Douglas v. Orkin Exterminating ( 2000 )

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
MAY 23 2000
TENTH CIRCUIT
PATRICK FISHER
Clerk
RICHARD DOUGLAS; NANCY
DOUGLAS,
Plaintiffs - Appellants,
No. 98-8076
v.
(D.C. No. 97-CV-1029-J)
(District of Wyoming)
ORKIN EXTERMINATING
COMPANY, INC.,
Defendant - Appellee.
ORDER AND JUDGMENT *
Before TACHA, KELLY and LUCERO, Circuit Judges.
In this diversity action governed by Wyoming law, plaintiff-appellant
Richard Douglas appeals the district court’s grant of summary judgment in favor
of defendant-appellee Orkin Exterminating Company (“Orkin”) and the dismissal
of his claims for breach of his employment contract, breach of the implied
covenant of good faith and fair dealing, and intentional infliction of emotional
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. This court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
distress. 1 Douglas had become an Orkin employee as part of an integrated
transaction which included the sale of his pest-control business to Orkin.
Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we reverse the district
court’s dismissal of Douglas’s breach of contract and intentional infliction of
emotional distress claims and affirm its dismissal of the breach of the implied
covenant of good faith and fair dealing claim.
I
Douglas founded, owned, and operated Cowboy Pest Control, Inc., with his
wife Nancy. In 1992, he and his wife entered into negotiations with Orkin for the
sale of their business, during which they discussed with Orkin a document entitled
“Potential Compensation Package,” which indicated they would earn up to
$663,216 over ten years from the proposed transaction. On March 29, 1994, the
parties signed a letter of understanding which outlined a $75,000 purchase price
for Cowboy’s assets, payment of $50,000 to Douglas and his wife in consideration
for a covenant not to compete, employment of Douglas by Orkin as manager of
the acquired operation at an annual base salary of $30,000, and a potential earn-
out bonus of $15,000 at the end of Douglas’s first year of employment. On April
1
Nancy Douglas, Douglas’s wife and the second named plaintiff, does not
appeal the disposition of her claims below.
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28, 1994, the parties signed an Asset Purchase Agreement with a Form of
Employment Agreement attached.
The transaction was closed on December 9, 1994. At closing, Douglas and
his wife signed a non-competition agreement with Orkin and an agreement
assigning to Orkin the employment contracts between Cowboy and its employees.
He also signed an Employment Agreement substantially similar to the Form of
Employment Agreement attached to the Asset Purchase Agreement. The
Employment Agreement contained the following relevant terms:
1. The Company hereby employs the Employee as Manager for the
Rock Springs location of Orkin Exterminating Company, and agrees
to pay the Employee a salary of $2,500 monthly. After the first year,
Employee shall receive a Salary Performance Review.
....
[1(e).] The Employee’s title and/or compensation may be changed
periodically after the initial year but, notwithstanding whether the
specific changes are reflected in a revised written agreement, the
provisions of the balance of this Agreement shall remain in full force
and effect.
....
[5(c)(ii).] The Company may, at any time, terminate the Employment
Agreement, at its option and without notice or payment of any
terminal compensation if the Employee shall, at any time, conduct
himself in such a manner as to injure or endanger the reputation of
the Company, or become involved in any offense involving moral
turpitude, or fail to faithfully perform his duties as assigned by the
Company in a manner in keeping with this Agreement and the rules
and regulations of the Company . . . .
6. This contract includes the entire agreement of the parties.
(I Appellant’s App. at 264-67.)
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More than one year after beginning employment with Orkin, both Douglas
and Orkin’s Regional Manager Howard E. Smith expressed dissatisfaction with
Douglas’s position and performance. Over the next few weeks, Orkin suggested
that Douglas transfer to various other positions including branch manager trainee,
technician, sales representative, and a combined sales representative and service
technician position. All of those offers were withdrawn because the positions
were not actually available. Orkin then offered Douglas a position as a “swing
tech[nician]” allegedly paying approximately $1,100 a month plus commissions.
(Id. at 160.) The parties dispute whether this position would constitute a
demotion as well as the level of his potential earnings with commissions. Orkin
asserts that he would have earned at least $2,500 a month in the swing technician
position, but Douglas claims it was the lowest-paying position available in the
Rock Springs area, with potential earnings of substantially less than $2,500.
