Christopher Gorog v. Best Buy Co., Inc.

United States Court of Appeals
For the Eighth Circuit
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No. 13-2231
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Christopher Gorog
lllllllllllllllllllll Plaintiff - Appellant
v.
Best Buy Co., Inc.; Napster, Inc.
lllllllllllllllllllll Defendants - Appellees
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Appeal from United States District Court
for the District of Minnesota - Minneapolis
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Submitted: May 14, 2014
Filed: July 24, 2014
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Before WOLLMAN, MELLOY, and BENTON, Circuit Judges.
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WOLLMAN, Circuit Judge.
Christopher Gorog appeals from the district court’s1 dismissal of his amended
complaint against Best Buy Co., Inc., and Napster, Inc., for breach of contract. We
affirm.
1
The Honorable David S. Doty, United States District Judge for the District of
Minnesota.
I. Background
Gorog was the CEO of Roxio, Inc. In 2002, Roxio acquired the assets of
Napster, an Internet file-sharing service. Roxio re-branded Napster, and Gorog
assumed the role of Napster’s CEO.
In 2008, Best Buy purchased Napster. Best Buy sought to continue the
employment of Gorog and other Napster executives. Gorog entered into an
employment agreement (the Employment Agreement) with Napster, which was then
a wholly owned subsidiary of Best Buy. The Employment Agreement contemplated,
among other things, that Napster and thereby Best Buy would employ Gorog until
March 3, 2012, and that Gorog would be entitled to a performance award subject to
certain conditions. The terms of the performance award were agreed upon in a
separate document (the Award Agreement).
The Award Agreement provided that Gorog had “the right to earn a
performance-based award, which may be comprised of a series of interim payments
(collectively the ‘Performance Award’), having a target value of $2,925,000[.]” The
Award Agreement contemplated that Gorog would be eligible to earn the
performance award at four specific performance target dates provided that he
remained employed and that Napster achieved certain performance criteria measured
on the performance target dates.
A few months after his employment began, Gorog decided to resign because
he believed that Napster was not a priority for Best Buy. On December 31, 2009, in
connection with his resignation, Gorog signed a Waiver and General Release (the
Separation Agreement). The Separation Agreement provided that Gorog’s
employment would be terminated without cause and that Gorog would not release any
claims to a performance award under the Award Agreement.
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Sometime in the fall of 2011, Best Buy sold Napster to Rhapsody, another
Internet music business. Rhapsody ceased operating Napster and transferred
Napster’s subscribers to Rhapsody’s platform.
This contract dispute arises out of Best Buy’s refusal to pay Gorog a
performance award under the Award Agreement. Relevant to this dispute, the Award
Agreement contained four “Forfeiture/Acceleration” provisions that addressed other
circumstances in which Gorog would or would not be entitled to a performance
award. The provisions read as follows:
2.4 Forfeiture/Acceleration
(a) If, prior to the end of the Performance Period, your
employment is terminated by reason of death or because
you become Disabled, you will be entitled to receive a
Performance Award equal to 100% of the Performance
Award Target Value . . . .
(b) If, prior to the end of the Performance Period, your
employment is terminated by Napster without Cause or you
terminate your employment with Napster for Good Reason,
the Performance Period will continue and you will be
entitled to receive a Performance Award equal to a pro-rata
portion, based on the number of Whole Months you served
during the Performance Period, of the Performance Award
that otherwise would have been earned in accordance with
the Performance Criteria Schedule . . . .
(c) If, prior to the Performance Target Date, majority
ownership of Napster (or any successor entity) is sold by
Best Buy or spun-off to its shareholders, or if the venture
ceases operations (the “Event”), you shall be entitled to
receive a Performance Award equal to 100% of the
Performance Award Target Value, regardless of whether
the Performance Criteria have been met. . . .
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(d) If your employment is terminated during the Performance
Period for any other reason, your rights to any Performance
Award will be immediately and irrevocably forfeited.
Gorog filed a complaint against Best Buy alleging, among other things, breach
of contract, and claiming that Best Buy owed him a performance award under section
2.4(c) as a result of its sale of Napster. Gorog then amended his complaint to add
Napster as a defendant.2 Best Buy moved to dismiss the amended complaint under
Federal Rule of Civil Procedure 12(b)(6), arguing that the forfeiture and acceleration
provisions were mutually exclusive and that because Gorog was terminated without
cause, the only forfeiture and acceleration provision that potentially applied was
section 2.4(b).
