STUART, Justice.
The accounting firm Dudley, Hopton-Jones, Sims Freeman, PLLP ("DHSF"), appeals from an order of the Jefferson Circuit Court dismissing with prejudice its action against Andrew J. Knight, a former partner in DHSF. We reverse and remand.
I.
Knight became a partner in DHSF in 1988. The partnership agreement Knight signed at that time contained the following arbitration provision:
"In the event controversy or claim arises out of or relates to this agreement concerning the value of property or the amount of losses, profits or damages, it shall be submitted to three arbitrators and settled by arbitration in accordance with the rules, then obtaining, of the American Arbitration Association."
Knight left DHSF in April 2000 and, on August 30, 2001, sued DHSF in the Jefferson Circuit Court, alleging that DHSF had not paid him money he was entitled to under the partnership agreement upon withdrawing from the partnership. Without filing an answer, DHSF moved to compel arbitration of Knight's claim pursuant to the arbitration provision in the partnership agreement, and, on February 13, 2002, the circuit court granted DHSF's motion and stayed the case "to permit the parties to arbitrate." It appears that Knight and DHSF thereafter conferred regarding the selection of the arbitrators; however, neither party filed a demand for arbitration with any organization or otherwise took steps to formally initiate the arbitration process. The circuit court periodically held status conferences and requested status reports on the arbitration proceeding; however, on August 4, 2009, after arbitration proceedings still had not been initiated, the circuit court dismissed Knight's action with prejudice.
Approximately five months later, on January 11, 2010, DHSF initiated the present action by filing a complaint against Knight in the Jefferson Circuit Court, alleging that Knight was liable to the firm for breach of contract, breach of fiduciary duties, and fraudulent misrepresentation. DHSF simultaneously moved the circuit court to stay the case and to refer it to arbitration pursuant to the arbitration provision in the partnership agreement. In that motion, DHSF argued that the arbitration provision encompassed the claims it was asserting against Knight, that the underlying transaction affected interstate commerce, and that the circuit court had previously compelled arbitration based upon that same arbitration provision in the earlier action initiated by Knight. On January 29, 2010, the circuit court granted the motion and stayed the case pending the outcome of the arbitration proceedings.
DHSF attached as an exhibit to its motion the motion to compel arbitration it had filed in the earlier action initiated by Knight.
On February 3, 2010, Knight moved the circuit court to dismiss the complaint filed by DHSF, arguing that the claims asserted by DHSF were barred both by the applicable statutes of limitations and by DHSF's failure to assert the claims as compulsory counterclaims in the action filed by Knight in 2001. Knight also argued that DHSF failed to assert its fraudulent-misrepresentation claim with the particularity required by Rule 9(b), Ala. R. Civ. P. ("In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity."). On March 2, 2010, DHSF filed a response in opposition to Knight's motion to dismiss, arguing that each of Knight's arguments lacked merit and that, in any event, those arguments should be decided by an arbitrator — not the court — because the partnership agreement between the parties contained a valid arbitration provision covering the asserted claims.
On March 4, 2010, the circuit court held a hearing on Knight's motion to dismiss. Following that hearing, the circuit court granted Knight's motion and entered a written order dismissing DHSF's complaint with prejudice on the basis of the arguments made by Knight in his motion to dismiss. DHSF filed its notice of appeal to this Court that same day.
II.
DHSF argues that the circuit court erred in hearing and ruling on Knight's motion to dismiss its complaint because, DHSF argues, that motion raised only issues that, in the context of a dispute falling within the scope of a valid arbitration provision, must be resolved by an arbitrator — not a court, which is empowered in such cases to rule only on issues of substantive arbitrability. We review the circuit court's judgment de novo. Brasfield Gorrie, L.L.C. v. Soho Partners, L.L.C., 35 So.3d 601, 604 (Ala. 2009).
We explained the role of the trial court in ruling on a motion to compel arbitration as follows in Brasfield Gorrie:
"In ruling on a motion to stay judicial proceedings following a request for arbitration, the court is required to decide matters of `substantive arbitrability,' that is, (1) whether a valid agreement to arbitrate exists and, if so, (2) whether the specific dispute falls within the scope of that agreement. Dean Witter [Reynolds, Inc. v. McDonald], 758 So.2d [539,] 542 [(Ala. 1999)]. `Procedural arbitrability,' on the other hand, involves questions that grow out of the dispute and bear on its final disposition, e.g., defenses such as notice, laches, estoppel, and other similar compliance defenses; such questions are for an arbitrator to decide. See Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002) (`"`procedural' questions which grow out of the dispute and bear on its final disposition are presumptively not for the judge, but for an arbitrator, to decide'`); John Wiley Sons, Inc. v. Livingston, 376 U.S. 543, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964) (holding that an arbitrator should decide whether the steps of a grievance procedure were completed, where those steps were prerequisites to arbitration)."35 So.3d at 604-05. In this case, the circuit court considered DHSF's motion to compel arbitration and the accompanying exhibits, and it initially granted the motion, staying the case so that DHSF could arbitrate its claims against Knight. That decision is supported by the evidence in the record because there is no question but that a valid agreement to arbitrate exists between DHSF and Knight and that the present dispute falls within the scope of that agreement.
However, approximately five weeks after issuing an order compelling arbitration, the circuit court entered a new order granting Knight's motion to dismiss DHSF's complaint on the following grounds: (1) that all DHSF's claims were barred by the applicable statutes of limitations; (2) that all DHSF's claims were barred because they were compulsory counterclaims that were not asserted in a previous action between the parties; and (3) that DHSF's fraudulent-misrepresentation claim was not pleaded with the required particularity. This order effectively vacated the previous order compelling arbitration, holding instead that Knight did not have to submit to arbitration because he had valid defenses to the claims asserted against him by DHSF. However, as we explained in Brasfield Gorrie, a trial court in such circumstances is empowered only "to decide matters of `substantive arbitrability.'" 35 So.3d at 604. The issue whether DHSF's claims were barred by the applicable statutes of limitations or because they were not asserted in a previous action between the parties, as well as whether DHSF's fraud claim was pleaded with the required particularity, is wholly unrelated to whether a valid agreement to arbitrate exists or whether the identified dispute falls within the scope of that agreement; accordingly, those arguments do not implicate matters of substantive arbitrability, and the circuit court erred by considering those arguments and dismissing DHSF's complaint on that basis. The arguments raised by Knight in his motion to dismiss in fact relate to the ultimate viability of DHSF's claims — not to the availability of arbitration — and they should accordingly be considered and ruled upon by the arbitrators, not by the circuit court.
Knight argues that this Court can nevertheless affirm the judgment of the circuit court because, he argues, DHSF waived its right to arbitrate its claims by not pursuing those claims during the eight-year period in which Knight's action against DHSF was on the administrative docket pending arbitration. DHSF argues that it did not waive its claims and that the issue of waiver, like all the other issues Knight has raised, is for the arbitrators, not the court, to consider.
In Ocwen Loan Servicing, LLC v. Washington, 939 So.2d 6, 14 (Ala. 2006), this Court stated that "whether a party has waived the right to arbitration by its conduct during litigation is a question for the court and not the arbitrator." We further explained that "[i]n order to show waiver by litigation-related conduct, the party opposing arbitration must demonstrate that the movant has substantially invoked the litigation process" 939 So.2d at 14. Washington therefore represents an exception to the general presumption in arbitration law that arbitrators should decide allegations of waiver. See, e.g., Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)) ("[T]he presumption is that the arbitrator should decide `allegations] of waiver, delay, or a like defense to arbitrability.'").