Douglas turned down the offer and his employment was terminated.
Douglas and his wife brought suit in Wyoming state court against Orkin,
alleging breach of contract, breach of the implied duty of good faith and fair
dealing, intentional infliction of emotional distress, and promissory estoppel, and
seeking punitive damages. Based on diversity of citizenship, Orkin removed the
case to federal district court. See 28 U.S.C. §§ 1332 & 1441. The district court
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granted summary judgment to Orkin on all of Douglas’s claims. This appeal
followed.
II
We review the grant of summary judgment de novo, applying the same
legal standard used by the district court under Fed. R. Civ. P. 56(c). See United
States v. Hess, 194 F.3d 1164, 1170 (10th Cir. 1999). Summary judgment is
appropriate if, after viewing the evidence in the light most favorable to the
non-movant, there is no genuine issue of material fact, and the movant is entitled
to judgment as a matter of law. See UMLIC-Nine Corp. v. Lipan Springs Dev.
Corp., 168 F.3d 1173, 1176 (10th Cir. 1999); Fed. R. Civ. P. 56(c).
The substantive law of Wyoming applies in this diversity action, see Budd
v. American Excess Insurance Co., 928 F.2d 344, 346 (10th Cir. 1991), and in the
absence of Wyoming law directly on point, we attempt to predict how Wyoming’s
highest court would rule, see Wood v. Eli Lilly & Co., 38 F.3d 510, 512 (10th
Cir. 1994); see also Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). The district
court’s interpretation of state law is subject to de novo review. See Salve Regina
College v. Russell, 499 U.S. 225, 231 (1991).
A
We must determine whether Orkin breached its employment contract with
Douglas when it terminated him after he refused to accept an alleged demotion
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and reduction in compensation. If the language of the employment contract is
plain and unequivocal, that language is controlling. See Lyman v. Jennings, 637
P.2d 259, 260 (Wyo. 1981). “[O]ur primary purpose is to determine the true
intent and understanding of the parties at the time and place the contract was
made.” Simek v. Rocky Mountain, Inc., 977 P.2d 687, 690 (Wyo. 1999) (citing
Examination Management Servs., Inc. v. Kirschbaum, 927 P.2d 686, 690 (Wyo.
1996)).
The parties dispute whether the provisions of the contract governing the
terms of Douglas’s employment and termination are ambiguous. This presents a
question of law. See Sowerwine v. Keith, 197 P.2d 1018, No. 99-190, 2000 WL
211571, at *2 (Wyo. Feb. 24, 2000). “When deciding whether a contract is
ambiguous, we endeavor to determine the intention of the parties.” Id. (citing
Wolter v. Equitable Resources Energy Co., 979 P.2d 948, 951 (1999)).
“Ambiguity exists where a document ‘is obscure in its meaning because of
indefiniteness of expression or because it contains a double meaning.’” Lamb v.
Wyoming Game & Fish Comm’n, 985 P.2d 433, 437 (Wyo. 1999) (quoting Martin
v. Farmers Ins. Exch., 894 P.2d 618, 620 (Wyo. 1995)) (further citation omitted).
Therefore, “[w]e turn to extrinsic evidence and rules of contract construction only
when the contract language is ambiguous and its meaning is doubtful or
uncertain.” Sowerwine, 2000 WL 211571, at *2 (citing Wolter, 979 P.2d at 951).
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It is undisputed that, pursuant to clause 1 of the employment contract,
Douglas was initially employed as “Manager for the Rock Springs location of
Orkin Exterminating Company” and Orkin “agree[d] to pay [Douglas] a salary of
$2,500 monthly.” (I Appellant’s App. at 264.) After his first year of employment
with Orkin, however, the contract provided that he would “receive a Salary
Performance Review.” (Id.) Clause 1(e) of the contract also provided that his
“title and/or compensation may be changed periodically after the initial year.”
(Id. at 265.) Relying on this clause, Orkin contends it had the contractual right to
change his position after one year, as it attempted to do in this case.
