E. W. Blanch Co. v. Hussein Enan

No. 96-3561
E. W. BLANCH CO., INC., *
a Delaware corporation with *
its principal place of *
business in Minnesota, *
*
Plaintiff-Appellee, *
*
v. *
*
HUSSEIN A. ENAN, an individual *
resident of California, *
*
Defendant-Appellant *
* Appeal from the United States
and * District Court for the District
* of Minnesota
HUSSEIN A. ENAN, an individual *
resident of California *
*
Counterclaimant-Appellant *
*
v. *
*
E. W. BLANCH CO., INC. a *
Delaware corporation with its *
principal place of business in *
Minnesota, and E.W. BLANCH *
HOLDINGS, INC., a Delaware *
corporation with its principal *
place of business in Minnesota *
*
Counterclaim Defendants-
Appellees
Submitted: March 14, 1997
Filed: September 5, 1997
Before WOLLMAN and BEAM, Circuit Judges, and REASONER,1 District
Judge.
REASONER, District Judge.
This is an appeal from the order of the district court2 granting
summary judgment in favor of Appellee E. W. Blanch Co., Inc. ("Blanch
Company") and against Appellant Hussein A. Enan ("Mr. Enan"). Mr. Enan
argues first, on his breach of contract claim for severance compensation,
that there is no evidence to support the district court's conclusion that
his rights under a separate Employment Agreement were waived by his
independent act of voting to convert Blanch Company from a partnership to
a corporation; and second, that the record contains direct evidence of age-
based discrimination which entitles him to submit his age discrimination
claim to a jury. For the reasons discussed below, the district court's
order granting summary judgment on the age discrimination claim is
affirmed. We reverse and remand the case for trial on the merits of the
breach of contract claim.
I. Background
A. Factual
Appellee, Blanch Company, is a Delaware corporation headquartered in
Bloomington, Minnesota, which provides reinsurance brokerage services for
primary insurance companies. Appellant, Mr. Enan, is a Canadian citizen
with substantial experience and expertise in the reinsurance business. In
March 1979, Mr. Enan founded Enan & Co., an insurance brokerage business
in Montreal, Canada. Shortly after forming the company, Mr. Enan moved the
1
The Honorable Stephen M. Reasoner, Chief Judge, United
States District Court for the Eastern District of Arkansas,
sitting by designation.
2
The Honorable Michael J. Davis, United States District
Judge for the District of Minnesota.
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business to San Francisco where it remained until 1992.
In March 1992, Enan & Co. was acquired in a merger transaction by
E. W. Blanch Limited Partnership ("Blanch Partnership"), a Minneapolis-
based reinsurance brokerage firm. An essential element of Blanch
Partnership's acquisition of Enan & Co. was for Mr. Enan to become an
employee of Blanch Partnership. With the acquisition, Mr. Enan was
contemporaneously presented a copy of the existing Blanch Partnership
Agreement3 and executed a separate Employment Agreement with Enan & Co.4
The Employment Agreement provides that Mr. Enan be employed "as a Senior
Executive, to perform the duties and functions specified by the President
or Chief Executive Officer," and that Mr. Enan receive an annual salary of
$400,000 a year, plus participation in the Broker Incentive Plan and a
potential management bonus. The Employment Agreement also contains
provisions addressing termination of employment under various conditions.
Sections 7(a) and (d) of the Employment Agreement provide:
(a) The employer may terminate the Employee's employment
hereunder, and shall have no further obligation or liability to
the Employee ... if... (iii) the Employee voluntarily
terminates his employment hereunder; provided, however, that if
the Employee voluntarily terminates his employment hereunder
because his responsibilities have been materially diminished
... the Employee's termination of employment shall be deemed to
be a termination by the Employer without cause. Any
termination pursuant to subsections (i)-(ii) of this Section
7(a) shall be deemed to be a termination for cause.
