Case Title: Fremont Homes, Inc. v. Elmer

Citation: 

Docket Number: 97-301

State: wyoming

Court: Wyoming Supreme Court

Date: 1999-03-15T00:00:00Z

Document:
Fremont Homes, Inc. v. Elmer1999 WY 27974 P.2d 952Case Number: 97-301Decided: 03/15/1999Supreme Court of Wyoming
 
FREMONT HOMES, INC., a Wyoming corporation, Appellant 
(Plaintiff),

v.

James L. ELMER, Appellee 
(Defendant).

Appeal from the 
Sweetwater County District Court, Jere Ryckman, J.

 

David B. Hooper 
of Hooper Law Offices, P.C., Riverton, WY, Representing Appellant. 
Argument by Mr. Hooper.

Richard Mathey 
of Reese & Mathey, Green River, WY, Representing Appellee. Argument 
by Mr. Mathey.

Before 
LEHMAN, C.J., and MACY, GOLDEN and TAYLOR,* JJ., and PRICE, 
D.J.

* Chief Justice at time of 
oral argument; retired November 2, 1998.

LEHMAN, Chief 
Justice.

[¶1]      At issue in this 
case is the interpretation of an employment contract between appellee James 
Elmer (Elmer) and his employer, Fremont Homes, Inc. (Fremont). The district 
court determined that Elmer's employment contract provided Fremont's exclusive 
remedies against Elmer and granted Elmer's motion for summary judgment on 
Fremont's claims. After a bench trial, Elmer prevailed on his counterclaim for 
compensation due under the employment contract. Fremont appeals both rulings. 
Regarding Elmer's counterclaim, we find adequate evidence to support the 
district court's findings and thus affirm the award. Because we hold that a 
contract term exempting a party from tort liability for harm caused 
intentionally is unenforceable due to public policy considerations, we reverse 
the summary judgment entered in Elmer's favor and remand the case to the 
district court.

ISSUES

[¶2]      Fremont presents 
the following issues for our review:

I. Did the court 
err in finding that defendant/appellee was entitled to partial summary judgment 
thereby dismissing plaintiff/appellant's claims against defendant/appellee for 
intentional interference with a known economic advantage and breach of fiduciary 
duty?

II. Did the 
court err in finding defendant/appellee was entitled to a one-third share 
($50,000) of the reserve account, required to be maintained pursuant to the 
contract, even though defendant/appellee's conduct disrupted 
plaintiff/appellant's business thereby breaching defendant/appellee's fiduciary 
obligation to plaintiff?

[¶3]      Appellee Elmer 
rephrases the issues in this manner:

I. A contract 
existed between the parties. The contract limited remedies available to the 
parties as against one another. Did the trial court err when it entered partial 
summary judgment dismissing all claims of Appellant and all claims of Appellee 
which were beyond the scope of the contract?

II. The contract 
between the parties provided for the establishment of a $150,000.00 reserve 
account. The contract also provided that under certain circumstances Appellee 
was entitled to receive payment of one-third of the reserve account. Did the 
trial court err when it determined that Appellee was entitled to his one-third 
of the account?

FACTS

[¶4]      Appellant, 
Fremont, sells manufactured homes. In March of 1995, Fremont, through its 
principals, Sam and Doug Stanbury, hired appellee Elmer to establish and manage 
a sales lot in Rock Springs. The parties executed a "Job Description and 
Compensation Agreement" that detailed Elmer's job duties and method of 
compensation. The Rock Springs lot opened in April of 
1995.

[¶5]       Fremont and 
Elmer parted ways in May of 1996, when Elmer left to open his own sales lot next 
door to Fremont's location. All but one of Fremont's employees quit at the same 
time. Fremont filed suit in May of 1996, stating a number of causes of action 
including intentional interference with a known economic advantage1 and breach of fiduciary. Fremont 
alleged that the following conduct constituted improper interference with 
business and contractual relationships: (1) Elmer induced Fremont's employees to 
terminate their employment with Fremont and go to work for Elmer; (2) Elmer 
induced Fremont customers to order homes from Elmer instead of Fremont; and (3) 
Elmer enticed Fremont's manufacturers to cease selling their homes to Fremont 
and to instead sell to Elmer.

[¶6]      Elmer filed an 
answer denying Fremont's claims and asserted a counterclaim for unpaid sales 
commissions and other compensation under the provisions of the contract. Elmer 
then moved for summary judgment on Fremont's claims, arguing that the terms of 
the employment contract furnished Fremont's exclusive remedies against Elmer. 
The trial court agreed and granted Elmer's motion for summary 
judgment.

