Hanekamp severance (or separation) pay and conditioned acceptance on Hanekamp signing a
release agreeing not to sue based on the stock option plans. The agreement did not say that
Hanekamp must waive all his stock options, even if that may have been the result if he had
signed the agreement in this case. Hanekamp refused the offer. The court is unaware of how any
of this creates an implied-in-fact contract. Hanekamp presents no evidence as to how McKesson
was obligated to either offer severance (or separation) pay or that such pay could not be
conditioned or bargained for in exchange for suit not being filed under the stock option plans. In
fact, there is nothing implied about his contract. McKesson offered 12 weeks of pay with a
condition, and Hanekamp refused it. As such, summary judgment is granted in favor of
McKesson on the Count I breach of implied-in-fact contract claim.
Cc. Counts III and IV

Neither party presents argument on the Count III claim under the Attorney’s Fees in
Wage Action Act and the Count IV claim under Illinois Wage Payment and Collection Act,
apparently on the belief that these claims either rise or fall based on the claims in Counts I and I.
Since the Count I claims survive for trial, the court assumes the Count III and IV claims do also.

As such, summary judgment is denied on these claims.

CONCLUSION
For the reasons stated above, McKesson’s motion for summary judgment is granted in
part and denied in part [#31]. Judgment is granted in favor of McKesson on the Count II breach

of implied-in-fact contract claim. Summary judgment is denied as to the claims under Counts I,

19



1978 Plan and considers this an issue of fact for trial. In any event, as stated below, under either
“cause” as stated in the 1978 Plan or the definition of cause as “negligent or willful misconduct”
as listed in the 1994 and 1999 Plans, the court believes that genuine issues of material fact exist.

Under Califomia law, which governs the interpretation of McKesson’s stock options,
“[t]here is an implied covenant of good faith and fair dealing in every contract that neither party
will do anything which will injure the right of the other to receive the benefits of the agreement.”
Comunale v. Traders & General Ins, Co., 50 Cal. 2d 654, 658 (1958). McKesson concedes that
such an implied covenant exists but states that it does not apply in this case, citing to Third Story
Music, Inc. v. Waits, 41 Cal. App. 4th 798 (1995).? McKesson argues that, particularly with
respect to the 1994 and 1999 Plans, the determination of whether an employee is terminated for
cause is to be made “in the sole determination of the Company” and that this “plain, clear and
unambiguous language” should allow the decision to terminate for cause to stand with little or no
judicial interference.

While McKesson cites a situation in which an implied covenant of good faith was not
applied, it advances no reason why this situation is applicable to this case. Third Story Music
concerned a dispute between a company which owned the rights to music (“TSM”) and a
company with which TSM transferred the rights to manufacture, sell or distribute the music
(“Wamer”). Jd. at 801. The agreement between the parties included a clause stating that Warner
could choose “to refrain from” manufacturing, selling, or distributing the music, the very basis of

the contract. Jd. The court noted that the contract was “illusory” in that performance was totally

°MicKesson’s claim that no implied covenant of good faith and fair dealing exists is particularly curious in
light of the fact that it attempted to have Hanekamp waive any such claim as a condition to the separation pay he was
offered. (Def. Ex. O § 13.)

13


sole determination of the Company, is injurious to the Company, its employees, or its
customers.” (Def. L.R. 56.1921.) Hanekamp testified that he believed the definition of “cause”
was akin to the definition of misconduct in McKesson’s Employee Handbook, which states

Misconduct-abusive language to fellow employees/supervisors, the possession

and/or use of weapons of any kind, fighting, indecent conduct, obscene language

or gestures, or committing any act that violates the state criminal code is a

violation of the General Work Rules.

In this same regard, physical, verbal or visual harassment of another employee,

visitor, business associate or customer is not acceptable behavior. Furthermore, it

is the policy of the Company to prohibit sexual harassment of its employees,

customers and the general public in any form.
(Def. Ex. N.)

In 2000 and 2001, McKesson experienced a substantial loss of inventory at the CSDC”
(Def. L.R. 56.1 J 44-47.) The estimated cost of the losses was approximately $5-6 million.
(Def. L.R. 56.1 4 46.) McKesson put substantial effort into researching the cause of the product
losses at the CSDC. (Def. L.R. 56.1 49.) Ron Bone (“Bone”), McKesson’s then Vice
President of Distribution Support, was given the responsibility for developing a team of people to
reconcile the inventory losses at the CSDC, provide findings on inventory issues, and suggest
corrective measures. (Def. L.R. 56.1 f§ 36, 50.) In addition, Patrick Blake (“Blake”),
McKesson’s President, Customer Operations, and Andrew Foster (“Foster”), Director of
Corporate Human Resources, conducted an investigation into the product losses. (Def. L.R. 56.1

4[51.) Blake and Foster’s investigation focused on a variety of managers and executives with

responsibility for the CSDC. (/d.)