The district court granted Best Buy’s motion. In doing so, the district court
considered the Employment Agreement, the Award Agreement, and the Separation
Agreement, which Best Buy submitted with its motion to dismiss. The district court
concluded that the language of the forfeiture and acceleration provisions mandated
that Gorog be entitled to a post-termination performance award only “if he satisfied
one of the reasons for termination set forth in section 2.4 (a)-(c).” D. Ct. Order of
May 8, 2013, at 9. Thus, because Gorog had not alleged that he was terminated due
to death or disability or as a result of the sale of Napster, the district court determined
that Gorog could recover only under section 2.4(b). The district court then noted that
the amended complaint contained no allegation that Napster had satisfied the
performance criteria as required by section 2.4(b). Consequently, the district court
dismissed Gorog’s breach-of-contract claim because Gorog had not alleged that he
was entitled to a performance award under 2.4(b), the sole applicable forfeiture and
acceleration provision.
2
We refer to the appellees collectively as Best Buy for the remainder of this
opinion.
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II. Discussion
Gorog advances two main arguments on appeal: (1) the district court erred by
failing to convert Best Buy’s motion to dismiss into a motion for summary judgment
and, as a result, denied Gorog the opportunity to conduct reasonable discovery; and
(2) the district court erred in dismissing Gorog’s complaint for failure to state a claim
for breach of contract.
A. Federal Rule of Civil Procedure 12(d)
We first consider Gorog’s argument that the district court erred by considering
matters outside the pleadings without then converting Best Buy’s Rule 12(b)(6)
motion to dismiss into one for summary judgment, thereby denying Gorog an
opportunity to conduct discovery.
“If, on a motion under Rule 12(b)(6) . . . , matters outside the pleadings are
presented to and not excluded by the court, the motion shall be treated as one for
summary judgment and disposed of as provided in [Federal] Rule [of Civil Procedure]
56.” Fed. R. Civ. P. 12(d). “Rule 12(b)(6) motions are not automatically converted
into motions for summary judgment simply because one party submits additional
matters in support of or [in] opposition to the motion.” Casazza v. Kiser, 313 F.3d
414, 417 (8th Cir. 2002) (alteration in original) (quoting Missouri ex rel. Nixon v.
Coeur D’Alene Tribe, 164 F.3d 1102, 1107 (8th Cir. 1999)). A district court does not
convert a motion to dismiss into a motion for summary judgment when, for example,
it does not rely upon matters outside the pleadings in granting the motion. BJC
Health Sys. v. Columbia Cas. Co., 348 F.3d 685, 688 (8th Cir. 2003).
Although Best Buy submitted voluminous documents with its motion to
dismiss, the district court exclusively relied on the Employment Agreement, the
Award Agreement, and the Separation Agreement in rendering its decision. Gorog
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concedes that the Employment Agreement and the Separation Agreement are
embraced by his amended complaint and thus were appropriately considered by the
district court. Accordingly, we must determine whether the Award Agreement is a
matter outside the pleadings such that conversion to summary judgment was required.
“Most courts . . . view ‘matters outside the pleading’ as including any written
or oral evidence in support of or in opposition to the pleading that provides some
substantiation for and does not merely reiterate what is said in the pleadings.” Id. at
687 (omission in original) (quoting Gibb v. Scott, 958 F.2d 814, 816 (8th Cir. 1992)).
“Though matters outside the pleading may not be considered in deciding a Rule 12
motion to dismiss, documents necessarily embraced by the complaint are not matters
outside the pleading.” Ashanti v. City of Golden Valley, 666 F.3d 1148, 1151 (8th
Cir. 2012) (quoting Enervations, Inc. v. Minn. Mining & Mfg. Co., 380 F.3d 1066,
1069 (8th Cir. 2004)). “[T]he contracts upon which [a] claim rests . . . are evidently
embraced by the pleadings.” Mattes v. ABC Plastics, Inc., 323 F.3d 695, 697 n.4 (8th
Cir. 2003); see also Stahl v. U.S. Dep’t of Agric., 327 F.3d 697, 700 (8th Cir. 2003)
(“In a case involving a contract, the court may examine the contract documents in
deciding a motion to dismiss.”).
We conclude that the Award Agreement is embraced by Gorog’s amended
complaint. Gorog quotes from the Award Agreement in paragraph 13 of his amended
complaint:
Relevant here, the agreement contained two acceleration provisions.
First, the agreement stated that, “[i]f, prior to the Performance Target
Date, your employment is terminated . . . the Performance Period will
continue and you will be entitled to receive a Performance Award equal
to a pro-rata portion, based on the number of Whole Months you served
during the performance period . . . .” Second, the agreement stated that,
“[i]f, prior to the Performance Target Date, majority ownership of
Napster . . . is sold by Best Buy . . . or the venture ceases operations . . .
