CZS Holdings, LLC v. Kolbe

THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

Arpad Kolbe, )

)

Counter-Plaintiff, )

) No. 20 C 6886

v. )

) Judge Virginia M. Kendall

CZS Holdings LLC (d/b/a Pur360), )

)

Counter-Defendant. )

MEMORANDUM OPINION AND ORDER

Counter-Plaintiff Arpad Kolbe brings a counterclaim for breach of contract against his

former employer, CZS Holdings LLC d/b/a Pur360 (“Pur360”). Pur360 moves for partial

dismissal of the First Amended Counterclaim for Breach of Contract.1 (Dkt. 31). For the following

reasons, Pur360’s Motion to Dismiss is granted.

BACKGROUND

On November 20, 2020, Pur360 filed suit against Kolbe for trade secret misappropriation

and breach of contract. (Dkt. 1). Kolbe then filed counterclaims against Pur360 for equitable

accounting, breach of contract, and violations of the Illinois Sales Representative Act, 820 ILCS

§ 120/1. (Dkt. 10.) This Court dismissed Kolbe’s original counterclaims without prejudice (Dkt.

10), and Kolbe filed an amended counterclaim for breach of contract. (Dkt. 29).2

1 Pur360 does not move to dismiss Kolbe’s counterclaim based on underpayment of bonuses. (Mot.

at 8).

2 The amended counterclaim and Kolbe’s opposition to the instant motion were not signed as

required by Federal Rule of Civil Procedure 11(a). Any future pleadings or briefing submitted

without signature will be stricken. Fed. R. Civ. P. 11(a).

The following factual allegations are taken from Kolbe’s First Amended Counterclaim

(“FACC”) and assumed true for the purposes of this motion. W. Bend Mut. Ins. Co. v. Schumacher,

844 F.3d 670, 675 (7th Cir. 2016); Cozzi Iron & Metal, Inc. v. U.S. Office Equip, Inc., 250 F.3d

570, 574 (7th Cir. 2001).

Kolbe alleges that prior to accepting employment with Pur360, he and Pur360 engaged in

negotiations in which oral and written proposals were traded between the parties. (FACC at ¶¶ 8,

10). During those negotiations, according to Kolbe, part of his compensation plan was reduced to

writing, but the remainder of the agreement remained oral. (Id. at ¶¶ 16, 17). Kolbe claims Pur360

agreed to pay him “commissions on gross sales revenues per sale and annual bonuses on gross

sales revenues per year” per a written schedule set forth in an offer of employment. (Id. at ¶ 20).

In accordance with the oral agreement and written schedule, Pur360 “was obligated to pay

commission to Kolbe on gross revenues per sale in the amount of 10% on each new sale and 3%

on recurring sales from existing customers.” (Id. at ¶ 21). Further, Kolbe was entitled to annual

bonuses calculated as follows: “2% on annual gross revenue between $300,000 and $399,999;

2.5% on annual gross revenue between $400,000 and $499,999; and 3% on annual gross revenue

over $500,000.” (Id. at ¶ 22). Moreover, Pur360 allegedly agreed to increase Kolbe’s base pay

and commission rate “if Tampa revenue exceeded $300,000.00.” (Id. at ¶¶ 28, 29).

In addition, Kolbe also claims that Pur360’s President Zak Khoshbin “promised Kolbe that

he would receive shares in the company, expansion into a new advisory board position which

would include compensation, as well as elevation to regional and/or director level position.” (Id.

at ¶ 23.) Kolbe accepted employment with Pur360 in reliance upon Khoshbin’s representations

and the expectation that he would receive commissions and bonuses. (Id. at ¶¶ 30, 31). Kolbe

claims that Pur360 failed to abide by the commission and bonus agreement and the representations

regarding the issuance of ownership shares and appointment to an advisory board and higher-level

position. (Id. at ¶¶ 31, 33, 34, 43.)

LEGAL STANDARD

When considering a motion to dismiss for failure to state a claim, the Court must construe

the complaint “in a light most favorable to the nonmoving party, accept well-pleaded facts as true,

and draw all inferences in the non-moving party’s favor.” Bell v. City of Chicago, 835 F.3d 736,

738 (7th Cir. 2016). The complaint must contain a “short and plain statement of the claim showing

that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). The plaintiff need not plead “detailed

factual allegations,” but the short and plain statement must “give the defendant fair notice of what

… the claim is and the grounds upon which it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S.

