Brian Olander v. State Farm Mutual

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 01-1947
___________
Brian Olander, *
*
Plaintiff - Appellant, *
* Appeal from the United States
v. * District Court for the
* District of North Dakota.
State Farm Mutual Automobile *
Insurance Company, et al., *
*
Defendants - Appellees. *
___________
Submitted: September 11, 2002
Filed: January 21, 2003
___________
Before HANSEN, Chief Judge, LAY, HEANEY, McMILLIAN, BOWMAN,
WOLLMAN, LOKEN, MORRIS SHEPPARD ARNOLD, MURPHY, RILEY,
MELLOY, and SMITH, Circuit Judges, en banc.
___________
LOKEN, Circuit Judge.
Brian Olander became a State Farm insurance agent in Mandan, North Dakota
in 1981. In August 1996, Olander was charged with murder after a violent altercation
with a neighboring landowner. When Olander refused to take a leave of absence until
the criminal charges were resolved, State Farm terminated his agency agreement and
assigned other agents to serve the State Farm policyholders previously served by
Olander’s agency. In 1999, Olander commenced this diversity action against State
Farm, alleging wrongful termination of the agency agreement and related claims. The
district court1 granted State Farm’s motion for summary judgment, concluding that
Section III.A. of the written State Farm Agent’s Agreement unambiguously made the
parties’ contractual relationship terminable at will. Section III.A. provides:
This Agreement will terminate upon your death. You or State Farm
have the right to terminate this Agreement by written notice delivered
to the other or mailed to the other’s last known address. The date of
termination shall be the date specified in the notice, but in the event no
date is specified, the date of termination shall be the date of delivery if
the notice is delivered, or the date of the postmark, if the notice is
mailed. Either party can accelerate the date of termination specified by
the other by giving written notice of termination in accordance with this
paragraph.
On appeal, a divided panel of this court reversed. The panel concluded that two other
provisions of the Agreement create an ambiguity as to whether it was terminable only
for cause; therefore, summary judgment was inappropriate because extrinsic evidence
is admissible to construe this essential contract term. Olander v. State Farm Mut.
Auto. Ins. Co., 278 F.3d 794, 798-99 (8th Cir. 2002). Because this decision may
affect countless State Farm agency relationships in the Eighth Circuit and nationwide
and conflicts with a number of decisions by other courts construing the standard form
State Farm agency contract, we granted State Farm’s petition for rehearing en banc
and now affirm.
The issue on appeal may be quickly summarized. If the Agreement was
terminable at will by either party, then Olander has no wrongful termination claim,
1
The HONORABLE RODNEY S. WEBB, Chief Judge of the United States
District Court for the District of North Dakota, adopting the Report and
Recommendation of the HONORABLE DWIGHT C. H. KAUTZMANN, United
States Magistrate Judge for the District of North Dakota.
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and his related claims were properly dismissed as well. Under North Dakota law, the
construction of a written contract is initially a question of law. Olander argues that
extrinsic evidence -- most of it pre-dating his State Farm Agent’s Agreement --
establishes State Farm’s intent that its agents be terminated only for cause. Under
North Dakota law, such evidence is not admissible to vary the terms of an
unambiguous written contract. “However, if a written contract is ambiguous,
extrinsic evidence may be considered to show the parties’ intent.” Des Lacs Valley
Land Corp. v. Herzig, 621 N.W.2d 860, 863 (N.D. 2001). “A contract is ambiguous
when rational arguments can be made for different positions about its meaning. . . .
When a contract is ambiguous, the terms of the contract and the parties’ intent
become questions of fact.” Kaler v. Kraemer, 603 N.W.2d 698, 702 (N.D. 1999)
(citations omitted). Here, the district court concluded the contract is unambiguous
and refused to consider Olander’s extrinsic evidence. Our panel disagreed. Whether
a written contract is ambiguous must be determined from the four corners of the
document, construing the contract as a whole. See Burk v. Nance Petroleum Corp.,
10 F.3d 539, 542 (8th Cir. 1993) (applying North Dakota law). Ambiguity is a
question of law that we review de novo, just as we review the grant of summary
judgment de novo. Kaler, 603 N.W.2d at 702.
