St. Jude Medical S.C., Inc. v. Thomas Tormey, Jr. ( 2015 )

United States Court of Appeals
For the Eighth Circuit
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No. 14-1619
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St. Jude Medical S.C., Inc., a Minnesota corporation
lllllllllllllllllllll Plaintiff - Appellee
v.
Thomas M. Tormey, Jr.
lllllllllllllllllllll Defendant - Appellant
Tormedco, Inc., a New York corporation
lllllllllllllllllllllCounter plaintiff - Appellant
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Appeal from United States District Court
for the District of Minnesota - Minneapolis
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Submitted: October 8, 2014
Filed: March 11, 2015
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Before RILEY, Chief Judge, WOLLMAN and BYE, Circuit Judges.
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BYE, Circuit Judge.
St. Jude Medical Center, Inc. (“St. Jude”), sued Thomas M. Tormey, Jr., its
former employee, to recover $650,000 plus statutory interest owed on a promissory
note. Tormey disputed his liability on the note and filed counterclaims arguing
St. Jude breached Tormey’s employment contract. Tormey also added his company,
Tormedco, Inc., as a plaintiff to the counterclaims and asserted an additional claim on
behalf of Tormedco against St. Jude. The district court1 granted judgment as a matter
of law to St. Jude on its collection claim, on the counterclaims, and on Tormedco’s
claim after a jury was unable to reach a verdict. Tormey and Tormedco appeal, and
we affirm.
I
In 2001, St. Jude hired Tormey to work as an independent sales representative,
selling its cardiac-related medical devices such as pacemakers and defibrillators.
Tormey previously worked for Medtronic in this same capacity for fifteen years. To
initiate his employment with St. Jude, Tormey entered into several agreements
including a representative agreement, a separate letter agreement, an asset purchase
agreement, and a loan agreement.
The representative agreement provided the length of Tormey’s contract with
St. Jude, his salary, his sales territory, his commission rate, and a procedure for setting
his sales quotas. It also detailed that for the first year of Tormey’s contract, his sales
quota would be set at zero due to a noncompete agreement he held with Medtronic.
The representative agreement further provided that St. Jude would hire a “technical
support specialist (TSS) as soon as practicable” to assist Tormey with his work and
that St. Jude could terminate Tormey if he failed to meet sales quotas in three out of
any twelve consecutive months.
1
The Honorable Michael J. Davis, Chief Judge, United States District Court for
the District of Minnesota.
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In the separate letter agreement and asset purchase agreement, Tormey agreed
to form a corporation through which he would conduct his business for St. Jude.
Then, on October 3, 2006, the corporation would have the option to sell itself to
St. Jude at a price derived from a formula contained in the agreements. The option,
however, was contingent on the representative agreement being in full force at that
time. Pursuant to these agreements, Tormey thereafter created Tormedco, Inc., in
January 2002 and assigned the representative agreement he had with St. Jude to it.
St. Jude and Tormey also entered into a loan agreement, which was referenced
by the separate letter agreement. The loan agreement entailed St. Jude making a
$650,000 interest-free loan to Tormey. In exchange for the loan, Tormey executed a
promissory note which required him to repay the loan on October 3, 2008, or upon the
sale of Tormedco to St. Jude, whichever occurred earlier. The separate letter
agreement indicated St. Jude would deduct the amount Tormey owed on the loan from
the amount it paid for Tormedco when Tormedco exercised its option to sell itself to
St. Jude.
As a result of his noncompete agreement with Medtronic, Tormey did not begin
selling St. Jude’s products until fall 2002. Around that same time, Tormey’s wife was
diagnosed with terminal lung cancer, and Tormey informed St. Jude of his wife’s
condition.
Also in late 2002 and into early 2003, Tormey began inquiring about when
St. Jude would hire a TSS to assist him. In February 2003, Jim Catlett, Tormey’s
manager, emailed Tormey about his inquiry. Catlett indicated before St. Jude incurred
the expense of a TSS, Catlett wanted to know Tormey’s thoughts about what that
person would do on a day-to-day basis. Catlett stated he had several clinical support
people in training. Tormey alleged the lack of TSS support would keep him from
meeting his sales quotas.
