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# United States Court of Appeals For the Seventh Circuit

No. 16-1063

R I L E Y J. W I L S O N

, on behalf of hi mself and all others si mi larly situated, Plaintiff-Appellant,

v.

C ARE E R E D U C AT I O N C ORP OR AT I O N , Defen dant-Appellee.

Appe al f ro m the Uni ted S tates Distri ct Co urt fo r the Nor thern Distri ct o f Il l i noi s, Eastern Di v i sio n. No. 1: 11 -cv-05 45 3 — Geral din e S oat Brown, Magistrate J udg e.

A RGU E D S E PT E MB E R 23, 2016

— D E C I D E D D E C E MB E R 22, 2016

Before R I P PL E, R OVN E R

, and S YKE S

, Circ uit Judges.

R OVN E R , Cir cui t Judge. Ri ley Wi lson sued Career Educ ation Cor porat i on (CEC) allegin g that CEC ow ed hi m the payment of bonuses for st ud e nts that he had recruited, as an admi ssi ons repr esentativ e, to CEC’s culinary art s college. Thi s i s the second appeal by Wi lso n in t his case. Wi lson ini tiall y arg ued that he

w as entitled to the bonuses under numero us legal theor i es,2 No. 16-1063

inclu ding that: (1) CEC breached i ts employment contract wi th hi m by fai ling to pay the bonuses ; (2) C E C w a s unj ustly enriched; and (3) CEC vio l a t e d an i mpli ed cov enant of goo d fai th and fai r dealin g thati s i mpli ci t inthe contr act. In hi s fi rst appeal to thi s court, w e upheld the di smi ssal of the clai m on the fi rst tw o gr ounds, but a major i ty held that the complaint surviv ed di smi ssalon the clai m that CEC v i olated t he i mpli ed

cov enant of goo d fai th and fai r dealing. W ilson v

. Career Educ. Corp. , 729 F

. 3 d 665 (7th Ci r

. 2013) ( W ilson I). W

e remanded for further pr oceedi ngs on that clai m. The facts underlyin g the case are set fort h in detail in o ur earl i er opin i on, and wi ll only be bri efly sum mari zed here. Wi lson w or ked for CEC a s an admi ssi ons repr esentativ e recruiting students to enroll in CEC’s culinary art s col l e ge. U nd e r the incenti v e compens ation prov i si on in hi s contract (call ed the Plan) wi th CEC, Wi lson w as ent i tled to a bonus for each student that he recruited a bo ve a defini te threshold who ei ther completed a full course or a y ear of study

. If a repr esentativ e w as ter minate d , he w as entitled only to bonuses already earned, whi ch w ould not inclu de st udents “in the pi peline” who had enrolled but had not y et completed a full cour se o r a y ear of study as of the date of the repr esentativ e’s ter minati on. Mor eov er

, the Plan explic i tl y r e se r v ed to CEC the right to “ter mina t e o r a mend the ter ms of thi s Plan at any tim e, for reg ulator y compli ance purposes or any other r eason that CEC deter mines, in i ts sole di screti on.” Accor d ingly , Wi lson w ould hav e been entitled to a bonus only as to recruited stud e nt s abov e hi s mini mum threshold who completed the full course or
a y ear of study

, duri ng a tim e at whi ch he remain ed employ ed,No. 16-1063 3

and at a tim e in whi ch CEC had not exer ci sed i ts di screti on to ter minate the Plan before tho se condi tions w ere met

. In October 2010, the Educ ation Department released reg ulati ons that w ould become effec t ive in July 2011, that

w ould prohibi t insti tutions such as CEC whi ch w ere partici pating in Ti tle IV student financi al ai d prog rams from prov i ding bonuses based di rectly or indir e ctly on secu ring enrollment. Accordi ngly

, as of July 2011, CEC w ould be prohib i ted from payin g bo nu ses under the Plan. CEC di d not w ai t unti l July 2011 to cease the payment of bonuses, how ev er

. Instead, after internal di scu ssi ons, CEC deci ded to pay onl y bo nuses that

w ere earned as of Februar y 28, 2011, there by depriving Wi lson of bonuses that w ere in the pi peline at that tim e. In place of the incenti v e compens ation structure, CEC i mplemented a rev i sed compens ation prog ram. That prog ram prov i ded to ev ery currently employ ed admi ssi ons repr ese nt a tiv e a rais e in base salary of at least the tot al of 3% plus 75% of hi s or her prev i ous t w o y ears’ bonuses