Section III of the State Farm Agent’s Agreement is entitled “Termination of
Agreement.” Other than providing that the Agreement terminates upon the death of
the agent (which confirms this is a personal services contract), Section III does not
specify the grounds for termination. It simply provides, “You [the agent] or State
Farm have the right to terminate this Agreement by written notice delivered to the
other.” In many cases, a contract’s silence on an issue creates an ambiguity. But in
this case, the contract’s silence is itself unambiguous. The general rule in this country
has long been that a personal services contract of indefinite duration may be
terminated at will by either party. See Willcox & Gibbs Co. v. Ewing, 141 U.S. 627,
635-36 (1891);1 RICHARD LORD, WILLISTON ON CONTRACTS § 4.20 (4th ed. 1990).
We have applied this general rule in many cases, including Martin v. Equitable Life
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Assurance Soc’y of U.S., 553 F.2d 573, 574-75 (8th Cir. 1977), where we held that
an insurance agency contract having no fixed term was unambiguously terminable at
will under South Dakota law.2 Likewise, a leading insurance treatise states as the
general rule for insurance agency contracts: “If the agency contract fixes no time for
its duration, as a general rule, the agency contract may be terminated at any time at
the election of either party.” 13 ERIC HOLMES, HOLMES’ APPLEMAN ON INSURANCE
2D § 99.2, at 788-89 & n.25 (1999). Accord Kaldi v. Farmers Ins. Exch., 21 P.3d 16,
18, 20 (Nev. 2001); Patillo v. Equitable Life Assurance Soc’y of U.S., 502 N.W.2d
696, 699 (Mich. App. 1992); James H. Washington Ins. Agency v. Nationwide Mut.
Ins. Co., 643 N.E.2d 143, 147 (Ohio App. 1993).
North Dakota has codified this general rule for contracts of employment. See
N.D. CENT. CODE § 34-03-01. The Supreme Court of North Dakota has also applied
the rule to personal services contracts, under which agents and professionals who are
not employees provide on-going services of indefinite duration. See N. Am. Pump
Corp. v. Clay Equip. Corp., 199 N.W.2d 888, 894 (N.D. 1972) (exclusive agency
agreement to sell equipment); Myra Found. v. Harvey, 100 N.W.2d 435, 437 (N.D.
1959) (bookkeeping services). That the Supreme Court of North Dakota would apply
the general rule to Section III.A. of the State Farm Agent’s Agreement is confirmed
by Wadeson v. Am. Family Mut. Ins. Co., 343 N.W.2d 367, 371 (N.D. 1984). In
Wadeson, a contract between an insurer and its district manager provided, like
Section III.A., that it “may be terminated by any party as to its interest by giving
2
Other cases in which we have applied the general rule include Crowell v.
Campbell Soup Co., 264 F.3d 756, 761-62 (8th Cir. 2001); Friedman v. BRW, Inc.,
40 F.3d 293, 296 (8th Cir. 1994); Engelstad v. Virginia Mun. Hosp., 718 F.2d 262,
266 (8th Cir. 1983); Percival v. Gen. Motors Corp., 539 F.2d 1126, 1129 (8th Cir.
1976); McGinnis Piano & Organ Co. v. Yamaha Int’l Corp., 480 F.2d 474, 479-80
(8th Cir. 1973); Maple Island Farm, Inc. v. Bitterling, 209 F.2d 867, 878 (8th Cir.
1954), cert. denied, 348 U.S. 882 (1954); Meredith v. John Deere Plow Co., 185 F.2d
481, 482 (8th Cir. 1950), cert. denied, 341 U.S. 936 (1951); Moore v. Sec. Trust &
Life Ins. Co., 168 F. 496, 498-500 (8th Cir. 1909), cert. denied, 219 U.S. 583 (1910).
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written notice to the other,” without specifying the grounds for termination. The
court held that the contract was terminable at will, not only for good cause.
Thus, the North Dakota general rule establishes that the Agreement’s silence
as to its duration is, without more, an unambiguous declaration that it is terminable
at will by either party. Seeking to avoid the general rule, Olander argues, and the
panel majority agreed, that two other provisions of the Agreement create an ambiguity
that requires the consideration of extrinsic evidence.
First, Section III.B. of the Agreement provides: “In the event [State Farm]
terminate[s] this Agreement, you are entitled upon request to a review in accordance
with the termination review procedures approved by the Board of Directors of [State
Farm], as amended from time to time.” The panel majority surmised that “one
rational explanation for the existence of the review procedure is to ensure that any
termination was made for good cause, and not capriciously.” 278 F.3d at 798.