>The inventory losses included products such as Viagra, Paxil, Voltaren, Digoxin and Vicodin. (Def. L.R.
56.19.45.)


Il and IV. This case is set for trial on July 14, 2003. In the meantime, the parties are directed to

meet in a sincere effort to resolve this case short of trial.

ENTER: Speesa (AAG

AN HUMPHREY LE&FKOW
United States District Judge

Dated: June 10, 2003

20


determining which terminations of employment are for cause and which are not. (PI. L.R. 56.1
66.) Finally, in other cases involving misconduct such as theft or workplace violence, which
would clearly constitute negligent or willful misconduct, Hartley testified that McKesson denied
or disputed unemployment compensation to employees. (PI. L.R. 56.1 161.) In this case,
evidence is presented that McKesson did not contest Hanekamp’s claim for unemployment
compensation and the State of Illinois determined that the termination was for “unsatisfactory
performance.” While McKesson claims this was part of a compromise that was offered to both
Eilers and Hanekamp and that an individual can be terminated for cause and still receive
unemployment compensation, (Def. L.R. 56.1 {J 190-91.), this is all evidence that can be
weighed by the trier of fact.

Insofar as under California law the elements of the “good cause” standard are triable to a
jury, see Cotran, 17 Cal. 4th at 108, and because the “for cause” determination was made 30 days
after Hanekamp was terminated with no illumination as to what was considered and with no
formal procedures in place, the court concludes this case presents genuine issues of material fact
for the trier of fact to decide. This conclusion applies either under the 1978 Plan definition of
“cause” and/or the 1994 and 1999 definition of cause as “negligent or willful misconduct.”
Contrary to McKesson’s suggestions, the court simply cannot say as a matter of law that the
decision that Hanekamp was terminated for cause was made in good faith. Summary judgment

on the Count I claims, therefore, is denied.'°

\rhroughout his brief Hanekamp urges the court to grant summary judgment in his favor, even though he
never formally made such a motion. While the court acknowledges that it has the power to grant summary judgment
sua sponte, as stated above there are genuine issues of material fact for a trier of fact to decide concerning whether
the decision to terminate Hanekamp for cause was made in good faith and was not arbitrary and capricious.

17


56.1 9 123.) Hamik and Hartley’s recommendations with regard to Vaske were followed, as he
was given a documented warning and a 50% reduction in his bonus for that year. (Def. LR. 56.1
124.)

On April 3, 2001, Hanekamp emailed Foster stating,

Iam in receipt of the . . . severance agreement .... My interpretation of Item No.

6, Stock Options, is that I may continue to exercise all vested options until their

date of expiration. I would like to confirm that that is the Company’s position.
(Def. L.R. 56.1 4142.) Foster responded to Hanekamp’s email on April 5, 2001 and stated that
he would attempt to get clarification for him. (Def. LR. 56.1 7 143.) Foster consulted with
counsel Leslie Sprinkle and came to the understanding that a provision in the stock option plan
restricted an individual terminated for cause from exercising vested options. (Def. L.R. 56.1 ail
144-145.) No formal systems are in place at McKesson for determining whether a termination is
for cause--the decision is usually made by Human Resources after consultation with the legal
department. (Def. LR. 56.1 4 151.) The determination of whether an employee is terminated for
cause is normally made prior to termination. (PI. L.R. 56.1 § 156.) At this point, in conjunction
with counsel, Jeanette Maggio (“Maggio”), McKesson’s Vice President of Human Resources,
Foster and Julian determined that Hanekamp’s termination was for cause.° (Def. L.R. 56.1
146.) Accordingly, Foster informed Hanekamp that his stock options were cancelled pursuant to

the provisions of the stock option plan. (Def. L.R. 56.1 q 152.)

5McKesson disputes this and argues that it does not have a policy of notifying the employee at the time of
their termination that it is for cause. (Def. LR. 56.1] 157.) For purposes of this motion, the court credits
Hanekamp’s version as true.

6 an overview of what is considered “cause” is “violation of general work rules, violation of federal
policies.” (Pl. L.R. 56.1989.) Examples of a “without cause” termination would be “attendance, policy violation,
safety violation, performance as it relates to the hourly employees, and their productivity measures.” (PI. LR. 56.19
90.)



meeting he could call him. (Def. L-R. 56.1 73.) Hanekamp did not speak to Hamik because he
did not believe there was anything to be accomplished by doing so. (Def. L.R. 56.1 | 74.)