. So me repr esentativ es receiv ed hi gher compens ation under the rev i sed plan, whi le other s fared w or se. Wi lson sued on behalf of hi mself and other s si mi larly si tuated; the only cl a i m sti ll remain ing i s hi s clai m that the deci si on to ter minate the bonus payments in F e br ua r y 2011 consti tuted a breach of the i mpli ed cov enant of go od fai th and fai r dealin g. A major i ty held in W

ilson I that CEC had the unamb i guous right to ter minate the contract and to refuse to pay the bonuses for students in the pi peline. Id. at 671. Although CEC ret ained the right to ter minate the contract, w e further held that under the i mpli ed cov enant of goo d fai th and fai r dealing, C EC’s di screti on to ter minate the Plan and refuse to pay the unearned bonuses w as li mi ted by the rea so nable expectat i ons of the4 No. 16-1063

p art i es. Id. at 673. Accordi ngly , w e held that Wi lson could

suc ceed in hi s clai m i f he could prove that C E C e x e r cis ed i ts di screti on in a manner contrar y to the reasonable expectat i ons of t he p a r ties

. Id. at 675 (ci tin g Jorda n v

. Duff & Phelps, Inc. , 815 F .2d 429, 438 (7th Ci r . 1987)).
Wi lson arg ued to the di stric t court on remand that cost savi ngs, not the desi re to comply wi th the reg ulati ons, w as the prim ary driv er in CEC’s deci si on to ter minate the Plan in F e br uary 2011. But the di stric t court rej ected that arg ume nt , holding that the facts di d no t su p port i t. Among the facts refutin g Wi lson’s contention, the court i denti fi ed as most si gni fi cant t hat Wi lson ad mit t e d there w ere no cost savi ngs t o CEC, and that the alter ation in the c ompensati on s tr ucture left macro-costs stagnant. The court held th at there w as no evidenc e that CEC ret ained for i tself $5 mi lli on in bonus payment s that

w ere due admi ssi ons repr esentativ es, as W ilson alleged. Becaus e no reasonable jury could conclu de that CEC chose Februar y 28 as the date to e nd t he Plan bonuses in or der to ret ain the bonuses for i tself, the court gr anted CEC’s motion for

sum mary judgment. Wi lson now appeals that deter minati on to thi s court. As w e recog ni zed in W ilson I , an av ow edly oppor tuni sti c deci si on to ter minate bonuses w ould not comport wit h t he reasonable expectat i ons of the parties. Id. at 675, ci tin g Jorda n v

. Duff & Phelps , Inc ., 815 F .2d 429, 438 (7th Ci r

. 1987). Thus, i f CEC used the excuse of the i mpending reg ulati ons to premature ly ter minate the bonuses in a “money gr ab” unrelated to any legiti mate bu sines s expectat i ons, that arbi tr ary ter minati on of bonuses w ould violate the objectiv ely r easonable expectations of the parties. The parties co ul d reasonably expect that alter

-No. 16-1063 5

ations in the Plan ter ms w ould be made in goo d fai th, although the go od fai th requirement i s a li mi ted in qui ry : The element of goo d fai th dealing i mpli ed in a
co ntract ‘i s not an enforceable legal duty to be ni ce or to behav e decently in a gener al w ay .‘ [ci tation omi tte d] It i s not a v ersi on of the Golden Rule, to reg ard the intere sts of one's contracting partner the same w ay y ou reg ard y our own. An employ er may be thought less, na sty , and mi stake n. A v ow edly oppor tuni sti c conduc t has been tr eated differently

, how ev er

. Jorda n , 815 F

. 2 d at 438. If CEC used the i mpending reg ulati on
as an excuse to av oid payments ar bit r a rily , that w ould be the type of av ow edly oppor tuni sti c co nduc t that w ould evinc e a lack of goo d fai th and fai r dealing. Thus, “i t w as reasonable for Wi lson to expect that av oiding the three condi tions needed for Wi lson to earn a bonus on a recruited student w ould not be the but-for reason for CEC exer ci sing i ts di screti on.” W ilson I , 729 F .3d at 675. Wi lson arg ues that CEC’s deci si on to ter minate the Plan w as made in v io l a t i on of the cov enant of goo d fai th and fai r dealing in that i t w as inconsi ste nt wit h Wi lson’s reasonable expectat i on that CEC w ould not ter minate the Plan early and that CEC acted wi th i mproper motiv ation.
As reg ards the fi rst a rgu m e n t, Wi l s on acknowledges that the inqui ry i s an objectiv e one, wi th the proper fo cu s on whether t he deci si on w as inconsi stent wi th the objectiv ely reaso na bl e expectat i ons. In arg uing that thi s st a ndard w as met, Wi lson relies on evidenc e that: CEC had hi stor i cally pai d for all Pla n compens ation; CEC had nev er made sub stanti v e Plan changes6 No. 16-1063

duri ng the period of perfor manc e; CEC promo ted the Plan in late 2010 as i f i t w as going to conti nue payin g thro ugh 2011; and W i lson w as surpri sed that the Plan w as ending early