However, two courts have squarely rejected the contention that this provision renders
the State Farm Agent’s Agreement ambiguous. See Mooney v. State Farm Ins. Cos.,
344 F. Supp. 697, 699-700 (D.N.H. 1972); Ex parte Gardner, 822 So.2d 1211, 1219
(Ala. 2001). Another court construed a Farmers Insurance Exchange agency contract
as unambiguously terminable at will despite a similar review provision:
The review board process gives the agent the opportunity to assert
that it is not in the best interest of Farmers to sever the agency
relationship. It also gives the agent, in appropriate circumstances, a
forum in which to argue that the termination was the product of bias or
prejudice on the part of the person who made the initial decision to
terminate the relationship. . . . Thus, even without a requirement of
cause, the review board serves a viable purpose under the contract.
Kaldi, 21 P.3d at 21. Similarly, many other cases have held that an employer’s
contract termination procedures did not render an employment relationship terminable
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only for cause. See, e.g., Taliento v. Portland W. Neighborhood Planning Council,
705 A.2d 696, 699 (Me. 1997); Suburban Hosp., Inc. v. Dwiggins, 596 A.2d 1069,
1076-77 (Md. 1991); Vancheri v. GNLV Corp., 777 P.2d 366, 369-70 (Nev. 1989).
Second, the panel majority relied upon the statement in the Agreement’s
preamble that the parties “expect that by entering into this Agreement, and by the full
and faithful observance and performance of the obligations and responsibilities herein
set forth, a mutually satisfactory relationship will be established and maintained.”
However, this hortatory language may not properly serve to create an ambiguity in
an otherwise unambiguous termination provision. See Aramony v. United Way of
Am., 254 F.3d 403, 413 (2d Cir. 2001) (holding that recitals in a contract’s preamble
may be useful in interpreting ambiguous terms but “cannot create any right beyond
those arising from the operative terms of the document”). When one operative term
in a contract is unambiguous, as the termination provision is here, other provisions
must be read so that they are consistent with the plain meaning of the unambiguous
term. See Burk, 10 F.3d at 543-44.
To our knowledge, every court but one has interpreted the State Farm Agent’s
Agreement as being unambiguously terminable at will. See Mooney, 344 F. Supp.
697; Gardner, 822 So.2d 1211; Melnick v. State Farm Mut. Auto. Ins. Co., 749 P.2d
1105, 1110-11 (N.M.), cert. denied, 488 U.S. 822 (1988); Vitkauskas v. State Farm
Mut. Auto. Ins. Co., 509 N.E.2d 1385, 1387 (Ill. App. 1987). The one exception is
the Ninth Circuit’s unpublished opinion in Sandberg v. State Farm Mut. Auto. Ins.
Co., No. 97-55971, 1999 WL 369805 (9th Cir. 1999), cert. denied, 528 U.S. 1118(2000). However, in holding that summary judgment was inappropriate on the
terminable-at-will issue, the court in Sandberg applied California law, which, unlike
North Dakota law, permits the consideration of extrinsic evidence on the question of
whether a contract is ambiguous.
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Moreover, the court in Sandberg affirmed the grant of summary judgment in
State Farm’s favor. Applying the definition of good cause under California law -- “a
fair and honest reason, regulated by good faith, that is not trivial, arbitrary or
capricious, unrelated to business needs or goals, or pretextual” -- the court concluded
that State Farm had good cause to terminate an agent who had sued State Farm
seeking punitive damages for fraud. 1999 WL 369805, at *2. Here, Olander was
terminated after he was indicted for murder and refused to take a leave of absence
until the criminal proceedings were resolved. Thereafter, a jury convicted him of
manslaughter, and he spent many months in prison before the Supreme Court of
North Dakota reversed his conviction. Though he was ultimately acquitted after a
second trial, State Farm’s summary judgment motion was supported by an affidavit
from the Director of Agent Licensing and Investigations for the North Dakota
Insurance Department averring that, had Olander not lost his agent’s license when he
was terminated by State Farm, “at the time of his conviction of a felony, the
Department would have taken action in some form to suspend and/or possibly revoke
his license.” These events make it clear that, if the definition of good cause under
California law applied in this case (which of course it does not), State Farm would be
entitled to summary judgment on the ground that it had good cause to protect its
business interests by terminating Olander in August 1996.
Because the State Farm Agent’s Agreement was unambiguously terminable at
will as a matter of law, the district court properly declined to consider the extrinsic
evidence submitted by Olander in granting State Farm’s motion for summary
judgment. Accordingly, the judgment of the district court is affirmed.