Based on their investigation surrounding the CSDC product losses, Hamik, Blake, Foster
and Bone determined that Hanekamp failed to act with the appropriate level of leadership for a
VPDO. (Def. L.R. 56.1 4] 77-86.) Foster believed that Hanekamp should have acted with a
greater sense of urgency. (Def. L.R. 56.1477.) According to Bone, Hanekamp failed to escalate
the problem or react appropriately to the “cycle count variances.” (Def. L.R. 56.1 78.)
Moreover, Bone felt as if Hanekamp’s reconciliation of the cycle count discrepancies was
inadequate and he did not effectively deal with the information he had to find out what the
problems were. (Jd.)

Blake believed that Hanekamp did very little to figure out the CSDC inventory loss
situation, failed to have a sense of urgency with regard to the product losses or demonstrate an
appropriate level of leadership. (Def. L.R. 56.1 79-80.) Blake further believed that
Hanekamp could have ensured that he had the most capable individuals in pivotal roles at the
CSDC, handled cycle count discrepancies with a greater degree of urgency and import, made
available appropriate resources, and made sure security warnings were addressed. (Def. L.R.
56.1 482.)

After the February 9, 2001 meeting, Bone, Blake and Foster asked Hamik and Hartley to
give them recommendations for personnel actions based on their findings. (Def. L.R. 56.1 87.)
Given their positions at McKesson, Hamik and Hartley were close to the CSDC inventory loss
situation and were aware of Hanekamp’s management of the CSDC. (Def. L.R. 56.1 88.)

Hamik and Hartley prepared a chart setting forth their findings and recommendations, and


In February 2001, William Hamik (“Hamik”), Senior Vice President of the
Pharmaceutical Group, and Jan Hartley (“Hartley”), Director of Human Resources, requested that
everyone with operational or management responsibility for the CSDC gather their pertinent
documentation and prepare a chronological sequence of events which occurred at the CSDC.
(Def. L.R. 56,1 4.54.) On February 9, 2001, Hamik held a meeting concerning the investigation.
(Def. L.R. 56.1 55.) Hanekamp did not speak at this meeting because “[he] had a really bad
sore throat at those times.” (Def. L.R. 56.1 4 59.)°

On February 16, 2001, Blake, Foster and Bone interviewed Hanekamp at McKesson’s
corporate offices in San Francisco, California. (Def. L.R. 56.1 61.) Hanekamp was fully
prepared to discuss the CSDC inventory losses at the February 16 meeting, including his role in
discovering and correcting the situation. (Def. L.R. 56.1 67.) When Hanekamp first tried to
initiate a conversation reviewing the steps that were taken and events that occurred at the CSDC,
he was cut off from the discussion by Foster and was only allowed to answer questions thereafter.
(Pl. Resp. to Def, L.R. 56.1 | 70.) The meeting mostly consisted of responding to “cycle count”
discrepancy questions. The conclusion Hanekamp reached after the meeting was that the
questioners were not interested in the process but were instead interested in blaming someone
and that he could be one of those that were being blamed. (/d.) After the February 16 meeting,

Hamik left a voicemail for Hanekamp stating that if he wanted to discuss anything about the

3McKesson also claims that it is undisputed that Hanekamp placed an undercover agent at the CSDC by the
time of the February 9 meeting and that Hanekamp did not add this information to the chronology created at the
meeting because he “would have been uncomfortable discussing that in a meeting of that.” McKesson’s statement of
material facts identifies this “by the time of the February 16 meeting” and not the February 9 meeting. (Def. L.R.
56.1 4 60.)


B. Breach of Implied-in-Fact Contract For Payment of Severance

Hanekamp alleges that McKesson had an implied-in-fact contract for payment of
severance pay to its terminated employees. An implied-in-fact contract exists when an
agreement creating an obligation is implied or presumed from the actions of the parties.
Barefield v. Village of Winnetka, 81 F.3d 704, 709 (7th Cir. 1996), quoting Foiles v. North
Greene Unit Dist. No. 3, 261 Ul. App. 3d 186, 633 N.E. 2d 24, 25 (1994). A “meeting of the
minds” is required for an implied-in-fact contract to exist. Jd., quoting Foiles, 633 N.E. 2d at 25
(“A contract implied in fact must contain all elements of an express contract, and there must be a
meeting of the minds.”); Binder v. Aetna Life Ins. Co., 75 Cal. App. 4th 832, 850 (1999) (“To
form a contract, a manifestation of mutual asset is necessary .... Mutual asset may be
manifested by written or spoken words, or by conduct.”) (internal citations omitted).

