In the
United States Court of Appeals
For the Seventh Circuit
No. 12‐2383
RILEY J. WILSON, on behalf of himself
and all others similarly situated,
Plaintiff‐Appellant,
v.
CAREER EDUCATION CORPORATION,
Defendant‐Appellee.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 11 C 5453 — Geraldine Soat Brown, Magistrate Judge.
ARGUED DECEMBER 3, 2012 — DECIDED AUGUST 30, 2013
Before WOOD and HAMILTON, Circuit Judges, and DARROW,
District Judge.*
PER CURIAM. Riley Wilson worked as an admissions
representative for Career Education Corporation (CEC),
recruiting students to enroll in CEC’s culinary arts college.
Until February 2011, Wilson and his fellow admissions
*
Of the Central District of Illinois, sitting by designation.
2 No. 12‐2383
representatives worked under a contract (called the Plan) that
gave them a bonus for each student they recruited, above a
definite threshold, who either completed a full course or a year
of study. In October 2010, however, the U.S. Department of
Education (ED) issued regulations prohibiting this kind of
arrangement; its new rules were scheduled to take effect in
July 2011. CEC decided in effect to advance the effective date
to February 2011, and pursuant to that decision, it announced
to its admissions representatives that it would cease paying
bonuses at the end of February 2011. It further stated that no
bonuses would be regarded as earned by that date unless the
student in question had completed the year of study or course
by that time. Wilson sued, asserting that CEC owed him
bonuses for his “pipeline” students—that is, those whom he
had recruited and who were on target to complete a full course
or year of study between March and June 2011. The district
court found that he had failed to state a claim upon which
relief could be granted and thus dismissed the action. See FED.
R. CIV. P. 12(b)(6).
On appeal, Wilson presents several grounds for reversal: (1)
he argues that CEC breached its contract with him and his
fellow admissions representatives; (2) he argues that CEC was
unjustly enriched by his efforts to enroll qualifying students
and that it should be required to disgorge the bonuses that it
wrongfully withheld; and (3) he argues that CEC violated the
implied covenant of good faith and fair dealing—implicit in
the contract—when it terminated the agreement.
No. 12‐2383 3
I
We begin by setting forth the factual and procedural
background of the case in more detail. Although Wilson had
worked for CEC since October 2008, his claim in this case
concerns only students that he enrolled during the second and
third quarters of 2010. The Plan in effect during 2010 provided
that a representative did not earn a bonus until the student in
question had completed one year or a full course of study:
For a particular student to be counted towards
supplemental compensation for an admissions
representative, the student must successfully com‐
plete either his/her academic program, or one
academic year of his/her program, whichever is
shorter, within the applicable evaluation period as
defined below. The admissions representative will
earn supplemental compensation of $400 for each
such student beyond the thresholds specified in the
representative’s Minimum Performance Goals for
number of graduates or number of students who
complete one academic year of their program
(“MPG Threshold”).
For example, for students an admissions represen‐
tative is on record for enrolling who start their
academic program at any time during the first
quarter of 2010, the admissions representative will
earn supplemental compensation of $400 for each
such student above the employee’s MPG Threshold
who successfully completes his/her academic pro‐
gram, or one academic year of his/her academic
4 No. 12‐2383
program, whichever is shorter, during the evalua‐
tion period that extends from October 1, 2010
through June 30, 2011.
The Plan also explained that if employment was terminated
on any given day, the employee would be entitled only to
bonuses for students who had completed a year or a full course
of study before that day, and not for students “in the pipeline”:
An employee is considered to have “earned” supple‐
mental compensation under this Plan for the evalua‐
tion period during which his/her employment ends
if, as of the employee’s termination date, the em‐
ployee has exceeded his/her MPG Threshold for that
evaluation period for students who have success‐
fully completed either their academic program or
one academic year of their program. The employee
will only be entitled to supplemental compensation
… based on those students who have successfully
completed their academic program or one academic
year of their program, whichever is shorter, as of the
employee’s termination date, and not for any stu‐
dents who successfully complete their academic
program or one academic year of their program after
the employee’s termination date.
Finally, the Plan reserved CEC’s right to terminate the Plan
itself at any time, for any reason:
If CEC determines at any time that this Plan should
be modified due to the requirements or standards of
the U.S. Department of Education or any state
agency or accrediting commission, then CEC may be
No. 12‐2383 5
obligated to modify this Plan. CEC reserves the right
to terminate or amend the terms of this Plan at any
time, for regulatory compliance purposes or for any
other reason that CEC determines, in its sole discre‐
tion. Any interpretation of any provision of this Plan
or of any regulatory authority may be made by CEC
in its sole discretion.
Before February 2011, CEC paid Wilson the bonuses to
which he was entitled under the Plan. During the third quarter
of 2009, Wilson enrolled 23 students, eight above the MPG
threshold of 15 students for that period. In the second quarter
of 2010, those eight extra students completed a full course or
year of study, and at that point CEC paid Wilson $3,200 in
bonuses ($400 x 8).
Unfortunately for Wilson and his fellow representatives,
the ED released its new regulations in October 2010, and the
representatives learned that effective July 2011 educational
institutions participating in Title IV federal student financial
aid programs would no longer be permitted to “provide any
commission, bonus, or incentive payment based in any part,
directly or indirectly, on success in securing enrollments.” 75
Fed. Reg. 66832, 66950 (October 29, 2010) (amending 34 C.F.R.
§ 668.14(b)(22)). An ED press release explained that the new
regulations were geared toward “protecting students from
aggressive or misleading recruiting practices, providing
consumers with better information about the effectiveness of
career college and training programs, and ensuring that only
eligible students or programs receive aid.” Press Release, U.S.
Department of Education, Department of Education Estab‐
lishes New Student Aid Rules to Protect Borrowers and
6 No. 12‐2383
T a x p a y e r s ( O c t o b e r 2 8 , 2 0 1 0 ) , a v a i l a b l e a t
http://www.ed.gov/news/press‐releases/department‐educati
on‐establishes‐new‐student‐aid‐rules‐protect‐borrowers‐and
‐tax (last visited August 29, 2013).
In December 2010, CEC circulated a memorandum to its
representatives announcing that, in order to comply with the
new regulations, it would pay representatives bonuses that
they earned as of February 28, 2011, and discontinue the Plan
thereafter. Wilson had recruited 11 students who began in the
second quarter of 2010, three students above the MPG thresh‐
old for that quarter, and he recruited 34 students who enrolled
in the third quarter of 2010, 21 students above the MPG
threshold for that quarter. Wilson stood to earn $9,600 ($400 x
24) if all of those extra students completed their full program
or one year of study. At the time the program was terminated
on February 28, 2011, however, only one of the 24 extra
students had completed either the full program or one year,
and therefore CEC paid Wilson only $400 as a bonus.
Wilson then brought this putative class action against CEC
on behalf of all admissions representatives in his situation. He
asserted that CEC breached the terms of the Plan because, in
his view, the representatives had “substantially performed”
the work that entitled them to bonus payments once the
recruited student was in the process of completing either one
year or a full course of study by a time between March and
June 2011. Wilson argued that because the regulations did not
come into effect until July 2011, CEC could have continued
payments under the Plan until June 30, 2011. Its decision to
terminate the plan on February 28 was, he contended, arbitrary
and in bad faith. Wilson also asserted that even if CEC did not
No. 12‐2383 7
breach the Plan, it was unjustly enriched because it benefitted
from representatives’ efforts to recruit extra students in
anticipation of receiving bonuses, but it did not pay for this
benefit. Wilson estimated that the aggregate damages to his
proposed class exceeded $5 million.
The district court dismissed Wilson’s individual case
outright. It reasoned that the provisions of the Plan governing
termination expressly provided that on any given day, a
representative was entitled only to bonuses for the students
who had completed their full program or a full year of study.
The Plan also explicitly reserved CEC’s right to terminate the
program at any time. The net effect of these two provisions
was to give CEC the right to terminate the program on Febru‐
ary 28, 2011, with respect to all bonuses for which the precon‐
ditions to payment had not yet been met. The court rejected
Wilson’s claim for unjust enrichment on the theory that a claim
for unjust enrichment may not be brought where a contract
governs the relationship between the parties. The court also
noted that even if there was no enforceable contract, there was
no unjust enrichment because Wilson was paid a salary for his
work, and an employee does not unjustly enrich his employer
if he “work[s] extra hard” in the hopes of earning a bonus.