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Tormey then met with St. Jude in September 2003 to discuss setting upcoming
sales quotas. On September 17, Tormey sent an email to Catlett recommending
minimum sales quotas. Tormey’s proposed sales quotas considered several things
including no TSS support, and he suggested the sales quotas be set at a minimum until
the issue could be resolved. Tormey also indicated that when St. Jude hired a TSS for
Tormey, the numbers would be a moot point. Until then, Tormey explained he would
accomplish what was required by himself. St. Jude and Tormey signed sales quota
sheets with Tormey’s recommended numbers in mid-October 2003. Tormey added
a handwritten note to the sheet indicating the “guarantee is based on Tormey accounts
until . . . a TSS is provided according to contract.”
Thereafter, on October 24, 2003, Catlett sent Tormey an email indicating
St. Jude had assigned a TSS to assist Tormey. The email further indicated that if
Tormey needed additional assistance, four other employees were available to support
him. Tormey, however, objected to this particular TSS because he was not fully
dedicated to helping Tormey. St. Jude’s general counsel responded to Tormey and
explained the TSS would only support others if Tormey did not need his assistance.
Tormey’s wife’s condition worsened in November 2003, and Tormey thereafter
did not meet his sales quotas. Tormey attributes his performance in part to his wife’s
condition. According to Tormey, St. Jude repeatedly told him that his wife’s health
should be his first priority throughout her illness. Thereafter, in February and April
2004, Tormey sent emails to his managers at St. Jude proposing changes to his
relationship with St. Jude. Two options included St. Jude considering the $650,000
loan paid in full.
Tormey’s wife passed away on May 3, 2004. Two weeks later, Jim Gantz, a
vice president at St. Jude, sent Tormey a letter terminating the representative
agreement. The letter indicated Tormey’s sales were unacceptable and had fallen
significantly short of the sales quotas. It further included a comparison of the sales
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quotas and actual sales from March 2003 through April 2004, supporting Gantz’s
conclusion for both pacemakers and defibrillators. After receiving the letter, Tormey
spoke with Gantz on the telephone and sent a follow-up email explaining he
forwarded the letter to his legal counsel as they had discussed. Gantz thereafter
responded to Tormey’s email and indicated he was willing to discuss any additional
issues Tormey may have but directed that Tormey’s counsel should be speaking with
St. Jude’s counsel as the matter progressed.
According to Tormey, he then had an additional telephone conversation with
Gantz. During the conversation, Tormey indicated Gantz proposed that if Tormey
agreed to forego any actions against St. Jude, then St. Jude would waive any claim to
repayment of the $650,000. Tormey asserts he accepted Gantz’s offer and presumed
his obligations to St. Jude had been discharged. There are no written documents
evidencing this “walk-away agreement,” however, and Gantz denies it occurred.
Gantz recalled speaking to Tormey only once. In the years following this alleged
conversation, St. Jude sent IRS Form 1099s to Tormey for interest income, and
Tormey reported the interest income on his tax returns. In preparation for Tormey’s
2006 tax return, Tormey’s accountant included a note indicating Tormey’s loan with
St. Jude was still being negotiated.
On October 30, 2008, Aimee Gordon, counsel for St. Jude, sent Tormey a letter
asserting the $650,000 loan was due for repayment. Tormey did not repay the loan
at that time, and he was unsure if his counsel responded to the letter. Gordon then sent
a second letter on May 12, 2009, asserting the loan was due and immediately payable
in full. Tormey again failed to repay the loan and made no indication of a “walk-away
agreement” to Gordon.
St. Jude filed suit against Tormey in Minnesota state court on January 11, 2011,
seeking to recover the amount owed on the note plus statutory interest. Tormey
removed the suit to federal court. Tormey and Tormedco then asserted counterclaims
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against St. Jude alleging St. Jude breached the representative agreement and
fraudulently induced Tormey to leave Medtronic. Tormedco also asserted an
additional claim against St. Jude for breach of contract.2 St. Jude thereafter moved for
summary judgment on its claim and the counterclaims twice, but the district court
granted summary judgment in favor of St. Jude on only the counterclaims contending
St. Jude engaged in fraudulent conduct. The magistrate judge3 also denied some of
Tormey’s requests for discovery. The remainder of the counterclaims and St. Jude’s
collection claim proceeded to a jury trial.
