Roger Smith v. Chase Group Inc.

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 02-4106
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Roger Smith, *
*
Appellee, *
*
v. *
*
Chase Group, Inc.; Chase Associates, *
Inc., *
*
Appellants. *
___________ Appeals from the United States
District Court for the
No. 03-1007 Western District of Missouri.
___________
Roger Smith, *
*
Appellant, *
*
v. *
*
Chase Group, Inc.; Chase Associates, *
Inc.; Karen Allison; J. Kenneth *
Allison, Jr., *
*
Appellees. *
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Submitted: September 11, 2003
Filed: January 12, 2004
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Before MORRIS SHEPPARD ARNOLD, BEAM, and BYE, Circuit Judges.
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BYE, Circuit Judge.
Chase Associates, Inc., appeals the district court’s denials of its motions for
judgment as a matter of law (JAML) and new trial following a jury verdict in favor
of Roger Smith on his breach of contract claim. Smith appeals the district court’s
grant of JAML reversing the jury’s finding the breach was willful. We affirm in part,
reverse in part, and remand for further proceedings consistent with this opinion.
I
This case arises out of an at-will employment agreement entered into between
Chase Associates and Smith. Viewed in the light most favorable to the verdict,
Keenan v. Computer Assocs. Int’l, 13 F.3d 1266, 1268 (8th Cir. 1994), the record
reveals the following facts. Chase Associates provides executive search services on
a contingency basis for clients in the pharmaceutical and biotechnology industries.
The company is owned by Ken and Karen Allison who also own a related executive
search firm, Chase Group, Inc., which specializes in retained searches. Under a
contingency arrangement, Chase Associates earns a fee if a suitable candidate is
located and hired. Under a retainer arrangement, Chase Group earns a fee
irrespective of whether a candidate is hired. Ken manages Chase Associates and
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Chase Group, while Karen works primarily as an executive recruiter for Chase
Group.1
Chase Associates hired Smith in April 1999 as a recruiter. Smith’s job
included locating individuals who were seeking employment, and cultivating
corporate clients who were seeking employees. Smith and Chase Associates agreed
Smith would be paid a commission based on his production. The parties agreed to
the compensation policy in oral negotiations and Chase Associates included it in an
employee handbook provided to Smith at the beginning of his employment.
The compensation policy provided Smith would be paid a commission on
contingency searches if he placed one of his candidates with a corporate client or if
one of his corporate clients hired a candidate. If Smith placed one of his individual
candidates with one of his corporate clients he would be paid a commission on both
ends of the transaction.
Similarly, on retained searches, Smith would be paid 100% of the commission
if his corporate client retained Chase Group and Smith conducted the recruitment
search. The commission would be split 50/50 if one of Smith’s corporate clients
retained Chase Group but another recruiter conducted the search. In the event
Smith’s corporate client retained Chase Group and another recruiter involved yet a
third recruiter, Smith would be paid 50% of the commission and the other recruiters
would share equally in the remaining 50%. Finally, if a house client (defined as an
account or candidate belonging to Ken or Karen) retained Chase Group and Smith
performed the recruitment efforts, he would receive 50% of the commission and “the
house” would be paid 50%. The evidence showed it was common for recruiters to
1
Smith sued both Chase Associates and Chase Group but the district court
declined to list Chase Group separately on the verdict form. Thus, only Chase
Associates has appealed the verdict.
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work together on searches and to split commissions. The evidence also showed
recruiters often agreed to different divisions of the commissions.
The difficulties between Smith and Chase Associates giving rise to this
litigation had their genesis in several contracts for retained searches entered into
between Chase Group and a biotechnology company named Vitex. Vitex contacted
Chase Associates in the summer of 2000 and became one of Smith’s corporate clients.
From the outset, Ken encouraged Smith to involve Karen in Vitex matters because
of her extensive experience. Ken and Karen assured Smith Karen’s involvement
would not affect his ownership of the Vitex account or his commissions. Vitex
initially hired Chase Associates to conduct various contingency searches. Smith
performed the searches but was unable to provide a candidate Vitex found suitable.
