost profits that the employer attributed to the debtor’s failure to meet the requirements of her job. After a trial on the merits, the court concluded that the employee “did not deliberately disregard any of her responsibilities,” and that the evidence established, “at most, poor job performance.” Id. at 780. Applying agency principles, the court reasoned that absent an express agreement, an “agent is not an insurer of the success of his undertaking and he does not guarantee his principal against incidental losses, and if he acts with good faith and with due care he is not liable for losses which result from a mere mistake.” Id. at 781.
Plaintiff next points to Barbagallo v. Marcum LLP, 925 F. Supp. 2d 275, 298 (E.D.N.Y. 2013)—another decision issued after a trial on the merits—but that case is likewise inapposite on the allegations here. In the portion of the decision featured in plaintiff’s reply, the Barbagallo court held that under New York law, “employers may not assert a claim of damages against an employee for the employee’s alleged negligent acts, or sue employees for lost profits caused by alleged poor performance.” Id. at 298. In any event, the court added, the employer’s evidence of negligence was “insubstantial” and was “not credited.” Id. Setting aside that the cited passage addresses the adequacy of the employer’s tort claim rather that its contracts claim, as in Petersen, the Barbagallo employer sought to recover lost profits, not costs allegedly incurred as a direct result of the employee’s failure to perform duties specifically required by her contract. The employer’s breach of contract claim, meanwhile—which alleged that the employee violated a contractual non-compete clause—was dismissed for reasons specific to the interpretation of non-compete agreements, which have nothing to do with any issue in this case.
Petersen and Barbagallo both reflect the general principle that employers may not ordinarily recover in contract or negligence from employees whose job performance falls short of expectations. While this general principle is sound, it does not compel dismissal here because defendant alleges that plaintiff failed to perform specific duties required by her contract, and it identifies discrete losses that it claims to have incurred as a direct result. Unlike in the cases plaintiff cites, defendant does not seek to recover “lost profits” or other consequential, incidental, or downstream damages, but only a narrow category of costs directly occasioned by plaintiff’s alleged failure to perform explicit contractual duties. In short, defendant has adequately alleged the elements of breach of contract under Illinois law, i.e., the existence of a valid and enforceable contract; performance by the defendant; breach by the plaintiff; and resultant injury, see Gonzalzles v. Am. Exp. Credit Corp., 315 Ill.App.3d 199, 247 Ill.Dec. 881, 733 N.E.2d 345, 351 (2000), and plaintiff’s cited authorities do not establish that the damages it seeks are unavailable as a matter of law.
As to defendant’s counterclaim for conversion, the court held that “[d]efendant adequately alleges that plaintiff failed to return a book that defendant owned and allowed plaintiff to use during her employment, despite defendant’s demand that she return the book as required by the parties’ contract.”
The court concluded that noting that its ruling should not be read to “suggest that either of defendant’s counterclaims is meritorious” and that “[i]ndeed, if plaintiff’s theory that they were brought in bad faith in retaliation for her reporting of sex-based harassment and filing of a Title VII claim is borne out by the evidence, plaintiff may well be entitled to sanctions.”