That exception does not apply in this case, however, because Knight is not arguing that DHSF waived its right to arbitrate its claims by substantially invoking the litigation process. Rather, Knight is arguing that DHSF waived its arbitration rights based on its failure to pursue its claims in a timely fashion. See Knight's brief, p. 15 ("[DHSF's] conduct in sitting on its hands for almost a decade before seeking arbitration of its claims constitutes a waiver of its right to arbitration. Just as parties can waive their contractual right to arbitration by substantially invoking the litigation process, they can also waive such rights through dilatory conduct."). An allegation of waiver such as this falls outside the exception articulated in Washington and is subject to the general rule that arbitrators should decide issues of waiver or delay; accordingly, we cannot affirm the judgment of the circuit court on this basis. See also Brasfield Gorrie, 35 So.3d at 606-07 n. 1 (explaining that whether a party has waived its right to arbitration by substantially invoking the litigation process is a matter for the trial court because invoking the litigation process involves matters that occurred under the trial court's watch; such a waiver is therefore distinguishable from a waiver based on other factors not involving litigation conduct).
III.
DHSF's action against Knight alleges breach of contract, breach of fiduciary duties, and fraudulent misrepresentation. The circuit court initially granted DHSF's motion to stay the case so that DHSF could arbitrate its claims pursuant to an arbitration provision in the partnership agreement entered into by the parties, but the circuit court subsequently vacated that order and dismissed DHSF's claims on the basis of the defenses asserted by Knight. However, because the defenses asserted by Knight concerned the ultimate viability of DHSF's claims and not issues of substantive arbitrability, the circuit court erred by considering the merit of those defenses. Because there is no question but that there was a valid agreement between the parties to arbitrate claims such as those asserted by DHSF, arbitration was the proper forum in which to consider the defenses asserted by Knight. Accordingly, the judgment of the circuit court dismissing DHSF's claims and implicitly vacating its earlier order compelling arbitration is reversed and the cause remanded to the circuit court so that DHSF can arbitrate its claims pursuant to the arbitration provision in the partnership agreement between the parties. All other issues raised by the parties on appeal are accordingly pretermitted.
REVERSED AND REMANDED.
LYONS, WOODALL, SMITH, and PARKER, JJ., concur.
MURDOCK, J., concurs specially.
SHAW, J., concurs in the result.
COBB, C.J., dissents.
BOLIN, J., recuses himself.
MURDOCK, Justice (concurring specially).
I concur in the main opinion. I write separately (1) to explain my understanding of the concept of "procedural arbitrability" referenced in Brasfield Gorrie, L.L.C. v. Soho Partners, L.L.C., 35 So.3d 601 (Ala. 2009), as quoted in the main opinion, see 57 So.3d at 70, and (2) to explain further my unwillingness to embrace, as does Chief Justice Cobb in her dissent, a defense of waiver as a ground for affirming the order of the circuit court.
I first note that the defenses of statute of limitations and failure to assert a compulsory counterclaim (thus giving rise to a res judicata bar), though obviously procedural in one sense, are not "procedural arbitrability" issues as that term has come to be understood since the United States Supreme Court's decision in John Wiley Sons, Inc. v. Livingston, 376 U.S. 543, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964). Rather, as the main opinion suggests, these are defenses that arise under state law and that ultimately may defeat a claim; they do not per se address the "arbitrability" of the claim.
"`Procedural arbitrability,' . . . involves questions that grow out of the dispute and bear on its final disposition, e.g., defenses such as notice, laches, estoppel, and other similar compliance defenses; such questions are for an arbitrator to decide. See Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002) ("` procedural' questions which grow out of the dispute and bear on its final disposition are presumptively not for the judge, but for an arbitrator, to decide'`); John Wiley Sons, Inc. v. Livingston, 376 U.S. 543, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964) (holding that an arbitrator should decide whether the steps of a grievance procedure were completed, where those steps were prerequisites to arbitration)."Brasfield Gorrie, 35 So.3d at 604-05 (emphasis added).
The Court in Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002), explained as follows:
"[T]he Court has found the phrase `question of arbitrability' not applicable in other kinds of general circumstance where parties would likely expect that an arbitrator would decide the gateway matter. Thus "`procedural" questions which grow out of the dispute and bear on its final disposition' are presumptively not for the judge, but for an arbitrator, to decide. John Wiley [ Sons, Inc. v. Livingston, 376 U.S. 543,] at 557, 84 S.Ct. 909 [(1964)] (holding that an arbitrator should decide whether the first two steps of a grievance procedure were completed, where these steps are prerequisites to arbitration). So, too, the presumption is that the arbitrator should decide `allegations] of waiver, delay, or a like defense to arbitrability.' Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1,] at 24-25, 103 S.Ct. 927 [(1983)]. Indeed, the Revised Uniform Arbitration Act of 2000 (RUAA), seeking to `incorporate the holdings of the vast majority of state courts and the law that has developed under the [Federal Arbitration Act],' states that an `arbitrator shall decide whether a condition precedent to arbitrability has been fulfilled.' RUAA § 6(c), and comment 2, 7 U.L.A. 12-13 (Supp. 2002). And the comments add that `in the absence of an agreement to the contrary, issues of substantive arbitrability are for a court to decide and issues of procedural arbitrability, i.e., whether prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate have been met, are for the arbitrators to decide.' Id., § 6, comment 2, 7 U.L.A., at 13."
(Emphasis omitted; emphasis added.)
Howsam gives as an example of a procedural-arbitrability issue a failure to follow a given procedure that, under a collective-bargaining agreement, was part of the process entitling the aggrieved party to arbitrate its dispute. Howsam also refers to "prerequisites" to arbitration, "such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate." 537 U.S. at 84, 123 S.Ct. 588. The reference is to time limits, notice, etc., that are a function of the agreement to arbitrate and thus are " conditions precedent" to the arbitration, not conditions precedent to the claim itself. That is, the reference to "prerequisites" is not intended as a reference to defenses that would simply defeat the claim as a matter of state law in a court, as opposed to defeating merely the ability to arbitrate the claim. As one treatise explains it, the "more apt phrase" for "procedural arbitrability" is a "gateway procedural issue," and this is intended as a reference to "the institutional rules" of the arbitration process itself, rules that arbitrators are "comparatively more expert about" and "comparatively better than judges to interpret and apply." 92 Am.Jur. Proof of Facts 1, § 42 (3d ed. 2006). The notion of a "gateway" is that of a gateway to the arbitration per se, not a gateway to a viable claim under otherwise applicable state or federal law.
Obviously, an arbitrator is not "comparatively more expert" than a judge in applying a traditional, statute-of-limitations defense to a claim or in applying a defense that the claimant failed to allege the claim as a compulsory counterclaim in a prior proceeding or with sufficient particularity for purposes of Rule 9(b), Ala. R. Civ. P.
" [T]he relevant question here is what kind of arbitration proceeding the parties agreed to. That question does not concern a state statute or judicial procedures, cf. Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 474-476 (1989). It concerns contract interpretation and arbitration procedures. Arbitrators are well situated to answer that question. Given these considerations, along with the arbitration contracts' sweeping language concerning the scope of the questions committed to arbitration, this matter of contract interpretation should be for the arbitrator, not the courts, to decide. Cf. Howsam, supra, at 83, 123 S.Ct. 588 (finding for roughly similar reasons that the arbitrator should determine a certain procedural `gateway matter')."
Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452-53, 123 S.Ct. 2402, 156 L.Ed.2d 414 (2003). Compare Massachusetts Highway Dep't v. Perini Corp., 444 Mass. 366, 377, 828 N.E.2d 34, 42 (2005) ("[T]he question involve[d] the sequence of prerequisites for the dispute's submission to the board, and thus, present[ed] . . . an issue of procedural arbitrability similar to `time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate.'" (citation omitted)).
See generally 13D Charles Alan Wright et al., Federal Practice Procedure § 3569 (3d ed. 2010) (emphasis added; citations omitted) ("[T]he [Supreme] Court has held that the following issues do not raise questions of arbitrability and thus should (absent agreement to the contrary) be decided in the first instance by the arbitrator: whether a claim is barred by a temporal limitation contained in the arbitration rules of the National Association of Securities Dealers, whether an arbitration agreement's limitation on recovery of punitive damages barred a claim for treble damages under RICO, and whether an arbitration agreement forbids class arbitration. Generally, questions about arbitration procedure should be resolved in the first instance by the arbitrator.").
In Southern United Fire Insurance Co. v. Howard, 775 So.2d 156, 163-64 (Ala. 2000), this Court gave a non-exhaustive, but illustrative, list of issues that constitute "procedural arbitrability'' issues: the rules governing the arbitration proceeding; the arbitrators' fees and other costs associated with the arbitration proceeding; which party is responsible for paying costs other than the arbitrators' fees; what substantive law governs the arbitrators' decision; the qualifications of the arbitrators; the parties' discovery rights; whether or how a record is to be made of the arbitration proceedings; whether the arbitrators are required to make any findings supporting their decision; and the provisions for review or enforcement of the arbitrators' decision.
"[M]atters of `procedural arbitrability,' such as whether a party seeking arbitration has waived its right to arbitration by failing to comply with procedural requirements set forth in the arbitration agreement, are for the arbitrator to decide." Dean Witter Reynolds, Inc. v. McDonald, 758 So.2d 539, 542 (Ala. 1999).
The state-law defenses of statute of limitations and failure to plead as a compulsory counterclaim asserted in this case do not go to the availability of arbitration per se (i.e., they are not "gateways" to arbitration) and accordingly do not constitute "procedural arbitrability" issues. Nonetheless, as the main opinion concludes, they are issues for the arbitrator to address and to decide because they go to "the ultimate viability of DHSF's claims" themselves.
As for the alleged failure to plead with the particularity required by Rule 9(b), Ala. R. Civ. P., I do not understand the Alabama Rules of Civil Procedure to be applicable in an arbitration proceeding. See 4 Charles Alan Wright Arthur R. Miller, Federal Practice Procedure § 1015 (3d ed. 2002) (explaining that, with certain exceptions, the Federal Rules of Civil Procedure are not applicable to arbitration proceedings conducted under the Federal Arbitration Act.) Thus, if pleading fraud with certain specificity is a "gateway" to arbitration of a fraud claim, it is so as a result of the contractual intent of the parties to the arbitration agreement and properly may be viewed as an issue of "procedural arbitrability.
As for the willingness of the dissent to affirm the circuit court's order on the alternative ground of waiver, I note that waiver is a defense that entails factual determinations. See, e.g., Nunnelley v. GE Capital Info. Tech. Solutions-North America, 730 So.2d 238, 241 (Ala.Civ.App. 1999) ("Generally, the issue whether there has been a waiver is a question for the finder of fact."). Accordingly, for this reason, if not others, if waiver was not raised in the circuit court, it cannot serve in the context of this case as a ground for affirming the circuit court's order. Reliance at this stage by this Court upon such a ground, without having given Knight the opportunity to address it both factually and legally, would run afoul of the due-process exception to the general affirm-on-any-valid-legal-ground rule. See Liberty Nat'l Life Ins. Co. v. University of Alabama Health Servs. Found., P.C., 881 So.2d 1013, 1020 (Ala. 2003) (the general affirm-on-any-valid-legal-ground "rule fails in application only where due-process constraints require some notice at the trial level, which was omitted, of the basis that would otherwise support an affirmance, such as when a totally omitted affirmative defense might, if available for consideration, suffice to affirm a judgment").
"On appeal, Bentley raises for the first time issues of unconscionability. Unconscionability is an affirmative defense that must be specially pleaded. AmSouth Bank v. Dees, 847 So.2d 923 (Ala. 2002). Bentley neither pleaded nor argued below unconscionability as a basis for avoidance of the arbitration agreement at issue. This Court can affirm the judgment of a trial court on a basis different from the one on which it ruled, Smith v. Equifax, 537 So.2d 463 (Ala. 1988), but the constraints of procedural due process prevent us from extending that principle to a totally omitted affirmative defense. Accordingly, we reject Bentley's unconscionability argument."
Ameriquest Mortgage Co. v. Bentley, 851 So.2d 458, 465 (Ala. 2002).
I further note that the waiver issue as presented here appears to be a perfect example of a "procedural arbitrability" question. It is one that grows out of the dispute and, specifically, is a function of the contractual limits intended by the parties on their right to arbitrate a dispute between them. As noted above, "`[procedural arbitrability,' . . . involves questions that grow out of the dispute and bear on its final disposition, e.g., defenses such as notice, laches, estoppel, and other similar compliance defenses; such questions are for an arbitrator to decide." Brasfield Gorrie, 35 So.3d at 604. This question, therefore, is one that the arbitrator, not this Court, must decide.
The argument presented is that DHSF's delay in asserting its claim against Knight constitutes a waiver of its right to arbitrate that claim, not a waiver of the claim itself under general principles of state law.
COBB, Chief Justice (dissenting).
I would affirm the circuit court's judgment dismissing DHSF's claims and implicitly vacating its prior order compelling arbitration. Therefore, I respectfully dissent.
In 2001, Knight sued DHSF, alleging breach of the parties' partnership agreement. DHSF moved to compel arbitration of Knight's claims, and the circuit court granted that motion. Thereafter, the action languished on the circuit court's administrative docket for eight years. During that time, DHSF made periodic status reports to the circuit court, stating that the parties were trying to agree on an arbitrator, but neither party took formal steps to initiate the arbitration process. The circuit court dismissed Knight's action with prejudice in 2009.
In 2010, DHSF sued Knight, asserting claims that, DHSF concedes, were compulsory counterclaims in Knight's 2001 action because they arose out of the partnership agreement that was the subject of Knight's 2001 complaint. Contemporaneously with the filing of its complaint, DHSF moved the court to refer the case to arbitration. Although the circuit court initially granted DHSF's motion and stayed the case pending arbitration, the circuit court later dismissed DHSF's complaint following oral argument by the parties and the submission of post-hearing briefs, implicitly vacating its earlier order. In his post-hearing brief, Knight argued that DHSF had waived the right to arbitrate its claims by its dilatory conduct in the 2001 action and, further, that its claims were barred by the applicable statutes of limitations and by DHSF's failure to have asserted its claims as compulsory counterclaims in the 2001 action. The circuit court dismissed DHSF's action.