Later, after a conference call between Vitex representatives, Smith and Karen, Vitex
hired Chase Group to conduct a retained search. Shortly thereafter, Karen traveled
to Vitex’s Boston offices to meet with company officials and returned with a second
retained search request. Karen refused Smith’s request to accompany her to Boston.
After the Boston trip, all of Vitex’s contacts with Chase Group were handled by
Karen, and in the ensuing eight months Chase Group entered into five more contracts
with Vitex for retained searches. Karen conducted the recruitment efforts for each
of the Vitex contracts or assigned them to recruiters other than Smith. Karen also
chose not to inform Smith about some of the subsequent contracts entered into with
Vitex. During this same time, Karen, accompanied by Ken, flew to New York for a
second meeting with Vitex officials. Once again, Smith was not permitted to attend
the meeting.
Chase Associates concedes Vitex was initially Smith’s client. Additionally, the
evidence shows Ken and Karen repeatedly promised Smith Vitex would remain his
client as long as searches for Vitex were ongoing. Chase Associates, however,
contends Vitex became dissatisfied with Smith and requested Karen handle the
retained searches. A Vitex representative testified she gave no thought to having
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Smith conduct the retained searches and specifically asked Karen to conduct the
recruitment efforts. Conversely, Smith testified Karen and Ken intentionally
undermined his relationship with Vitex and froze him out of all Vitex dealings in
order to take over the lucrative account.
Vitex entered into a total of seven retainer agreements with Chase Group and
paid approximately $353,864 in fees. Smith was paid commissions on the first two
contracts in accordance with the compensation policy. Those contracts are not at
issue in this litigation. Smith was paid modified split-commissions on the next three
contracts and no commissions on the final two. Smith contends he accepted modified
payments on three of the contracts only because Chase Associates refused to pay him
according to the compensation policy and he feared termination if he complained.
Smith contends he would have earned 100% commissions on the last five of the seven
retained searches had he been allowed to conduct the searches himself.
In April 2001, Smith left Chase Associates and brought suit alleging it
breached the employment contract by refusing to pay commissions on five of the
seven contracts in accordance with the compensation policy. At trial, Smith
presented evidence indicating he was Chase Associates’s third highest producer and
would have earned an additional $63,627 in commissions had he been allowed to
conduct the recruitment efforts on the five disputed contracts. Smith also argued
Chase Associates’s refusal to pay the commissions was willful and in violation of
Kan. Stat. Ann. § 44-3152, thereby subjecting the company to a 100% statutory
penalty on the withheld commissions. The jury awarded $51,528 on the breach of
contract claim and found the non-payment of commissions willful. The district court
denied Chase Associates’s motions for JAML and new trial, but granted JAML as to
the jury’s finding of willfulness. These appeals followed.
2
The parties agree Kansas law controls our inquiry.
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On appeal, Chase Associates argues the district court erred in denying its
motions for JAML and new trial. Chase Associates contends it was not bound by the
compensation policy because its employee handbook contained a disclaimer
indicating it did not represent contractual terms of employment. Further, even
assuming the compensation policy applied to some of the contracts, it did not apply
to the last five contracts because, as evidenced by the dispute over commissions, there
had been no “meeting of the minds” between Chase Associates and Smith as to
payment of those commissions. Chase Associates also argues the compensation
policy required the payment of commissions only if the recruiter was employed by
Chase Associates at the time a placement was made. Because Smith resigned before
work was completed on the last two contracts, Chase Associates argues it was not
required to pay Smith any commissions.
Chase Associates next contends recruiters frequently agreed to deviate from the
compensation policy and Smith agreed to a modified split on two of the three
contracts. He also agreed to have a dispute over the third contract decided by an in-
house panel of four co-employees; three of whom were selected by Karen. Finally,
Chase Associates argues the district court abused its discretion by refusing to grant
a new trial based on instructional error and insufficiency of the damages evidence.
In his appeal, Smith argues the district court erred in concluding there was
insufficient evidence to support the jury’s finding of willfulness.