3
Section 5.02 of the Partnership Agreement provides that
"[e]xcept as otherwise expressly provided in this Agreement, all
decisions respecting any matter set forth herein or otherwise
affecting or arising out of the conduct of the business of the
Partnership shall be made by the General Partners and the General
Partners shall have the exclusive right and full authority to
manage, conduct and operate the Partnership's business."
4
The Employment Agreement was subsequently assigned to
Blanch Partnership.
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(d) In the event this Agreement is terminated by the
Employer without cause, (i) then the Employer shall pay to the
Employee or his estate, as the case may be, $33,333 per month
for forty-eight (48) months, and (ii) the Employer shall also
pay the Employee an additional $33,333 per month (x) for
twenty-four (24) months, or (y) for the number of months
remaining under the terms of this Agreement, whichever is less,
but shall otherwise have no further obligation or liability
under this Agreement.
(emphasis added). During the year after Blanch Partnership's acquisition
of Enan & Co., Mr. Enan spent approximately half of his time servicing
existing Blanch Partnership and Enan & Co. clients and trying to obtain new
business from them. The other half of his time was devoted to corporate
matters.
In March 1993, E. W. Blanch Holdings, Inc. ("Blanch Holdings") was
created. All existing interests in Blanch Partnership were exchanged in
an initial public offering ("I.P.O.") of stock for shares in Blanch
Holdings. Blanch Partnership was merged out of existence. The purpose of
the I.P.O. was to reorganize Blanch Partnership into a corporate form of
business. From and after the I.P.O., the business formerly conducted by
Blanch Partnership was conducted by Blanch Company, whose board of
directors included Mr. Enan.
Only three of the eight former general partners of Blanch Partnership
were asked to serve on Blanch Holdings' board of directors. Mr. Enan was
not one of those three. Significant changes in the job responsibilities
of the former general partners occurred after the I.P.O. These changes
resulted primarily from the division of responsibility between Blanch
Company and Blanch Holdings.5 After the I.P.O., Blanch Company assumed
responsibility for the day-to-day sales and servicing operations of the
business,
5
Immediately following the I.P.O., Blanch Company was Blanch
Holdings only operating subsidiary.
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while matters of "corporate governance" became the responsibility of Blanch
Holdings and specifically its board of directors. The I.P.O. left Mr. Enan
as an employee of Blanch Company.
B. Procedural
Blanch Company commenced this action on November 21, 1994, seeking
a declaratory judgment that its former employee, Mr. Enan, is not entitled
to severance compensation under the terms of his Employment Agreement with
Blanch Company. Mr. Enan counterclaimed against Blanch Company and its
parent, Blanch Holdings, for breach of contract and violation of federal
and state laws prohibiting age discrimination. Both parties filed motions
for summary judgment with Mr. Enan moving on his breach of contract
counterclaim, and Blanch Company moving on its declaratory judgment action
(based on the Employment Agreement) and the claim of age discrimination.
On September 12, 1996, the district court issued a Memorandum and
Order granting Blanch Company's motion for summary judgment and denying Mr.
Enan's motion for summary judgment. Judgment was entered on September 13,
1996, and this appeal followed.
II. Standard of Review
This Court reviews the district court's grant of summary judgment de
novo, applying the same standard as the district court. Garner v. Arvin
Indus. Inc., 77 F.3d 255, 257 (8th Cir. 1996)(citations omitted). That
standard is whether the record, when viewed in the light most favorable to
the non-moving party, shows no genuine issue of material fact and that the
moving party is entitled to judgment as a matter of law. Fed. R. Civ. Pro.
56(c); In re Young, 82 F.3d 1407, 1413 (8th Cir. 1996).
III. Severance Compensation - Breach of Contract
The focus of the parties' dispute over severance compensation
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is whether Mr. Enan's responsibilities were "materially diminished"
pursuant to Section 7 of the Employment Agreement. Blanch Company argues
that the language of the Employment Agreement provides that Mr. Enan be
employed as a Senior Executive to perform the duties and functions
specified by the President and Chief Executive Officer. Blanch Company
reasons that because Mr. Enan was employed throughout the course of his
tenure with E. W. Blanch as an employee who reported directly to the
President and because the Employment Agreement did not specify any other
duties or authority, Mr. Enan's duties were not materially diminished.