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you shall be entitled to receive a Performance Award equal to 100% of
the Performance Award Target Value, regardless of whether the
Performance Criteria have been met.”3
(Alterations and omissions in original). Moreover, the Award Agreement is the sole
basis for Gorog’s complaint, as it is the contract upon which Gorog’s breach-of-
contract claim rests. See Mattes, 323 F.3d at 697 n.4. The Award Agreement is the
contract that establishes Gorog’s right to any payment of a performance award and
sets forth the terms that dictate the circumstances in which Gorog would be entitled
to receive a performance award. As the district court correctly noted, “the court need
only examine the relevant terms of the . . . Award [Agreement]” to resolve this
dispute. D. Ct. Order of May 8, 2013, at 7.
The district court considered only the pleadings and matters embraced therein.
We thus hold that the district court’s reliance upon the Award Agreement did not
convert the motion to dismiss into one for summary judgment. Accordingly, we need
not address Gorog’s subsequent argument that the district court erred by failing to
defer the motion for summary judgment under Federal Rule of Civil Procedure 56(d)
to allow him to conduct meaningful discovery.
3
Gorog acknowledges that his amended complaint refers to and quotes the
relevant portions of the Award Agreement but contends that his amended complaint
is based on a sample award agreement, because he never received a copy of the
Award Agreement that Best Buy filed with its motion to dismiss. At oral argument,
Gorog’s counsel disputed whether the Award Agreement attached to Best Buy’s
motion to dismiss was in fact the final version of the agreement because it differed
in two respects from the sample award agreement. Gorog, however, does not contend
that the language of the forfeiture and acceleration provisions differs from that of the
forfeiture and acceleration provisions in the sample award agreement. Because the
relevant provisions of the Award Agreement are the same as those contained in the
sample award agreement, the district court did not err in considering the forfeiture
and acceleration provisions even though Gorog alleges that he did not receive a copy
of the Award Agreement.
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B. Breach-of-Contract Claim
We turn now to Gorog’s argument that the district court erred in dismissing his
complaint for failure to state a claim for breach of contract.
“We review de novo the district court’s grant of a motion to dismiss, accepting
as true all factual allegations in the complaint and drawing all reasonable inferences
in favor of the nonmoving party.” Simes v. Ark. Judicial Discipline & Disability
Comm’n, 734 F.3d 830, 834 (8th Cir. 2013) (quoting Richter v. Advance Auto Parts,
Inc., 686 F.3d 847, 850 (8th Cir. 2012) (per curiam)). “To survive a motion to
dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state
a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see also
Fed. R. Civ. P. 8(a)(2) (requiring “a short and plain statement of the claim showing
that the pleader is entitled to relief”). “Where, as here, the claims relate to a written
contract that is part of the record in the case, we consider the language of the contract
when reviewing the sufficiency of the complaint.” M.M. Silta, Inc. v. Cleveland
Cliffs, Inc., 616 F.3d 872, 876 (8th Cir. 2010).
The parties agree that this case is governed by Minnesota law. The
interpretation of an unambiguous contract presents a question of law. Travertine
Corp. v. Lexington-Silverwood, 683 N.W.2d 267, 271 (Minn. 2004). “[C]ourts must
read contract terms in the context of the entire agreement, and the terms should not
be construed in a manner that leads to a harsh and absurd result.” M.M. Silta, Inc.,
616 F.3d at 877 (applying Minnesota law). “[W]e construe the parties’ agreement as
a whole and attempt to harmonize all clauses of the contract in order to give effect to
the parties’ intention.” Medtronic, Inc. v. ConvaCare, Inc., 17 F.3d 252, 255 (8th Cir.
1994) (applying Minnesota law). “A contract should also be interpreted in a manner
that gives meaning to all of its provisions.” M.M. Silta, Inc., 616 F.3d at 877.
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Gorog contends that he is entitled to a performance award under section 2.4(c)
of the Award Agreement because the majority ownership of Napster was sold and the
venture ceased operations. The crux of Gorog’s argument is that section 2.4(c)
requires only the sale or cessation of Napster for Gorog to recover a performance
award without regard to whether Gorog had been terminated. In other words,
according to Gorog, there is nothing in the language of the forfeiture and acceleration
provisions that prevents Gorog from invoking section 2.4(c) after his termination
without cause because sections 2.4(b) and 2.4(c) are not mutually exclusive. Best
Buy responds by arguing that the provisions are mutually exclusive, as each provision
describes a method by which Gorog’s employment could terminate. According to
Best Buy, section 2.4(c) applies only when Gorog is employed at the time Napster is
sold or ceases operations, thereby effectively ending Gorog’s employment
relationship with Best Buy. Because Gorog’s employment was terminated without
cause, Best Buy argues, only section 2.4(b) can apply.