544, 555 (2007). A complaint must contain sufficient factual matter that when “accepted as true

… ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)

(quoting Twombly, 550 U.S. at 570)).

The Seventh Circuit interprets this plausibility standard to mean that the plaintiff must

“give enough details about the subject-matter of the case to present a story that holds together.”

Vansant v. Hill's Pet Nutrition, Inc., 934 F.3d 730, 736 (7th Cir. 2019) (quoting Swanson v.

Citibank, N.A., 614 F.3d 400, 404 (7th Cir. 2010)). Evaluating whether a plaintiff's claim is

sufficiently plausible to survive a motion to dismiss is “a context-specific task that requires the

reviewing court to draw on its judicial experience and common sense.” West Bend Mut. Ins. Co.

v. Schumacher, 844 F.3d 670, 676 (7th Cir. 2016) (quoting McCauley v. City of Chicago, 671 F.3d

611, 616 (7th Cir. 2011); Iqbal, 556 U.S. at 678). The legal standard for a motion to dismiss a

counterclaim is the same as that applied to a motion to dismiss a complaint. See Cozzi Iron, 250

F.3d at 574.

DISCUSSION

To state a breach of contract claim under Illinois law, a plaintiff must plead (1) the

existence of a valid and enforceable contract; (2) the plaintiff’s performance of the contract; (3)

the defendant’s breach of the contract; and (4) resulting injury. Avila v. CitiMortgage, Inc., 801

F.3d 777, 786 (7th Cir. 2015) (citing W.W. Vincent & Co. v. First Colony Life Ins. Co., 814 N.E.2d

960, 967 (Ill. App. Ct. 2004)). Here, Kolbe’s breach of contract claim fails for two principle

reasons. First, Kolbe fails to plead the existence of an oral contract related to the issuance of

ownership shares and appointment to an advisory board and higher-level position. Second, Kolbe

does not plausibly allege that he was underpaid sales commissions. Accordingly, Pur360’s Motion

to Dismiss is granted.

A. The “Executed Agreement” and Parol Evidence Rule

As an initial matter, Pur360 argues that Kolbe’s counterclaim should be dismissed either

because an integration clause in an alleged employment agreement between the parties precludes

it, or because Kolbe’s allegations of a part-written contract preclude consideration of the oral

terms. Both arguments fail.

First, Pur360 points to a clause in a September 12 employment agreement (the “Executed

Agreement”) it attached to its own pleadings in this case and to its original motion to dismiss that

states that it is “the complete agreement between” the parties. (Mot. at 3). Because of this

agreement, Pur360 argues, Kolbe cannot base his claims on oral promises. Kolbe argues that the

Executed Agreement is not the basis of his claim and so the Executed Agreement cannot be

considered at this stage without conversion of the motion to summary judgment. (Dkt. 36 at 10).

The cases that Pur360 cites in its Motion are generally directed to situations where the document

at issue is attached to the pleading that is being challenged by a motion to dismiss. See e.g.,

Williamson v. Curran, 714 F.3d 432, 436 (7th Cir. 2013) (affirming dismissal of plaintiff’s claims

under Rule 12(b)(6) based on documents cited in plaintiff’s complaint). The situation here – that

the Executed Agreement was attached to plaintiff’s complaint while the defendant’s counterclaim

is being challenged – is not on all fours with those cases.

A court may consider a document that is attached to a motion to dismiss without converting

the motion to a motion for summary judgment if the document is referred to in the plaintiff’s

complaint and central to his claim. Wright v. Assoc. Ins. Cos. Inc., 29 F.3d 1244, 1248 (7th

Cir.1994). However, this allowance only extends “so long as the authenticity of the document is

unquestioned.” Minch v. City of Chicago, 486 F.3d 294, 300 n.3 (7th Cir. 2007) (citing Tierney v.

Vahle, 304 F.3d 734, 738 (7th Cir. 2002)); see also Tierney v. Vahle, 304 F.3d 734, 739 (7th Cir.

2002) (“What would not be cricket would be for the defendant to submit a document in support of

his Rule 12(b)(6) motion that required discovery to authenticate or disambiguate; in such a case

the judge would be required to convert the defendant's motion to a Rule 56 motion if he were

minded to consider the document in deciding whether to grant the motion.”). Because Kolbe

appears to contest the authenticity of the Executed Agreement (or at the very least, does not admit

the authenticity), the Executed Agreement will not be considered at this stage. (Resp. at 9).