LAY, Circuit Judge, dissenting, with whom HEANEY and McMILLIAN, Circuit
Judges, join.
I join in Judge Heaney’s dissent.
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This controversy, rooted in diversity jurisdiction, involves the question of
whether a contract is ambiguous under North Dakota law. Requiring a routine
diversity case such as this to be reheard en banc violates the Federal Rules of
Appellate Procedure and the longstanding policy of this court.
The Federal Rules of Appellate Procedure state that an en banc “hearing or
rehearing is not favored and ordinarily will not be ordered except (1) when
consideration by the full court is necessary to secure or maintain uniformity of its
decisions, or (2) when the proceeding involves a question of exceptional importance.”
Fed. R. App. P. 35(a). The Internal Operating Procedures of the Eighth Circuit
elaborate:
The issue of whether a case should be reheard en banc is separate and
distinct from the issue of whether the case should be reheard by the
panel. A panel may rehear a case if it questions whether its decision was
correct. The court may rehear a case en banc if the case “is of such
significance to the full court that it deserves the attention of the full
court.”
United States Court of Appeals for the Eighth Circuit, Internal Operating Procedures
IV.D. (quoting Western Pac. R.R. Corp. v. Western Pac. R.R. Co., 345 U.S. 247,
262-63 (1953)).
The first en banc decision I sat on after appointment to this court in 1966
related to a death sentence under federal law. See Pope v. United States, 372 F.2d
710 (8th Cir. 1967) (en banc). Since that time, this court has averaged approximately
six to ten en banc hearings a year. My research shows there have been eight en banc
cases in a period of thirty-six years where diversity of citizenship constituted the
jurisdictional root for the case to be in federal court. None of those cases, however,
were voted to be heard by the full court simply because of the doubtful application
of state law. These cases were heard en banc because they involved significant
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questions of federal procedure or federal constitutional law. I am unaware of any en
banc case from this or any other circuit where the narrow issue presented was the
alleged ambiguity of a contract under state law. For example, in Lehman Bros. Kuhn
Loeb Inc. v. Clark Oil & Refining Corp., 739 F.2d 1313 (8th Cir. 1984) (en banc), the
legal merits turned on the construction of a contract, but the case was placed en banc
because of a dispute over the constitutionality of the portion of the Federal Magistrate
Act providing for trial before the magistrate judge with the consent of the parties. Id.
at 1314.
When scheduling a case to be heard en banc in any federal court of appeals,
one must consider the limited resources of that court in terms of whether the issue
itself is so significant that it should require the time of all of the active and
participating senior judges involved. Allowing this case to proceed en banc invites
every lawyer in every routine appellate case in this circuit to petition for rehearing en
banc without a thought as to the significance of the issue involved or the limited
resources of the court. Albeit, the court does not have to grant any petition, but the
court must read every petition filed.
Many of our sister circuits have deemed questions of state law to be so
inconsequential that they have, by rule, established that such a case cannot be reheard
en banc.3 For example, the rule in the Eleventh Circuit reads:
Alleged errors in a panel’s determination of state law, or in the facts of
the case (including sufficiency of the evidence, or error asserted in the
panel’s misapplication of correct precedent to the facts of the case), are
matters for rehearing before the panel but not for en banc consideration.
3
Several of our sister circuits include similar admonitions in their local rules
and internal operating procedures. See United States Court of Appeals for the Third
Circuit, Local Appellate Rule 35.4; United States Court of Appeals for the Fifth
Circuit, Rule 35.1; United States Court of Appeals for the Tenth Circuit, Rule 35.2.
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United States Court of Appeals for the Eleventh Circuit, Rule 35-3; accord United
States Court of Appeals for the Sixth Circuit, Rule 35(c).4 The Seventh Circuit has
written:
Further, and perhaps most revealing, the petition presents only issues of
state law. As such petitioners had an added burden to explain why an
issue of [state] law was of such exceptional importance that it warranted
review en banc in a federal court, the decision of which would not even
be binding on [that state’s] courts. A purely state law issue would need
to have national significance to warrant such review.
HM Holdings, Inc. v. Rankin, 72 F.3d 562, 563 (7th Cir. 1995). As an example of the
type of case with such national significance, the court offers Todd v. Societe Bic.,
S.A., 21 F.3d 1402 (7th Cir. 1994) (en banc), and Todd v. Societe Bic., S.A., 9 F.3d
1216 (7th Cir. 1993) (en banc), which considered questions of Illinois law in the
context of massive products liability litigation.
