Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_04-cv-02001/USCOURTS-azd-2_04-cv-02001-5/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Robert E. LISS and Zoe LISS, 

Plaintiffs, 

v.

EXEL TRANSPORTATION SERVICES,

INC. et al., 

Defendants. 

EXEL TRANSPORTATION SERVICES,

INC.,

Counterclaimant,

v.

Robert E. LISS and Zoe LISS,

Counterdefendants. _________________________________

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No. CIV-04-2001-PHX-SMM

ORDER

Pending before the Court are Defendant/Counterclaimant Exel Transportation Services,

Inc.'s ("Exel") Motion for Partial Summary Judgment on Count II of Robert Liss's Amended

Complaint (Dkt. 180) and Motion for Partial Summary Judgment on Mr. Liss's Claims for 2001

and 2002 Bonus Compensation (Dkt. 188). 

I. BACKGROUND

A. Factual History

The following facts are undisputed. Plaintiff/Counterdefendant Robert Liss ("Liss")

worked for Defendant/Counterclaimant Exel Transportation Services, Inc. ("Exel"), and its

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predecessor companies from December 28, 1992 to May 6, 2004. Liss is an experienced

executive with a Master's Degree in Business Administration. 

On July 1, 1994, Liss entered into an Employment and Non-Compete Agreement (the

"Employment Agreement") with Jupiter Transportation, a wholly-owned subsidiary of Mark VII

Transportation Company, which is now known as Exel. The final Employment Agreement was

the product of protracted negotiations, which lasted 18 months. Although Liss was aware that

he could retain counsel to assist in the negotiations, he opted to represent himself and was able

to negotiate a buyout provision more substantial than that of the company's CEO and Chairman

at the time. Liss also changed the choice of law provision from Missouri to Arizona. In a

December 23, 1998, addendum to the Employment Agreement, Jupiter Transportation assigned

the agreement to Taurus Trucking, another wholly-owned subsidiary of Mark VII

Transportation Company, now Exel. In the addendum, the parties confirmed the provisions of

the Employment Agreement would continue with the assignment from Jupiter to Taurus. 

Liss terminated the Employment Agreement on May 6, 2004, citing § 5.01(g) as grounds

for his termination of the agreement. Section 5.01(g) provides for the termination of the

Employment Agreement "[a]t Executive's option, on the date Employer commits any act that

is a material breach of this Agreement." At the time of his departure, Liss was a President of

Special Services Group ("SSG"), a division of Exel.

The Employment Agreement contains a liquidated damages provision in Section 6.03,

which provides: 

Upon termination of this Agreement pursuant to Section 5.01(g) (Employer's breach),

Employer [Exel] shall pay to Executive [Liss] all of the compensation set forth in Section

3, including bonus pursuant to Section 3.02, for twelve months subsequent to the breach.

All post-employment compensation paid by Employer under the terms of this Section

6 shall be calculated in the manner set forth in Section 3 hereof and shall constitute

liquidated damages which Executive hereby agrees to accept as his exclusive remedy for

any breach of the obligations of the Employer hereunder hereby waiving any right to

punitive or exemplary damages.

(Ex. A to Amend. Compl., Ex. B. to Amend. Countercl.)

Relying on Section 6.03, Exel contends that Count II of Liss's Amended Complaint,

which asserts a statutory claim for unpaid wages and treble damages, should be dismissed

because the Employment Agreement precludes such a claim. 

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1

As in a prior Order, and because Zoe Liss is named solely due to Arizona community property

law and did not participate in actions upon which the lawsuit is based, the Court will refer to Plaintiffs

collectively as "Liss."

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B. Procedural History

On August 2, 2004, Plaintiffs Robert E. Liss and Zoe Liss1

 filed a Complaint in Maricopa

County Superior Court against Defendants. The Complaint alleged two counts under Arizona

state law: (1) breach of contract, and (2) unpaid wages and treble damages under Arizona

Revised Statutes § 23-355. Specifically, Liss claims that Exel breached the 1994 agreement,

as amended by addenda, by failing to pay Liss bonus compensation, and Liss is therefore

entitled to treble damages due to Exel's bad faith breach. Exel removed the action to this Court

on September 23, 2004.

 Exel answered the Complaint and filed a Counterclaim against Liss on October 6, 2004,

alleging breach of contract, breach of the covenant of good faith and fair dealing, unjust

enrichment, misappropriation of Exel's trade secrets in violation of Arizona state law, breach

of fiduciary duty, tortious interference with prospective business relationships, and accounting.

Both parties have since amended their pleadings by adding additional claims. Liss filed an

Amended Complaint containing additional claims for tortious interference with business

expectancy and declaratory relief. Exel filed an Amended Counterclaim containing an

additional claim for defamation.

On November 2, 2006, Exel filed a Motion for Partial Summary Judgment on Count II

of Robert Liss's Amended Complaint. Liss responded on December 5, 2006, and Exel replied

on January 12, 2007. Accordingly, the matter is now fully briefed. 

The Court has jurisdiction over this case pursuant to 28 U.S.C. § 1332(a)(1), as Liss is

a citizen of Arizona, Exel is a Delaware corporation with its principal place of business in

Tennessee, and the amount in controversy exceeds $75,000.