II
For the reasons set forth in Judge Darrow’s separate
opinion, a majority of the panel has concluded that Wilson has
successfully pleaded a claim for relief on his third theory—that
CEC exercised its right to terminate the Plan in bad faith and
in violation of the implied covenant of good faith and fair
dealing. Judge Hamilton’s separate opinion indicates his
8 No. 12‐2383
agreement with Judge Darrow’s position on the implied‐
covenant theory and his disagreement with aspects of the
majority’s decision on the breach‐of‐contract theory. Judge
Wood would affirm the judgment of the district court, and thus
dissents from the ultimate disposition of the case. Judge
Darrow, however, joins Judge Wood’s conclusions (a) that
CEC’s bonus plan was an enforceable contract, (b) that CEC
had the unambiguous right to terminate that contract and to
refuse to pay bonuses for students in the pipeline, and (c) that
the existence of an enforceable contract precludes any recovery
under an unjust‐enrichment theory. In the final analysis, this
means that the judgment of the district court is reversed and
the case is remanded to that court for further proceedings on
the implied‐covenant theory.
No. 12‐2383 9
DARROW, District Judge, concurring. I agree that the Plan
was an enforceable contract for the reasons stated in Judge
Wood’s opinion, post. I also agree that because the Plan was an
enforceable contract, the district court properly dismissed
Wilson’s unjust enrichment claim. I write separately because
I find that although CEC did not breach the express terms of
the Plan, Wilson has stated a plausible claim for breach of
contract under an implied covenant of good faith and fair
dealing theory.
I. CEC Did Not Breach the Express Terms of the Plan
In interpreting contract terms, a court must first look to the
plain language of the contract itself. See Thompson v. Gordon,
948 N.E.2d 39, 47 (Ill. 2011); Current Tech. Concepts, Inc. v. Irie
Ents., Inc., 530 N.W.2d 539, 543 (Minn. 1995). Reading the
Plan’s explicit definition of “earned” together with the Plan’s
termination clause shows that CEC had the right to terminate
the Plan, at which time CEC was not obligated to pay bonuses
covering a student who was in the pipeline at the time the Plan
was terminated. The definition of “earned” in the Plan is clear:
an employee does not earn a bonus until the recruited student
actually graduates or completes one academic year. The Plan
defines “earned”:
[a]n employee is considered to have “earned”
supplemental compensation under this Plan for the
evaluation period during which his/her employ‐
ment ends if, as of the employee’s termination date,
the employee has exceeded his/her MPG Threshold
for that evaluation period for students who have
10 No. 12‐2383
successfully completed either their academic pro‐
gram or one academic year of their program.
In addition to this definition, both examples in the Plan
explain that the reason why an employee does not receive a
bonus payment covering a student in the pipeline when his
employment ends is because he “had not earned” that bonus
before his termination date. Thus, under the express terms of
the Plan, CEC was not obligated to pay Wilson a bonus for
students in the pipeline at the time CEC terminated the Plan
because Wilson “had not earned” the bonus. Accordingly, the
district court properly dismissed Wilson’s express breach of
contract theory.
Viewing the termination clause in light of the Plan’s final
clause further supports this conclusion. See Thompson, 948
N.E.2d at 47 (“A contract must be construed as a whole,
viewing each provision in light of the other provisions.”);
Chergosky v. Crosstown Bell, Inc., 463 N.W.2d 522, 525 (Minn.
1990) (“We construe a contract as a whole and attempt to
harmonize all clauses of the contract.”). The final clause states:
“Any interpretation of any provision of this Plan or of any
regulatory authority may be made by CEC in its sole discre‐
tion.” Even if I were to find the termination clause ambiguous
as it relates to students in the pipeline, the Plan gave CEC the
right to reasonably interpret the termination clause. See
Herzberger v. Standard Ins. Co., 205 F.3d 327, 330‐31 (7th Cir.
2000). Herzberger explains that courts ordinarily engage in de
novo review of contract provisions, meaning no party’s
interpretation is given any deference. But certain contracts can
include language indicating that “one of the parties is to have
discretion to interpret and apply the contract.” Id. at 330. In
No. 12‐2383 11
those cases where one party is given clear discretion to
interpret the contract, the court is to defer to that party’s
interpretation. The level of deference varies with the type of
contract and the type of interpretation provision; but, at a
minimum, that party’s reasonable interpretation must be
upheld or the interpretation clause would be meaningless. See
Cress v. Recreation Servs., Inc., 795 N.E.2d 817, 852 (Ill. App. Ct.
2003) (“[A] court must give meaning and effect to every part of
the contract.”); Brookfield Trade Ctr. v. Cnty. of Ramsey, 584
N.W.2d 390, 394 (Minn. 1998) (“[W]e are to interpret a contract
in such a way as to give meaning to all of its provisions.”).
Here, the Plan gave CEC clear discretion to interpret the
termination provision; thus, we must uphold CEC’s interpreta‐
tion unless it is unreasonable. CEC’s interpretation is not
unreasonable at least for the reasons already discussed.
II. Choice of Law
Before moving to the implied covenant of good faith and
fair dealing analysis, it is necessary to first address a choice of
law issue raised by the parties. The parties dispute whether the
Court should apply Illinois or Minnesota law. CEC argues that
Minnesota would not read the implied covenant of good faith
into the Plan. I conclude that both Illinois and Minnesota
would read in the implied covenant of good faith and therefore
decline to analyze the choice of law issue and instead apply the
law of the forum state, here Illinois. Kochert v. Adagen Med. Int’l,
Inc., 491 F.3d 674, 677 (7th Cir. 2007); Barron v. Ford Motor Co.
of Can., Ltd., 965 F.2d 195, 197 (7th Cir. 1992).
As a general rule, the Minnesota Supreme Court recognizes
that contracts contain an implied covenant of good
12 No. 12‐2383
faith—meaning that each party will not unjustifiably hinder
the other party’s performance. See Zobel & Dahl Constr. v.
Crotty, 356 N.W.2d 42, 45 (Minn. 1984). CEC’s argument that
Minnesota would not imply good faith and fair dealing into the
Plan relies on a misreading of a Minnesota Supreme Court
opinion: Hunt v. IBM Mid America Emp. Fed. Credit Union, 384
N.W.2d 853, 858 (Minn. 1986). In Hunt, the Minnesota Supreme
Court stated: “we have not read an implied covenant of good
faith and fair dealing into employment contracts.” Id. CEC
urges us to read “employment contracts” broadly to include
any contract related to employment, namely the Plan, instead
of more narrowly to mean at‐will employment contracts. The
narrow interpretation is correct. For one, the facts of Hunt were
limited to terminating an at‐will employee and the court relied
on unique policy reasons related to an employer’s ability to
discharge employees. See Hunt, 384 N.W.2d at 855, 858
(explaining that reading a good faith requirement into em‐
ployee termination decisions would “subject each discharge to
judicial incursion[]” (quoting Parnar v. Americana Hotels, Inc.,
652 P.2d 625, 629 (Haw. 1982))). Such policy concerns are not
implicated here. Further, years after Hunt was decided, the
Minnesota Supreme Court continued to declare that “every
contract includes an implied covenant of good faith and fair
dealing,” In re Hennepin Cnty. 1986 Recycling Bond Litig., 540
N.W.2d 494, 502 (Minn. 1995), suggesting that Hunt represents
a narrow exception to the rule that all contracts imply a
covenant of good faith. For these reasons, I find that Minne‐
sota, like Illinois, would read the implied covenant of good
faith and fair dealing into the Plan.
No. 12‐2383 13
III. Wilson States a Plausible Breach of the Implied
Covenant of Good Faith
Wilson claims that CEC breached the Plan under an
implied covenant of good faith and fair dealing theory. I find
that (a) Wilson properly raised the implied covenant of good
faith as a breach of contract theory, not as an independent
cause of action; (b) under the implied covenant of good faith,
CEC’s discretion was limited by the reasonable expectations of
the parties; (c) Wilson’s allegations support a reasonable
inference that the CEC exercised its discretion in a manner
contrary to the reasonable expectations of the parties. Because
Wilson has plausibly alleged that CEC breached the Plan under
an implied covenant of good faith and fair dealing theory, the
district court erred by dismissing Wilson’s breach of contract
claim.
A. Implied covenant of good faith as breach of contract
theory
The implied covenant of good faith is “essentially used as
a construction aid in determining parties’ intent.” Anderson v.
Burton Assocs., Ltd., 578 N.E.2d 199, 203 (Ill. App. Ct.1991).
Thus, an alleged violation of the implied covenant of good
faith cannot form the basis for an independent tort action or
even its own cause of action. Id.; Indus. Specialty Chems. v.