[¶7]      The case 
proceeded to trial on Elmer's counterclaims. The major points of contention at 
trial were: (1) whether a $150,000 cash reserve account had been established, 
and (2) if so, was Elmer entitled to a distribution from the reserve account 
without a vote by Elmer and the Stanburys. After a bench trial, the district 
court found that Fremont's profits were kept in a checking account that held 
over $53,000 at the end of Elmer's performance year. In addition, a $100,000 
certificate of deposit had been purchased with monies from this account. 
Combining these two amounts, the district court found that a cash reserve 
account containing over $150,000 had been established.

[¶8]      In awarding Elmer 
damages, the district court determined that he was entitled to one-third 
($50,000) of the reserve account without a vote for distribution. On this point, 
the district court reasoned that Fremont had a fiduciary obligation to hold the 
reserve account intact for Elmer and the two Stanburys, and that, under the 
contract, Elmer's share of the reserve account became vested when Elmer 
completed one year of service with Fremont. Altogether, the district court 
awarded Elmer damages totaling $60,198.90.2 Fremont timely 
appeals.

DISCUSSION

Limitation of 
Remedies Provision

[¶9]      The district 
court determined that the contract between the parties furnished Fremont's 
exclusive remedies and granted summary judgment in favor of Elmer on Fremont's 
claims for intentional interference with a known economic advantage and breach 
of fiduciary duty. When the interpretation of a contract is at issue, summary 
judgment is proper where the terms of the parties' contract do not raise issues 
of material fact, the contract language is plain and unambiguous, and the terms 
of the contract are controlling. Kirkwood v. CUNA Mut. Ins. Soc., 937 P.2d 206, 
208-09 (Wyo. 1997); Barlage v. Key Bank of Wyoming, 892 P.2d 124, 127 (Wyo. 
1995); Moncrief v. Louisiana Land & Exploration Co., 861 P.2d 516, 523 (Wyo. 
1993). Because the interpretation of a contract is purely a question of law, 
this court conducts a de novo review of the district court's conclusions. 
Anderson v. Bommer, 926 P.2d 959, 961 (Wyo. 1996); Moncrief v. Louisiana Land 
& Exploration Co., 861 P.2d  at 524.

[¶10]   In interpreting a contract, our 
primary concern is the true intent and understanding of the parties at the time 
and place the contract was made. Examination Management Servs., Inc. v. 
Kirschbaum, 927 P.2d 686, 690 (Wyo. 1996). We consider the contract as a whole, 
reading each part in light of all other parts; meaning should be afforded to all 
the language used by the parties if that can be done and a reasonable 
construction achieved. In other words, we analyze the "tenor" of the contract. 
Id. Only when a contract is ambiguous do we acquire license to construe that 
document by resort to extrinsic evidence. Martin v. Farmers Ins. Exch., 894 P.2d 618, 620 (Wyo. 1995). Ambiguity exists where a contract "is obscure in its 
meaning because of indefiniteness of expression or because it contains a double 
meaning." Id. (quoting Ferguson v. Reed, 822 P.2d 1287, 1289 (Wyo. 1991)); see 
Kirkwood v. CUNA Mut. Ins. Soc., 937 P.2d  at 208. Disagreement by the parties 
concerning the meaning of a contract term does not render the contract 
ambiguous. Kirkwood, 937 P.2d  at 209.

[¶11]   With these rules of contract 
analysis in mind, we examine the parties' contract. Paragraph two of the 
employment contract provides:

(e) 
Remedies

(i) The remedies 
which Elmer has against Fremont shall be limited to those remedies which are for 
failure to pay past accrued wages and/or bonuses or other compensation agreed 
upon between the parties in writing.

(ii) The 
remedies which Fremont shall have against Elmer shall be limited to 
reimbursement for misappropriated funds or equipment or entering into agreements 
or making contributions or financial obligations of the business which are in 
excess of the scope of his authority set out herein.

We must answer 
two questions: (1) does this contract provision limit Fremont's remedies to 
those listed; and (2) if so, is the provision enforceable?