Hanekamp’s claim for a breach-of-implied contract is puzzling. In response to
McKesson’s claim that it was not required to give severance pay but could have given separation
pay, Hanekamp stated, with no citation, that “[t]here is no question that [Hanekamp] was owed
severance pay-the only question is how much?” Hanekamp also claims, again with no citation to
the record, that “[o}nly the amount of money is in question and apparently is discretionary and
done on a ‘case-by-case basis.” Hanekamp claims that because McKesson offered 12 weeks of
either separation or severance pay conditioned on his waiving his right to bring suit under the
stock option plans, summary judgment should be denied.

The evidence presented shows no implied contract in which McKesson was obligated
either to offer severance pay to employees or if it did offer such pay that it could not condition

the severance or separation payments on waiving the right to bring suit, McKesson offered

18


facility. (/d.) Hamik and Hartley also recommended that Eilers be demoted and that Vaske be
given a documented warning and a 50% reduction in his bonus for that year. (Def. L.R. 56.1]
96.) Bone, who did not take part in Hamik and Hartley’s investigation, believed that Hanekamp
should not be fired. (Pl. L.R. 56.1 107.)

Blake made the ultimate decision to terminate Hanekamp’s employment. (Def. L.R. 56.1
198.) Prior to making his final decision, Blake reviewed Hanekamp’s personnel file. (Def. L.R.
56.19 101.) Blake discussed with Paul Julian (“Julian”), McKesson’s President, what actions he
had planned as well as what steps were being taken to contain the inventory loss issue. (Def.
LR. 56.1 { 108.) Julian agreed with Blake’s plans. (Jd.)

On February 21, 2001, at a meeting in Chicago, Hamik and Foster told Hanekamp that his
employment was being terminated because he failed to provide sufficient leadership expected of
a VPDO with regard to the CSDC product losses. (Def. L.R. 56.1 113.) During the meeting,
Foster read a Separation Agreement to Hanekamp. (/d.) The Separation Agreement states, in
part,

As you are aware, the Company has conducted an internal investigation into the

inventory issues at the Carol Stream Distribution Center. Based on that

investigation, it has been determined that a number of key management personnel

in the Central Region were negligent in their duties and obligations. The evidence

indicates that you failed to provide the appropriate leadership expected of a Vice

President of Distribution Operations. Therefore the decision has been made to

terminate your employment with McKesson HBOC immediately.

(Def. L.R. 56.1 4115.)
In March 2001, Eilers was terminated for her lack of leadership in connection with the

CSDC product losses. (Def. L.R. 56.1 [ 122.) While Hartley and Hamik recommended that

Eilers only be demoted, Blake disagreed and made the decision to terminate Eilers. (Def. L.R.


Minute Order Form (06/97)

s

United States District Court, Northern District of Illinois

Notified counsel by telephone.
Docketing to mail notices.

Mail AO 450 form.

Copy to judge/magistrate judge.

courtroom
MD deputy’s
initials

LYN LOYLSIO SA
waa

6€:S Hd OF NIE eu

AitaRats

central Clerk’s Office

Name of Assigned Judge Sitting Judge if Other
or Magistrate Judge Joan H. Lefkow than Assigned Judge
CASE NUMBER 02C 112 DATE 6/10/2003
CASE Hanckamp vs. McKesson Corporation
TITLE
[In the following box (a) indicate the party [iling the motion, ¢.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.)
DOCKET ENTRY:
wm oa Filed motion of [ use listing in “Motion” box above.]
(2) im} Brief in support of motion due
(3) Q Answer brief to motion due. . Reply to answer brief due
(4) Q Ruling/Hearing on set for at
(5) a Status hearing[held/continued to] [set for/re-set for] on set for at
(6) Q Pretrial conference[held/continued to] [set for/re-set for] on set for at :
(7) oO Trial[set for/re-set for] on at
(8) oO (Bench/Jury trial] [Hearing] held/continued to at
(9) o This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OFRCP4(m) O Local Rule 41.1 CFRCP41(a)(1) OO FRCP41(a)(2).
qo) [Other docket entry] | Enter Memorandum Opinion and Order. Defendant’s motion for summary
judgment [31-1] is granted in part and denied in part. Judgment is granted in favor of McKesson on the
Count II breach of implied-in-fact contract claim. Summary judgment is denied as to the claims under
Counts I, [fl and IV. Case remains set for trial on July 14, 2003.
dl @ [For further detail see order attached to the original minute order.]
No notices required, advised in open court.
2
No notices required. per of nes
J | Notices mailed by judge’s staff. A\ N41