We conclude that Gorog’s breach-of-contract claim is foreclosed by the plain
language of the Award Agreement.4 The forfeiture and acceleration provisions are
mutually exclusive and thus Gorog is not entitled to a performance award under
section 2.4(c). When read in isolation, section 2.4(c) seems to require only the sale
or cessation of Napster without regard to whether Gorog had been terminated. When
placed in context and read in conjunction with the other forfeiture and acceleration
provisions, however, it becomes clear that section 2.4(c) describes a method by which
Gorog’s employment relationship with Best Buy could end. Sections 2.4(a) and
2.4(b) contemplate a performance award if Gorog’s employment is terminated by
death or disability or without cause. Section 2.4(d) provides that if Gorog’s
“employment is terminated during the Performance Period for any other reason,” his
4
In light of our holding, we need not consider Gorog’s argument regarding the
purpose of section 2.4(c). See Metro. Sports Facilities Comm’n v. Gen. Mills, Inc.,
470 N.W.2d 118, 123 (Minn. 1991) (“Where a written contract is unambiguous, the
court must deduce the parties’ intent from the language used.”).
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right to any performance award would be forfeited. (Emphasis added). Section
2.4(d) thus implies that the sections preceding it outline the circumstances in which
Gorog’s termination would give rise to a performance award. The fact that section
2.4(c) does not contain the word “terminated” does not by itself compel a different
result. Even without the word terminated, section 2.4(c) describes a method by which
Gorog’s employment relationship with Best Buy could end: upon the sale of Napster,
Gorog’s employment relationship with Best Buy would terminate because Best Buy
would no longer own Gorog’s employer. Thus, the forfeiture and acceleration
provisions entitle Gorog to a performance award only if he is terminated for one of
the reasons set forth in sections 2.4(a) through 2.4(c).
If we were to adopt Gorog’s interpretation—that section 2.4(c) provides for a
performance award regardless of whether Gorog had been terminated prior to the sale
of Napster—section 2.4(c) would, in certain circumstances, conflict with the other
sections of the forfeiture and acceleration provisions. For example, if Gorog had
been terminated for cause before the sale of Napster, then section 2.4(c) would entitle
Gorog to a performance award of 100% and section 2.4(d) would forfeit Gorog’s
right to a performance award. If Gorog had been terminated without cause before the
sale of Napster and Napster later achieved the performance criteria, then section
2.4(c) would entitle Gorog to a performance award of 100% and section 2.4(b) would
entitle Gorog to a pro-rated performance award. In these examples, both sections
cannot apply, for one necessarily renders the other null. By interpreting the forfeiture
and acceleration provisions as mutually exclusive, sections 2.4(a) through 2.4(d) are
harmonized and will be applied without causing absurd results.
Moreover, as both parties acknowledged at oral argument, the Award
Agreement provides for a single performance award. Indeed, the Award Agreement
refers to “a Performance Award” and “the Performance Award,” and never plural
performance awards. The performance award is equal to a percentage of the
performance award target value based on the achievement of the performance criteria.
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The forfeiture and acceleration provisions provide for a performance award in
circumstances in which Gorog would not be entitled to receive a performance award
based on his employment and Napster’s achievement of the performance criteria.
Regardless of the manner in which Gorog qualifies for the performance award, he is
entitled only to a single performance award. If we were to read the forfeiture and
acceleration provisions as not mutually exclusive, they would provide for two
performance awards if Gorog’s employment had been terminated by reason of death
or disability or without cause and the majority ownership of Napster had been sold.
This interpretation conflicts with the language in the Award Agreement that
establishes the right to a single performance award. Interpreting the forfeiture and
acceleration provisions in the context of the entire Award Agreement, the provisions
are mutually exclusive and provide for a performance award only upon termination
because of one of the reasons set forth in sections 2.4(a) through 2.4(c).
Gorog is not entitled to a performance award under section 2.4(c) because his
employment was terminated without cause, and thus section 2.4(b) exclusively
applies. Because Gorog has not alleged in his amended complaint that Napster
achieved the performance criteria required for Gorog to receive a performance award
under section 2.4(b), he is not entitled to a performance award under the Award
Agreement. Accordingly, he has failed to state a claim for breach of contract.
III. Conclusion
The judgment is affirmed.
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