Here, as in HM Holdings, there is an utter lack of national significance to the
state law issue presented. The decision will have limited significance even within
North Dakota since the state supreme court can correct any error in the panel’s
interpretation. In fact, it appears the only basis for the petition for rehearing en banc
is that State Farm argues it will affect construction of its contracts on a nationwide
basis. It has long been recognized that “[t]he function of en banc hearings is not to
review alleged errors for the benefit of losing litigants.” United States v. Rosciano,
499 F.2d 173, 174 (7th Cir. 1974); see also Western Pac., 345 U.S. at 262-63.
For this circuit to differ from all of our sister circuits, I respectfully submit,
trivializes the federal judicial process. Throughout my tenure on the court, our judges
have stressed the need to conserve judicial resources and to avoid en banc hearings
4
In the Ninth Circuit, diversity cases are deemed non-precedential and seldom
result in published opinions.
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whenever possible. Two senior judges with a combined tenure of seventy years on
the court have found the contract was ambiguous. No judge is perfect and we may
well be wrong, but that is no reason to place a case such as this before the en banc
court. To do so violates the spirit, if not the letter, of the Federal Rules of Appellate
Procedure and this court’s longstanding policy.
If this court certified the narrow issue involved to the North Dakota Supreme
Court, it would indeed be embarrassing, and the court would undoubtedly refuse to
grant certification. Yet, such an effort to certify would be far more desirable than
utilizing the limited resources of the full court of appeals to guess what the North
Dakota Supreme Court would do. The merits of the case should not in any way
control the voting of the active judges to place this case en banc. As a diversity case
applying North Dakota law in a particularly fact-bound context, no other court in the
country is bound by this decision, including the North Dakota Supreme Court. In
addition, my limited research discloses that this is the first case in the United States
to ever address en banc a routine question of whether a contract is ambiguous under
state law. This fact alone mandates reconsideration of our en banc order as being
improvidently granted.
It has been said that this case is important because it is a ruling of this circuit
and thus becomes the law of this circuit. Such an argument makes little sense. This
argument misunderstands the basic principle of Erie R.R. Co. v. Tompkins, 304 U.S.
64 (1938). Our ruling must follow the law of the state from which this case arises.
It does not affect the law of any other state. The Supreme Court of North Dakota may
well change our ruling tomorrow.
Since this case has such little precedential or national significance, the court
should not have heard the case en banc. For these reasons, I respectfully dissent.
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HEANEY, Circuit Judge, dissenting, with whom LAY and McMILLIAN, Circuit
Judges, join.
In reviewing a diversity case en banc, our only responsibility is to decide the
case according to the laws of the relevant state, in this case, North Dakota. It is not,
as the majority suggests, our task to determine whether State Farm Insurance
Company can terminate agents’ contracts in any state without cause, any more than
it is our duty to protect the agents who have spent years building a successful agency
for themselves, only to have their life’s work taken away from them without cause.
National uniformity is not and never has been a goal of federal courts in interpreting
contracts in diversity cases. We remain convinced that the original panel decided the
matter correctly, and that the district court erred by granting summary judgment to
State Farm and denying Brian Olander's motion to set aside the judgment pursuant to
Fed. R. Civ. P. 60(b). We therefore dissent.
Background
We summarize the history of this case to highlight aspects of the matter that the
majority did not address. In 1979, Brian Olander became a trainee agent for State
Farm and entered into an agent’s agreement in 1981. By the terms of the agreement,
Olander was an independent contractor authorized to represent State Farm in Mandan,
North Dakota. For seventeen years he was very successful. By 1996, he had secured
over 5,000 active policyholders, and his take-home commissions were approximately
$200,000 a year. In all his years with State Farm, Olander delivered exemplary
service to his customers and provided large profits and fierce loyalty to State Farm.
He received no adverse ratings from State Farm.
On August 16, 1996, Olander was arrested for homicide after an altercation
with his neighbor. Thereafter, State Farm offered Olander an unpaid leave of absence
with the following conditions:
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State Farm would service the business assigned to your account, and you
would receive no compensation during the term of the leave of absence.
State Farm would service the business from a company facility, and you
would remove all signs from your current office which identify State
Farm.
You would not identify yourself as a State Farm Agent, nor would you
contact any State Farm policyholders in regard to insurance. . . .
....