[¶12]   Elmer argues that paragraph 
2(e)(ii) unambiguously limits Fremont's remedies to those mentioned. Elmer also 
argues that the limitation of remedies provision applies to claims arising under 
the contract as well as claims arising outside of the contract. We agree. The 
limitation of remedies provision explains that Fremont's remedies "shall be 
limited" to those listed. In addition, the remedies provision lists remedies 
which, although they are indirectly related to the contractual relationship 
between the parties, sound in tort. More specifically, we look at two of the 
remedies mentioned - "reimbursement for misappropriated funds or equipment" - 
two torts more commonly known as theft and conversion. Because the provision 
clearly declares that Fremont's remedies "shall be limited" and that the 
remedies listed include extra-contractual remedies, we agree with the district 
court's determination that the contract provides Fremont's exclusive remedies 
against Elmer. Nevertheless, we do not agree, as a matter of public policy, that 
this contract term is enforceable.

[¶13]   The question for the court is 
whether the limitation of remedies provision, which, in effect, exempts Elmer 
from liability for intentional torts, is enforceable. In Wyoming, a contract 
limiting liability for negligence may be enforced only if it does not contravene 
public policy. Schutkowski v. Carey, 725 P.2d 1057, 1059-60 (Wyo. 1986); Boehm 
v. Cody Country Chamber of Commerce, 748 P.2d 704, 710 (Wyo. 1987); Brittain v. 
Booth, 601 P.2d 532, 535 (Wyo. 1979). Where willful and wanton misconduct is 
shown, an otherwise valid release is not enforceable. Schutkowski v. Carey, 725 P.2d  at 1060; Milligan v. Big Valley Corp., 754 P.2d 1063, 1065-68 (Wyo. 
1988).

[¶14]   Section 195, of the Restatement, 
Second, Contracts (1981), provides in pertinent part:

§ 195 Term 
Exempting from Liability for Harm Caused Intentionally, Recklessly or 
Negligently.

(1) A term 
exempting a party from tort liability for harm caused intentionally or 
recklessly is unenforceable on grounds of public policy.

The rationale 
behind § 195 is recited in comment a: "The law of torts imposes standards of 
conduct for the protection of others against unreasonable risk of harm. One 
cannot exempt himself from such liability for harm that is caused either 
intentionally or recklessly." We find § 195 to be consistent with Wyoming law as 
found in Schutkowski v. Carey, its progeny, and its predecessors. We adopt 
Restatement, Second, § 195(1) and hold that the term in the parties' employment 
contract which, in effect, exempts Elmer from tort liability for harm caused 
intentionally or recklessly, is unenforceable on grounds of public 
policy.

[¶15]   Where only a single provision of a 
contract is contrary to public policy and the considerations from both sides are 
sufficient for performance absent such paragraph, we will enforce the contract 
with the exception of the invalid provision. Tate v. Mountain States Tel. and 
Tel. Co., 647 P.2d 58, 61-62 (Wyo. 1982). In this case, the single provision 
limiting Fremont's remedies is unenforceable to the extent that it exempts Elmer 
from harm caused intentionally or recklessly. Fremont's claims for breach of 
fiduciary duty and intentional interference are reinstated to the extent that 
they are based on Elmer's intentional or reckless conduct. See Dobratz v. 
Thomson, 155 Wis.2d 307, 455 N.W.2d 639, 645-646 (Wis. Ct. App. 1990) rev'd 161 
Wis.2d 502, 468 N.W.2d 654 (1991). We reverse the summary judgement entered in 
Elmer's favor and remand this case to the district court for further proceedings 
on Fremont's claims.3 Because the rest of the contract is 
valid, we proceed to examine Elmer's damage award.

Reserve 
Account

[¶16]   Although Elmer was awarded 
$60,198.90 in damages, Fremont challenges only the $50,000 awarded under the 
reserve account provision of the contract. We are again required to answer two 
questions: (1) was the $150,000 reserve account established, and (2) if so, is 
Elmer entitled to one-third ($50,000) of the account without a vote to that 
effect?

[¶17]   The portions of the contract 
relevant to this discussion provide:

2(d) Reserve 
fund. A reserve fund shall be established by retaining net profit in the 
corporation which is allocated to sales and income from the Rock Springs, 
Wyoming office and which shall be used as a reserve of cash proceeds for 
business operations.

* * 
*

3(b)(i) After 
establishing and maintaining a $150,000 cash reserve, all of which shall come 
out of the net profits from the sale of units at the Rock Springs location, 
Elmer shall be entitled to thirty-three and one-third percent (33 1/3%) of any 
additional net profits. The distribution of net profits after establishing the 
$150,000 reserve account shall be made on a annual payment 
schedule.