dafe docketed

docketing deputy initials

6/10/2003

<daye mailed notice

MD

‘mailing deputy initials



LR. 56.1 137.) A surveillance plan instituted in late 2000, which consisted of physical
surveillance of the distribution center from both the rear portion of the building and the front
portion of the building, did not end until June 2001. (PL L.R. 56.1 {[ 38.) Moreover, the Federal
Bureau of Investigation (“FBI”) became involved with the CSDC losses in June 2001, and,
according to Robert VanKirk, McKesson’s Corporate Loss Prevention Director, as of November
6, 2002 there was still an ongoing FBI investigation. (Pl. L.R. 56.1 { 39.)
DISCUSSION

In Count I, Hanekamp alleges conversion/breach of stock option agreements against
McKesson. In Count I, Hanekamp alleges breach of implied-in-fact contract for the payment of
severance pay. Counts II and IV, alleging violations of the Attorneys Fees in Wage Actions Act
and the Illinois Wage Payment and Collections Act, concern predominantly damages and turn on
this court’s resolution of the Count I and II claims.
A. Conversion/Breach of Stock Option Agreements®

Hanekamp’s conversion/breach of contract claim centers around his allegation that he had
an unfettered right to exercise his vested stock options both prior to and after his termination, and
that McKesson both converted his rights in the vested stock options and breached the stock
option contract that governed. More specifically, Hanekamp alleges that he was not terminated
for cause and, therefore, under the applicable stock option plan he had the continued right to the

vested stock options. Conversely, McKesson claims that Hanekamp was terminated for cause

SHanekamp maintains that there is a distinction between a claim for conversion and a claim for breach of
contract, but that this distinction does not become critical until a calculation of damages is reached. Hanekamp cites
Scully v. US WATS, Inc., 238 F.3d 497 (3d Cir. 2001), in support of his view. Because any distinction is not relevant
for purposes of this motion, the court will not differentiate between the two causes of action in Count J.

11



After his termination, Foster provided Hanekamp with a Separation Agreement, which
Hanekamp reviewed. (Def. L.R. 56.1] 170.) The agreement offered Hanekamp, as severance
(or separation) pay,’ the “equivalent of four (4) weeks of your base salary in effect as of the
Separation Date ....” (/d.) To receive the severance (or separation) pay which was offered,
Hanekamp was required to release any and all legal claims against McKesson. (Def. L.R. 56.1
171.) On March 21, 2001, Hanekamp received another Separation Agreement identical to the
original Separation Agreement, except that it increased the severance (or separation) pay offered
to “the equivalent of twelve (12) weeks of your base salary in effect as of the Separation Date.”
(Def. L.R. 56.1 177.) McKesson increased the amount of severance (or separation) pay offered
to Hanekamp because it increased the amount given to Eilers. (Def. L.R. 56.1 4177.) Eilers was
also required to sign a release, which she did. (Def. L.R. 56.1 175.)

Hanekamp did not accept the March 21, 2001 Separation Agreement. (Def. L.R. 56.1
178.) He did not attempt to negotiate the severance (or separation) pay offer with anyone
because he did not believe it was negotiable. (Def. L.R. 56.1 179.) Hanekamp believes that it
is McKesson’s policy to give all involuntarily separated employees one week of severance pay
for each year they were employed by McKesson. (Def. L.R. 56.1 { 184.)

At the time of Hanekamp’s termination, no one knew the cause of the Carol Stream
inventory losses. (Pl. L.R. 56.1 93.) An undercover agent at Carol Stream did not complete his

operation before February 27, 2001, and the last operative left Carol Stream in June 2002. (Pl.

"The parties dispute whether this offer was for severance or separation pay. McKesson maintains that the
only time it is obligated to pay severance is when a facility has been closed or a position eliminated. (Def. L.R. 56.1
158.) When an employee is terminated, McKesson claims that it does not normally give severance but instead
usually provides a Separation Agreement. (/d.) Hanekamp disputes this and claims that McKesson’s policy is to
give all involuntarily separated employees one week of severance for each year they were employed by McKesson.
(PL LR. 56.19 184.)

