Freeman v. Liu

112 F.R.D. 35, 1986 U.S. Dist. LEXIS 23735
CourtDistrict Court, N.D. Illinois
DecidedJune 24, 1986
DocketNo. 86 C 1571
StatusPublished
Cited by5 cases

This text of 112 F.R.D. 35 (Freeman v. Liu) is published on Counsel Stack Legal Research, covering District Court, N.D. Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Freeman v. Liu, 112 F.R.D. 35, 1986 U.S. Dist. LEXIS 23735 (N.D. Ill. 1986).

Opinion

MEMORANDUM OPINION AND ORDER

ASPEN, District Judge:

John Freeman (“Freeman”) has sued Robert and Mimi Liu (“the Lius”) for firing him in breach of an employment contract. Federal jurisdiction rests on diversity of citizenship,1 but the Lius contend that Freeman secured federal jurisdiction through artifice by failing to join as a defendant an indispensable party: his real employer, Freeman Tire Corporation (“FTC”), an Illinois corporation. The Lius therefore have moved to dismiss under Fed.R.Civ.P. 12(b)(7). The Court denies this motion for the reasons that follow.

The Lius’ essential argument is that they hired Freeman as agents of FTC, not as individuals. Although they have cast their theory in terms of “indispensable parties,” what they are essentially arguing is that FTC, not the Lius, is the only party potentially liable on the contract; that it is therefore the real party in interest, see Fed.R.Civ.P. 17(a); and that the complaint there[37]*37fore fails to state a claim against them. The following facts2 will illustrate how this is so.

Freeman was one of four shareholders and officers of “Freeman Tire & Supply Co. (“FT & S”), an Illinois corporation which buys and sells tires. In November 5, 1984, these shareholders sold the assets of FT & S to the Lius. The preamble of the purchase and sale agreement says that the contract was made by “the Lius,” referred to as “Buyer.” Article VI, paragraph G, of the contract says that the “Buyer,” meaning the Lius, shall hire Freeman at $50,000 per year, and provide him medical insurance and a company car. The Lius later reincorporated FT & S as FTC. Thus, it appears that Freeman was selling ownership but not management of the company to the Lius. The separate employment agreement was to be, and was, signed on the date of closing.

That “Contract of Employment” generated the confusion that gives rise to the pending motion. The preamble states:

THIS AGREEMENT [is] made and entered into ... by and between ROBERT W. LIU and MIMI W. LIU, residents of Palos Verdes Estates, California, hereinafter referred to as the “Company,” and JOHN FREEMAN, of Lincolnwood, Illinois, hereinafter referred to as the “Executive” of “Employee.”

Paragraph 12 states that the contract annuls all previous contracts between Freeman and “the Company or ... Freeman Tire & Supply Co., Inc.” The closing paragraph of the contract says that “Mr. Robert W. Liu and Mrs. Mimi W. Liu have caused its company name to be hereunto subscribed by its President and its duly attested Company Seal to be hereunto affixed by its Secretary, and the said John Freeman has affixed his signature and seal hereto.” The contract is signed by “John Freeman, Executive,” “Robert Liu” and “Mimi Liu.” But, oddly, no “company name” is listed, no one is identified as President or Secretary, and no “company seal” is affixed to the contract.3

The Lius have attached some documents to their motion, revealing that: FTC, rather than the Lius, paid Freeman’s salary (this is shown by a W-2 form). FTC also paid insurance premiums on Freeman’s behalf, as shown by various invoices.

The parties’ arguments have focussed not on the procedural factors of Rule 19, but rather on what is really an issue of agency law.4 The Lius insist that they signed the contract merely as agents of FTC. In effect, they are saying they were not parties to the contract in their individual capacities. Freeman argues with equal vehemence that the Lius signed the contract as individuals, or, at most, as agents for an undisclosed principal, FTC. He concludes that this means FTC has little or no interest in the suit and is therefore “dispensable.” Whether the Lius intended to be bound is a factual question. See Knightsbridge Realty Partners v. Pace, 101 Ill.App.3d 49, 53, 56 Ill.Dec. 483, 487, 427 N.E.2d 815, 819 (1st Dist.1981). The outcome of this debate obviously hinges on the parties’ intent when they signed the contract. Cf. Stap v. Chicago Aces Tennis Team, Inc., 63 Ill.App.3d 23, 26, 20 Ill.Dec. [38]*38230, 232, 379 N.E.2d 1298, 1300 (1st Dist.1978). It is axiomatic that we will first confine ourselves to the parties’ contracts in trying to divine this intent. See, e.g., Restatement (Second) of Agency, § 323(1) (1957). If the contracts yield no unambiguous answer, however, we may look to extrinsic evidence to guide our decision. See id. at § 323(2).

We think the contracts are ambiguous about whether the Lius were acting as individuals, as agents of FTC, or both, when they hired Freeman. The purchase and sale agreement seems clearly between FT & S, the shareholders, and the Lius as individuals, dubbed as “Buyer” for that contract. When that agreement says in Article VI, 11G that the “Buyer” must hire Freeman, it seems to suggest that the Lius as individuals must do so. Yet it is not unreasonable to construe this merely as a promise to do so on behalf of the company they were buying. The employment contract says it is between the Lius and Freeman, and is signed by them as such. This again suggests that they hired him as individuals and dovetails with our first construction of the purchase agreement. Yet the contract also suggests that they were acting in some kind of corporate capacity. If not, it is odd that these two individuals referred to themselves as “the Company” (although they never identified the Company).5 And although they obliquely mentioned a “company name” and “company seal” at the end of the contract, suggesting they were not acting as individuals, they strangely left out the name and seal and apparently signed the contract as individuals. Nowhere does the contract clearly state that they were acting on behalf of another entity. In sum, relying only on these documents, we cannot glean a clear indication of whether the parties intended to bind the Lius, FTC or both.

Turning to outside evidence, all we have before us is the documents showing that FTC probably paid all of Freeman’s salary and benefits. This evidence of what happened after the contract was signed certainly lends some support for the Lius’ position but is not conclusive on whether the parties intended when they signed the contract that the Lius would be a party to it. It might be, as we describe later, that the parties intended that both the Lius and FTC would be bound. Or it might be that the Lius were agents for FTC, who therefore paid the salary, but did not disclose this to Freeman. At present there is no clear extrinsic evidence about what the parties intended. It follows that a genuine factual dispute exists over the parties’ intent, one that we cannot resolve on the record before us. Despite this state of seeming factual chaos, it turns out that FTC is not an indispensable party no matter how the factual dispute is resolved.

This conclusion plainly results if Freeman’s view of the facts is right. If the Lius signed the contracts only in their individual capacity not as an agent of FTC, FTC would not be liable to Freeman, and indeed, would be irrelevant to the suit.

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Cite This Page — Counsel Stack

Bluebook (online)
112 F.R.D. 35, 1986 U.S. Dist. LEXIS 23735, Counsel Stack Legal Research, https://law.counselstack.com/opinion/freeman-v-liu-ilnd-1986.