The contract also stated, however, that if Douglas’s title and/or
compensation were changed, “the provisions of the balance of [the employment
contract were to] remain in full force and effect.” (Id.) The other relevant
provision of the contract to which we must give “full force and effect” is clause
5(c)(ii), which encompasses the parties’ agreement that Douglas’s employment
was not at-will, but rather for cause:
The Company may, at any time, terminate the Employment
Agreement, at its option and without notice or payment of any
terminal compensation if the Employee shall, at any time, conduct
himself in such a manner as to injure or endanger the reputation of
the Company, or become involved in any offense involving moral
turpitude, or fail to faithfully perform his duties as assigned by the
Company in a manner in keeping with this Agreement and the rules
and regulations of the Company, or failure to comply with the
Company’s procedures for insuring strict compliance with these
requirements. . . .
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(Id. at 266.) Douglas argues these clauses—1, 1(e), and 5(c)(ii)—when read
together, are ambiguous and therefore the court must consider parol evidence to
determine the intent of the parties.
Douglas’s argument hinges on the assertion that a substantial demotion and
reduction in pay constitutes constructive discharge. Orkin responds that these
clauses can easily be reconciled: “After the first year of employment, whatever
position . . . Douglas held, terminating his employment from that position would
have to be for cause.” (Appellee’s Br. at 17.) The crux of the issue does not rest
on whether Orkin could change Douglas’s title and/or compensation because
clause 1(e) clearly contemplates such changes, but rather whether drastic changes
in title and compensation may be so unreasonable—when read in conjunction with
clauses 1 and 5(c)(ii)—as to constitute a breach of the employment contract. 2
The doctrine of constructive discharge is most often employed in the
context of claims of workplace harassment. In that context, “[c]onstructive
discharge occurs when a reasonable person in the employee’s position would view
the working conditions as intolerable.” Yearous v. Niobrara County Mem’l
2
Douglas also contends that the term “title” as used in clause 1(e) is
ambiguous because it is unclear whether that term refers to the name associated
with a position or the position itself. The only credible interpretation is the latter.
Indeed, Douglas adopts this interpretation when he suggests the court should read
clause 1(e) as permitting only promotions and salary increases. That
interpretation is also unsupported by the language of the contract, which does not
distinguish between promotions and demotions.
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Hosp. , 128 F.3d 1351, 1356 (10th Cir. 1997); see also Woodward v. City of
Worland , 977 F.2d 1390, 1401 (10th Cir. 1992). The Wyoming Supreme Court
has recognized the doctrine of constructive discharge, but in contexts differing
from this case. See Employment Sec. Comm’n of Wyo. v. Western Gas
Processors, Ltd. , 786 P.2d 866, 871-72 (Wyo. 1990) (finding “that the employer’s
demand to the employee that he yield up a sample of his urine . . . or resign on the
spot was unreasonable and the resulting resignation” constituted a constructive
discharge); Jewell v. North Big Horn Hosp. Dist. , 953 P.2d 135, 139 (Wyo. 1998)
(holding that the plaintiff had stated claims for breach of contract and breach of
the implied covenant of good faith and fair dealing because “in Wyoming, a
choice to resign or be fired is recognized as constructive discharge”). If the
Wyoming Supreme Court has not yet addressed a legal question, we may attempt
to predict how that court would decide the question. See Wood , 38 F.3d at 512;
Farmers Alliance Mut. Ins. Co. v. Bakke , 619 F.2d 885, 888 (10th Cir. 1980). In
conducting our inquiry, we are free to consider all resources available, including
decisions of Wyoming courts or the courts of other states as well as federal court
decisions, in addition to the general weight and trend of authority. See id.We conclude, based on prior Tenth Circuit case law, as well as state
precedent from other jurisdictions, that “[a] demotion or reassignment to a job
with lower status or lower pay may, depending upon the individual facts of the
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case, constitute aggravating factors that would justify a finding of constructive
discharge.” James v. Sears, Roebuck & Co., Inc. , 21 F.3d 989, 993 (10th Cir.
1994); accord Barrett v. Wyerhaeuser Co. Severance Pay Plan, 700 P.2d 338, 342
(Wash. Ct. App. 1985) ; Kass v. Brown Boveri Corp., 488 A.2d 242, 245-46 (N.J.
Super. Ct. App. Div. 1985); Sanders v. May Broad. Co., 336 N.W.2d 92, 95-96
(Neb. 1983); Miller v. Winshall, 400 N.E.2d 1306, 1310-11 (Mass. App. Ct.