10


provided it to Blake and Foster. (Def. L.R. 56.1 {| 89.) Hamik and Hartley’s chart set forth their
findings regarding the efforts of various managers to stem the product loss problem, including
Hanekamp, Michelle Eilers (“Eilers”), McKesson’s Director of Operations, Ron Vaske
(“Vaske”), the Regional Controller and the security department. (Def. L.R. 56.1990.) With
regard to Hanekamp, Hamik and Hartley’s chart states, in part “After being advised of Claritin
losses in May, no sense of urgency to understand losses.” (Def. L.R. 56.14 91.)* Hamik and
Hartley’s chart also indicates that Hanekamp failed to follow up on security theft issues, failed to
follow-up with security after being notified of potential theft in the CSDC, provided little support
to the CSDC after the Distribution Center Manager resigned, and provided little support to the
new Distribution Center Manager.

Hamik and Hartley made their recommendation that Hanekamp’s employment be
terminated. (Def. L.R. 56.1 § 93.) This recommendation was supported by Blake and Foster.
(Def. L.R. 56.1 § 98.) Hamik and Hartley made this recommendation based on the significant
dollar losses at the CSDC, Hanekamp’s lack of involvement throughout the investigation and his
bad management decisions and poor management skills. (Def. L.R. 56.1 § 94.) In making their
recommendations for Hanekamp’s termination, Hamik and Hartley discussed a variety of
options, including progressive discipline under McKesson’s field handbook. (Def. L.R. 56.1 {J
117, 121.) However, they decided not to use progressive discipline due to the amount of

inventory lost and Hanekamp’s lack of involvement in the investigation process and in the

4Hanekamp denies that the chart says this and cites to portions of his own statement of material facts. After
searching through the ten paragraphs to which Hanekamp cites, they provide no support for his theory that the chart
does not say this. Moreover, after looking at the chart as included in the exhibits, anyone can see that included in the
column of what Hanckamp did not do was “After being advised of Claritin losses in May, no sense of urgency to
understand losses.”


pharmaceutical supplies. (Id.) Hanekamp had operational, management, and financial
responsibility for the CSDC. (Def. L.R. 56.1 4 6.)

McKesson grants stock options to its employees, although the parties do not agree on
why.' (Def. LR. 56.1 J 12.) Hanekamp received stock options under three different stock option
plans. The stock options that Hanekamp received in 1993 and 1994 were governed by a 1978
stock option plan. (Def. LR. 56.1 16.) Stock options he received in January 1995, 1996, 1997,
1998 and 1999 were governed by a 1994 stock option plan. (Def. L.R. 56.1 4117.) Stock options
received in August 1999 and January and October 2000 were governed by a 1999 stock option
plan. As of February 23, 2001, Hanekamp had 18,185 vested stock options under the different
stock option plans with a combined value of $253,849.25. (PI. L.R. 56.1 414.) Pursuant to the
1978 stock option plan, Hanekamp had 7,910 vested stock options worth $194,046.19. (PI. L.R.
56.141.)

For each of the three stock option plans (1978, 1994 and 1999), there were three different
documents associated with those plans: a “Plan,” a “Prospectus” and “Terms and Conditions.”
(PI. L.R. 56.12.) Under all three of the stock option plans, the Terms and Conditions stated

I£ the employment of Optionee is terminated for cause, the option period shall end

on the date of such termination of employment, and the option shall thereupon not

be exercisable to any extent whatsoever.

(Def. L.R. 56.1 4 20; Pl. LR. 56.19 117.) Only the 1994 and 1999 stock option plans defined
the term “cause.” The Terms and Conditions of those stock option plans provide that cause shall

mean termination “upon Optionee’s negligent or willful engagement of misconduct which, in the

'McKesson alleges that stock options are offered “to encourage managers to focus on long-term health and
growth of the Company” and are given “as an expectation of future good performance.” (Def. L.R. 56.1 {| 12.)
Hanekamp alleges that the stock options are granted as an indication of good performance. (Pl. LR. 56.1 4 141.)

3



within the discretion of Wamer. Jd. at 808. In stating, however, that no covenant of good faith
and fair dealing need be applied to the contract, the court noted that a separate promise apart
from the illusory promise to manufacture, sell or distribute the music was present in that the
contract guaranteed that Warmer was required to pay a certain amount to TSM. Jd. The court
noted that this consideration supported the agreement regardless of whether an implied covenant
of good faith existed. Id.