* * 
*

3(b)(ii) Elmer 
shall be entitled to a distribution of thirty-three and one-third percent (33 
1/3%) of the initial $150,000 cash reserve account equal to that taken by S.J. 
Stanbury or Doug Stanbury, but only upon the vote of two of the three of Doug 
Stanbury, S.J. Stanbury and Elmer being in favor of a withdrawal from the base 
$150,000 reserve account. There is no representation or guarantee when any 
distribution will be made available to Elmer or either of the Stanburys, out of 
the first $150,000 reserve account.

Elmer's vested 
one-third of the $150,000 initial reserve account is to be limited to one-third 
of that amount which is actually accumulated and retained during each and every 
separate year that it takes to accumulate the $150,000. By way of explanation, 
the following is to be used as a guideline:

First Year. 
Elmer is employed all year and a total of $85,000.00 is retained in the initial 
reserve account. He therefore is vested in one-third of 
$85,000.00.

Second Year. 
Elmer is employed only seven months of that year and a total retained for that 
year is $95,000.00. Since Elmer was employed only part of the second year, he 
still is vested in one-third of the first year's $85,000.00 but none of the 
second year's $95,000.00.

[¶18]   Fremont challenges the district 
court's finding that the $150,000 cash reserve account had been established. The 
factual findings of a judge are not entitled to the limited review afforded a 
jury verdict. Springer v. Blue Cross & Blue Shield of Wyoming, 944 P.2d 1173, 1176 (Wyo. 1997) (citing Hopper v. All Pet Animal Clinic, Inc., 861 P.2d 531, 538 (Wyo. 1993)). While the findings are presumptively correct, the 
appellate court may examine all of the properly admissible evidence in the 
record. Id. Due regard is given to the opportunity of the trial judge to assess 
the credibility of the witnesses, and our review does not entail reweighing 
disputed evidence. Id. Findings of fact will not be set aside unless they are 
clearly erroneous. A finding is clearly erroneous when, although there is 
evidence to support it, the reviewing court on the entire evidence is left with 
the definite and firm conviction that a mistake has been committed. 
Id.

[¶19]   The evidence presented at trial is 
adequate to support the district court's determination that the $150,000 reserve 
account had been established and maintained. The profits accrued by the Rock 
Springs sales lot were deposited into a checking account. Over the performance 
year for which Elmer sought payment, April 1, 1995, to March 31, 1996, the 
account shows a high balance of $264,628.18. In February of 1996, $100,000 was 
withdrawn from the account to purchase a certificate of deposit. On March 31, 
1996, the account held $53,991.25. Combining this amount with the $100,000 
certificate of deposit, the district court found that at least $153,991.25 
existed in the reserve account at the end of Elmer's performance 
year.

[¶20]   Fremont argues that the district 
court's determination must be incorrect because its net profits for the 
performance year did not reach $150,000. This argument is not supported by the 
record. Testimony from Elmer's accountant and an exhibit detailing her 
calculations substantiate the district court's finding that Fremont's net 
profits for the performance year, even excluding rebates received after March 
31, 1996, totaled $181,877.32. Fremont contends now, as it did at trial, that 
its net profits should not include amounts potentially payable to Elmer. 
However, we agree with the district court that, although these deductions may 
have been appropriate for tax purposes, the contract does not contemplate that 
Fremont's net profits be calculated in this fashion. The contract clearly states 
that payments to Elmer are to be paid out of net profits, and nowhere does the 
contract indicate that Elmer's share of the net profits should be deducted when 
calculating net profits.

[¶21]   We find it somewhat disingenuous 
that Fremont challenges the district court's findings, yet does not dispute the 
award of $9,156 under paragraph 3(b)(i) of the contract. Before Elmer left to 
open his own business, Fremont had paid him $37,043.98 under paragraph 3(b)(i). 
The award of $9,156 represents an additional amount owed to Elmer under this 
paragraph. Elmer was entitled to payment from profits under this paragraph only 
after the $150,000 reserve account was established and maintained. By its own 
actions, Fremont appears to acknowledge that the reserve account had been 
established and maintained at over $150,000. We agree with the district court's 
determination that the $150,000 reserve account had been established and 
maintained.

[¶22]   The next question is whether Elmer 
is entitled to distribution from the reserve account without a vote on the 
subject. On this point, the district court wrote:

[Fremont] had a 
fiduciary obligation under Paragraph 3.b.(ii) to hold the reserve account intact 
for Elmer, S.J. Stanbury and Doug Stanbury. [Fremont] has not done so and has 
permitted the cash reserve to be dissipated. S.J. Stanbury and Doug Stanbury, as 
sole shareholders, directors, and officers of Fremont Homes have either directly 
or indirectly received the benefit of their share of the cash reserve. [Elmer's] 
share of the reserve account became vested on March 31, 
1996.