II
A. Chase Associates - JAML Motion
We review the district court’s denial of a motion for JAML de novo using the
same standard as the district court. Keenan, 13 F.3d at 1268. A motion for JAML
presents a legal question to the district court and to us on appeal: “[W]hether there is
sufficient evidence to support the jury’s verdict.” White v. Pence, 961 F.2d 776, 779
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(8th Cir. 1992). We view the “evidence in the light most favorable to the prevailing
party and must not engage in a weighing or evaluation of the evidence or consider
questions of credibility.” Keenan, 13 F.3d at 1268. The legal standard requires 1) all
direct factual conflicts must be resolved in favor of the plaintiff, 2) all facts in support
of the plaintiff that the evidence tended to prove must be assumed, and 3) the plaintiff
must be given the benefit of all reasonable inferences. Hopson v. Fredericksen, 961
F.2d 1374, 1379 (8th Cir. 1992). A grant of JAML is proper only if the evidence
viewed according to this standard would not permit “reasonable jurors to differ as to
the conclusions that could be drawn.” Dace v. ACF Indus., Inc., 722 F.2d 374, 375
(8th Cir. 1983).
Chase Associates first argues it is not bound by the compensation policy set
forth in the employee handbook because the handbook contains an express disclaimer
indicating it does not represent contractual terms of employment. Second, Chase
Associates contends there was never a meeting of the minds between it and Smith
regarding his compensation, and thus no enforceable contract existed. We consider
and reject each of these arguments in turn.
First, Chase Associates’s reliance on Kansas law holding employee handbooks
do not transform employment-at-will relationships into implied-in-fact contracts of
employment is misplaced. Smith does not contend he was anything but an at-will
employee. Accordingly, it is not necessary to prove the existence of an implied-in-
fact employment contract. Rather, Smith contends he and Chase Associates agreed
to a compensation policy which Chase Associates later ignored, thereby breaching
the contract of employment. See Randall v. Bd. of Pub. Utils., 983 F. Supp. 1008,
1017 (D. Kan. 1997) (“Kansas law leaves no doubt that the employment at will
relationship is a contractual one.”) (citing Dickens v. Snodgrass, Dunlap, & Co., 872
P.2d 252, 260 (Kan. 1994)). We conclude the existence of a binding compensation
agreement is unrelated to language in the handbook disclaiming an implied-in-fact
contract of employment. The oral negotiations, confirmed in the written description
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of the compensation plan contained in the handbook, are sufficient to show Smith and
Chase Associates entered into a binding contract regarding compensation. See
Lessley v. Hardage, 727 P.2d 440, 448 (Kan. 1986) (holding an oral contract for
compensation between employer and at-will employee sufficiently definite and
certain to create an obligation on behalf of employer).
Chase Associates next argues the parties never arrived at a meeting of the
minds as to compensation and thus no enforceable contract existed. In support of its
argument, Chase Associates points to evidence showing Smith periodically agreed
to modifications of the compensation policy. Chase Associates further argues the
disputes over compensation demonstrate a lack of mutual intent to follow the
compensation policy.
Basic principles of contract law persuade us to the contrary. An agreement to
vary the terms of a contract on one or more occasions standing alone does not result
in a waiver of contractual terms. Waiver is an intentional relinquishment of a known
right, Iola State Bank v. Biggs, 662 P.2d 563, 571 (Kan. 1983), and may be inferred
from a party’s conduct. We are satisfied, however, there was sufficient evidence to
show Smith did not intend to waive his right to compensation under the compensation
policy by occasionally agreeing to deviations. We are also satisfied Smith’s reluctant
agreement to participate in the in-house peer review process was not an intentional
relinquishment of his right to compensation under the terms of the compensation
policy.
Similarly, we reject out of hand Chase Associates’s tautology which suggests
the present dispute proves the parties never intended to contract. Contract disputes
often revolve around disagreements over contractual terms. It would be absurd to
allow a breaching party to use a dispute, occasioned by his breach, to avoid his
contractual obligations. We conclude the terms of the compensation policy were
sufficiently definite and certain to create an obligation on behalf of Chase Associates
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and its subsequent unwillingness to abide by the contract does not prove the promise
was never made.