Cummins Engine Co., 902 F. Supp. 805, 811 (7th Cir. 1995).
Wilson properly argues that CEC’s alleged breach of the
implied covenant of good faith and fair dealing is a theory of
liability under Count I (Breach of Contract). See Indus. Specialty
Chems., 902 F.Supp. at 811 (“[Plaintiff’s] breach of the implied
duty of good faith cannot stand as a separate count, but must
14 No. 12‐2383
be included within its breach of contract claim …”).1 The
implied covenant of good faith is simply a breach of contract
theory and that is how Wilson applied it here.
B. CEC’s discretion to terminate the Plan and refuse to
pay unearned bonuses was limited by the reasonable
expectations of the parties
Three conditions had to be met before Wilson could earn a
bonus on a recruited student. Those conditions were: (1) the
recruited student must have successfully completed either her
academic program or one academic year of her program, (2)
Wilson must have remained employed by CEC, and (3) CEC
must not have exercised its discretion to terminate the Plan
before the first two conditions were met. But unlike the first
two conditions, the third condition is solely within CEC’s
control. When one party’s contractual obligation is “contingent
upon a condition particularly within the power of that party,”
the controlling party’s discretion in bringing about the condi‐
tion is limited by the implied covenant of good faith. Dayan v.
McDonald’s Corp., 466 N.E.2d 958, 971 (Ill. App. Ct. 1984)
(collecting cases). CEC was obligated to pay Wilson a bonus
only if all three conditions were met. Because the ability to
satisfy the third condition was “particularly within the power”
of CEC (the party obligated to pay Wilson if all conditions
1
See also Columbia Cas. Co. v. 3M Co., 814 N.W.2d 33, 37 (Minn. App. 2012)
(“3M seeks contractual damages on alternative theories: breach of the
express terms of the insurance policies and breach of a provision that is read
into most contracts under Minnesota law, namely, the implied covenant of
good faith and fair dealing. Although 3M cannot recover damages on both
theories for the same conduct … Minnesota precedent does not preclude 3M
from pleading both theories.”) (internal citations omitted).
No. 12‐2383 15
were met), the implied covenant of good faith limited CEC’s
ability to avoid the third condition in a manner inconsistent
with the reasonable expectations of the parties. See id.
It bears emphasizing that CEC can breach the implied
covenant of good faith even though the Plan gave CEC the
unambiguous discretion to terminate the Plan and not pay
unearned bonuses. See Tymshare, Inc. v. Covell, 727 F.2d 1145,
1154 (D.C. Cir. 1984) (explaining that a party acting in accor‐
dance with an “expressly conferred contractual power” can
still breach the implied covenant of good faith). Although at‐
will employment contracts involve unique considerations not
present here, looking at the implied covenant of good faith in
the context of Illinois at‐will employment cases further
illustrates how an employer acting under an express contract
provision can still breach the contract by exercising its discre‐
tion contrary to the reasonable expectations of the parties. An
employer can terminate an at‐will employee for almost any
reason. But the employer’s vast discretion in firing an at‐will
employee is still limited by the reasonable expectations of the
parties. While an at‐will employee has no reasonable expecta‐
tion that he will be discharged only for cause, see Beraha v.
Baxter Health Care Corp., 956 F.2d 1436, 1444‐45 (7th Cir. 1992),
an employer who discharges an at‐will employee under the
express terms of the contract can still breach the contract if the
employer exercised its discretion in a manner contrary to the
reasonable expectations of the parties. See LaScola v. U.S. Sprint
Commcʹns, 946 F.2d 559, 566 (7th Cir. 1991) (“We recognize, as
noted in Gordon, that ‘[t]he law seems fairly clear that an
employee at will may not be deprived of commissions (in large
part ‘earned’ prior to separating from the employer) by a
16 No. 12‐2383
discharge made in bad faith and intended to deprive the
employee of the commissions.’”) (quoting Gordon v. Matthew
Bender & Co., Inc., 562 F.Supp. 1286, 1297 (N.D. Ill. 1983)); see
also Jordan v. Duff and Phelps, Inc., 815 F.2d 429, 438 (7th Cir.
1987) (“[N]o one . . . doubts that an avowedly opportunistic
discharge is a breach of contract, although the employment is
at‐will.”). Those cases recognize that whether the express terms
of the at‐will employment contract allow the employer to
discharge the employee for any reason is not the end of the
analysis. See Dayan, 466 N.E.2d at 972 (“In each of the forego‐
ing cases a discharged employee brought suit against a former
employer alleging that the employer was inspired by an
improper motive, such as a desire to deprive the employee of
health or pension benefits, and therefore the termination was
in bad faith. The court, in each instance, recognized that the
implied covenant of good faith could limit an employer’s
otherwise unrestricted discretion in terminating an at‐will
employment contract.”). Rather, the implied covenant of good
faith is used as a construction aid to assist the Court in deter‐
mining whether the manner in which one party exercised its
discretion under the contract violated the reasonable expecta‐
tions of the parties when they entered into the contract.
In other words, just because the Plan gave CEC discretion
to terminate the Plan without paying unearned bonuses does
not mean that CEC is necessarily incapable of abusing that
discretion. See also Carrico v. Delp, 490 N.E.2d 972, 976 (Ill.
App. Ct. 1986) (holding that a contract term allowing the bank
to loan money “at bank discretion” only gave the bank
“reasonable, not absolute, discretion”); Interim Health Care of N.
Ill., Inc. v. Interim Health Care, Inc., 225 F.3d 876, 884 (7th Cir.
No. 12‐2383 17
2000) (“When one party to a contract is vested with contractual
discretion, it must exercise that discretion reasonably and with
proper motive, and may not do so arbitrarily, capriciously or
in a manner inconsistent with the reasonable expectations of
the parties.”). Therefore, to show that CEC breached the
implied covenant of good faith, Wilson must prove that CEC
exercised its discretion in a manner contrary to the reasonable
expectations of the parties. See Beraha, 956 F.2d at 1444‐45
(citing Dayan, 466 N.E.2d at 972).
C. Wilson has plausibly alleged that CEC exercised its
discretion in a manner contrary to the reasonable
expectation of the parties
Resolving the issue of whether CEC acted contrary to the
reasonable expectations of the parties is premature at this early
stage in the case. The parties could not have reasonably
expected that CEC would only terminate the Plan for good
cause—the express terms of the Plan preclude such an expecta‐
tion. But it was reasonable for Wilson to expect that avoiding
the three conditions needed for Wilson to earn a bonus on a
recruited student would not be the but‐for reason for CEC
exercising its discretion. See, e.g., Martindell v. Lake Shore Nat’l
Bank, 154 N.E.2d 683, 691 (Ill. 1958) (reading in a good faith
requirement where defendant acted in bad faith under the
terms of the contract to avoid the plaintiff’s option rights);
LaScola, 946 F.2d at 566 (recognizing that an employer cannot
exercise its discretion in bad faith to fire an at‐will employee so
to deprive that employee of commissions). CEC might have
had a number of reasons to terminate the Plan early and refuse
to pay bonuses that would have otherwise been earned before
the ED regulations took effect. However, Wilson alleged that
18 No. 12‐2383
CEC’s stated explanation for terminating the Plan (that being
the deadline for compliance with federal regulations) does not
square with the timing of the termination. See Compl. at ¶ 20.
This mismatch in explanation and action raises a permissible
inference that the but‐for reason for CEC’s action was to avoid
the three conditions needed for Wilson to earn a bonus on a
recruited student and therefore CEC acted contrary to the
reasonable expectations of the parties.
Another plausible expectation of the parties is found in the
termination provision itself. It contemplates that CEC might
have to terminate the Plan “for regulatory compliance pur‐
poses.” And even though the termination clause also says CEC
has the right to terminate the Plan for any reason, the fact that
the parties anticipated that CEC might have to terminate the
Plan “for regulatory compliance purposes” implies that the
parties had a reasonable expectation about how CEC would
exercise its discretion in this very situation. The parties might
have reasonably expected that “for regulatory compliance
purposes,” (1) CEC would terminate Wilson’s ability to earn a
bonus when the pending regulations were announced or (2)
CEC would terminate Wilson’s ability to earn a bonus when
the regulations became effective. Accordingly, whether this
language suggests that CEC’s early termination was consistent
with or contrary to the reasonable expectations of the parties
is unclear. But we must resolve this uncertainty in Wilson’s
favor at the motion to dismiss stage. See Justice v. Town of
Cicero, 577 F.3d 768, 771 (7th Cir. 2009) (“[W]e must construe
the complaint in the light most favorable to the plaintiff,
accepting as true all well‐pleaded facts alleged, and drawing
No. 12‐2383 19
all possible inferences in [plaintiff’s] favor.”) (quoting Tamayo
v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008)).