If you are interested in such a leave of absence arrangement, which we
would anticipate would continue no longer than the resolution of the
criminal prosecution pending against you, but which could be
terminated by either of us at any time (thus terminating your Agent’s
Agreement), please let me or Lou Santoro know by August 30, 1996,
and we will prepare an appropriate amendment to your Agent’s
Agreement.
. . . . If I have not heard from you by August 30, we will take steps to
terminate your Agent’s Agreement effective August 31, 1996.
(J. A. at 69 (emphasis added)). Olander refused to accept the proposal, and State
Farm terminated the agent’s agreement. It subsequently seized Olander’s business
records, computers, and other policy information, and his policies were assigned to
other agencies in the area.
Olander’s murder trial commenced in April 1997. The jury returned a verdict,
finding Olander guilty of manslaughter and acquitting him of murder. In March
1998, the North Dakota Supreme Court reversed Olander’s conviction because of
instructional error on the issue of self-defense. He was tried a second time and
acquitted of all charges. By this time, however, he had lost his valuable agent’s
agreement, and without an insurance company sponsor, he could not be licensed as
an insurance agent.
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In 1999, Olander instituted an action against State Farm alleging that: (1) the
termination of his agent’s agreement constituted a breach of contract; (2) State Farm
tortiously interfered with the business relationship he developed with his clients; and
(3) State Farm was unjustly enriched by his termination. State Farm promptly filed
a motion for summary judgment, which was granted by the magistrate on February
7, 2001. Thereafter, the district court adopted the magistrate’s report. Olander then
filed a motion to set aside the judgment pursuant to Fed. R. Civ. P. 60(b) based on
newly discovered evidence and failure to make disclosure required by discovery. The
district court denied both motions, and Olander appeals the district court’s summary
judgment ruling on his breach of contract claim and its denial of his 60(b) motion.
Discussion
The majority holds that the independent agent’s agreement was terminable at
will by State Farm with or without cause. We disagree with that conclusion because
the majority ignores North Dakota law, which requires that any ambiguity in a written
agreement be resolved by considering the four corners of the agreement. The
majority looks only at the termination clause and disregards the preamble and a
contract provision that provides for a review following termination.
The North Dakota Supreme Court has given a succinct summary of the law
relating to the interpretation of written agreements:
The construction of a written contract to determine its legal effect
is generally a question of law. Pamida, Inc. v. Meide, 526 N.W.2d 487,
490 (N.D. 1995). A court must interpret a contract to give effect to the
mutual intention of the parties as it existed at the time of contracting.
N.D.C.C. § 9-07-03; Pamida, at 490. In interpreting a written contract,
a court should ascertain the intention of the parties from the writing
alone if possible. N.D.C.C. § 9-07-04; Pamida, at 490. A written
agreement supersedes any prior oral agreements or negotiations between
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the parties in the absence of any ambiguity. Norwest Bank North
Dakota, Nat’l Ass’n v. Christianson, 494 N.W.2d 165, 168 (N.D. 1992).
A contract is ambiguous when rational arguments can be made for
different positions about its meaning. Felco, Inc. v. Doug’s North Hill
Bottle Shop, Inc., 1998 ND 111, P12, 579 N.W.2d 576. Whether or not
a contract is ambiguous is a question of law. Moen v. Meidinger, 547
N.W.2d 544, 547 (N.D. 1996). Determining an ambiguity exists is
merely the starting point in a search for the parties’ intent because an
ambiguity creates questions of fact to be resolved using extrinsic
evidence. Id. When a contract is ambiguous, the terms of the contract
and parties’ intent become questions of fact. Wachter Development,
L.L.C. v. Gomek, 544 N.W.2d 127, 131 (N.D. 1996).
Kaler v. Kraemer, 603 N.W.2d 698, 702 (N.D. 1999).
The North Dakota Century Code instructs that when interpreting a contract,
“The whole of a contract is to be taken together so as to give effect to every part if
reasonably practicable. Each clause is to help interpret the others.” N.D.C.C. § 9-07-
06. It is also well settled under North Dakota law that “[t]he intention of the parties
to a contract must be gathered from the entire instrument, not from isolated clauses,
and every clause, sentence, and provision should be given effect consistent with the
main purpose of the contract.” Nat’l Bank of Harvey v. Int’l Harvester Co., 421
N.W.2d 799, 802 (N.D. 1988).
State Farm has persuaded the majority to rely upon the following language
within the insurance agreement to assert that the contract is unambiguous in
instructing that the agency relationship with Olander was at all times terminable at
will:
A. This agreement will terminate upon your death. You or State
Farm have the right to terminate this Agreement by written notice
delivered to the other or mailed to the other’s last known address.