. The l a st factor r e st e d o n Wi lson’s testim ony that he di d not thi nk the Plan w ould be ter minated early and that “i t w as a bi g surpri se” to hi m. But the deter minati on as t o whether an expectat i on i s reasonable i s an objectiv e not a subjectiv e d e t e rmi nati on. If Wi lson’s beli ef that the Plan w ould not be ter minated or alter ed

w as not obj ecti v ely reasonable, i t w ould not matter that he actually held that beli ef.
The other arg uments essenti ally amount to a contention that the Plan had nev er made changes in the past and had giv en no indi cati on i t w as about to do so, and there fore any alter ation in the Plan defi ed Wi lson’s objectiv ely reasonable expectat i ons. The fai lure of CEC to alter the Plan ter ms earlier di d not create

a reasonable expectat i on that i t w ou l d ne v er do so giv en the l a n guage in the contract preserv ing that right. As we re c ogni z e d in W ilson I , the contract by i ts plain lang uage makes cl e a r t ha t bonuses are on l y actually earned once the student has completed the academi c prog ram or one y ear of study

. In short, a reasonable expecta t io n that the Plan wi ll be continued cannot aris e solely from CEC’s fai lure to exer ci se that option earlier or i ts fai lure to prov i de si x months’ notic e of the ter minati on. Nothing in t he contract or the dealings betw een the parties

w ould render such an expectati on reasonable.
Mor eov er

, in W ilson I , the major i ty held that under the plain language of the contract, Wi lson co uld not hav e reasonably expected that CEC w ould only ter minate the bonuses for goo d

caus e becau se the expr ess te r ms o f the Plan preclude such an expectat i on. Id. at 675. W e recog ni zed in W

ilson I that CEC mayNo. 16-1063 7

hav e had a numb er of reasons, inclu ding but no t li mi ted to reg ulator y compli ance, for ter minati ng the Plan early and refusing to pay bonuses that other wi se w ould hav e been earned before the new reg ula t io ns becam e effecti v e. It w as not objectiv ely reasonable for Wi lson to expect that CEC w ould nev er
exer ci se that option, or w ould do so only by following a certain notic e procedure not required by the Plan, sim p ly becau se i t had fai led to exer ci se the option in the past. Wi lson has poin ted to no evidenc e that CEC explic i tly dis av ow ed any i ntention to

exer ci se i ts rights under t he Pl a n in the future, and in fact the evidenc e in the recor d establi shed that Wi lson expected that the bonuses w ould be ter minated but he hoped i t w ould happen at

a later date. Wi lson’s arg ument that CEC promo ted the Plan as i f i t w as going to conti nue payin g c annot create an expectat i on that t he prov i si on wi ll nev er be changed. Becaus e the bonuses

are earned only after a long period of tim e, the reality i s that at any poin t in whi ch the bonuses w ere eli minated, some of the payments w ould li kely be in the pi peline at thattim e. Signi fi cantly

, Wi lson does not arg ue that CEC promo ted the recruitment bonus at a time at whi ch i t knew i t w ould not pay the bonuses

. It i s undi sputed that thro ughout the sum mer and fall of 2010, when the recruitment that w ould tr i gge r the unpai d bonuses w as occurrin g, there w as no consens us among the CEC leadershi p as to when the Plan should be ter minated. The tim ing of the ter minat io n w a s a topic of debate wi thi n CEC, wi th ter minatio n d ates ranging from December 2010 to June 2011 propo sed. Gi v en the i mpending reg ulat io ns, CEC’s employ ees certain ly knew that t he bonus es w ould end, and in fact an intero ffi ce memorandum to i ts a d miss i ons repr esentativ es in June 2010—before the start of the thi rd quarter —stated8 No. 16-1063