[¶23]   This issue presents a question of 
contract interpretation, whether a vote is required for Elmer to receive his 
vested one-third share of the reserve account. Looking at the language of 
paragraph 3(b)(ii), especially the illustrative examples, the parties clearly 
intended that Elmer be vested in one-third of any funds in the reserve account 
at the end of any performance year that Elmer completed. Fremont does not 
dispute that Elmer worked for one full performance year, April 1, 1995 through 
March 31, 1996. Under the terms of the contract, Elmer was thus vested in 
one-third of any amounts (up to $150,000) in the reserve account at the end of 
the performance year. Fremont argues that Elmer's right to his share of the 
reserve account is conditioned "upon the vote of two of the three of" the 
Stanburys and Elmer. However, the voting provision only addresses when, not if, 
Elmer is entitled to a distribution: "There is no representation or guarantee 
when any distribution will be made available to Elmer or either of the 
Stanburys." (emphasis supplied). In reality, Fremont is contending that the 
voting provision allows it to deprive Elmer of vested benefits. This, the 
contract does not permit Fremont to do. We agree with the district court's 
determination that Elmer's share of the reserve account became vested at the end 
of the performance year, and that, under the circumstances, no vote was required 
for a distribution.

[¶24]   Finally, Fremont contends that the 
equitable doctrine of unclean hands prevents Elmer from realizing his vested 
share of the reserve account. One of the basic tenets of equity is that 
equitable remedies depend upon a showing by the claimant of clean hands: "He who 
comes into equity must come with clean hands." Dutch Maid Bakeries, Inc. v. 
Schleicher, 58 Wyo. 374, 131 P.2d 630, 634 (Wyo. 1942); Harsha v. Anastos, 693 P.2d 760, 762 (Wyo. 1985); Lewis v. State Bd. of Control, 699 P.2d 822, 827 
(Wyo. 1985); 30A C.J.S. Equity § 102 (Unclean hands may be invoked only to 
prevent affirmative equitable relief). Here, Elmer did not seek equitable 
relief. Instead, he sought a remedy at law (damages) based on his claim for 
breach of the employment contract. Had Elmer sought an equitable remedy such as 
specific performance, Fremont's unclean hands assertion may have had some 
appeal. See Dutch Maid Bakeries, 131 P.2d  at 634; Takahashi v. Pepper Tank & 
Contracting Co., 58 Wyo. 330, 131 P.2d 339, 356 (Wyo. 1942). However, the 
unclean hands doctrine does not apply to the legal remedy sought by 
Elmer.

CONCLUSION

[¶25]   The district court's award of 
damages to Elmer is supported by the evidence and, accordingly, is affirmed. We 
reverse the summary judgement granted in Elmer's favor and remand this case to 
the district court for further proceedings on Fremont's 
claims.

Footnotes

1 In Wyoming, 
the following elements must be demonstrated to sustain a cause of action for 
tortious interference with a contract or prospective economic 
advantage:

(1) 
The existence of a valid contractual relationship or business 
expectancy;

(2) 
knowledge of the relationship or expectancy on the part of the 
interferer;

(3) 
intentional and improper interference inducing or causing a breach or 
termination of the relationship or expectancy; and

(4) 
resultant damage to the party whose relationship or expectancy has been 
disrupted.

Examination Management Servs., Inc. v. Kirschbaum, 927 P.2d 686, 697 
(Wyo. 1996); Dynan v. Rocky Mountain Fed. Sav. & Loan, 792 P.2d 631, 641 
(Wyo. 1990); Toltec Watershed Improvement Dist. v. Johnston, 717 P.2d 808, 
813-14 (Wyo. 1986). Whether interference with a contract was improper is a 
question of fact. Examination Management Servs., 927 P.2d  at 
698.

2 The trial 
court award Elmer $1,042.90 for unpaid sales commissions and $9,156.00 for other 
compensation due under the contract. Fremont does not challenge these 
awards.

3 We offer no 
opinion on Fremont's claims. If, after remand, Elmer again moves for summary 
judgment, the parties should then have an opportunity to more fully develop the 
material facts. As it stands, the materials available for summary judgment are 
insufficiently developed for us to determine that 
issue.