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The date of termination shall be the date specified in the notice,
but in the event no date is specified, the date of termination shall
be the date of delivery if the notice is delivered, or the date of the
postmark, if the notice is mailed. Either party can accelerate the
date of termination specified by the other by giving written notice
of termination in accordance with this paragraph.
This section, on its face, sets forth the procedure by which the parties to the
agreement must give notice of termination. It says nothing about whether the
termination must be for cause or may be at will. Certainly, rational arguments can be
made for different positions about its meaning. North Dakota’s parol evidence rule
recognizes this reality by allowing “proof of the existence of any separate oral
stipulations or agreements as to matters on which a written contract is silent.” Schue
v. Jacoby, 162 N.W.2d 377, 382 (N.D. 1968); see also Putnam v. Dickinson, 142
N.W.2d 111, 119 (N.D. 1966).
Initially, paragraph B of section III, which immediately follows the provision
at issue, entitles the agent to a review following termination of the agreement by State
Farm.5 While by no means foreclosing other interpretations, one rational explanation
for the existence of the review procedure is to ensure that any termination was made
for good cause, and not capriciously. Cf. Kaldi, 21 P.3d at 21 (finding the review
procedure offers “the agent the opportunity to assert it is not in the company’s best
interest of the insurer to sever the agency relationship . . . .”). In addition, the
preamble to the contract lends further support to the plaintiff’s argument. See United
States v. Tilley, 124 F.2d 850, 854 (8th Cir. 1941). Among a number of other
5
The provision reads:
B. In the event we terminate this Agreement, you are entitled upon
request to a review in accordance with the termination review
procedures approved by the Board of Directors of the Companies,
as amended from time to time.
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provisions, it states: “The Companies and the Agent expect that by entering into this
Agreement, and by the full and faithful observance and performance of the
obligations and responsibilities herein set forth, a mutually satisfactory relationship
will be established and maintained.” Id. (emphasis added). This language is far from
dispositive. It is, however, additional textual support for plaintiff’s argument located
within the four corners of the document. It suggests that if the parties meet their
contractual obligations, the relationship will continue. Such an interpretation is
inconsistent with State Farm’s assertion that the agreement unambiguously allows for
termination regardless of the parties’ performance.6
6
In 1966, State Farm amended its agent’s agreement to delete from the
termination clause in effect at that time the words, “with or without cause.” The
reasons for this change were set forth by Henry Keller, Jr., the agency vice president
for State Farm at the time the decision to revise the termination clause was made. In
the detailed affidavit, Keller swore under oath as follows:
13. In order to obtain the agent perspective on issues which
needed to be addressed in the new contract, we set up a program to
obtain information from the agents. This informational program
revealed a major concern [on] the part of the agents that the company
might terminate them arbitrarily or capriciously, without good reason.
If that were to occur, then the agents’ entire investment in his agency
would be lost. We determined that we needed to address that concern,
in order to assure that agents would be willing to make the substantial
investment in time, effort and money contemplated by our independent
contractor/career agent approach.
14. We took steps in the AA 660 contract to address that concern.
First, we removed the words “with or without cause” from the
termination provision that was in the LA 540 form. Second, we added
a termination review provision, which would entitle any agent whose
agreement had been terminated by the company to a review of the
decision. . . .
15. We considered adding provisions which would specify the
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The majority cites three cases for the proposition that the Supreme Court of
North Dakota would apply the North Dakota Code provision relating to personal
services to insurance contracts and permit insurance agency contracts to be terminable
at will. We are not persuaded that these cases support the view that the North Dakota
Supreme Court would accept the majority’s view in this case.
In Myra Foundation v. Harvey, 100 N.W.2d 435 (N.D. 1959), the North Dakota
Supreme Court held that an agreement to provide bookkeeping services had been
formed by the parties through an exchange of letters. The plaintiff brought an action
to recover possession of certain books and records that it alleged had been unlawfully
detained by the defendant. The defendant answered that he had legal possession of
the books and records by virtue of a lien for services performed for the plaintiff and
counterclaimed for the reasonable value of the services. The case was tried, and the
defendant obtained a judgment on his counterclaim. Plaintiff moved for judgment
notwithstanding the verdict or for a new trial. The motion was denied and the
plaintiff appealed. The North Dakota Supreme Court remanded the case on a damage
issue and simply noted “that the contract, neither expressly nor impliedly, fixes any
time for its duration. Either party might therefore terminate the contract upon giving
reasonable notice to the other.” Id. at 437. No argument was made by either party
reasons for which termination would occur, but . . . opted for the
approach . . . which gave agents the protection of a due cause contract,
but with more flexibility in defining the cause.