At the pleading stage, Wilson must simply allege a plausi‐
ble breach of contract theory. To ultimately prevail, Wilson
must prove that CEC exercised its discretion contrary to the
reasonable expectations of the parties. For the reasons stated in
my opinion, I find it plausible that Wilson might be able to do
just that.
20 No. 12‐2383
HAMILTON, Circuit Judge, concurring in part and dissenting
in part. I agree with my colleagues that the CEC supplemental
compensation plan was an enforceable contract and that there
is not currently any need to pursue a claim of unjust enrich‐
ment. I agree with Judge Darrow that plaintiff Wilson is
entitled to pursue his claim for bad faith breach of the contract
with CEC, both in his own right and potentially on behalf of a
plaintiff class. I respectfully disagree with my colleagues,
however, on Wilson’s straight breach of contract claim that
does not require proof of subjective bad faith. I dissent from
the affirmance of the district court’s Rule 12(b)(6) dismissal of
that theory. I address first why Wilson has alleged a viable
claim for breach of contract and then turn briefly to the bad
faith theory that Wilson can pursue on remand and his unjust
enrichment theory.
I. Breach of Contract
The contract here is defendant’s “Supplemental Compensa‐
tion Plan for Admissions Representatives—2010.” The Plan
was detailed and formal, with more than a page of definitions
and detailed examples to illustrate the calculation of payments.
Although these supplemental payments are sometimes called
bonuses, they were not discretionary and they were also
important, making up a significant part of an admissions
representative’s compensation. Cf. Tatom v. Ameritech Corp., 305
F.3d 737, 742‐44 (7th Cir. 2002) (no enforceable promise of
bonus where calculation and payment were left to employer’s
discretion and dependent upon its overall financial success).
Plaintiff Wilson has advised that when the Plan was cancelled,
the payments were roughly one‐third of his total compensa‐
tion.
No. 12‐2383 21
While the Plan was in effect, the delayed payment of the
supplemental compensation or bonuses was subject to two, but
only two, explicit conditions: (1) to be counted toward a bonus,
an enrolled student had to complete the shorter of a full course
or one year of study; and (2) the admissions representative had
to be employed by CEC when the student satisfied that
condition. The first condition was a sensible step to discourage
abusive practices in which federally guaranteed loans were
made to students who had neither the ability nor the intention
to pursue the course of studies. The second condition is fairly
common in bonus and sales commission plans.
My colleagues and I all agree that the Plan was an enforce‐
able contract and that CEC was free to amend or terminate it.
That right to amend or terminate is the source of CEC’s defense
and the focal point of my disagreement with my colleagues on
this claim. My colleagues and I agree that this right was not
unlimited. The contract would have been illusory otherwise.
We also agree that the right to amend or terminate could not be
applied retroactively. We disagree on what it means to apply
an amendment or termination retroactively.
In analyzing the limits on amendment or termination, we
must consider three time‐frames: (1) prospective application of
an amendment to bonuses for students not yet enrolled; (2)
completely retroactive application of an amendment, including
as applied to bonuses for students for whom all conditions had
been satisfied at the time of amendment; and (3) application of
an amendment to bonuses for students “in the pipeline,”
where the admissions representative had done all of his or her
work but the other conditions had not yet been satisfied.
(There is a fourth variation concerning the effect of the new
22 No. 12‐2383
Department of Education regulations that made enrollment
bonuses unlawful for covered education companies effective
July 1, 2011, but the parties do not disagree about that possibil‐
ity.)
With respect to the first time‐frame, my colleagues and I
agree that CEC could amend or terminate the plan on a
prospective basis, as applied to bonuses for students who had
not yet enrolled. Such a right to amend or terminate is essen‐
tial. For example, an employer may miscalculate and learn it
cannot afford to sustain a bonus or sales commission plan on
a long‐term basis. Admissions representatives who did not like
a change in the terms of their employment would be free to
reject the change by leaving the company. CEC recognized the
need to reserve that right for itself and included such a
provision explicitly in its contract.
With respect to the second time‐frame, my colleagues and
I agree that CEC was bound by the terms of the Plan to pay
bonuses due where the express conditions in the Plan had been
met—the student completed the required studies and the
admissions representative was still employed by CEC when
the bonus became payable. After both the express conditions
had been satisfied, CEC could not make a retroactive change to
the plan that would relieve it of its obligation to pay bonuses
already earned. To put it another way, all members of the
panel reject CEC’s assertion in oral argument that it could rely
on its reserved power to amend or terminate and simply refuse
to pay under those circumstances. Otherwise, the Plan would
certainly have been illusory and we should allow Wilson to
proceed on his unjust enrichment claim.
No. 12‐2383 23
My disagreement with my colleagues is over the third time‐
frame: whether CEC could use its power to modify or termi‐
nate the Plan to refuse to pay bonuses for students in the
pipeline—those who had enrolled but not yet completed the
milestone of one year or a complete program. As to those
students, plaintiff Wilson had done all of his work and was
waiting to see who finished their studies and how many
bonuses he would earn.
What did the written Plan tell us about this question of the
pipeline? Virtually nothing. Regarding this third time‐frame,
the contract was silent. When the contract is read as a whole,
the silence is especially telling. By looking at the two specific
conditions that could defeat a bonus claim—the student drops
out or the admissions representative’s employment ends—my
colleagues conclude that Wilson and other admissions repre‐
sentatives should have figured out that CEC also claimed to
retain a right to cancel bonuses for students still in the pipeline
even where the two express conditions were later satisfied. See
post 38‐39 (opinion of Wood, J.).
With respect, the conclusion simply does not follow from
the premises. The critical difference is obvious. The contract
was not silent on what would happen to Wilson’s bonuses if
students dropped out or if he was fired or quit. It was very
explicit. It included several paragraphs explaining under what
circumstances an employee was or was not entitled to a bonus.
It also included several examples to ensure the employees
understood those conditions. Those detailed provisions told
the employees, and tell us, nothing about the very different
possibility, that the employer would simply decide one day to
24 No. 12‐2383
keep all the employees’ pipeline bonuses for itself—even
where both the express conditions were later satisfied.
The Plan’s express reservations concerning termination
gave employees fair notice that they could not rely on their
bonuses, even after having performed all of their work, if the
student did not graduate or the employee’s employment had
ended. But contrary to my colleagues’ view, it is not reasonable
to expect Wilson to have understood that the contract’s silence
about any right to amend or terminate the program for
pipeline bonuses meant that CEC also reserved the right to just
keep those bonuses even when both conditions were later
satisfied. Where CEC had done such a thorough job of dis‐
claiming obligations to pay in two other situations, termination
of employment or students’ failures to complete their studies,
it is more reasonable to expect CEC to have reserved explicitly
the right to refuse to pay in this “pipeline” situation.
Where CEC was explicit about the right to withhold
bonuses in one situation but not in another, it is more reason‐
able to interpret that silence as intentional, consistent with the
principles that a contract must be interpreted as a whole and
that the expression of one or a few specific items (such as
conditions to defeat a bonus) often implies the exclusion of
others. E.g., Martindell v. Lake Shore Nat’l Bank, 154 N.E.2d 683,
689 (Ill. 1958) (construe contract as a whole); Motorsports Racing
Plus, Inc. v. Arctic Cat Sales, Inc., 666 N.W.2d 320, 324 (Minn.
2003) (same); Rickher v. Home Depot, Inc., 535 F.3d 661, 668 (7th
Cir. 2008) (Illinois law uses expressio unius est exclusio alterius as
rule of construction, though it does not override clear language
to the contrary); In re Ruth Easton Fund, 680 N.W.2d 541, 550
(Minn. App. 2004) (same under Minnesota law). Cf. Duldulao
No. 12‐2383 25
v. Saint Mary of Nazareth Hosp. Center, 505 N.E.2d 314, 318‐19
(Ill. 1987) (where employment contract included list of behav‐
iors that would result in immediate dismissal, it was reason‐
able for employee to infer that other, unlisted behaviors would
not subject her to immediate dismissal).