The main opinion rejects Knight's argument that the circuit court was authorized to decide whether "`[DHSF's] conduct in sitting on its hands for almost a decade before seeking arbitration of its claims constitutes a waiver of its right to arbitration,'" 57 So.3d at 71, because, it concludes, Knight's allegation of waiver does not fall within the rule announced in Ocwen Loan Servicing, LLC v. Washington, 939 So.2d 6 (Ala. 2006). In Ocwen, this Court stated that "whether a party has waived the right to arbitration by its conduct during litigation is a question for the court and not the arbitrator." 939 So.2d at 14. Specifically, this Court in Ocwen held that, "[i]n order to show waiver by litigation-related conduct, the party opposing arbitration must demonstrate that the movant has substantially invoked the litigation process. . . ." 939 So.2d at 14. Notwithstanding our use of the phrases "conduct during litigation" and "litigation-related conduct" in Ocwen, this Court's later explanation, in Brasfield Gorrie, L.L.C. v. Soho Partners, L.L.C., 35 So.3d 601, 607 n. 1 (Ala. 2009), of the reason for the rule allowing the court to decide whether a party has waived arbitration by substantially invoking the litigation process demonstrates that the court's ability to decide questions of waiver is not limited solely to litigation-related matters. In Brasfield Gorrie, this Court explained:
"In Alabama, the issue whether a party has substantially invoked the litigation process is a matter for the trial court to decide. This is so because invoking the litigation process involves matters that occurred before the court or under its watch."35 So.3d at 607 n. 1 (emphasis added). The fact that "matters [occurring] before the court or under its watch" will, more often than not, take place in the context of litigation does not mean that they must arise in that context. Brasfield Gorrie stated the rationale more broadly to include "matters that occurred before the court or under its watch" — that is, matters of which the trial court has knowledge because they occurred in the judicial forum and, therefore, matters the trial court is better suited to decide than is an arbitrator.
Accordingly, I disagree with the implication in the main opinion that the only waiver issue within the purview of the court is whether a party has "substantially invoked the litigation process." A party's substantially invoking the litigation process and a party's doing absolutely nothing to initiate the arbitration process for eight years actually represent two sides of the same coin. Both involve alleged waivers by conduct occurring in the judicial forum that signals an intent not to insist on arbitration as the means of settling the dispute. When that conduct occurs under the trial court's watch, as it did in Ocwen, and as it did in this case, the trial court is better suited than the arbitrator to decide whether a waiver has occurred.
It seems to me that the eight-year period during which the parties took no steps to initiate the arbitration process so far exceeds the reasonable time during which some tardiness, or even some willful delay, could still be consistent with the notion that the parties were insisting on arbitration as the means of settling their dispute that it virtually dictates the conclusion that they waived their right to arbitration. Nevertheless, the conclusion that I might reach on the facts is unimportant. What is important is that the circuit court, which heard DHSF's status reports over an eight-year period and had the opportunity to assess the bona fides of those reports, was better suited than the arbitrator to determine whether DHSF's dilatory conduct amounted to a waiver.
Because I believe the circuit court correctly, albeit implicitly, vacated its earlier order compelling arbitration, I find no error in the circuit court's considering the merits of Knight's statutes-of-limitation and compulsory-counterclaim defenses. DHSF acknowledges that the contract and tort claims it asserted in the 2010 action accrued in 2000 when Knight left DHSF; it concedes that those claims are compulsory counterclaims that could have been, but were not, asserted in the 2001 action. Nevertheless, DHSF contends that the claims are not barred by the six-year statute of limitations for contracts and the two-year statute of limitations for torts because, it says, the order compelling arbitration in the 2001 action tolled the statutes of limitations — not only for Knight's claims, but also for any potential but unasserted counterclaims DHSF may have had against Knight in 2001 — until such time as Knight's action was dismissed in 2009, when, DHSF says, the statutes began to run again and had not expired in 2010 when DHSF sued Knight, at which time, DHSF asserts, its claims "related back" to the time that Knight filed his complaint in 2001.
Claims asserted in a second action, however, cannot relate back to a prior action; DHSF lost the benefit of the relation-back rule when Knight's 2001 action was dismissed with prejudice. See Ex parte Cincinnati Ins. Cos., 806 So.2d 376, 379 (Ala. 2001) (stating that "[t]o effect the purpose of Rule 13, [Ala. R. Civ. P., the compulsory-counterclaim rule,] the consequence for failing to assert a compulsory counterclaim is a bar against the assertion of that claim in any other action" (emphasis added)).
I would affirm the circuit court's judgment in all respects; therefore, I dissent.
There's one final preliminary matter we must address before turning to the merits of this case. In his opening brief, Gross argues that the district court erred in granting summary judgment for the defendants on his equal protection claim. That claim is based on a "class of one" theory. But in Engquist v. Oregon Department of Agriculture, the Supreme Court held that "such a `class-of-one' theory of equal protection has no place in the public employment context." 553 U.S. 591, 128 S.Ct. 2146, 2148-49, 170 L.Ed.2d 975 (2008). Engquist clearly foreclosed this theory.
Perhaps Gross already knew that, though, because in his reply brief Gross acknowledges the fate of his equal protection claim and withdraws it. So we will not give that claim any further consideration.
But we cannot move on without commenting that the abandonment of this claim came one brief too late. In his reply brief, Gross attempts to explain why he's withdrawing the equal protection argument that he so fully developed in his opening brief. He asserts that the Engquist decision came down in between the time he filed his opening and reply briefs. (Gross's Reply Br. 26 ("Since the filing of Gross's Appeal brief, the Supreme Court decided Engquist").) But that's not true. We received Gross's opening brief on July 28, 2008. Engquist was decided almost two months earlier, on June 9, 2008. Failing to cite adverse controlling authority makes an argument frivolous. Not only that, but it is "imprudent and unprofessional." Thompson v. Duke, 940 F.2d 192, 198 (7th Cir. 1991). We expect more from attorneys who appear before us. See Standards for Professional Conduct Within the Seventh Federal Judicial Circuit, "Lawyer's Duties to the Court," ¶ 5, available at http://www.ca7.uscourts.gov/Rules/rules.htm.
III. Gross's First Amendment Retaliation Claims
On to the merits. We'll first address whether summary judgment in favor of the Defendants was appropriate on Gross's First Amendment retaliation claims. We review the grant of summary judgment de novo and view the evidence in the light most favorable to Gross, the non-moving party. Bodenstab v. County of Cook, 569 F.3d 651, 656 (7th Cir. 2009). Summary judgment is appropriate where the evidence demonstrates that "there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c).
A public employee doesn't check his First Amendment rights at the door of the government building. Valentino v. Vill. of S. Chi. Heights, 575 F.3d 664, 671 (7th Cir. 2009). A public employee has a right, in certain circumstances, to speak as a citizen addressing matters of public concern. Garcetti v. Ceballos, 547 U.S. 410, 417, 126 S.Ct. 1951, 164 L.Ed.2d 689 (2006). Accordingly, the First Amendment, made applicable to the states through the Fourteenth Amendment, prohibits the government from retaliating against its employees for engaging in protected speech. Milwaukee Deputy Sheriffs Ass'n v. Clarke, 574 F.3d 370, 376 (7th Cir. 2009). But the public employee's free speech rights are not unfettered. Valentino, 575 F.3d at 671. A claim for First Amendment retaliation under § 1983 involves a three-step inquiry: (1) whether the employee's speech was constitutionally protected; (2) whether the protected speech was a but-for cause of the employer's action; and (3) whether the employee suffered a deprivation because of the employer's action. Kodish v. Oakbrook Terrace Fire Protection Dist., 604 F.3d 490, 501 (7th Cir. 2010).