1980); Brock v. Mutual Reports, Inc., 397 A.2d 149, 152 (D.C. App. Ct. 1979);
Loos v. Geo. Walter Brewing Co., 129 N.W. 645, 646 (Wis. 1911); cf. Trapkus v.
Edstrom’s, Inc., 489 N.E.2d 340, 344 (Ill. App. Ct. 1986); Tracey v. Sconnix
Broad. of S.C., Inc., 325 S.E.2d 542, 544 (S.C. 1985); Board of Dirs. of
Kennewick Sch. Dist. v. Lamanna, 287 P.2d 105, 107-08 (Wash. 1955); Breen v.
Central Iowa Power & Light Co., 224 N.W. 562, 564 (Iowa 1929); Cooper v.
Stronge & Warner Co., 126 N.W. 541, 541 (Minn. 1910). The record contains
support for Douglas’s allegation that he was demoted to a position with both a
lower pay and lower status; the position Orkin offered purportedly demoted him
from the highest to the lowest position available in the Rock Springs area and
reduced his compensation by more than half—from $2,500 to $1,100.
In addition to establishing that a reduction in rank or material change in
duties occurred, however, an employee must also show that the new rank or
duties which she was asked to assume were neither encompassed by, nor included
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within the contemplation of, the employment contract. See, e.g., Miller, 400
N.E.2d at 1310-11 (“If an employee, especially an executive employee, is
engaged to fill a particular position, any material reduction in rank constitutes a
breach of the employment agreement and is tantamount to a discharge, unless the
employment contract, by its terms, contemplates a change in the rank and nature
of the job.”); Rudman v. Cowles Communications, Inc., 280 N.E.2d 867, 872
(N.Y. 1972) (“If an employee, a fortiori an executive employee, is engaged to fill
a particular position, any material change in his duties, or significant reduction in
rank, may constitute a breach of his employment agreement.”) (citations omitted);
Hayes v. Resource Control, Inc., 365 A.2d 399, 400-01 (Conn. 1976) (holding
that a reduction in rank or a change in the duties of an employee engaged to fill a
particular position constitutes a breach). Therefore, we must determine the
magnitude of change in title and compensation contemplated by the employment
contract.
In doing so, we consider the contract as a whole, reading each part in the
context of the entire document. See Amoco Prod. v. Stauffer Chem. Co. of Wyo.,
612 P.2d 463, 465 (Wyo. 1980). “In other words, we analyze the ‘tenor’ of the
contract.” Fremont Homes, Inc. v. Elmer, 974 P.2d 952, 956 (Wyo. 1999)
(quoting Examination Management Servs., Inc., 927 P.2d at 690). It is
undisputed that Orkin hired Douglas for the position of Manager for the Rock
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Springs location with a monthly salary of $2,500 and a salary performance review
after one year. Although Orkin could change his title and/or compensation
pursuant to clause 1(e), it could not terminate him without cause, as stated in
clause 5(c)(ii). We “‘strive to avoid a construction which renders a provision
meaningless’” and “‘to reconcile by reasonable interpretation any provisions
which apparently conflict before adopting a construction which would nullify any
provision.’” Simek, 977 P.2d at 690 (quoting Examination Management Servs.,
Inc., 927 P.2d at 690).
To construe the parties’ contract to allow Orkin to substantially alter
Douglas’s position or compensation from that set forth in clause 1 at any time
after the first year with or without cause would permit an employer to diminish
substantially the value of for-cause termination clauses. Such an interpretation
would render clauses 1 and 5(c)(ii) meaningless; the for-cause termination clause
effectively would be nullified, as would the clause allowing for a salary review of
Douglas’s performance in his management position, because Orkin could transfer
him out of management and force him into resignation at any time after one year
by unacceptably reducing his compensation and/or demoting him. Cf. Guiliano v.
Cleo, Inc., 995 S.W.2d 88, 94-96 (Tenn. 1999) (holding that an employer
breached an employment contract, which encompassed a clause allowing for
change in duties and a for-cause termination clause, when it removed the
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employee’s title and work responsibilities even though it maintained the same
level of compensation). Such a result would be absurd.