Blanch Company further states that the reinsurance brokerage business
formerly run by Blanch Partnership was subsequently run by Blanch Company,
whose board of directors included Mr. Enan. In addition to the Blanch
Company board seat, Blanch Company alleges that Mr. Enan was given other
influential, high-level positions and responsibilities.
Mr. Enan counters that his responsibilities after the reorganization
were in fact materially diminished from what they were under the Employment
Agreement. Specifically, Mr. Enan contends that prior to the I.P.O., he
acted as a general partner in Blanch Partnership and shared the
responsibilities of overall management and control of the business and
affairs of the Partnership but that after the reorganization, he was unable
to participate in matters of corporate governance and was not made aware
of corporate decisions. Mr. Enan claims that under the partnership
structure, he had the right to participate in important business decisions
and provide his input, but that after the I.P.O. he was intentionally
excluded from most such discussions because senior management did not
regard him as having a "need to know." Mr. Enan testified, "I quit because
my responsibilities were diminished."6
6
Mr. Enan resigned on November 8, 1994.
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The district court found that Mr. Enan knew he would not serve as a
member of Blanch Holdings board of directors and, therefore, waived any
rights and responsibilities he had under the Employment Agreement.
Specifically, as a result of Mr. Enan's actions in voting in favor of the
I.P.O., the district court reasoned that Mr. Enan waived or intentionally
relinquished all rights as a general partner, including those attributable
to his Employment Agreement. However, while Mr. Enan admits he knew at the
time he voted for the I.P.O. that he would not be a general partner nor be
on the initial board of directors of Blanch Holdings, he argues that he
received express assurances that he would still be involved in the
management and control of the business. After the I.P.O., the evidence
reveals that Mr. Enan was not involved in any of the following corporate
management actions directly related to the operation of Blanch Company:
1. The decision of Blanch Holdings to restructure
Blanch Company into two separate entities;
2. the Swire Blanch Joint Venture;
3. the decision to begin negotiations for the
acquisition of Elton George Companies;
4. Blanch Holdings' acquisition discussions with
various other insurance intermediary firms; and
5. Blanch Holdings' negotiations to purchase a
software company.
Furthermore, before the I.P.O. there is evidence in the record to suggest
that Mr. Enan would have been involved in decisions of this type.
It does not follow from the fact that Mr. Enan knew at the time of
the I.P.O. he would not be a general partner nor be on the initial board
of directors of Blanch Holdings that he would no longer be involved in
management level decisions but would in essence be relegated to the role
of sales person. Under California
-7-
law,7 it also does not follow as a matter of law that Mr. Enan's vote in
favor of the I.P.O. amounted to a waiver of his rights under his separate
Employment Agreement. See Vacco Industries, 6 Cal. Rptr. 2d 602, 609 (Cal.
Ct. App. 1992). Mr. Enan was the only one of the eight general partners
that entered an Employment Agreement containing a severance clause for
compensation if his duties were materially diminished. An inference can
be drawn from this fact that Mr. Enan's responsibilities with Blanch
Company may have been unique and were to be preserved in spite of the
change to corporate structure. The district court regarded it as Mr.
Enan's obligation at the time of the restructuring either to leave the
company or to take "other recourse to ensure that he would still be
involved with corporate governance and strategy." A. 96-97. However, as
long as the Employment Agreement was in force and effect, Mr. Enan was
under no obligation to do either. Under the Employment Agreement, which
both parties agree was in effect after the I.P.O.,8 Mr. Blanch had complete
control over the extent to which Mr. Enan was involved in running the
business. There exists a question of fact whether by choosing to change
Mr. Enan's job responsibilities after the I.P.O., Mr. Blanch materially
diminished Mr. Enan's duties which would entitle him to severance
compensation under the Employment Agreement.
