A federal judge has dismissed all but one claim a financial services firm made against Detroit Piston Ben Gordon, leaving intact a breach of contract allegation arising from Gordon’s decision to sever the relationship with his business manager.
The court’s decision rested on language in the contract that suggested that Gordon would remain a client with the firm as long as he was an “active” player in the National Basketball Association.
The plaintiffs in the case were Larry Harmon & Associates and his firm Harmon-Castillo, LLP, a California-based entity, which served as accountant and business manager for professional athletes. LHA alleged that on May 17, 2004, it entered into a consulting agreement with Gordon. Pursuant to the terms of the consulting agreement, Gordon engaged LHA as consultants and financial advisors for the entire duration of his playing career in the NBA. LHA alleged the parties initially agreed that in exchange for its services LHA would receive monthly payments of $4 thousand during Gordon’s rookie season, $5, thousand during his second season, and $6 thousand during his third and fourth seasons.
The firm made a change to this agreement in May 2006. It informed Gordon by e-mail that the flat monthly rates would be replaced with a new percentage-based fee amounting to 1.5 percent of Gordon’s total income. LHA claimed Gordon acknowledged receiving the e-mail and did not object to the change. From May 2006 to June 2007, Gordon received LHA’s monthly invoices which displayed the new fee arrangement at a rate of 1.5 percent. Gordon benefitted from the percentage-based calculation of fees because he was charged less than what he would have been with the flat-fee based amounts, according to LHA. He did not object to the new fee structure until sometime in 2007 when he fired LHA as his financial advisors. LHA claimed that, under the terms of its agreement, Gordon had no right to terminate LHA, because he remained an active player of the NBA.
LHA further alleged that in February 2007, Gordon agreed to transfer $1 million to Vitalis, an entity affiliated to LHA. According to LHA, Gordon believed that the money would be used to acquire an equity interest in a real estate property. The parties executed a promissory note memorializing their agreement. LHA asserted that the instrument Gordon signed expressly disclosed LHA’s interest in the transaction and obligated LHA to repay the funds within a certain period of time.
Gordon initially sued LHA in state court in 2007. LHA removed the case to the federal court on diversity grounds.
In his initial complaint, Gordon asserted a breach of contract claim for failure to pay the principal loan amount of $1 million. Gordon also asserted a breach of fiduciary duty claim in connection with the fee structure of the consulting agreement and with the monetary transaction underlying the promissory note. In the allegations related to the breach of fiduciary duty claim, Gordon averred that he never agreed to change the fee structure from a flat fee to a percentage-based fee. Gordon also alleged that LHA failed to disclose the true nature of the $1 million investment, that the purported real estate investment was in reality a loan to LHA, and that LHA used the money to obtain its own interest in real estate property. LHA responded with counterclaims of breach of contract and tortious interference with prospective business advantage.
Over the next couple years, the two sides went back and forth in the courts, each picking up partial victories along the way, before settling on the latest legal scenario:
On March 2, 2010, LHA filed a four-count complaint against Gordon alleging breach of contract, malicious prosecution, abuse of process, and tortious interference with prospective business advantage. Gordon moved to dismiss all counts of the complaint for failure to state a claim.
After reviewing Federal Rule of Civil Procedure 12(b)(6), the court addressed each of Gordon’s arguments.
Gordon’s argument that the breach of contract claim should be dismissed centered on his belief that “the client has an absolute right to terminate the agent and that such termination does not constitute a breach of contract even though the relationship between the parties is contractual.”
While the court noted that under Illinois law, his argument has validity, it also wrote that “a principal who agreed to employ the agent for a certain length of time cannot revoke the agency ‘rendering himself legally liable for such damages.’ Kenilworth Realty Co. v. Sandquist, 56 Ill. App. 3d 78, 371 N.E.2d 936, 939, 13 Ill. Dec. 844 (Ill. App. Ct. 1977). Such a revocation results in a repudiation of the principal’s contractual obligations. Id.
“Here, LHA has alleged that Gordon agreed to use LHA’s financial and consulting services on an exclusive basis for the entire duration of his NBA playing career, and that Gordon fired LHA while he was still an active player. Assuming, as we must, that these allegations are true, Gordon’s premature revocation would constitute a breach of contract under Illinois law. Accordingly, dismissal of Count I is not warranted under Rule 12(b)(6).”
Turning to the malicious prosecution claim, the court found for Gordon, agreeing that LHA had not alleged each of the five elements necessary to establish such a claim.
As for LHA’s abuse of process claim, the court wrote that proving such a claim requires two elements: “the existence of an ulterior motive or purpose, and most critically, some act in the use of the legal process not proper in the regular prosecution of the proceedings. Reed v. Doctor’s Assocs. Inc., 355 Ill. App. 3d 865, 824 N.E.2d 1198, 1206, 291 Ill. Dec. 948 (Ill. App. Ct. 2005).”
“(T)he complaint alleges that Gordon filed the first lawsuit with the ulterior motive or purpose of extorting, intimidating, and embarrassing LHA as well as hurting its reputation. LHA has also alleged that Gordon filed the first lawsuit to force LHA to settle. These allegations, even if accepted as true, do not demonstrate an improper use of the legal process that would help Gordon accomplish a collateral and improper purpose.”
Finally, regarding the tortious interference with prospective business advantage, the court wrote that it had already dismissed a similar claim in an earlier judgment, preclude LHA “from pleading the same claim.”
Larry Harmon and Harmon-Castillo, LLP, f/k/a Larry Harmon & Associates, P.A., v. Ben Gordon; N.D. Ill.; 10 C 1823, 2011 U.S. Dist. LEXIS 7848; 1/27/11
Attorneys of Record: (for plaintiff) James Kenneth Borcia, LEAD ATTORNEY, Tressler LLP, Chicago, IL; David O Yuen, Tressler, Soderstrom, Maloney & Priess, Chicago, IL; Ryan S Taylor, Tressler, Soderstrom, Maloney & Priess, LLP, Chicago, IL. (for defendant) George William Spellmire, Jefferey Ogden Katz, LEAD ATTORNEY, Spellmire & Sommer, Chicago, IL.