The extent to which the parties to the contract intended to empower Orkin
to change Douglas’s employment pursuant to clause 1(e) is uncertain from the
four corners of the contract, and thus extrinsic evidence should be considered by
the fact-finder. See Sowerwine, 2000 WL 211571, at *2 (citing Wolter, 979 P.2d
at 951). We therefore reverse the district court’s dismissal of Douglas’s breach of
contract claim and remand for further proceedings to determine the parties intent
upon consideration of such evidence.
B
Under Wyoming law, a covenant of good faith and fair dealing is implied in
all employment contracts and a breach of that covenant can give rise to tort
liability. See Wilder v. Cody Country Chamber of Commerce, 868 P.2d 211, 220-
21 (Wyo. 1994). The law governing this tort, however, is not well-developed.
Since the Wyoming Supreme Court’s application of this tort to employment
contracts in Wilder, 868 P.2d 220-21, it has concluded only once, in Jewell, 953
P.2d at 139, that an employee presented sufficient evidence of this tort to
preclude summary judgment. See Dubrowski v. Wyoming, – P.2d – , No. 98-212,
2000 WL 295109, at *2 (Wyo. March 23, 2000). Accordingly, Wyoming
decisions have “repeatedly stressed that only in rare and exceptional cases is a
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duty created which gives rise to tort liability.” Anderson v. South Lincoln Special
Cemetery Dist., 972 P.2d 136, 140 (Wyo. 1999) (citations omitted).
To establish a breach of the covenant of good faith and fair dealing, an
employee must first establish “a special relationship of trust and reliance,” which
may be shown by “the existence of separate consideration, common law [or]
statutory rights, or rights accruing with longevity of service.” Id. (citations
omitted). To support his claim of a “special relationship of trust and reliance,”
Douglas relies on the alleged “existence of separate consideration.” Wilder, 868
P.2d at 220-21. The analysis for separate consideration to support a special
relationship is “the same as that used to determine whether there exists additional
consideration necessary to support an express contract.” Worley, 2000 WL
295110, at *8.
Douglas asserts he offered a discounted sale price for his business as
consideration in exchange for Orkin’s promise of long term employment.
Consideration is defined as “a legal detriment [that] has been bargained for and
exchanged for a promise.” Loghry v. Univcover Corp., 927 P.2d 706, 712 (Wyo.
1996) (citing Moorcroft State Bank v. Morel, 701 P.2d 1159, 1161-62 (Wyo.
1985)). There is no evidence, however, that Orkin bargained for such a discount
as separate consideration for a promise of long-term employment. The contracts
specify both the sale price for the business and the terms of Douglas’s
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employment with Orkin—but we find nothing that requires Orkin to employ
Douglas until retirement in exchange for a specified reduction in the sale price.
Douglas also argues that the non-competition agreement was bargained for as
separate consideration for his long-term employment. Again, nothing is noted in
the agreement itself to support this contention of discrete consideration; the
contract states that the Douglases were paid for their promise not to compete.
This being the situation, dismissal of Douglas’s breach of the covenant of good
faith and fair dealing claim was appropriate.
C
“In order to recover for intentional infliction of emotional distress, a
plaintiff must prove that the defendant’s conduct was extreme and outrageous and
that the defendant intentionally or recklessly caused the plaintiff to suffer severe
emotional harm.” Terry, 947 P.2d at 278 (citation omitted). In breach of
employment contract cases, “[i]f an employee’s mental distress is caused solely
by his discharge, and if the discharge was permitted in his contract, . . . the
employer has a complete defense, even if the employer is aware that the discharge
will cause emotional distress.” Id. (citation omitted). The basis of the district
court’s ruling that Orkin had a complete defense to Douglas’s intentional
infliction of emotional distress claim was that the employment contract provided
for termination. Because we reverse the district court’s dismissal of Douglas’s
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breach of contract claim, we likewise reverse its dismissal of his intentional
infliction of emotional distress claim for further consideration following the
court’s resolution of the breach of employment contract issue.
III
We AFFIRM the district court’s dismissal of Douglas’s breach of the
covenant of good faith and fair dealing claim. We REVERSE the district court’s
dismissal of Douglas’s breach of contract and intentional infliction of emotional
distress claims and REMAND for further proceedings in accordance with this
opinion.
ENTERED FOR THE COURT
Carlos F. Lucero
Circuit Judge
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