At the close of evidence, St. Jude moved for judgment as a matter of law,
arguing the evidence did not support the counterclaims or defenses asserted by
Tormey or Tormedco. The district court denied St. Jude’s motion, and the case was
given to the jury. The jury, however, was unable to reach a unanimous decision, and
the district court declared a mistrial. St. Jude then renewed its motion for judgment
as a matter of law. This time, the district court granted St. Jude’s motion on the
counterclaims, finding they were time-barred, and on St. Jude’s claim for repayment
of the note, finding the evidence did not support Tormey’s defense that St. Jude first
committed a material breach of the representative agreement. Tormey and Tormedco
appeal.
II
Tormey and Tormedco first challenge judgment as a matter of law. On appeal,
we review de novo the district court’s grant of judgment as a matter of law. Hortica-
2
Because of the substantial similarity between Tormey and Tormedco’s
counterclaims and Tormedco’s claim, the district court used the word “counterclaims”
to refer to these claims collectively. For consistency, we do the same.
3
The Honorable Tony N. Leung, United States Magistrate Judge for the District
of Minnesota.
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Florists’ Mut. Ins. Co. v. Pittman Nursery Corp., 729 F.3d 846, 854 (8th Cir. 2013).
“A court may grant judgment as a matter of law if ‘the court finds that a reasonable
jury would not have a legally sufficient evidentiary basis to find for the party.’”
Madden v. Lumber One Home Ctr., Inc., 745 F.3d 899, 902 (8th Cir. 2014) (quoting
Fed. R. Civ. P. 50(a)(1)). In our review, we therefore consider the facts in the light
most favorable to Tormey and Tormedco and give them the benefit of all reasonable
inferences. Roberson v. AFC Enters., Inc., 602 F.3d 931, 933 (8th Cir. 2010).
A. St. Jude’s Collection Claim
Tormey contends the district court erred by granting judgment as a matter of
law on St. Jude’s claim for repayment of the $650,000 loan. Tormey argues the
district court should have instead found sufficient evidence existed to support two
affirmative defenses asserted by Tormey.
Tormey’s first defense is that St. Jude breached a material term of the
representative agreement by failing to hire a TSS for Tormey. Under Minnesota law,
which applies in this case, see Chew v. American Greetings Corp., 754 F.3d 632, 635
(8th Cir. 2014), “a party who first breaches a contract is usually precluded from
successfully claiming against the other party,” gScribe, Inc. v. Soteria Imaging
Services, LLC, No. A11-265, 2011 WL 4008303, at *5 (Minn. Ct. App. Sept. 12,
2011) (internal quotation marks and citation omitted). Accordingly, Tormey asserts,
when considering all of the agreements Tormey executed with St. Jude as one unitary
agreement, this first material breach by St. Jude relieved Tormey from meeting his
sales quotas and ultimately his obligation to repay the loan.
Assuming St. Jude’s failure to provide Tormey with TSS support until October
2003 constituted a breach of the unitary agreement, we find it did not excuse
Tormey’s failure to repay the note. The continued recognition of a contract as still
binding after a breach is a waiver of the breach. See Wolff v. McCrossan, 210
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N.W.2d 41, 43 (Minn. 1973) (“Generally, where a defendant has orally waived certain
conditions of a written contract, he is estopped from asserting the nonperformance of
those conditions as a defense in a suit upon the contract.”); Cut Price Super Mkts. v.
Kingpin Foods, Inc., 98 N.W.2d 257, 267 (Minn. 1959) (“The right to rescind [a
contract] must therefore be exercised promptly on discovery of the facts from which
it arises and it is clear under the law that it may be waived by continuing to treat the
contract as a subsisting obligation.”); see also 17A Am. Jur. 2d Contracts § 715 (“An
election by a party to perform notwithstanding a breach, and thus waiving the breach,
is conclusive, in the sense of depriving that party of any excuse for ceasing
performance, with the result that the party at fault may require that the other party
perform.”). Under Minnesota law, a waiver is the “intentional relinquishment of a
known right.” White v. City of Elk River, 840 N.W.2d 43, 51 (Minn. 2013).