Pur360 argues that even if the Executed Agreement does not control, Illinois’ parol

evidence rule still precludes consideration of Kolbe’s claims of an oral agreement. (Mot. at 9-10).

See Barille v. Sears Roebuck & Co., 682 N.E.2d 118, 123 (Ill App. Ct. 1997) (“It is well settled

under the doctrine of merger and the parol evidence rule that a written agreement which is complete

on its face supersedes all prior agreements on the same subject matter and bars the introduction of

evidence concerning any prior term or agreement on that subject matter.”) Pur360’s position is

that, because Kolbe has pled that there was a writing that addressed his compensation, any

additional claims of compensation – including shares, an advisory board, or elevation – cannot be

considered. (Mot. at 9-10). However, application of the rule requires the written agreement pled

by Kolbe to be “complete on its face.” See, e.g., Barille, 682 N.E.2d at 123. Kolbe has not attached

a written agreement to his counterclaim nor made adequate factual allegations explaining the

agreement in enough detail to conclude that agreement is complete on its face, and so allegations

of other oral agreements on the subject of his employment and compensation are not precluded

based on Kolbe’s allegations of a written agreement.

B. Allegations of a “Part-Written” Contract

While Kolbe’s allegations of a part-written contract are light enough to dodge the parol

evidence rule, that same lack of factual description dooms his claim that part of his agreement with

CZS was written.

Kolbe alleges that part of the contract between the parties was written and makes mention

of a “schedule” several times in his FACC. (FACC at ¶¶ 16-17, 20). But he never identifies that

schedule, does not explain when or how it was executed, or provide any other factual allegations

to sustain his claim that there was a part-written contract between the parties. As Pur360 points

out (Reply at 2), if there is a writing out there, Kolbe has not identified it or provided factual detail

to support that claim, and so has not provided Pur360 adequate notice as required by Rule 8(a).3

See Twombly, 550 U.S. at 555 (The allegations must “give the defendant fair notice of what … the

claim is and the grounds upon which it rests.”) Leaving CZS to guess what writing Kolbe is

referring to does not meet the pleading standard set by Twombly. While Kolbe alleges that this

written schedule was agreed to orally between the parties, (FACC at ¶ 20) that is a legal conclusion

that is not entitled to the presumption of truth on a 12(b)(6) motion to dismiss. See Iqbal, 556 U.S.

3 This “writing” is not the Executed Contract (Resp. at 8), nor does Kolbe specifically identify it

as the July 2018 email attaching a schedule that the Court has already ruled was not a contract

(Dkt. 28 at 12 (The email attaching the schedule “cannot form the basis for Kolbe’s breach of

contract claims… it is not a contract.”)

at 678 (“The tenet that a court must accept as true all of the allegations contained in a complaint is

inapplicable to legal conclusions.”)

C. Allegations of Oral Contract

1. Ownership Shares, Advisory Board Position, and Higher-Level Position

Regarding Kolbe’s claim of an oral contract entitling him to ownership shares in Pur360

and appointment to an advisory board and higher-level position, Kolbe fails to plead the existence

of a valid and enforceable contract. Under Illinois law, oral employment contracts are viewed

more skeptically than written ones. Zemke v. City of Chicago, 100 F.3d 511, 513 (7th Cir. 1996).

To plead the existence of an enforceable oral contract, a plaintiff must establish offer, acceptance,

consideration, and definite and certain terms. See id. (“[t]o be enforceable, an oral contract must

contain terms which are definite and certain.”). See, e.g., Britton v. ITT Technical Inst., No. 13-cv-

6547, 2014 WL 1568684, at *4 (N.D. Ill. Apr. 17, 2014) (“[t]o plead the elements of an enforceable

oral contract, Plaintiff must establish … definite and certain terms of the contract.”)

Here, Kolbe’s FACC does not provide terms that are definite or certain. Beyond stating

that “[t]he ownership shares and the position were … to be provided after the first year” and that

“the position on the technical advisory board … would have enabled Kolbe to provide information

to the Plaintiff,” almost all aspects of the oral contract remain unclear. (Dkt. 29 at ¶ 24, 36.) We

do not know, for instance, how many ownership shares Kolbe was entitled to, under what

conditions those shares would vest, under what conditions Kolbe would be appointed to the

advisory board, or anything about the regional and/or director level position. There are also zero

factual allegations to identify when the oral offer and acceptance took place – important facts to

plausibly allege because Kolbe has alleged that the parties “traded proposals both orally and in

writing.” (FACC ¶ 10). The terms of the alleged oral contract are therefore too vague and

indefinite to support the existence of an oral contract guaranteeing Kolbe ownership shares in

Pur360, appointment to an advisory board, and a higher-level position. See e.g., Zemke, 100 F.3d

at 513 (affirming dismissal of breach of oral contract claim where complaint failed to allege start

date, salary, and other terms); Shelton v. Ernst & Young, LLP, 143 F. Supp. 2d 982, 992 (N.D. Ill.