Chase Associates next argues the district court should have granted JAML
because there was insufficient evidence to support the jury’s award of damages.
Specifically, Chase Associates argues Smith was not involved in any of the five
contested searches, and given Vitex’s dissatisfaction with Smith, there is no evidence
Vitex would have continued to retain Chase Group if Smith had remained involved.
Finally, Chase Associates argues Smith left its employment before the final two
searches were completed and under the compensation policy Smith forfeited any right
to commissions on those searches. Once again, we consider and reject each of these
arguments in turn.
It is undisputed Smith was not involved in any of the last five searches. It is
also true Vitex asked Karen to conduct several of its searches. Smith, however,
presented evidence showing he was a capable recruiter and had brought in the Vitex
account. Indeed, after working with Smith on various contingency searches, Vitex
hired Chase Group to conduct several retained searches. Despite Smith’s abilities,
Karen and Ken did nothing to advance Smith’s developing relationship with Vitex.
Indeed, it is apparent their actions impeded Smith’s ability to develop the account.
At first, Ken and Karen promised Smith Vitex would remain his client. Later,
however, Karen twice traveled to meet with Vitex representatives and twice excluded
Smith; selecting Ken to accompany her on one occasion. Near the end of his
employment with Chase Associates, Karen began keeping the existence of new
contracts from Smith. Viewing this evidence in the light most favorable to the
verdict, we conclude there was sufficient evidence to permit “reasonable jurors to
differ as to the conclusions that could be drawn.” Dace, 722 F.2d at 375.
Chase Associates’s claim that Smith cannot recover under the compensation
policy because the agreement required him to be employed by Chase Associates at the
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time the searches were concluded is also unavailing. A party may not enforce the
provisions of a contract if it first breached the agreement. See Youell v. Grimes, 217
F. Supp. 2d 1167, 1175 (D. Kan. 2002) (recognizing under Kansas law that an insurer
who wrongfully breaches an insurance contract may not defend by asserting the
insured also later breached the contract); Alexander & Alexander, Inc. v. Feldman,
913 F. Supp. 1495, 1501 (D. Kan. 1996) (noting under Missouri law a plaintiff cannot
recover for a defendant’s violation of a non-compete clause in an employment
contract unless he proves the defendant was first to breach). Accordingly, Smith’s
decision to leave the company prior to completion of the searches is of no
consequence.
B. Chase Associates - New Trial Motion
Chase Associates next argues the district court abused its discretion by denying
its new trial motion premised on instructional error and insufficiency of the evidence.
We review for abuse of discretion the district court’s denial of a motion for a
new trial. Keenan, 13 F.3d at 1269. When reviewing a district court’s decision to
deny a motion for new trial, “we give great deference to its judgment, because the
district court has the benefit of hearing testimony and observing the demeanor of
witnesses throughout the trial.” Bonner v. ISP Techs., Inc., 259 F.3d 924, 932 (8th
Cir. 2001) (citation omitted).
Chase Associates first argues the district court should have instructed the jury
to make individualized damage awards as to each of the contested contracts. Instead,
the district court instructed the jury to award a single aggregate amount.
We review a district court’s decisions concerning jury instructions for an abuse
of discretion. See, e.g., B & B Hardware, Inc. v. Hargis Indus., 252 F.3d 1010, 1012-
13 (8th Cir. 2001). In diversity cases the instructions must fairly and adequately
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represent the law of the forum state. Ford v. GACS, Inc., 265 F.3d 670, 679 (8th Cir.
2001). The trial court is required to properly instruct the jury on a party’s theory of
the case but errors regarding jury instructions will not demand reversal unless they
result in prejudice to the appealing party. Brown v. Sandals Resorts Int’l, 284 F.3d
949, 953 (8th Cir. 2002). Where the instructions fairly instruct the jury on the law,
error in an isolated instruction may be disregarded as harmless if the instructions are
substantially correct and the jury could not reasonably have been misled. Ford, 265
F.3d at 679.