The most that can be inferred from the Plan’s silence on this
point is that it is ambiguous as applied to bonuses for students
in the pipeline. See Consolidated Bearings Co. v. Ehret‐Krohn
Corp., 913 F.2d 1224, 1233 (7th Cir. 1990) (explaining that
silence creates ambiguity “when the silence involves a matter
naturally within the scope of the contract as written,” and that
a “contract is not ambiguous merely because it fails to address
some contingency; the general presumption is that the rights
of the parties are limited to the terms expressed in the con‐
tract”) (internal quotations omitted). When we consider a
motion to dismiss on the pleadings, we should not treat
contractual silence as if it were an express disclaimer that
favors one party. “A court may not rewrite a contract to suit
one of the parties but must enforce the terms as written. Thus,
the rights of the parties are limited by the terms expressed in
the contract.” A.A. Conte, Inc. v. Campbell‐Lowrie‐Lautermilch
Corp., 477 N.E.2d 30, 33 (Ill. App. Ct. 1985) (internal citations
omitted). The Plan’s silence on the issue did not give CEC the
right to terminate bonuses for students in the pipeline where
both express conditions were later met.
Given the ambiguity of the Plan language, the court should
also be open to parol evidence about the parties’ past course of
dealings. We were told in oral argument that CEC had made
changes to the bonus Plan in the past, but that it had done so
only on a clearly prospective basis, for students not yet
26 No. 12‐2383
enrolled.1 If Wilson can support that assertion with evidence,
it would be relevant to, and might even be highly probative of,
the parties’ understandings about whether the Plan language
gave CEC the right to amend or terminate the Plan as applied
to students in the pipeline. Such evidence would also be
relevant to Judge Wood’s assertion, post at 39, that Wilson
“should have realized” that there were more than two situa‐
tions in which an employee who fully performed could still be
denied the bonuses.
The transparent unfairness of CEC’s cancellation of the
pipeline bonuses also should make us hesitate to interpret an
ambiguous contract in this way. CEC admits that it deliber‐
ately induced the admissions representatives to rely on these
promises and that it gained the benefit of their work above and
beyond the call of duty. It then decided to keep for itself as
much of that benefit as it thought it could get away with.
Wilson had done all of his work to recruit the students in
question. He seeks payment only for students as to whom the
only express conditions on payment of the bonuses were in fact
satisfied. It was not fair for CEC to change the rules in the
middle of that game, and certainly not without clear warnings
that it reserved the right do so. Much of contract law is
designed to fill in the blanks in a contract in a way that we
think the parties most likely would have agreed if they had
addressed the point specifically. This contract gives us no
reason to expect that the employees should have known they
were agreeing to give CEC complete power to act opportunisti‐
1
“A party who appeals from a Rule 12(b)(6) dismissal may elaborate on her
allegations so long as the elaborations are consistent with the pleading.”
Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 555 (7th Cir. 2012).
No. 12‐2383 27
cally, to take back the promised bonuses after it had received
the benefits of the employees’ efforts.
Then‐Circuit Judge Scalia explained this point for the D.C.
Circuit. An employer retroactively raised a sales representa‐
tive’s sales quotas used to calculate commissions and then
terminated his employment. The employer claimed its commis‐
sion plan gave it complete discretion to take these actions. The
court rejected the employer’s argument in terms that apply
here: “Where what is at issue is the retroactive reduction or
elimination of a central compensatory element of the con‐
tract—a large part of the quid pro quo that induced one party’s
assent—it is simply not likely that the parties had in mind a
power quite as absolute as [the employer] suggests. In the
present case, agreeing to such a provision would require a
degree of folly on the part of these sales representatives we are
not inclined to posit where another plausible interpretation of
the language is available.” Tymshare, Inc. v. Covell, 727 F.2d
1145, 1154 (D.C. Cir. 1984) (reversing summary judgment in
favor of former employee and remanding for trial on bad faith
claim, applying general principles of contract law).
Along these same lines, Judge Posner has written,“the
fundamental function of contract law (and recognized as such
at least since Hobbes’s day) is to deter people from behaving
opportunistically toward their contracting parties, in order to
encourage the optimal timing of economic activity and to make
costly self‐protective measures unnecessary.” Richard A.
Posner, Economic Analysis of Law 81 (3d ed. 1986), quoted in
Jordan v. Duff and Phelps, Inc., 815 F.2d 429, 438 (7th Cir. 1987)
(reversing summary judgment and ordering trial on claims by
former employee‐shareholder). That logic applies here. It is not
28 No. 12‐2383
appropriate to interpret the contract’s silence to allow CEC’s
opportunistic grab to keep the pipeline bonuses, and certainly
not to do so without evidence of either past dealings or Wil‐
son’s actual knowledge.
Judge Hall solved this problem correctly in Quiello v.
Reward Network Establishment Services, Inc., 420 F. Supp. 2d 23
(D. Conn. 2006). Her opinion is persuasive as a matter of
general contract law, and the relevant facts are not distinguish‐
able from this case. In Quiello, the plaintiff’s job was to sign up
restaurants to participate in loyalty and reward programs. His
employer provided for sales commissions under plans that it
could amend or terminate at any time, as here. After the
plaintiff signed up a restaurant, he had no further responsibili‐
ties for the account. The ultimate payment of the commissions
depended on factors beyond the plaintiff’s control, including
the restaurant’s continued participation and customer usage
levels. See id. at 26. The employer then not only reduced the
commission for new sales, which it surely had the right to do,
but also tried to reduce the commissions for restaurants that
the plaintiff had signed up before the effective date of the new
plan.
Quiello thus shares with this case: (1) an employee who
performed all of his work toward sales commissions or
bonuses; (2) the ultimate payment of which was subject to
conditions that were outside his control; (3) an employer that
tried to use its power to amend the contract to reduce its
obligation to pay commissions for the “pipeline” business; and
(4) contract language that was ambiguous as to the ability to
impose the amendment on pipeline business. The court in
Quiello correctly reasoned that the ambiguous contract should
No. 12‐2383 29
be interpreted in the fairer, more reasonable manner as not
applying to pipeline business. Id. at 30–32. The Quiello court
actually granted summary judgment in favor of plaintiff on his
breach of contract claims. It would be premature for us to go so
far in this appeal, of course, but the reasoning of Quiello is
sound, applies here, and calls for reversal of the district court’s
dismissal.2
II. Bad Faith Termination
Wilson also argues that even if the Plan gave CEC the
power to cancel pipeline bonuses, it breached a duty of good
faith and fair dealing by cancelling bonuses four months before
the new federal regulations took effect to prohibit them. This
duty of good faith and fair dealing is particularly important
where one party reserved a discretionary right to modify or
terminate the contract in a way that would give that party the
opportunity to take unfair advantage of the other. See Interim
Health Care of N. Ill., Inc. v. Interim Health Care, Inc., 225 F.3d
876, 884 (7th Cir. 2000) (applying Illinois law and reversing
summary judgment where defendant’s good or bad faith was
genuinely disputed issue). Even if CEC had such a reserved
power, Judge Darrow correctly explains that it had a duty to
exercise that power in good faith, and the district court erred
by dismissing this claim on the pleadings.
2
Judge Wood’s attempt to distinguish Quiello overlooks the fact that the
payments to the employee in Quiello remained outside the employee’s
control, contingent on both the restaurant’s continued participation in the
program and the amount of money that each restaurant’s customers spent
under the program. See 420 F. Supp. 2d at 26, 31. The court in Quiello
considered and correctly rejected arguments identical to those made by
CEC here.
30 No. 12‐2383
I therefore concur in Parts II and III of Judge Darrow’s
opinion and offer a few further observations about the bad
faith theory. Plaintiff Wilson has alleged a solid factual basis
for inferring bad faith. CEC argues it was just being a good
citizen. It was acting to comply with new federal regulations
that prohibited such bonuses in the for‐profit education world.3
But CEC made this change effective four months before the
regulations took effect. By taking that step, Wilson alleges,
CEC simply kept for itself more than $5 million it should have
paid to its admissions representatives. That looks like the
“avowedly opportunistic conduct” that we recognized as
actionable in Jordan v. Duff and Phelps, Inc., 815 F.2d 429, 438
(7th Cir. 1987) (applying Illinois law).
Perhaps CEC can persuade a trier of fact that its seizure of
more than $5 million was merely a fortuitous side effect of its
desire to be a good citizen by complying with the new regula‐
tions before it was required to do so. But CEC’s reliance on the
regulations as a defense could reasonably be deemed a pretext
for simple greed at the expense of the admissions representa‐
tives who contributed to its success. This issue of good or bad
faith cannot be resolved in favor of CEC on the pleadings
alone. Given the documentary evidence before us even on the
pleadings, it seems unlikely the issue could be resolved on
summary judgment as well.
It will be important on remand to focus on the correct issue,
which is the timing of the termination. All members of the
3
Like my colleagues, I have no quarrel with the new federal regulatory
policy that took effect on July 1, 2011, but as far as we can tell, there was
nothing unlawful or otherwise improper about the bonuses at issue here.