Here, although St. Jude had yet to provide Tormey with TSS support in
September 2003, Tormey continued to treat his contract with St. Jude as though it
remained in effect. This is evidenced by Tormey suggesting and accepting reduced
sales quotas which he acknowledged he could perform himself. Consequently,
Tormey bound himself to the provisions of the unitary agreement as a whole,
including meeting these sales quotas and repaying the note to St. Jude, regardless of
St. Jude’s first breach. Accordingly, we conclude Tormey waived his ability to rely
on a first-breach defense as an excuse for failing to repay the note.
Tormey’s second asserted affirmative defense relies on the “walk-away
agreement,” arguing St. Jude and Tormey settled the debt Tormey owed. According
to Tormey, the district court erred by instructing the jury to consider the existence of
the “walk-away agreement” under the clear and convincing evidence standard.
Instead, relying on Bolander v. Bolander, 703 N.W.2d 529, 541 (Minn. Ct. App.
2005), Tormey contends the district court should have instructed the jury to review
the agreement based on the preponderance of the evidence standard because the
“walk-away agreement” was not a modification to the agreements existing between
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St. Jude and Tormey. Rather, like the agreement made in Petsche v. EMC Mortgage
Corp., 830 F. Supp. 2d 663, 672 (D. Minn. 2011), the “walk-away agreement” was the
settlement of a debt which is not considered a modification. Moreover, because the
agreement was the settlement of a debt, it cannot be considered a credit agreement and
need not be in writing to be enforceable. Id. Tormey concedes, however, if the
“walk-away agreement” was an oral modification or a credit agreement, then it needed
to be memorialized in writing to satisfy the Minnesota statute of frauds for credit
agreements.
Although Tormey frames the initial issue as an objection to the district court’s
jury instructions, because the district court granted judgment as a matter of law, in
substance, Tormey is objecting to the burden of proof applied by the district court
when it reached its conclusion on Tormey’s defense. To address Tormey’s arguments,
however, we need only consider whether the alleged “walk-away agreement” was a
credit agreement within the meaning of Minnesota statute § 513.33, which maintains
credit agreements must be in writing. Minn. Stat. § 513.33, subd. 2; see also Greuling
v. Wells Fargo Home Mortg., Inc., 690 N.W.2d 757, 761-62 (Minn. Ct. App. 2005)
(“[C]laims on agreements falling under section 513.33 fail as a matter of law if the
agreement is not in writing.”). A credit agreement within the meaning of § 513.33 is
“an agreement to lend or forbear repayment of money, goods, or things in action, to
otherwise extend credit, or to make any other financial accommodation.” Minn. Stat.
§ 513.33, subd. 1.
First, we find Tormey’s reliance on Petsche is misplaced and the case is not
controlling. Instead, we find Tormey’s circumstances are much like those found in
Loan Store v. McConnell, No. A06-122, 2006 WL 3490807, at *3 (Minn. Ct. App.
Dec. 5, 2006) (“Even if we were to interpret [§ 513.33] very narrowly, an agreement
that would excuse remaining payment on the debt would fall under forbearing
repayment of money.”), and Carlson v. Estes, 458 N.W.2d 123, 128 (Minn. Ct. App.
1990) (finding where a lender waived a claim to some monetary value, the agreement
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was a credit agreement under § 513.33 because it clearly constituted a financial
accommodation and was an action to forbear the repayment of money), which
determined the agreements were oral modifications to the original agreements and
therefore credit agreements. Tormey’s case is also distinguishable from Bolander,
which discussed whether the existence of a new “promise to pay” for services
rendered after expiration of the original contract was a modification to the original
contract. 703 N.W.2d at 542.