Further, although McKesson points to a factual scenario where the covenant of good faith
was not applied, there are many situations where the covenant applies to purely discretionary
contracts. “California law, like the law in most states, provides that a covenant of good faith and
fair dealing is an implied term in every contract .... The covenant of good faith finds particular
application in situations where one party is invested with a discretionary power affecting the
rights of another.” Chodos v. West Publ’g Co., Inc., 292 F.3d 992, 997 (9th Cir. 2002) (internal
citations omitted). The employment context presented in this case arguably is even a more
appropriate area for application of a covenant of good faith and fair dealing. In Locke v. Warner
Bros., Inc., 57 Cal. App. 4th 354 (1997), the court stated,

Therefore, when it is a condition of an obligor’s duty that he or she be subjectively

satisfied with respect to the obligee’s performance, the subjective standard of

honest satisfaction is applicable .... Traditional examples are employment

contracts.... In such cases, the promisor’s determination that he is not satisfied,

when made in good faith, has been held to be a defense to an action on the

contract.

Id. at 363-64 (emphasis in original) (internal citations and quotations omitted), To the extent

McKesson argues that an employer should be given the right to make a completely discretionary

determination of cause in the absence of even an implied covenant of good faith, the court

14


was for cause did not come up until Hanekamp inquired about the status of his stock options.
This evidence is pertinent in light of the disputed issue among the parties concerning whether the
determination for cause is made prior to termination and whether an employee terminated for
cause is normally informed of such status at the time of termination. (Compare Def. L.R. 56.1]
157 with Pl. L.R. 56.1 4 78, 156, 157.)

Moreover, the court is presented with little evidence concerning the actual determination
of “cause” to say that it was in good faith as a matter of law. If unsatisfactory performance as
well as misconduct amounts to cause, perhaps few separated employees would receive their stock
option benefits. It is undisputed that no formal mechanism is in place at McKesson for
determining whether a termination is for cause. (Def. L.R. 56.1 4 151.) While McKesson is
correct that such a mechanism is not required, any such procedures would certainly be probative
of the issue as presented here and foreclose issues of fact surrounding the determination in this
case. McKesson states that the decision for cause is usually made by Human Resources after a
consultation with the legal department. (/d.) Here, the decision was apparently made by Foster,
although it is unclear whom he consulted in making such a decision. McKesson claims Foster
made the decision in conjunction with counsel and with Maggio and Julian, but it also admits
that “[t]here are no individuals at McKesson that provided input to Mr. Foster in his decision to
cancel [Hanekamp’s] stock options after April 3, 2001.” (Def. Resp. to Pl. L.R. 56.1 { 63.)

Foster himself never received any formal training at McKesson for determining what
“cause” was for purposes of McKesson’s stock option plans, (Pl. L.R. 56.1 { 65), although he
does claim to have been involved in “for cause” determinations in the past. (Def. L.R. 56.1]

148.) Foster also stated that nothing in writing gives guidance to a McKesson employee in

16


56(c). To determine whether any genuine fact exists, the court must pierce the pleadings and
assess the proof as presented in depositions, answers to interrogatories, admissions, and
affidavits that are part of the record. Fed R. Civ. P. 56(c) Advisory Committee’s notes. The
party seeking summary judgment bears the initial burden of proving there is no genuine issue of
material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). In response, the nonmoving
party cannot rest on bare pleadings alone but must use the evidentiary tools listed above to
designate specific material facts showing that there is a genuine issue for trial. Jd. at 324;
Insolia v. Philip Morris Inc., 216 F.3d 596, 598 (7th Cir. 2000). A material fact must be
outcome determinative under the governing law. Insolia, 216 F.3d at 598-99, Although a bare
contention that an issue of fact exists is insufficient to create a factual dispute, Bellaver v.
Quanex Corp., 200 F.3d 485, 492 (7th Cir. 2000), the court must construe all facts in a light most
favorable to the nonmoving party as well as view all reasonable inferences in that party’s favor.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
FACTS STATED IN A LIGHT MOST FAVORABLE TO PLAINTIFF

McKesson, a leading provider of supply, information and care management products and
services, hired Hanekamp in October 1973 as an at-will employee without a contract of
employment. (Def. L.R. 56.1 (3, 4.) Hanekamp was employed at McKesson until his
termination on February 21, 2001. (Def. L.R. 56.1 7.) From June 1998 until his termination,
Hanekamp served as the Regional Vice President of Distribution Operations (“VPDO”) at
McKesson. (Def. L.R. 56.1 5.) His responsibilities included McKesson’s Carol Stream,

Illinois, Distribution Center (“CSDC”), which is a shipping and receiving warehouse for



UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
)
DANIEL J. HANEKAMP, )
)
Plaintiff, )
)
vs. ) No. 02 C 0112
) Judge Joan H. Lefkow
McKESSON CORPORATION, a Delaware )
corporation, )
)
Defendant. ) DY,
My
Wy Ne
MEMORANDUM OPINION AND ORDER ey 4
@