No. 12‐2383 31
panel agree that CEC could terminate the Plan when the new
Department of Education regulations took effect on July 1,
2011. The critical issue on remand is whether CEC acted in bad
faith in deciding to terminate the Plan earlier than required so
as to seize for itself the pipeline bonuses that Wilson and other
admissions representatives were reasonably expecting to be
paid as students completed their studies.
Judge Darrow has framed the issue in terms of whether
CEC acted contrary to the reasonable expectations of the
parties. See also Tymshare, Inc., 727 F.2d at 1154–55. The
relevant expectations are those based on the objective indica‐
tions of CEC’s promises and behavior, including CEC’s past
course of dealing with Plan amendments. The objective view
of the admissions representatives’ expectations is important for
purposes of class certification, as well, for the decision on the
bad faith claim should focus on CEC’s motives, applicable to
all, and not on circumstances unique to each employee.
III. Unjust Enrichment
Throughout this litigation, CEC has argued that its Plan
was only an illusory contract and that its admissions represen‐
tatives were chumps if they thought they had actually been
promised anything the law would recognize. My colleagues
and I agree that CEC is wrong about that, but CEC seems
unable to resist the temptation to continue trying to make the
contract illusory. It would not surprise me if CEC were to try
on remand to develop a new theory for rendering the Plan only
an illusory contract. If that happens, the district court should
consider allowing Wilson to amend his pleadings to restore the
claim that we reject at this stage of the proceedings. That is,
32 No. 12‐2383
notwithstanding our decision today, it is at least possible that
CEC could try to defend itself on the surviving claim in such
a way as to resuscitate the unjust enrichment claim. See FED. R.
CIV. P. 15(b); 6A Wright & Miller, Federal Practice & Procedure
§ 1493 (3d ed. 2013) (explaining liberal use of Rule 15(b) to
amend pleadings to enable just resolution of suits).
If the CEC Plan were an illusory contract, then Wilson
would have a viable claim for unjust enrichment under either
Illinois or Minnesota law. To state an unjust enrichment claim
under Illinois law, “a plaintiff must allege that the defendant
has unjustly retained a benefit to the plaintiff’s detriment, and
that defendant’s retention of the benefit violates the fundamen‐
tal principles of justice, equity, and good conscience.” HPI
Health Care Servs., Inc. v. Mt. Vernon Hosp. Inc., 545 N.E.2d 672,
679 (Ill. 1989). The elements are phrased differently but seem
to be essentially the same under Minnesota law. Southtown
Plumbing, Inc. v. Har‐Ned Lumber Co., 493 N.W.2d 137, 140
(Minn. App. 1992); see also Cady v. Bush, 166 N.W.2d 358, 361‐
62 (Minn. 1969) (theory of unjust enrichment can “support
claims based upon failure of consideration, fraud, mistake, and
other situations where it would be morally wrong for one to
enrich himself at the expense of another”).
Wilson has alleged facts supporting all of these elements.
First, CEC induced performance by the plaintiff and other
admissions representatives. It did so by making these very
specific promises of bonuses, which CEC even admits it
wanted and expected its admissions representatives to rely on.
Second, CEC received a benefit as a result of that reliance.
Employees worked above and beyond the call of duty, exceed‐
ing the standards set for their performance and recruiting
No. 12‐2383 33
enough students to earn bonuses, which provided substantial
benefits to CEC itself. Third, even though all conditions for
paying the bonuses had been satisfied, CEC refused to pay the
bonuses it had offered. Finally, as plaintiff Wilson has argued,
one could reasonably find that CEC acted in bad faith and that
it would be unjust and/or morally wrong to allow CEC to
retain the benefit discussed above under both Illinois and
Minnesota law. For these reasons, the district court should stay
alert on remand to the possible need to revive the unjust
enrichment theory if CEC continues to try to show the Plan
was only illusory.
Finally, the district court also rejected unjust enrichment on
a flawed alternative theory: that an employer is not unjustly
enriched by withholding a promised bonus because the
employee was still paid his base salary. Wilson v. Career Educ.
Corp., 2012 WL 1246328, at *8 (N.D. Ill. 2012), citing Hegel v.
Brunswick Corp., 2011 WL 1103825, at *9 (E.D. Wis. 2011). That
reasoning is sound when the prospect of a bonus is left to
management’s discretion, as was the case in Hegel itself. See
2011 WL 1103825, at *5 (employer reserved right to “revise,
discontinue or cancel this plan or any awards associated with
the plan at any time,” thus promising to render future perfor‐
mance only if it decided to do so) (emphasis added). That
reasoning does not extend, however, to a case like this one,
where the promise of bonuses was specific and was condi‐
tioned only on express conditions that were actually satisfied.
Without that limit, the district court’s reasoning would call into
question the enforceability of any contractual sales commis‐
sions so long as the sales representative is also paid a base
34 No. 12‐2383
salary. Yet such promises of sales commissions are regularly
enforced, of course.
For these reasons, I join in the judgment reversing and
remanding the case to the district court on plaintiff’s bad faith
theory, but I respectfully dissent from the rejection of his
conventional breach of contract theory.
No. 12‐2383 35
WOOD, Circuit Judge, concurring in part and dissenting in
part. Wilson is entitled to overcome CEC’s motion to dismiss
under Federal Rule of Civil Procedure 12(b)(6) only if he can
show either (1) that CEC breached its contract with him, or (2)
that it was unjustly enriched by its decision to stop bonuses for
students who had not completed a year of study or a course as
of February 2011, or (3) that he has stated a claim on the
question whether CEC committed an independent violation of
the implied covenant of good faith and fair dealing implicit in
his contract with the company. I address those three points in
turn, applying a de novo standard of review and drawing all
inferences in Wilson’s favor. Reger Dev., LLC v. Natʹl City Bank,
592 F.3d 759, 763 (7th Cir. 2010).
I. Breach of Express Contract
A. Choice of Law
At the outset, the parties dispute whether Illinois or
Minnesota law applies. Wilson prefers the law of Illinois, and
CEC that of Minnesota. I do not see what the fuss is about: the
parties agree that there is no substantive difference between
the laws of these two states. In either one, to establish a breach
of contract a party must show (1) that a valid and enforceable
contract existed, (2) that the plaintiff performed on the con‐
tract, (3) that the defendant breached it, and (4) that the
plaintiff was injured. Priebe v. Autobarn, Ltd., 240 F.3d 584, 587
(7th Cir. 2001) (citing Hickox v. Bell, 552 N.E.2d 1133, 1143 (Ill.
App. Ct. 1990)); Parkhill v. Minn. Mut. Life Ins. Co., 174 F. Supp.
2d 951, 961 (D. Minn. 2000). When the law is the same in both
states, rather than grappling with the largely theoretical
question of which law applies, the court should apply the law
36 No. 12‐2383
of the forum state, here Illinois. Kochert v. Adagen Med. Int’l,
Inc., 491 F.3d 674, 677 (7th Cir. 2007); Barron v. Ford Motor Co.
of Can., Ltd., 965 F.2d 195, 197 (7th Cir. 1992). I proceed on that
basis.
B. Enforceability of Contract
Both parties question whether this contract was illusory
and therefore unenforceable: CEC argues that the right to
bonuses under the contract is not enforceable because it
reserved the right to terminate the Plan at any time, while
Wilson argues in the alternative that the contract is enforceable,
but if it is not, then it is illusory and no barrier to his unjust
enrichment claim.
Initially, it is important to recall that Illinois courts look at
the contract as a whole, not each particular clause, when they
consider whether a particular agreement is illusory. See, e.g.,
Keefe v. Allied Home Mortg. Corp., 912 N.E.2d 310, 315 (Ill. App.
Ct. 2009). Bearing that in mind, this court has held that a
statement of an employer’s compensation policy reflects at
most an illusory contract if it does not provide a specific
enough promise to be enforceable. Tatom v. Ameritech Corp., 305
F.3d 737 (7th Cir. 2002). In Tatom, the Compensation Statement
identified a target bonus of $50,500, but it said that the bonus
could be more or less “depending on Corporate and business
unit financial results, as well as [the employee’s] individual
performance.” Id. at 743. That Compensation Statement also
expressly “d[id] not constitute a guarantee that any particular
amount of compensation will be paid” and it “d[id] not create
a contractual relationship or any contractually enforceable
rights between [the employer] and the employee.” Id. We
No. 12‐2383 37
found the Compensation Statement too vague to be an enforce‐
able promise. But we explained that a statement of an em‐
ployer’s compensation policy could support an enforceable
contract if “the language of the statement sets forth a promise
in terms clear enough to cause a reasonable employee to
believe that an offer has been made,” the employee is aware of
the statement and reasonably construes it to be an offer, and
the employee accepts the offer by commencing or continuing
to work after reading the statement. Id. at 742.