This case centers on the first step — whether Gross engaged in constitutionally protected speech. That question, which is one of law for the court, Connick v. Myers, 461 U.S. 138, 148 n. 7, 103 S.Ct. 1684, 75 L.Ed.2d 708 (1983), boils down to whether Gross "spoke in the capacity of a private citizen and spoke on a matter of public concern," Valentino, 575 F.3d at 671. Because none of the defendants challenges whether Gross spoke as a private citizen, our inquiry focuses for the most part on whether Gross spoke on a matter of public concern. Purely personal grievances do not qualify as matters of public concern. Sullivan v. Ramirez, 360 F.3d 692, 699 (7th Cir. 2004). Still, "[t]he fact that an employee has a personal stake in the subject matter of the speech does not necessarily remove the speech from the scope of public concern." Phelan v. Cook County, 463 F.3d 773, 791 (7th Cir. 2006) (quotation omitted). We must look at the "content, form, and context" of the speech to determine if the employee sought to raise issues of public concern or whether the employee sought to further only some private interest. Kokkinis v. Ivkovich, 185 F.3d 840, 844 (7th Cir. 1999); see also Connick, 461 U.S. at 147-48, 103 S.Ct. 1684. Though no one factor is dispositive, the content of the speech is the most important of the three. Clarke, 574 F.3d at 377.
Gross asserts four bases for his First Amendment retaliation claims, but only three require extended discussion. Those three are: (1) Gross complaining to Loren-Maltese about sexual harassment in the Cicero police department; (2) Gross telling his daughter to file an EEOC charge; and (3) Gross talking with the plaintiffs attorneys in the Moreno case. Gross claims that the first two resulted in his discharge from positions in the Town government; he claims the third led to his not receiving back pay allegedly owed to him. We will review each in turn.
Before we do, though, we must comment on Gross's fourth claimed basis for relief — civil rights conspiracy under 42 U.S.C. § 1985(3). Again, Gross's shoddy briefing hurts him. "[I]t is not this court's responsibility to research and construct the parties' arguments, and conclusory analysis will be construed as waiver." APS Sports Collectibles, Inc. v. Sports Time, Inc., 299 F.3d 624, 631 (7th Cir. 2002) (quotation omitted). Gross's only mention of this issue in his opening brief came in a three-sentence footnote that lacked any citation to legal authority. (Gross's Br. 14-15 n.l.) In that footnote, Gross simply says that if we reverse any of his three substantive First Amendment claims, we must reverse the § 1985(3) claim. That argument fails to address the district court's conclusion that § 1985(3) does not afford relief for First Amendment violations. Gross v. Town of Cicero, No. 03 C 9465, 2006 WL 288262, at *10 (N.D.Ill. Feb. 1, 2006). More over, Gross's footnote does not mention a shred of evidence of conspiracy. Perhaps recognizing this deficiency, Gross, in his reply brief (which is too late anyway), claims that there is a "wealth of direct and circumstantial evidence of a meeting of the minds." (Gross's Reply Br. 25.) But in support, Gross cites eight docket entries — no paragraph or page numbers, and nothing written to let us know what might be significant in those entries. ( Id., at 26.) That is not a fully developed argument. If the evidence of conspiracy was so substantial, Gross should have had no trouble pointing it out with some specificity. We will not hunt through the record to find this "wealth" of evidence. See Dunkel, 927 F.2d at 956. Accordingly, Gross waived his § 1985(3) argument. See United States v. Useni, 516 F.3d 634, 658 (7th Cir. 2008) ("We have repeatedly warned that perfunctory and undeveloped arguments, and arguments that are unsupported by pertinent authority, are waived." (quotation omitted)).
On to the merits of Gross's three substantive bases for his First Amendment claims.
A. Gross's Complaints to Loren-Maltese
First, Gross claims he was fired in part because he approached Town President Loren-Maltese to discuss allegations of sexual harassment by Cicero police officer Jerold Rodish. This violated his First Amendment rights, he argues, because his attempts to talk with Loren-Maltese constituted protected speech. On about six occasions, Gross told Loren-Maltese that he wanted to talk about "a situation still going on with Rhonda" and "a problem that's just escalating . . . regarding Rhonda." Though he never discussed the details of the "situation" or "problem," Gross argues that he engaged in constitutionally protected speech because Loren-Maltese indicated that she understood what he wanted to say (e.g., she said she knew why he was there, "what it's about," that she would talk to him later, and to "just call Eddie [Vrdolyak]").
Like the district court, we're dubious of whether Gross ever articulated a "particular viewpoint, grievance or complaint" that could even be considered speech on a matter of public concern. Wernsing v. Thompson, 423 F.3d 732, 752 (7th Cir. 2005). The record indicates that Gross never discussed his daughter's "situation" with Loren-Maltese; he never mentioned the police department, Rodish, or any allegations of sexual harassment. Gross's only "speech" was his request to discuss Rhonda's situation with her. Though one ordinarily need not explicitly utter the words "sexual harassment" to make an employer aware of such a problem, see Gentry v. Export Packaging Co., 238 F.3d 842, 849 (7th Cir. 2001), we have made clear that the First Amendment does not protect merely expressing a desire to speak, even if the viewpoint one desires to express might itself be protected, Wernsing, 423 F.3d at 752. "Speech which has not yet occurred . . . is no speech at all." Id.
Gross argues, however, that Loren-Maltese's reactions give some indication that she understood what he wanted to communicate. In Gross's view, her responses transformed Gross's statements from a desire to complain into actual complaints. We're skeptical of whether the record supports this argument. There's little evidence to establish that Loren-Maltese understood Rhonda's "situation" or "problem" to mean sexual harassment in the police department. Gross admitted that he never elaborated on what he wanted to talk about. And Gross does not allege that Loren-Maltese said anything about Rodish, sexual harassment, or the police department. Her responses were largely non-descriptive — she said she knew "what it's about." Still, she did say, "Just call Eddie," which might be some slight indication of understanding, since there is some evidence that Rodish was connected to Vrdolyak. And more generally, it's true that a listener's reactions are part of the calculus in determining whether a statement constitutes speech on a matter of public concern. See Waters v. Churchill, 511. U.S. 661, 668, 114 S.Ct. 1878, 128 L.Ed.2d 686 (1994).
But whether Loren-Maltese understood what Gross meant is ultimately irrelevant. Gross's speech wasn't constitutionally protected because he never spoke on a matter of public concern. Of course, sex discrimination in public employment can be a matter of public concern. Kokkinis, 185 F.3d at 844. But it is not always so. Id.; see also McKenzie v. Milwaukee County, 381 F.3d 619, 626 (7th Cir. 2004) ("Sexual harassment is indeed an important matter, but not all speech relating to sexual harassment enjoys constitutional protection."). Purely personal grievances do not garner First Amendment protection, Clarke, 574 F.3d at 377-78, including personal grievances about sexual harassment in the workplace, see Phelan, 463 F.3d at 791; Gray v. Locke, 885 F.2d 399, 411 (7th Cir. 1989).
We note that Gross does not allege that Loren-Maltese silenced him or threatened some penalty if he continued speaking when he approached her on those six occasions. Accordingly, Gross does not claim that Loren-Maltese effected a "prior restraint" on Gross's speech. See Fairley v. Andrews, 578 F.3d 518, 525 (7th Cir. 2009).