2001) (dismissing breach of oral contract claim where plaintiff failed to plead the duration of the

agreement or adequate consideration).

B. Underpaid Sales Commissions

Kolbe also fails to make factual allegations regarding his entitlement to commissions that

plausibly suggest he is entitled to relief. As Pur360 argues, the factual basis for Kolbe’s claim lies

entirely in Pur360’s Tampa office having revenues that exceeded $356,000.00 in the first year of

Kolbe’s employment and Kolbe’s observations of the work being done in the Tampa region.4 (Mot.

at 13-14). Kolbe responds that his allegations are based on his personal observations and that once

he obtains Pur360’s financial records, he will be able to establish that he was underpaid. (Resp. at

10-11). He argues that “[i]t is plausible that a company refused to pay commission to an

employee,” (Resp. at 11) which of course as a general matter is true. However, Kolbe needed to

provide “enough detail to give the defendant fair notice of what the claim is and the grounds upon

which it rests, and through his allegations, show that it is plausible, rather than merely speculative,

that he is entitled to relief.” Tamayo v. Blagojevich, 526 F.3d 1074, 1083 (7th Cir. 2008) (citation

omitted). As such, Kolbe’s speculative and conclusory statements are insufficient to plausibly

state a claim for relief.

Kolbe alleges that “[t]he parties orally agreed that [Pur360] would pay to Kolbe

commissions on gross sales revenues per sale … as per a written schedule set forth in an offer of

employment from [Pur360] to Kolbe.” (FACC at ¶ 20.) He further states, “[p]ursuant to the oral

4 of the September 12 agreement, the Court will not consider its impact on Kolbe’s counterclaims at this time.

agreement and according to the schedule, [Pur360] was obligated to pay commission to Kolbe on

gross revenues per sale in the amount of 10% on each new sale and 3% on recurring sales from

existing customers.” (Id. at ¶ 21.) Even assuming the existence of a valid and enforceable contract,

Kolbe fails to allege sufficient facts showing its plausible that Pur360 breached its contractual

obligations. The FACC plainly states that Kolbe would receive 10% on new sales and 3% on

recurring sales. (Id.) Moreover, Kolbe states in his response to Pur360’s Motion to Dismiss that

his compensation package was “tied both to his sales and to total revenue.” (Resp. at 10.) Yet the

FACC is devoid of any facts related to Kolbe’s own sales. Kolbe’s only non-conclusory allegation

regarding being underpaid commissions is that the Tampa office had revenue in excess of

$356,000.00 in Kolbe’s first year. (FACC at ¶ 32, 34.) Nonetheless, this fact alone is insufficient

to state a plausible claim for relief because it does not evidence the number of new or recurring

sales that Kolbe made while employed at Pur360. Even viewed in a light most favorable to Kolbe,

it is conclusory and speculative to believe that Kolbe was underpaid commissions from the facts

that Kolbe has provided. See e.g., Sevugan v. Direct Energy Servs., LLC, 931 F.3d 610, 616-17

(7th Cir. 2019) (affirming dismissal of breach of contract claim where plaintiff failed to provide

sufficient facts to allow a reasonable inference of breach); Prewett Enters., Inc. v. Grand Trunk

W. R.R. Co., No. 18-cv-04254, 2019 WL 6310495, at *9 (dismissing breach of contract claim

where plaintiff failed to plead facts plausibly establishing the alleged breach).

CONCLUSION

For the foregoing reasons, Kolbe’s First Amended Counterclaim is dismissed to the extent

it alleges a breach by Pur360 for not giving Kolbe ownership shares in the company, appointing

him to an advisory board, elevating him to a regional and/or director level position, or properly

paying commissions. Kolbe’s counterclaim with respect to the payment of bonuses (which was

not challenged by Pur360) survives.

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Les ginia M. Kendall

United States District Judge

Date: October 19, 2021

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