that CEC w as rev i ewing t he incenti v es compens ation rules propo sed by the Department of Educ ation. In ad d it i on, on Nov ember 2, 2010, the CEO informed all employ ees of CEC that the Plan w ould need to change in or der to comply wi th the De partment of Educ ation rules i ssu ed on October 29, 2010. Nothing in CEC’s past conduc t or i ts statements to the employees gav e them a reasonable expectat i on that the bonuses w ould be pai d right up to the reg ulator y deadline. The deci sio n t o ter minate bonuses as of Februar y 2011 w as not made unti l early December 2010, and w as i mmediately commu ni cated to the admi ssi ons repr esentativ es. Although Wi lson ma y hav e reasonably expected that C E C w ould not promis e a bonus whi ch i t intended to wi thdraw before payment, there i s no allegation of such behavi or here. See T rovar e Capital Group, LLC

v

. Simkin s Industries, Inc., 794 F .3d 772, 7 7 9 (7th Ci r

. 2015) (can show violati on of i mpli ed cov enant of goo d fai th a nd fa i r dealing by demonstrating the party had no intention of completin g the dea l bu t conti nued the sham negot i ations ). Gi v en the contract language, Wi lson could not reasonably expect that bonuses w ould not be ter minated prior to the July 2011 effecti v e date of t he reg ulati on. Wi lson addi tiona lly arg ues that he demonstrate d that the ter minati on of the bonus w as made in bad fai th. He asserts that the di st r ict court fai led to credi t hi s evidenc e on sum mary judgment, and that he prov i ded evidenc e that the actual reason for CEC’s acti on w as becau se of i ts det e riorating financi al condi tion rather t han the reg ulati on. As w e stated, i f CEC chose to use the i mpending reg ulati on
a nd t he need to end t he bonuses in July as an excuse t o ter minate i t early merely to depr iv e i ts employ ees of their bonuses,No. 16-1063 9

wi thout any bus iness necess i ty or other reason than an intent to exploit the oppor t un it y , such an acti on could be bey ond the reasonable expectat i on of the parties that the employ er w ould act in goo d fai th and change the Plan only for a l e g it imat e
reason. Wi lso n a r g ues that CEC acted in bad fai th becau se i t alter ed the salary structure in r e sp o nse to i ts deter i or atin g economi c condi tion, and not becau se of the i mpending reg ulat io n. W e noted in W

ilson I , how ev er

, that the mere presence o f

a reaso n o t he r than the reg ulati on does not i tself render the acti ons in bad fai th. W

ilson I , 729 F .3d at 676 (notin g that CEC mi ght hav e had a numb er of reasons to ter minate the Plan early , but the stated reason rais ed questi ons g iven the tim ing of the ter minati on). The relev ant ques t io n i s whether that reason demonstrate s bad fai th, or i s the type of reason that w oul d be bey ond the r easonable expectations of the parties

. Wi lson arg ues that he should surviv e sum mar y j udgment becau se he p ro vided suffi ci ent evidenc e that CEC ter minated the bonuses becau se i t w as facing an economi c cri si s and eli minated the bonuses to sav e money

. The di stric t court ch a r a cterized the undi sputed evidenc e as indi cating that no money w as sav ed by the change s t o the bonuses becau se the salary structure w as changed so that employ ees receiv ed hi gher base salari es plus salary increases that corr el a t e d with 75% of their bonus av erag e for the past tw o y ears. The recor d appears to bear out that conclu si on. E v en i f w e accept Wi lson’s charact e r i zation of the recor d, how ev er , that CEC acted to cut e x
penses in respon se t o an economi c cri si s, that i s preci sely the type of reason that employ ees w ould reasonably expect w ould result in an alter ation of salary

. The cov enant of goo d fai th and fai r dealing requires only that di scretio n be exer ci sed reason-10 No. 16-1063 ably wi th proper motiv e rat her than arbi tr arily or capri ci ously

o r in a manner inconsi stent wi th reasonable expectat i o ns

. McCleary v

. W

ells Far go Sec., LLC, 29 N.E.3d 1087, 1093 (Ill. App. Ct. 2015); Resolution T

rust Corp., v

. Holtzma n , 618 N.E.2d 418, 424 (Ill. App. Ct. 1993). A need to address a sig nific ant financi al cri si s i s unques tionabl y a p r o p er—as opposed to arbi tr ary or capri ci ous—moti v e for a business

. The contract reserved the right t o ter minate the Plan and ret ain unearned bonuses at any tim e, and i t w ould be objectiv ely unr easonable for Wi lson to beli ev e that such di screti on
w ould not be e xer ci sed where a changing bus iness cli mate si gni fi cantly w or sened the financi al condi tion of the company