Additionally, the “walk-away agreement” by itself constitutes a credit
agreement regardless of whether it modified the terms of the original agreements
because it was an agreement to forbear repayment. See BankCherokee v. Insignia
Dev., LLC, 779 N.W.2d 896, 902 (Minn. Ct. App. 2010) (“Among the agreements
subject to [the] requirements [of § 513.33] are many that commonly would serve as
the basis for affirmative defenses, such as agreements to ‘forbear repayment of
money’ or make some ‘other financial accommodation.’”); Greuling, 690 N.W.2d at
762 (“The plain and unambiguous language of [§ 513.33] clearly prohibits a claim that
a new credit agreement is created unless the agreement is in writing, expresses
consideration, sets forth all relevant terms and conditions, and is signed by the creditor
and debtor.”). Consequently, because Tormey did not present evidence that the
“walk-away agreement” was in writing as required by § 513.33, we find the district
court did not err by granting judgment as a matter of law on this defense or on
St. Jude’s collection claim.
B. Tormey’s Counterclaims4
Tormey next contends the district court erred by granting judgment as a matter
of law on his counterclaims. The district court found Tormey’s counterclaims were
4
Because Tormey and Tormedco appear collectively for this portion of the
appeal, we refer to them simply as Tormey.
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barred by the statute of limitations, and Tormey failed to present sufficient evidence
to toll the period based on a theory of estoppel. On appeal, Tormey argues he
reasonably relied on the “walk-away agreement” until at least May 2009 and asserted
his claims in February 2011, which resulted in his claims being filed within the two-
year statute of limitations provided in the representative agreement. Consequently,
Tormey asserts his counterclaims were not time-barred.
Contrary to Tormey’s assertion, we find the district court did not err by granting
judgment as a matter of law on Tormey’s counterclaims. Although Tormey does not
specify the particular theory of estoppel upon which he relies, based on the claims he
alleges and cases he cites, we find he is relying on promissory estoppel to toll the
statute of limitations. See Bracewell v. U.S. Bank Nat’l Ass’n, 748 F.3d 793, 796 (8th
Cir. 2014) (finding “[a] claim is more appropriately analyzed under the doctrine of
promissory estoppel, not equitable estoppel, where representations upon which the
plaintiff allegedly relied are more akin to statements of future intent than past or
present fact”) (alteration in original) (internal quotation marks and citation omitted).
Under Minnesota law, oral promises which constitute a credit agreement within the
ambit of § 513.33 cannot be enforced under a theory of promissory estoppel; the
promises must be in writing. See Bracewell, 748 F.3d at 796 (affirming the dismissal
of a complaint alleging promissory estoppel because the claim of an oral agreement
was barred by the Minnesota Credit Agreement Statute); BankCherokee, 779 N.W.2d
at 903 (affirming summary judgment because the appellant could not assert
promissory estoppel as an affirmative defense on the basis of an oral promise which
constituted a credit agreement under § 513.33); Christensen v. PennyMac Loan Servs.,
LLC, 988 F. Supp. 2d 1036, 1044 (D. Minn. 2013) (citing cases standing for the
proposition that allowing parties to assert promissory estoppel as a mechanism to
enforce an alleged oral promise would constitute an “end run” around the writing
requirements of § 513.33). As a result, Tormey cannot assert promissory estoppel on
the basis of the “walk-away agreement” to toll the statute of limitations because there
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is not a writing evidencing the “walk-away agreement.” We therefore find the district
court properly determined Tormey’s counterclaims were time-barred.
III
Tormey finally argues the magistrate judge abused his discretion by denying the
majority of Tormey’s motion to compel answers to discovery requesting “sales levels
for other [St. Jude] cardiac sales reps, their conversion to employee status or
dismissal, and related issues.” The magistrate judge granted Tormey’s motion for
only one territory for which Tormey sought information. As a consequence of the
magistrate judge’s limitation on discovery, Tormey contends he was unfairly
prevented from developing a defense at trial that St. Jude terminated Tormey without
cause. We, however, are without jurisdiction to decide this issue because Tormey did
not object to the magistrate judge’s order. See Fed. R. Civ. P. 72(a) (stating that upon
issuance of a magistrate judge’s order on a nondispositive issue, “[a] party may not
assign as error a defect in the order not timely objected to”); McDonald v. City of
St. Paul, 679 F.3d 698, 709 (8th Cir. 2012) (finding a party could not challenge a
magistrate judge’s nondispositive pretrial discovery order on appeal because he did
not timely file objections before the district court).
IV
For the foregoing reasons, we affirm.
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