The district court instructed the jury to “award the plaintiff such sum as you
believe will fairly and justly compensate the plaintiff for the damages you believe he
sustained as a direct result of the breach of contract by defendant.” Appellant’s Brief
at 51. Chase Associates does not argue this is an incorrect statement of Kansas law.
Rather, Chase Associates contends the jury should have been given an additional
instruction setting forth an itemized list of the amounts claimed in connection with
each of the disputed contracts. According to Chase Associates, the failure to provide
such a list prevented the jury from properly focusing on the damages. We disagree.
Smith argued he could have earned full commissions on each of the five disputed
contracts and offered evidence to establish the amount of each claimed deficiency.
The claims and evidence in support thereof were not complicated, and nothing in
Chase Associates’s arguments convinces us the jury was unable to or failed to
consider each of the contracts separately and award damages accordingly. Indeed,
the jury awarded over $12,000 less than Smith requested indicating it considered and
rejected some of Smith’s claimed losses. See Phillips v. Collings, 256 F.3d 843, 851-
52 (8th Cir. 2001) (affirming the district court’s instructions to the jury because no
prejudice resulted from the refusal to provide more detailed instructions).
Accordingly, we find no error in the instructions to the jury.
We also reject Chase Associates’s arguments regarding sufficiency of the
evidence. When “the basis of the motion for a new trial is that the jury’s verdict is
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against the weight of the evidence, the district court’s denial of the motion is virtually
unassailable on appeal.” Keeper v. King, 130 F.3d 1309, 1314 (8th Cir. 1997)
(internal quotation omitted). As we have already discussed, the evidence was
sufficient to support the jury’s verdict and the district court did not abuse its
discretion by denying the motion for new trial.
C. Smith - JAML Motion
Smith contends the district court erred in granting JAML and reversing the
jury’s finding that Chase Associates’s refusal to pay commissions was willful. We
agree.
Kansas law imposes a penalty on employers who “willfully fail[] to pay an
employee wages” as required by the state’s wage statutes. Kan. Stat. Ann. § 44-
315(b). “A willful act is one indicating a design, purpose, or intent on the part of a
person to do wrong or to cause an injury to another.” Beckman v. Kansas Dep’t of
Human Resources, 43 P.3d 891, 896 (Kan. Ct. App. 2002) (quoting Holder v. Kansas
Steel Built, Inc., 582 P.2d 244, 249 (Kan. 1978)). An employer’s willful refusal to
pay wages may be divined from the employer’s conduct. Beckman, 43 P.3d at 897
(holding employer acted willfully because the reason given for withholding wages
was “an afterthought and an excuse not to pay, contrived . . . with no relationship to
a sincere belief . . . that the wages were rightfully withheld”). The issue of
willfulness is a question of fact to be determined by the jury. Id.
Vitex was Smith’s account but Ken encouraged Smith to involve Karen in
Vitex dealings. Thereafter, Ken and Karen repeatedly promised Smith Vitex would
remain his account as long as searches were ongoing. Despite those assurances,
however, Karen quickly took over the account. Within weeks she flew to Boston for
a face-to-face meeting with Vitex and refused Smith’s request to accompany her.
Later, without informing Smith, Karen made a second trip and took Ken. When
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Karen needed help with the Vitex account she solicited the assistance of recruiters
other than Smith. She also chose not to inform Smith about some of the contracts
entered into between Chase Group and Vitex. We believe, when viewed in the light
most favorable to the verdict, this evidence is sufficient to sustain the jury’s finding
that Chase Associates acted with a design, purpose, or intent to deprive Smith of his
commissions.
III
Accordingly, we reverse the district court’s grant of JAML, reinstate the jury’s
finding of willful failure to pay wages and remand with instructions to determine the
appropriate penalty in accordance with Kan. Stat. Ann. § 44-315. The order and
judgment of the district court are in all other respects affirmed.
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