. A bus iness that ret ains the right to alter salari es of a compens ation structure c annot b e sai d to hav e acted in bad fai th when i t does so in ti mes of a s ubs tantial financi al downturn.
Wi lson hi mself arg ues that CEC in fact faced such a financi al downturn and that the ter minati on of the bonuses w as enacted to cut costs i n response to t hat. In hi s bri ef, Wi lson ass ert s that CEC w as faced wi th decreasing student admi ssi ons and a concomi tant decline in r e ven ues. He states that the second quarter o f 2010 reflected a w eaker financi al perfor manc e, the thi rd quarter w as w or se, and the downw ard t r e nd conti nued int o t he fourth quarter of 2010. He further states that in the meanti me, co st s w ere increasing. He arg ues that CEC saw where the bus iness w as heading, particu larly wi th the gr owing hosti li ty to for -profi t sch ools, knew that i t w ould face increasing financi al pressure, and viewed the terminati on of the P lan as a
w ay to manage those i ssu es. Wi lson asserts that whether CEC’s deci si on to ter minate the Plan w as entirely cost-savings driv en,
or becau se i t w anted to be percei ved a s a goo d corpor ateNo. 16-1063 11

ci tizen, or becau se i t w anted to synchroni ze i ts payment and perfor manc e rev i ews wi th the other employ ees, i t made that deci si on in bad fai th becau se i t w as done at the expense of i ts employ ees and redirected those fund s t o it s own corpor ate intere sts. But an employ er does not act in bad fai th when acting in furtherance of legit imate corpor ate intere sts that w ould reasonably hav e been in the contemplati on of t he parties. See McCl e ary, 29 N.E.3d at 1093, quoting RBS Citizens, Nat’l Assoc.

v

. R TG-Oak Lawn, LLC, 943 N.E.2d 198, 207 (Ill. App. Ct. 2011)) (the purpose of the duty of goo d fai th and fai r dealing “‘i s to

ensure that parties do not take adv antage of each other in a w ay that could not hav e been contemplated at the tim e the contract

w as drafted or do anythin g that wi ll destro y the other party ’s right to receiv e the benefi t of the contract.’ ” ). Wi lson already lost hi s breach of co nt ract clai m and there fore cannot merely allege that t he bonuses w ere ow ed to hi m and that CEC could not proper ly ret ain i t. A ter minati on of bo nu ses to address a financi al downturn, or to mi tigate the damage to reputat i on or salary str ucture caus ed by the im pending reg ulati on, i s not an acti on that can be characterized as being in bad fai th or bey ond the objectiv ely reasonable expectat i ons. Those are all legiti mate bus iness reasons for alter ing a salary and compens ation structure, and a de cisi on based on such reasons could not violate the o bjectiv ely r easonable expectations of the parties

. W e note that the relev ant i ssu e here i s not whether CEC w as fort hcoming in sta tin g that the ter minati on of the bonuses in Februar y 2011 w as due to the reg ulati ons rat her than acknowledgin g that the tim ing relat ed to i ts financi al peril. Instead, the proper i ssu e i s whether C E C e l i minated the bonus for an i mproper motiv e. W

e held in W

ilson I t hat the clai m could12 No. 16-1063 proceed bey ond t he d ismi ssal stage becau se the tim ing of the t e r mination cast doubt on CEC’s clai m that the motiv e w a s compli ance wi th the reg ul a t i on. W ilson I , 729 F .3d at 676. Although that tim ing left open the possi bi li ty of an i mproper motiv e, Wi lson on sum mary judgment arg ues that the recor d

rev eals the ac tual motiv e, whi ch w as to address i ts preci pi tous financi al decline. But havin g a di fferent mo t ive than the one
e x p r e ssed to i ts employ ees does not violate the contract ’ s i mpli ed duty of goo d fait h a nd fai r dealing. The relev ant questi on i s wh e ther that actual motiv e w as i mproper and whether the ter minati on fai led to comport with the parties’ reasonable expectat i ons. Wi lson does not arg ue that CEC in fact di d not face financi al di ffi culti es, or that an alter ation in the salary structure w a s unnec essary to address that problem; to the contrar y

, Wi lso n arg ues that CEC actually faced a seri ous financi al decline. Wi lson has fai led to arg ue that the evidenc e allows a jury to infer an improper motiv e, as opposed to a proper motiv e di fferent from the one ex p r essed to i ts employ ees. Accordi ngly

, ev en accepting Wi lson’s characterizati on of the

recor d, the evidenc e i s insu ffi ci ent to allow a jury to reasonably conclu de that CEC breached the i mpli ed cov enant of goo d fai th and fai r dealin g. The deci si on of the di stric t court gr anting summa ry judgment to t he defendant i s AFFI RMED.