In this action filed by plaintiff, Daniel J. Hanekamp (“Hanekamp”), alleging
conversion/breach of stock option agreements (Count J), breach of implied-in-fact contract for
payment of severance pay (Count II), violation of the Attorney’s Fees in Wage Actions Act,
705 ILCS 225/0.01 et seg. (Count Ml), and violation of the Illinois Wage Payment and Collection
Act, 820 ILCS 115/1 et seg. (Count IV), defendant, McKesson Corporation (“McKesson”), has
moved under Rule 56, Fed. R. Civ. P., for summary judgment as to the claims against it.
Hanekamp is a citizen of Illinois. McKesson is a Delaware corporation with its principal place of
business in California. The amount in controversy exceeds $75,000. The court, therefore, rests
its jurisdiction in 28 U.S.C. § 1332(a)(1) (diversity). For the reasons set forth below,
McKesson’s motion is granted in part and denied in part.

SUMMARY JUDGMENT STANDARDS
Summary judgment obviates the need for a trial where there is no genuine issue as to any

material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P.

1



and that under the terms of all of the stock option plans a termination for cause extinguishes the
employees’ rights in the vested options.

The first issue for the court to determine concerns the 7,910 stock options issued under
the 1978 stock option plan. Hanekamp argues that because the 1978 Plan does not define the
term “cause” (unlike the 1994 and 1999 plans), an issue of fact exists as to what cause was and
whether Hanekamp’s actions would fall under any such definition. Moreover, Hanekamp claims
that his understanding of cause was based on the definition of misconduct as set forth in
McKesson’s employee handbook, which consisted of such acts as abusive language, fighting and
indecent conduct. In response, McKesson claims that the 1978 Plan was superseded by the 1994
Plan, which does set forth a specific definition of cause.

Based on the evidence as presented by the parties, the court concludes that an issue of fact
exists as to whether the 1978 Plan was superseded by the 1994 Plan. McKesson relies on
testimony from Kris Veaco (“Veaco”), Assistant General Counsel/Assistant Secretary, and Bill
Parent (“Parent”), Compensation Manager. Both claimed that the 1978 Plan was replaced by the
1994 Plan. (Def. Resp. to Pl. L.R. 56.1 fff 124, 128, 144.) Moreover, McKesson cites to a
number of stock option documents from the 1994 and 1999 Plans which explicitly state that “The
Plan shall be the successor to the McKesson Corporation 1988 Restricted Stock Option Plan and
the McKesson Corporation 1978 Stock Option Plan....” (Def. Ex.R.) Hanekamp, however,
points to what he alleges is an amendment to the 1978 Plan after the 1994 Plan went into effect.
(PI. Ex. C at 01836.) McKesson admits that Veaco was unaware of how this exhibit (Exhibit 7
to Veaco’s deposition) indicates that an amendment to the 1978 Plan took place in 1997. Based

on the parties’ development of this issue, the court also is unaware how exhibit 7 relates to the

12


disagrees. Rather, McKesson’s discretion to determine whether a termination was for cause was
limited by its implied covenant of good faith and fair dealing.

In Cotran v. Rollins Hudig Hall Int’l, Inc., 17 Cal. 4th 93 (1998), the California Supreme
Court set out factors for determining “good cause” for terminating an employee for misconduct
when an implied employment contract existed. The court interpreted the term “good cause” to
mean

fair and honest reasons, regulated by good faith on the part of the employer, that

are not trivial, arbitrary or capricious, unrelated to business needs or goals, or

pretextual. A reasoned conclusion, in short, supported by substantial evidence

gathered through an adequate investigation that includes notice of the claimed

misconduct and a chance for the employee to respond.

Id, at 108. See also, Silva v. Lucky Stores, Inc., 65 Cal. App. 4th 256, 264 (1998) (“Three factual
determinations are relevant to the question of employer liability: (1) did the employer act with
good faith in making the decision to terminate; (2) did the decision follow an investigation that
was appropriate under the circumstances; and (3) did the employer have reasonable grounds for
believing the employee had engaged in the misconduct.”).

McKesson focuses its analysis concerning good faith on its investigation and decision to
terminate Hanekamp. McKesson argues that Hanekamp was not terminated until a full
investigation into the product losses at the CSDC took place and during such investigation he
was given an opportunity to inform McKesson of his role and to defend his actions. Notably,
however, this evidence only deals with the initial determination to fire Hanekamp which, while
certainly relevant, does not necessarily speak to the decision made that Hanekamp was fired for

cause. It is undisputed that McKesson did not inform Hanekamp or otherwise make the decision

that his termination was for cause until over a month later. The issue of whether the termination

15