16. The removal of the words “with or without cause” from the
termination provision was a necessary part of this exercise. We knew
that it would be neither logical nor consistent to keep a provision stating
that we could terminate “with or without cause” right above a
termination review provision to guard against arbitrary and capricious
terminations.
(J.A. at 714-15.)
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on this issue, and the only citation by the North Dakota Supreme Court was to 17
C.J.S. Contracts § 398 and 12 Am. Jur. (Contracts, Sec. 305) 860.
In North American Pump Corp. v. Clay Equipment Corp., 199 N.W.2d 888(N.D. 1972), the plaintiff, a sales and service corporation engaged in selling farm
equipment, asserted that an oral contract with the defendant, a manufacturer, gave it
the exclusive right to sell the defendant’s products within the northern half of North
Dakota and a small area in northwestern Minnesota. The jury returned a verdict for
the plaintiff in the sum of $3,000. The North Dakota Supreme Court affirmed the
judgment after eliminating interest on the amount prior to the verdict. The only
reference by the North Dakota Supreme Court to the issues facing us is a statement
that because a contract neither expressly nor impliedly fixed the time of duration, “the
agreement could have been terminated by either party on reasonable notice [and thus]
. . . the agreement was not within the statute of frauds, even though it was not
terminated within one year of its commencement.” Id. at 894.
In Wadeson v. American Family Mutual Insurance Co., 343 N.W.2d 367 (N.D.
1984), the plaintiff brought an action against American Family, alleging his agency
had been terminated without cause. There was no indication in the case that there
was a written agreement between the parties and certainly no indication that the
agreement contained any provisions similar to those contained in the instant case.
The North Dakota Supreme Court referred to the North Dakota Code, stating: “An
employment having no specified term may be terminated at the will of either party on
notice to the other . . . .” Id. at 369.
State Farm contends that North Dakota law prohibits the use of parol evidence
to vary the terms of a written contract where, as here, the parties agree that the
contract contains the entire agreement. This argument is without merit. Putnam v.
Dickinson held parol evidence was admissible where a deed was silent on a matter.
The court indicated the parties did not intend the agreement “to be a complete and
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final statement of the whole of the transaction between them,” and the extrinsic
evidence was consistent with the terms of the agreement. Putnam, 142 N.W.2d at
119. However, the North Dakota Supreme Court has never held this to be the only
circumstance where parol evidence is admissible in a contract dispute. For instance,
in Jorgensen v. Crow, 466 N.W.2d 120 (N.D. 1991), the state supreme court held the
trial court had erred in admitting parol evidence “that varied the purchase price of the
contract for deed.” Id. at 124. However, it found no error in the trial court’s
admitting “a prior oral agreement that the yearly payment due under the contract for
deed would be satisfied by one season’s use of the pasture because that testimony
does not contradict a term of the written contract.” Id. The court has explicitly stated
that, when an ambiguity exists, “parol evidence is admissible to explain existing
essential terms or to show the parties’ intent.” Bye v. Elvick, 336 N.W.2d 106, 111
(N.D. 1983). That is the situation we are presented with here. Whether or not the
agent’s agreement expressed the entire transaction between State Farm and Olander
is of no consequence.
In the instant case, we are presented with a contractual provision that is silent
on the subject of cause. Both parties offer plausible explanations for this silence and
Olander has directed us to provisions within the agreement itself supporting his
interpretation. Therefore, reasonable persons could rationally argue that the
termination provision merely sets forth the procedure for giving notice of termination
without specifying whether or not termination requires cause. “Because reasonable
people could make rational arguments in support of contrary positions . . . there was
a genuine issue of material fact rendering summary judgment on this issue
inappropriate.” Pamida, Inc. v. Meide, 526 N.W.2d 487, 493 (N.D. 1995). In light
of this conclusion, it is unnecessary to address Olander’s claims regarding his Rule
60(b) motion.
Because it is well settled under North Dakota law that the entire contractual
instrument, inclusive of all clauses and provisions, must be considered to determine
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the intention of the parties, we would remand this matter to the district court for a trial
on the merits.
A true copy.
Attest.
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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