IV. Age Discrimination
With respect to the age discrimination claim, Mr. Enan claims he had
both direct evidence of age discrimination and indirect
7
Section 14 of the Employment Agreement provides that the
agreement "shall be governed by and construed in accordance with
the laws of the State of California, without giving effect to
principles of conflicts of laws."
8
Blanch & Co. admits that Mr. Enan's "status as an employee
continued to be governed by the terms of his Employment
Agreement, while his status as an investor was governed by his
rights as a shareholder."
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evidence. In order to sustain a mixed-motive claim of age discrimination,
a party must provide direct evidence that an illegitimate criterion such
as age was a motivating factor in the employment decision. Beshears v.
Asbill, 930 F.2d 1348, 1353 (8th Cir. 1991). Then the burden-shifting
standards of Price Waterhouse v. Hopkins, 490 U.S. 228, 258 (1989) come
into play and the burden shifts to the employer to establish that it would
have made the same decision notwithstanding the party's age.
Mr. Enan relied upon two facts: 1) that he was excluded from
corporate decisions and 2) the statement of Mr. Blanch when Chris Walker
was selected for the position of board member, that "Mr. Walker is the
right age". This alleged statement was the only incident of direct
evidence of age bias alluded to by Enan. In the cases relied upon by Mr.
Enan, in addition to direct evidence of age discrimination, there was
further evidence of a discriminatory attitude. See Beshears v. Asbill, 930
F.2d 1348, 1353-54 (8th Cir. 1991) and Radabaugh v. Zip Feed Mills, Inc.,
997 F.2d 444, 448-49 (8th Cir. 1993). Here, Mr. Enan could not point to
any evidence of discriminatory attitude other than the alleged statement
by Mr. Blanch. In Woythal v. Tex-Tenn Corp., 112 F.3d 243 (6th Cir. 1997)
the Sixth Circuit upheld summary disposition of an Age Discrimination in
Employment Act claim where the age discriminatory comments made no direct
reference to the plaintiff's age. Here, the comment by Mr. Blanch made no
direct reference to Mr. Enan's age.
With respect to his circumstantial case of age discrimination, the
basic three-part analysis of McDonnell Douglas v. Green, 411 U.S. 792
(1973) is applicable. Under that test, the plaintiff makes a prima facie
case by showing that 1) he was within the protected age group, 2) he was
performing his job at a level that met his employer's legitimate
expectations, 3) he was discharged, and 4) his employer attempted to
replace him. Radabaugh, 997 F.2d at 449. The record in this case
reflects that defendant resigned
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from his position on November 8, 1994. In order to make a prima facia
case, Mr. Enan would then have to show he was constructively discharged.
Constructive discharge occurs when an employer 'deliberately
renders the employee's working conditions intolerable and thus
forces the employee to quit [her] job.' The employee must show
that a reasonable person in her situation would find the
working conditions intolerable. In other words,
'intolerability of working conditions is judged by an objective
standard, not the [employee's] subjective feelings.' Further,
the employer must have intended to force the employee to quit.
Constructive discharge plaintiffs may prove intent 'by showing
their resignation was a reasonably foreseeable consequence of
their employers' discriminatory actions.'
Gartman v. Gencorp. Inc., Nos. 96-3248EA, 96-3466EA, 1997 WL 3944749, at
*2 (8th Cir. Jul. 16, 1997) (citations omitted). However, Mr. Enan did not
advance the argument that he was constructively discharged and the district
court found no evidence to support such a claim. Mr. Enan did not offer
any evidence that his working conditions were so intolerable that he felt
forced to resign. Furthermore, he did not show that his resignation was
related in any way to any alleged age discrimination. At best, Mr. Enan
argued that he resigned because his job duties were materially diminished.
We agree with the district court that Mr. Enan failed to present any
evidence to support a claim of constructive discharge.
The district court's grant of summary judgment on the age
discrimination claim is AFFIRMED. The district court's grant of summary
judgment on the breach of contract claim for failure to pay severance
compensation is REVERSED AND REMANDED for trial.
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A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT
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