Examining both the content and context of Gross's speech, we, like the district court, conclude that Gross, to the extent that he engaged in any "speech" at all, spoke only about his daughter, Rhonda, with the intent of obtaining some private redress for her. As we've discussed, Gross never mentioned anything to Loren-Maltese about Rodish or harassment of other officers. Instead, Gross privately approached Loren-Maltese about "a situation . . . with Rhonda" and "a problem . . . regarding Rhonda." These words concern a purely personal matter.
With the content of his speech clearly against him. Gross implores us to focus on context. Gross tries to show that Gross had a broader purpose in seeking Loren-Maltese's ear by alleging that he knew about other instances of harassment in the police force, particularly by Rodish. But even if that were true, he never communicated that knowledge to Loren-Maltese — in other words, his speech never conveyed more than his personal grievance. Moreover, we find Gross's claim that he intended to sound the alarm about a broader pattern of harassment incredible. Gross took no other corrective measures to address Rodish's allegedly systemic and heinous conduct. Gross claims that he knew that other women had been threatened and even physically abused. But he did nothing about it, despite the fact that he was the Chairman of the BOFPC. Instead, after not getting what he wanted from Loren-Maltese, he claims he instructed his daughter to file an EEOC charge. Gross presents no evidence that he did anything to help the other women in the department. See Phelan, 463 F.3d at 791. Moreover, Loren-Maltese's responses give no indication that she understood Gross to be raising broader concerns about sexual harassment in the police department. Accordingly, we see no evidence that Gross's attempt to speak with Loren-Maltese was motivated by anything but a private concern for his daughter.
We cannot fault a father for seeking to protect his daughter, especially when she claims to have been sexually harassed. But the law is clear that the First Amendment cannot shield the father's speech when his motive in speaking is a purely personal one, as Gross's was here. So we affirm summary judgment in favor of the defendants on this issue.
B. Telling Rhonda to File an EEOC Charge
Gross next argues that he also engaged in constitutionally protected speech when he "encouraged" his daughter to file an EEOC charge in response to Rodish's conduct. This argument is a non-starter for two reasons. First, like the previous issue, we see no evidence that Gross spoke on a matter of public concern. The record gives hardly any indication of what Gross's "encouragement" actually entailed — Gross merely points us to his deposition, where he said, "I told her to go to the EEOC." Nothing in the record suggests that Gross had any motive other than to help his daughter seek redress. See id.
Again, Gross contends that his knowledge of other incidents of harassment involving other officers is sufficient to infer Gross's intent to raise a matter of public concern. As we discussed above, we disagree. The record fails to show that Gross encouraged other officers to file EEOC charges, nor does it show that Gross encouraged his daughter to file the charge to vindicate the interests of other female officers or to expose a pattern of harassment in the police department. Thus, neither the content (which is almost entirely unknown) nor the context of Gross's statements to his daughter indicates that he spoke on a matter of public concern.
Alternatively, Gross fails to show that any defendant knew that he told his daughter to file an EEOC charge. This bears on the second step of the ordinary First Amendment retaliation analysis — causation. Gross identifies several statements in the record in which witnesses heard Loren-Maltese say that she did not trust Gross or his daughter because of "this EEOC thing" and that "you're lucky your daughter has a job." But those statements indicate Loren-Maltese's displeasure with Rhonda filing the EEOC charge, not with Gross's telling her to file. Gross fails to cite any evidence that Loren-Maltese or any other defendant knew what Gross told his daughter — or even whether he told his daughter anything at all. But what Gross told his daughter is the speech we're concerned with here. To the extent filing an EEOC charge constitutes "speech" it was Rhonda's speech, not Gross's. The record contains no evidence that Gross participated in the filing of the charge or as a witness in the EEOC proceedings. Cf. Salas v. Wis. Dep't of Corrs., 493 F.3d 913, 925 n. 8 (7th Cir. 2007) (finding that participation as witness on EEOC charge constituted protected speech, but noting that parties did not address fact that plaintiff-witness had not yet testified). And Gross cites no authority that shows how he can recover under the First Amendment for retaliation based on what his daughter said or did. Because Gross failed to produce any evidence that the defendants were aware of his speech, Gross cannot demonstrate a triable issue of fact that his discharge was at all motivated by his encouraging his daughter to go to the EEOC. Accordingly, we affirm the district court's decision on this issue as well.
Gross also alleges that Loren-Maltese stated in her deposition that she fired Gross "because of `his daughter,'" (Gross's Br. 19 (quoting R.171 H 37)), which Gross claims is evidence that Loren-Maltese retaliated against Gross for approaching her about Rhonda's situation and his encouraging Rhonda to file an EEOC charge. This argument mischaracterizes the evidence. Loren-Maltese said that she did not reappoint Gross to the BOFPC in part because she believed Rhonda received favorable treatment from the police commission. For example, she testified that she was aware of complaints about Rhonda for which other officers would have been brought up on charges before the commission. (Loren-Maltese Dep. 85, Apr. 13, 2005.) Loren-Maltese's references to "his daughter" did not pertain to Rhonda's EEOC charges or any allegations of sexual harassment in the police department. Accordingly, these statements are irrelevant to Gross's First Amendment retaliation claims.
C. Gross's Participation in the Moreno Case
Gross's final basis for his First Amendment retaliation claim stems from his alleged involvement in separate, unrelated litigation against Cicero. For a variety of reasons, we are compelled to strike this portion of Gross's brief and will dismiss this argument as undeveloped. As we explained earlier in this opinion, the parties' briefing, particularly Gross's, was often woefully inadequate and violated multiple procedural rules. We said we will strictly enforce those rules when we see violations. And that is what we have here.
First, Gross failed to support his factual assertions with appropriate citations to the record, in violation of Fed.R.App.P. 28(a)(9)(A) (e). Gross's argument on this issue is a factual one. He claims that he received a call from Vrdolyak who told him that he wouldn't receive certain compensation he was owed until the Moreno litigation was resolved, which Gross argues was retaliation for his talking with the plaintiffs lawyers. The district court rejected this argument because it concluded that Gross never talked with Moreno's lawyers until after Vrdolyak called Gross. On appeal, Gross disputes that view of the timing and argues that Vrdloyak's failure to address his complaint on back pay was ongoing retaliation for his involvement in the Moreno lawsuit.
To evaluate Gross's argument, we must know how the record supports Gross's view of the facts. In his brief, Gross provides what appears to be his version of events in bullet-point form. (Gross's Br. 23-25.) However, only one of the bulleted paragraphs contains any citation to the record. At the end of the bulleted list, Gross provides a general citation to 22 paragraphs in his Local Rule 56.1(b) statement. ( Id. at 25.) We have already explained that citing to litigation documents like Rule 56.1 statements, in lieu of citing directly to the record, violates our briefing rules. See Casna, 574 F.3d at 424. Still, we let this slide and didn't strike Gross's entire appellate brief because, in most instances, he supports each factual assertion with a citation to a specific paragraph in his Rule 56.1(b) statement, which then usually corresponds to a specific record citation. But here, Gross leaves it to us to match the paragraphs from his Rule 56.1 statement to his bullet points and decipher how the record supports each of his factual claims (which is made even more difficult by the fact that some paragraphs in the Rule 56.1 statement lack any citation to the record). And as we discussed, Gross's statement of facts provides us no help. This is a truffle-hunting expedition that we will not engage in. See Dunkel, 927 F.2d at 956.