CEC’s Plan is far more specific than the Compensation
Statement in Tatom. The statement in Tatom did not provide
enough details of how supplemental compensation would be
calculated to allow a determination of what the employer
would owe the employee or when it was obligated to pay
additional compensation. It set a target for a bonus, but it said
that the bonus could be more or less depending on employee
performance and business performance, without specifying
how these factors would influence the ultimate decision. In
contrast, CEC’s Plan transparently indicates how to calculate
the bonus payments to which Wilson was entitled before
February 28, 2011. Indeed, it is also easy to see how much he
would have earned for the period between March and June
2011, if his students remained enrolled and the Plan had not
been terminated. Finally, the bonus was just one part of
Wilson’s overall agreement. I therefore conclude that there is
nothing illusory in the promises CEC made, and that the Plan
is an enforceable contract. This conclusion flows from the
language of the agreement itself. I therefore do not agree with
Judge Hamilton’s suggestion that Wilson should have another
opportunity on remand to amend his pleadings to restore the
38 No. 12‐2383
theory of an illusory contract to the case. Principles of law of
the case should bar any such move; CEC will equally be bound
by what has been decided here.
C. Breach
The next question is whether CEC breached its express
agreement with Wilson. (I discuss in part III the question
whether there was a breach of contract based on the implied
covenant of good faith and fair dealing.) As Wilson reads the
Plan, CEC was contractually obligated to pay him $9,200 in
bonuses for the 23 students whom he enrolled in the second
and third quarters of 2010. These people were “in the pipeline”
to complete a full course of study between March and June
2011, although there was a chance that one or more might not
do so. He argues that with respect to these students, his “work
was completed; each student was enrolled and now it was up
to them to remain enrolled or graduate their program.” At least
with hindsight, it would be easy enough to see how many
students satisfied that remaining criterion in the Plan and thus
how much of a bonus Wilson earned. But by pointing out that
he had to wait for the students to complete a year or to
graduate, Wilson has highlighted the problem with his
position: CEC’s obligation to pay a bonus was not tied solely
to Wilson’s performance; it depended equally on the success of
the students. (For what it is worth, I see nothing outrageous
about this arrangement: it appears to have been designed to
prevent any temptation on the recruiter’s part to stack the
classrooms with “students” who have no intention of complet‐
ing serious work, by specifying that the bonus is earned only
for successful students. Compare Leveski v. ITT Educ. Servs.,
No. 12‐2383 39
Inc., 719 F.3d 818 (7th Cir. 2013) (qui tam action implicating ED
rule against compensation based on student recruitment).)
The Plan expressly provided for the possibility that Wilson
would substantially perform but nonetheless not be eligible for
a bonus. This could happen in any of three ways: students
could drop out, Wilson’s employment could be terminated, or,
as happened here, CEC could exercise its right to terminate the
Plan. The Plan states (and Wilson concedes) that in either of the
first two scenarios, he would not be entitled to bonuses for the
pipeline students. I cannot see why he would be entitled to a
bonus based on the same substantial performance in the third
scenario, where the only difference between that one and the
first two is that CEC’s exercise of an agreed retained power,
rather than the student’s attendance or Wilson’s employment,
is the reason why the Plan is changed before the student
finishes a year or a course of study. Though Wilson was
understandably disappointed by not receiving the bonuses he
hoped for, he should have realized that this was possible in
light of the provisions of the Plan.
Even if the Plan could be terminated or amended, however,
Wilson urges this court to find that CEC’s action was
impermissibly retroactive as applied to bonuses that would
have been earned between March through June 2011 (assuming
no glitches). But this is just another way of putting the argu‐
ment I have just rejected. CEC did pay Wilson all bonuses he
had earned as of February 28, 2011. The Plan would have been
terminated retroactively only if CEC had refused to pay Wilson
bonuses for students who completed a full course or year of
study on or before February 28, 2011. Wilson analogizes this
case to one in which the District of Connecticut (applying
40 No. 12‐2383
Connecticut law) concluded that an employer who managed
a restaurant discount club breached its compensation agree‐
ment by retroactively altering the commission rate for a
representative who solicited restaurants to participate in the
discount club. Quiello v. Reward Network Establishment Servs.,
Inc., 420 F. Supp. 2d 23 (D. Conn. 2006). Without delving into
all the details of that case, I note that the representative there
was entitled to a percentage of each customer’s expenditure
(specified by the agreement in force when he registered the
restaurant) at the time the customer went to the restaurant;
there were no further conditions that he had to satisfy once the
customer spent the money. Here there were such conditions.
This case would be analogous to Quiello if Wilson’s 23 extra
students had already completed one year of study when the
Plan ended in February 2011, entitling Wilson to 23 bonuses of
$400, but CEC had attempted to subject Wilson to a new Plan,
under which representatives were paid $200 per student rather
than $400, and it then had paid Wilson only $200 for students
who had completed their courses before the new Plan came
into force. In my view, Quiello thus is not even helpful persua‐
sive authority for Wilson.
II. Unjust Enrichment
Because I find that a valid, enforceable agreement governed
the relationship between Wilson and CEC, it follows for me
that Wilson’s unjust‐enrichment claim cannot succeed. Restitu‐
tion is an extraordinary remedy. Where no contract exists, the
court constructs an imaginary agreement (an “implied”
contract) because the plaintiff conferred a benefit on the
defendant under the mistaken belief that a contract existed.
Under those circumstances, “the defendant’s retention of the
No. 12‐2383 41
benefit violates the fundamental principles of justice, equity,
and good conscience.” Hess v. Kanoski & Assocs., 668 F.3d 446,
455 (7th Cir. 2012) (quoting A.P. Props., Inc. v. Rattner, 960
N.E.2d 618, 621 (Ill. App. Ct. 2011)). The purpose of restitution
is to create a substitute for the contract that does not exist, not
to upset the allocation of risk that is reflected in an existing
agreement. Id. (“A plaintiff cannot pursue [restitution],
however, if his relationship with a defendant is governed by an
express contract.”); Util. Audit, Inc. v. Horace Mann Serv. Corp.,
383 F.3d 683, 689 (7th Cir. 2004) (“The reason for prohibiting a
claim of unjust enrichment between contracting parties is to
prohibit a party whose expectations were not realized under
the contract from nevertheless recovering outside the con‐
tract.”); Hayes Mech., Inc. v. First Indus., L.P., 812 N.E.2d 419,
426 (Ill. App. Ct. 2004) (“A quasi‐contract, or contract implied
in law, is one in which no actual agreement between the parties
occurred, but a duty is imposed to prevent injustice.”).
Wilson agreed to recruit students in exchange for his
ordinary salary and the potential that some of his enrolled
students would complete a full year or a full course of study,
thereby entitling him to a bonus. In other words, the potential
of earning a bonus, not the guarantee of earning one, was part
of the consideration for Wilson’s performance. In essence,
Wilson is arguing that any agreement that conditions benefits
on factors outside the employee’s control might become the
basis for a restitution claim. That is not the law; to the contrary,
restitution is not a remedy for a party whose “expectations
were not realized under the contract.” Util. Audit, Inc., 383 F.3d
at 689. I thus conclude that Wilson cannot prevail under an
unjust‐enrichment theory.
42 No. 12‐2383
III. Covenant of Good Faith and Fair Dealing
Finally, Wilson argues that CEC breached the contract in a
different way, by violating its obligation of good faith and fair
dealing when it amended the Plan in February, rather than
waiting until the deadline of July 2011 when the regulations
came into effect. Illinois courts hold that every contract rests on
good faith and fair dealing between the parties. See Beraha v.