Beyond failing to appropriately cite the record, Gross fails to cite any legal authority that would allow us to rule in his favor on this issue. But citations to authorities are required. See Fed.R.App.P. 28(a)(9)(A). For example, Gross does not claim to have testified in the Moreno matter, in court or in a deposition. So even if we assume his timeline of events is accurate, Gross fails to cite any authority supporting his claim that talking with a plaintiffs lawyer or being on a witness list constitutes speech on a matter of public concern, an issue we've expressed our curiosity about in a prior opinion, see Salas, 493 F.3d at 925 n. 8 ("Interestingly, the parties do not address the fact that Salas had not yet testified in the EEOC investigation when he was terminated, nor do they delineate what communications, if any, Salas had with Rogers or the EEOC investigator before he was fired.").
Additionally, Gross fails to respond to the Individual Defendants' argument that Vrdolyak is not a state actor. The First Amendment only protects a person from the government, or a particular state actor, not from private citizens. Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 815 (7th Cir. 2009). The Individual Defendants contend that Vrdolyak is merely a private lawyer without authority to speak for the Town. Gross fails to counter this claim on appeal. Instead, in his reply brief, Gross merely tries to link Vrdolyak to Cicero by alleging that "Cicero and [then-Town President] Gonzalez would have to authorize Gross's back pay payment." (Gross's Reply Br. 16.) But Gross fails to provide a citation to any authority, legal or factual, supporting that assertion. We are left without any developed argument as to why Vrdolyak's alleged statement regarding Gross's back pay should be considered state action.
Accordingly, in light of Gross's rule violations as well as his failure to develop a viable argument, Gross leaves us no choice but to affirm the district court's decision on this issue.
IV. Cicero's Fiduciary Duty Claim
Gross challenges Cicero's summary judgment victory on liability on the fiduciary duty theory. Though Gross presents several arguments, we need only address one. For we are convinced that the district court improperly concluded as a matter of law that Gross breached a fiduciary duty.
Under Illinois law, upon which this theory is based, recovery for a breach of fiduciary duty requires proof of three elements: "[1] a fiduciary duty exists, [2] that the fiduciary duty was breached, and [3] that such breach proximately caused the injury of which the plaintiff complains." Neade v. Portes, 193 Ill.2d 433, 250 Ill.Dec. 733, 739, 739 N.E.2d 496, 502 (2000). Our trouble with the district court's ruling lies at the intersection of the first two elements — just what duty Gross owed the Town of Cicero and how he might have breached it.
It has long been established in Illinois that "a public officer occupies a fiduciary relationship to the political entity on whose behalf he serves." Chi. Park Dist. v. Kenroy, Inc., 78 Ill.2d 555, 37 Ill.Dec. 291, 296, 402 N.E.2d 181, 186 (1980) (citing cases). The most well-known of a public official's fiduciary duties is that of undivided loyalty to the office and the people whom he serves. See Madlener v. Finley, 128 Ill.2d 147, 131 Ill.Dec. 145, 147, 538 N.E.2d 520, 522 (1989) (citing People v. Savaiano, 66 IU.2d 7, 3 Ill.Dec. 836, 841, 359 N.E.2d 475, 480 (1976), and City of Chicago ex rel. Cohen v. Keane, 64 Ill.2d 559, 2 Ill.Dec. 285, 288, 357 N.E.2d 452, 455 (1976)); see also Brown v. Kirk, 64 Ill.2d 144, 355 N.E.2d 12, 15 (1976). Emanating in part from section 3 of the Illinois Corrupt Practices Act, 50 ILCS 105/3, see Keane, 2 Ill.Dec. 285, 357 N.E.2d at 455, this duty is "sweeping," see People v. Scharlau, 141 Ill.2d 180, 152 Ill.Dec. 401, 407, 565 N.E.2d 1319, 1325 (1990), and commands a public official to refrain from self-dealing and conflicts of interest, see Madlener, 131 Ill. Dec. 145, 538 N.E.2d at 522.
The duty of loyalty is not the only fiduciary duty Illinois recognizes for its public officials. Other duties may be prescribed by statute or found in common law. Id.; see also People v. Grever, 222 Ill.2d 321, 305 Ill.Dec. 573, 582, 856 N.E.2d 378, 387 (2006) ("The right to a civil remedy for breach of a statutorily created fiduciary duty is clear."). For example, the Illinois Supreme Court has held that the Pension Code, 40 ILCS 5/1-109, establishes that a public pension board owes a fiduciary duty to its participants and beneficiaries. Marconi v. Chi. Heights Police Pension Bd., 225 Ill.2d 497, 312 Ill.Dec. 208, 234, 870 N.E.2d 273, 299 (2006).
In this case, the district court looked to yet another statute to define the scope of Gross's fiduciary duty. And it is the court's reliance on that statute and its characterization of Gross's duty with which we disagree. Cicero's claim was based on Gross's own admissions in his depositions that he sought to preserve his employment and that of his daughter by knowingly appointing police officers whom he knew the Town President desired but whom he also personally believed were unqualified for the job. Instead of framing that argument in a duty-of-loyalty context though, the district court drew on the Illinois statutes that grant a municipal BOFPC the authority to appoint police officers and set forth the standards by which such officers must be evaluated and appointed. See Gross, 2006 WL 288262, at *7 (citing 65 ILCS 5/10-2.1-4 5/10-2.1-6). From these statutes, the court gleaned a fiduciary duty owed by BOFPC commissioners to exercise independent judgment in appointing officers. The court concluded that Gross breached that duty by appointing certain officers only upon the orders of Town President Loren-Maltese and not upon his own assessment and approval of those officers' qualifications.
But the BOFPC statutes do not speak in terms of fiduciary duties nor do they state that BOFPC commissioners must ignore the wishes of other public officials, particularly the official who appoints them. Requiring the exercise of good and independent judgment in appointing police officers sounds more akin to imposing a fiduciary duty of care on a public official. But Illinois law provides that public officials are "immune from individual liability for the performance of discretionary duties in good faith." Kinzer ex rel. City of Chicago v. City of Chicago, 128 IU.2d 437, 132 Ill.Dec. 410, 414, 539 N.E.2d 1216, 1220 (1989) (quotation omitted); see also 745 ILCS 10/2-201 ("Except as otherwise provided by Statute, a public employee serving in a position involving the determination of policy or the exercise of discretion is not liable for an injury resulting from his act or omission in determining policy when acting in the exercise of such discretion even though abused."). Illinois law seems to require more than just a breach of the duty of care to hold a public official liable on a fiduciary duty theory.
As a federal court, we are wary of expanding the liability of certain public officials under state law without a firm basis upon which to do so. Neither the parties nor the district court cites any Illinois case establishing a fiduciary duty under the BOFPC statutes, and our research has not uncovered one either. Moreover, the BOFPC statutes do not provide for the liability of BOFPC commissioners; liability must be inferred from the statute, as it has from other Illinois statutes like the Corrupt Practices Act and the Pension Code. But we see little similarity between the BOFPC statutes and those laws under which Illinois courts have found fiduciary duties. The Corrupt Practices Act specifically proscribes self-dealing and conflicts of interest in matters upon which an official exercises his discretion. 50 ILCS 105/3(a). This is the essence of the fiduciary duty of loyalty — "these and kindred statutes reflect the common law doctrine that `the faithful performance of official duties is best secured if a governmental officer, like any other person holding fiduciary position, is not called upon to make decisions that may advance or injure his individual interest.'" Keane, 2 Ill.Dec. 285, 357 N.E.2d at 455 (quoting Brown, 355 N.E.2d at 15). Furthermore, in other statutes that form the basis for a recognized fiduciary duty, the text itself explicitly creates such a duty. The Pension Code is an example. 40 ILCS 5/1-109 ("A fiduciary with respect to a retirement system or pension fund established under this Code shall discharge his or her duties with respect to the retirement system or pension fund solely in the interest of the participants and beneficiaries. . . .").
The BOFPC statutes lack any analog to common law doctrine and do not spell out a fiduciary duty for BOFPC commissioners. Rather, the BOFPC statutes merely grant appointment authority and explain how it should be exercised. They do not require the commissioners to exercise completely independent judgment (though one would hope they would do so) and ignore the desires of those who appoint them. Accordingly, without some Illinois authority or any indication in the text, we cannot conclude that the BOFPC statutes imposed a fiduciary duty on Gross.
But that does not end our inquiry of this issue. Gross as BOFPC Chairman is of course still subject to the duty of loyalty that covers all public officials. Cicero has produced evidence, mostly in the form of Gross's own depositions, that Gross appointed police officers he believed were unqualified because he was worried about his and his daughter's employment. But whether this conduct could constitute a conflict of interest is unclear under Illinois law. In People v. Scharlau, the Illinois Supreme Court upheld the convictions of several public officials who negotiated on behalf of a municipality for a consent decree in a Voting Rights Act case, through which the officials sought a provision that would protect their employment with the municipality for several years. The court, examining several good-government statutes, including the Corrupt Practices Act, observed that such "sweeping" statutes reach action taken in exchange for "a promise of employment." 152 Ill.Dec. 401, 565 N.E.2d at 1326.
Though not a civil case, we find Scharlau instructive on how the Illinois courts view the statutes upon which Gross's fiduciary duty of loyalty is based. If the evidence shows that Gross and Loren-Maltese agreed upon some quid pro quo arrangement by which Loren-Maltese would continue Gross's and his daughter's employ if Gross continued to skirt the BOFPC evaluation process and appoint her hand-picked officers, even though he believed they were unqualified, such action would constitute an exchange for a promise of employment. We think the evidence Cicero produced is sufficient, at least barely, to reach a trier of fact on the question whether such an arrangement actually existed.
But Cicero's evidence is not sufficient to award it an outright victory on liability at the summary judgment stage. There is no direct evidence of a quid pro quo arrangement between Gross and Loren-Maltese, and there is some question as to whether the disputed hires were truly unqualified, because each was ultimately certified as a Law Enforcement Officer under Illinois law. Moreover, Gross points out that he believed he was merely being a good employee and following orders. Gross cites to passages in his deposition where he stated that he viewed Loren-Maltese as his "superior" and that he believed she had the legal authority to override his decisions as BOFPC Chairman.
Should a trier of fact credit Gross's view of the evidence, then we would be hard-pressed to conclude that Gross engaged in self-dealing as proscribed by the duty of loyalty, the Corrupt Practices Act, and the court's interpretation in Scharlau. We refuse to hold that a mere concern for one's continued employment as a public official constitutes a conflict of interest. If that were the case, we are confident that most politicians and public servants would be found liable at some point in their careers. Acting in a way that might be contrary to one's own beliefs, but doing so on the orders of those who control one's employment, is commonplace and surely does not in itself violate any fiduciary duty. A contrary view would wreak havoc on Illinois's system of public employment — subordinates would have to refuse to act when they subjectively disagreed with the orders of their employers. So, without a more exacting command from the Illinois courts, we decline to interpret Illinois's fiduciary duty of loyalty to impose liability on those who desire to continue their employment by acting on the commands of their superiors. We will accordingly reverse the grant of summary judgment for Cicero on its fiduciary duty claim and remand to allow the trier of fact to determine whether Gross breached his fiduciary duty of loyalty to Cicero by engaging in self-dealing, that is, if Cicero continues to pursue this claim on remand.
Reversal of Cicero's judgment on liability also means that the $302,473.79 damages awarded to Cicero cannot stand, so we are not required to address Gross's argument challenging that award. But since we find some merit to Gross's argument, and since this damages issue will reappear if, on remand, Cicero wins again on the liability issue, we offer these additional comments.
The $302,473.79 awarded by the district court was the entire salary that Gross received during his four-plus years of service in Cicero government. Although this total-salary forfeiture is possible for breach of fiduciary duty under Illinois law, we think in this case it can be sustained only with more specific findings on the scope and timing of Gross's alleged quid pro quo arrangement with Loren-Maltese.
Illinois law permits a complete forfeiture of any salary paid to a fiduciary during the time when he was breaching his duty to the employer. Levy v. Markal Sales Corp., 268 Ill.App.3d 355, 205 Ill.Dec. 599, 612, 643 N.E.2d 1206, 1219 (1994). The salary subject to forfeiture is not limited based on the ratio of injurious to legitimate work performed, since an agent who breaches his fiduciary duty has no right to any compensation while acting adverse to the principal's interests. ABC Trans Nat'l Transport, Inc. v. Aeronautics Forwarders, Inc., 90 Ill.App.3d 817, 46 Ill.Dec. 186, 201-02, 413 N.E.2d 1299, 1314-15 (1980). Forfeiture is limited, however, to the "time when the fiduciary was breaching his duty." Levy, 205 Ill.Dec. 599, 643 N.E.2d at 1219; see also ABC Trans Nat'l, 46 Ill.Dec. 186, 413 N.E.2d at 1315 ("The agent retains compensation rightfully earned before the breach/for specific periods.").
The district court's total-salary measure of damages assumes that Gross was breaching his duty during his entire time as BOFPC Chairman, but at this stage, the evidence does not support that assumption. It is unknown whether Gross's alleged quid pro quo arrangement with Loren-Maltese was in place at the outset of Gross's appointment to the BOFPC, or developed some time into that appointment, perhaps only when the first of Loren-Maltese's preferred police officer candidates came up for consideration.
These details on the timing of Gross's unlawful agreement with Loren-Maltese should be developed in the record as an adjunct to the question of whether such an agreement even existed. If Cicero's evidence is sufficient to show that Gross actually agreed to abandon his BOFPC duties by appointing Loren-Maltese's hand-picked officers in exchange for a promise of continued employment, the evidence should also allow for a reasonable determination of when during Gross's tenure this agreement was in place. From there, the proportion of Gross's total $302,473.79 earnings subject to forfeiture for breach of fiduciary duty may be assessed. See Vendo Co. v. Stoner, 58 Ill.2d 289, 321 N.E.2d 1, 14 (1974) (considering three-year, five-month period when fiduciary breached duty by financing competitor's operations); Levy, 205 Ill.Dec. 599, 643 N.E.2d at 1219 (upholding forfeiture of corporate directors' salary received while they were running a competitor corporation "and thus breaching their fiduciary duty"); ABC Trans Nat'l 46 Ill.Dec. 186, 413 N.E.2d at 1315 (limiting salary forfeiture to four-month period when corporate officers breached their duty by conspiring with employees to move to a competitor).
V. Conclusion
We AFFIRM the district court's grant of summary judgment on Gross's equal protection, First Amendment, and civil rights conspiracy claims. We REVERSE the court's grant of summary judgment for Cicero on its fiduciary duty claim and REMAND for further proceedings. Each side will bear its own costs on appeal.
Comments