Baxter Health Care Corp., 956 F.2d 1436, 1443 (7th Cir. 1992),
citing Martindell v. Lake Shore Nat’l Bank, 154 N.E.2d 683, 690
(1958); First Nat’l Bank of Cicero v. Sylvester, 554 N.E.2d 1063,
1069 (1990). But critically from my point of view, Illinois courts
also hold that the covenant of good faith and fair dealing is not
an independent source of duties for the parties to a contract. As
the Illinois Appellate Court said in Anderson v. Burton Assocs.,
Ltd., 578 N.E.2d 199 (Ill. App. Ct. 1991), “[w]hile it is true that
this obligation exists in every contract in Illinois, (see Martindell
v. Lake Shore Natʹl Bank (1958), 154 N.E.2d 683), it is essentially
used as a construction aid in determining parties’ intent,
(Martin v. Federal Life Ins. Co. (1982), 440 N.E.2d 998) and
‘vague notions of fair dealing’ do not form the basis for an
independent tort. Foster Enters. v. Germania Fed. Sav. (1981), 421
N.E.2d 1375.” 578 N.E.2d at 203 (parallel citations omitted); see
also Beraha., 956 F.2d at 1443‐44 (“A lack of good faith does not
by itself create a cause of action like a failure to exert best
efforts creates when a contract contains an implied best efforts
obligation. Instead, the covenant guides the construction of
explicit terms in an agreement.”) (citation omitted).
Before one turns to this covenant of good faith and fair
dealing, it is therefore necessary to find that the contract in
question is susceptible to more than one interpretation. The
No. 12‐2383 43
Illinois Supreme Court put it this way in Martindell: “Every
contract implies good faith and fair dealing between the parties
to it, and where an instrument is susceptible of two conflicting
constructions, one which imputes bad faith to one of the parties
and the other does not, the latter construction should be
adopted.” 154 N.E. 2d at 690 (emphasis added). To say that a
contract is susceptible of two conflicting constructions is, in my
opinion, another way of saying that it is ambiguous. It is well
established that a party who can show that a contract is
ambiguous is entitled to survive summary judgment and to
introduce evidence that will resolve the ambiguity. The Illinois
Appellate Court discussed this rule in Gassner v. Raynor Mfg.
Co., 948 N.E.2d 315 (Ill. App. Ct. 2011), as follows:
In any case, under both the four corners rule and
the provisional admission approach, the first step is
to determine whether an ambiguity exists. An
ambiguity exists where there is doubt as to the true
sense or meaning of the words themselves or an
indefiniteness in the wordsʹ expression, resulting in
a difficulty in the application of the words under the
circumstances of the dispute that the contract is
supposed to govern. ... [Accordingly,] ... we proceed
to determine whether the disputed language in the
contract is ambiguous so as to require the introduc‐
tion of parol evidence and preclude summary
judgment.
Id. at 328 (citations omitted).
If, as I believe, the Plan is an unambiguous contract, then
the background covenant of good faith and fair dealing has no
44 No. 12‐2383
role to play in its interpretation. (No one is saying that this is
an illegal contract, nor has Wilson offered an unconscionability
argument; even if he had, it is my belief that there is nothing
unconscionable about the compensation structure to which he
agreed.) The majority relies heavily on the fact that the Plan is
silent about the particular set of circumstances that unfolded
here. But no contract ever spells out how the parties plan to
address every tiny detail that might arise in the future. Instead,
contracts allocate risk more generally. This contract did
everything that was necessary when it provided a default rule
stating that “CEC reserves the right to terminate or amend the
terms of this Plan at any time, for regulatory compliance
purposes or for any other reason that CEC determines, in its
sole discretion.” That does not look like silence to me. It is an
unambiguous term that gives CEC the right to terminate the
Plan at any time, for any reason, as Judge Darrow agrees, supra
at 9‐10. That means that there is no basis for invoking the
covenant of good faith and fair dealing as a principle of
construction. Martindell, 154 N.E. 2d at 690. Unless that
covenant enters the picture, there is no way to override plain
contractual language (which reflects Wilson’s acceptance of a
certain amount of compensation uncertainty) and to introduce
a judicial exception whenever a firing (or cut in compensation)
is allegedly for invidious motives or opportunistic. Opportun‐
ism exists only if one side has sunk costs that cannot be
recovered by the time the other side acts; it is not a problem
when an anticipated event comes to pass.
Even if the majority is suggesting that the cancellation of
Wilson’s bonuses was somehow analogous to the firing of
someone whose employment is at will, I do not see how his
No. 12‐2383 45
case can go forward. In the more extreme case of job loss, many
people try to sue, claiming that the act of firing violated the
employer’s duty of good faith and fair dealing because it was
invidious or opportunistic. They regularly lose these lawsuits
if they are employees at will. Indeed, recognizing a cause of
action in those circumstances would spell the end of the
doctrine of employment at will. (Some people might not
mourn its passing, but it is firmly entrenched in Illinois law,
and it is our duty to follow Illinois law in this respect.) See, e.g.,
Beraha, 956 F.2d at 1445 (“[F]ederal courts interpreting Illinois
law have cogently reasoned that the covenant of good faith,
which is a principle of construction, gives way to the rule that
an employment at‐will contract is terminable for any reason.
Otherwise, the employment at‐will principle would be mean‐
ingless.”)(citing cases); Zewde v. Elgin Cmty. Coll., 601 F. Supp.
1237, 1250 (N.D. Ill. 1984) (“Illinois courts have consistently
ruled that the parties to an employment at‐will contract may
terminate it for a good reason, a bad reason or no reason at all
... . The ‘good faith’ principle does not have an independent
life, and does not independently create a cause of action.
Instead [it] comes into play in defining and modifying duties
which grow out of specific contract terms and obligations ... .
It gives way to specific contract provisions which directly
contradict it. Thus, the usual rule, that an at‐will agreement is
terminable for any reason, controls. Otherwise, that rule would
be meaningless.”)(quotation marks and citations omitted).
I therefore do not agree with my colleagues that we should
construe the unambiguous language in the Plan reserving the
right to terminate or amend at any time, for any reason, as if
there were an asterisk at the end that made an exception for
46 No. 12‐2383
changes in employment terms that might be malicious or
opportunistic. What right was CEC reserving, if not the right
to change the Plan if it decided that its economic interests
would be better served that way? And if it has the right to
terminate or amend the Plan, then I see no reason why this
right did not encompass a decision to say that bonuses were
not earned until all criteria were met—both the student’s
enrollment, and the student’s completion of the necessary
courses or time.
The Plan, read as a whole, imposes three conditions before
a bonus is earned: (1) that the qualifying student complete a
year or a course of study; (2) that Wilson is still employed by
CEC as of that time; and (3) that CEC has not as of that time
exercised its right to terminate or modify the Plan. Like an at‐
will employment contract, the Plan was designed to allow CEC
to cancel not‐yet‐earned bonuses for any reason—for instance,
if its operating costs were unexpectedly to increase such that
it could not afford to pay bonuses for students in the pipeline
during a given quarter.
It is true that the duty of good faith is particularly impor‐
tant where, as here, one party reserves the right to modify or
terminate the agreement. As we have recognized, “[w]hen one
party to a contract is vested with contractual discretion, it must
exercise that discretion reasonably and with proper motive,
and may not do so arbitrarily, capriciously or in a manner
inconsistent with the reasonable expectations of the parties.”
Interim Health Care of N. Ill., Inc. v. Interim Health Care, Inc., 225
F.3d 876, 884 (7th Cir. 2000). But the key question comes back
to the reasonable expectations of the parties. Here, they have
spelled out those expectations in CEC’s reservation of rights.
No. 12‐2383 47
Where there is an express reservation of rights to terminate or
amend at any time and for any reason, as there is in our case,
there is no baseline against which to find termination arbitrary,
capricious, or inconsistent with expectations. The disappointed
party has no right to expect non‐arbitrary modification or
termination, because the contract expressly declines to condi‐
tion those possibilities on good cause or anything else. Just as
with “at‐will” employment arrangements, the employee cannot
have any reasonable expectation that the Plan will be modified
only “for cause.” Even taking these facts in the light most
favorable to Wilson, I see nothing to indicate that CEC violated
its duty not to terminate or amend the Plan in a manner
inconsistent with his reasonable expectations. Indeed, the Plan
expressly disavowed any expectancy of a bonus before
students completed a year.
The decision to bring one’s company into compliance with
federal regulations before the last minute can hardly be
branded arbitrary or capricious. CEC might have had a
number of good reasons to act promptly—among them, its
desire to maintain a positive relationship with the ED, which
regulates CEC and provides CEC’s students with federal
funding. Unlike my colleagues, therefore, I would find that the
district court properly rejected this theory of liability.
48 No. 12‐2383
IV. Conclusion
While I can understand Wilson’s disappointment, the Plan
to which he agreed did not entitle him to bonuses at the
moment he substantially performed by enrolling students.
CEC was therefore within its rights to modify the Plan when
and as it did. That the Plan allowed for this disappointment
does not render its promises illusory, nor does it mean that it
violated a covenant of good faith and fair dealing. Accordingly,
I would affirm the judgment of the district court, and I thus
dissent from the decision to remand on this theory for further
proceedings.