II. STANDARD OF REVIEW

Upon motion at any time, a party defending against a claim may move for "partial

summary judgment," that is, "summary judgment in the party's favor as to . . . any part thereof."

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FED. R. CIV. P. 56(b). A court must grant summary judgment if the pleadings and supporting

documents, viewed in the light most favorable to the nonmoving party, “show that there is no

genuine issue as to any material fact and that the moving party is entitled to judgment as a

matter of law.” FED. R. CIV. P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23

(1986); Jesinger v. Nevada Fed. Credit Union, 24 F.3d 1127, 1130 (9th Cir. 1994). Substantive

law determines which facts are material. See Anderson v. Liberty Lobby, 477 U.S. 242, 248

(1986); see also Jesinger, 24 F.3d at 1130. “Only disputes over facts that might affect the

outcome of the suit under the governing law will properly preclude the entry of summary

judgment.” Anderson, 477 U.S. at 248. The dispute must also be genuine, that is, the evidence

must be “such that a reasonable jury could return a verdict for the nonmoving party.” Id.; see

Jesinger, 24 F.3d at 1130.

A principal purpose of summary judgment is “to isolate and dispose of factually

unsupported claims.” Celotex, 477 U.S. at 323-24. Summary judgment is appropriate against

a party who “fails to make a showing sufficient to establish the existence of an element essential

to that party's case, and on which that party will bear the burden of proof at trial.” Id. at 322;

see also Citadel Holding Corp. v. Roven, 26 F.3d 960, 964 (9th Cir. 1994). The moving party

need not disprove matters on which the opponent has the burden of proof at trial. See Celotex,

477 U.S. at 317. The party opposing summary judgment “may not rest upon the mere

allegations or denials of [the party's] pleadings, but . . . must set forth specific facts showing that

there is a genuine issue for trial.” FED. R. CIV. P. 56(e); see Matsushita Elec. Indus. Co.

v.Zenith Radio, 475 U.S. 574, 585-88 (1986); Brinson v. Linda Rose Joint Venture, 53 F.3d

1044, 1049 (9th Cir. 1995).

III. DISCUSSION

A. Count II of Liss's Amended Complaint

Exel moves for summary judgment on Count II of Liss's Amended Complaint. Exel

argues that the liquidated damages provision contained in Section 6.03 of the Employment

Agreement precludes Liss from bringing a claim for treble damages under A.R.S. § 23-355.

In response, Liss contends that he did not expressly agree to waive any right to seek statutory

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treble damages against Exel. Liss also contends that he cannot as a matter of law be found to

have waived his right to seek treble damages under § 23-355 because he was not represented

by counsel in the negotiation of the Employment Agreement.

The Court finds that Liss waived his right to seek treble damages under § 23-355 by

agreeing to an enforceable liquidated damage provision as his "exclusive remedy" in the event

of a breach by Exel. Arizona courts will enforce a liquidated damage provision in a contract

as long as it is not a penalty. Mechanical Air Engr. Co. v. Totem Constr. Co., 166 Ariz. 191,

801 P.2d 426 (Ariz. App. 1989). As explained by Arizona Court of Appeals in Mechanical Air

Engr. Co., this rule derives from the general principle of contract law "that when parties bind

themselves by a lawful contract, a court must give effect to that contract as written if the terms

are clear and unambiguous." 166 Ariz. at 193, 801 P.2d at 428 (quoting Estes Co. v. Aztec

Const., Inc., 139 Ariz. 166, 168, 677 P.2d 939, 941 (Ariz. App. 1983)). A liquidated damage

provision is not a penalty as long as it meets the following two conditions: (1) the liquidated

amount must be a reasonable forecast of just compensation for the harm caused by a breach; and

(2) the harm caused by a breach must be one that is very difficult to accurately estimate. Id. 

Here, the Court finds that Section 6.03 is not a penalty under the Mechanical Air test.

 Section 6.03 of the Employment Agreement provides for Liss to receive "all of the

compensation set forth in Section 3, including bonus pursuant to Section 3.02, for twelve

months" in the event of a breach by Exel. Essentially, Liss would continue to receive his yearly

salary, which includes a $125,000/year base salary, bonus, $500/month car allowance, fringe

benefits and reimbursement of expenses, for a year upon termination of his employment by

Exel. This provision is a reasonable forecast of just compensation because the liquidated

amount is simply the contract price, which includes Liss's direct wages and his other

employment benefits, extended for a year after his termination. The Court also finds that the

harm caused by a breach is difficult to estimate because the job market is constantly in flux,

making it difficult to predict how long it would take Liss to find another comparable job if Exel

terminated the Employment Agreement. For example, when the job market is particularly

strong, the one year cushion provided by Section 6.03 might be extremely generous as Liss

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could receive two salaries for a period if he were to find another job in less than a year. On the

other hand, during a recession, one year might not be enough time for an executive of Liss's

experience to find comparable employment. Therefore, Section 6.03 is not a penalty because

it represents a reasonable forecast of just compensation for a harm that is difficult to accurately

estimate. Because Arizona will enforce a liquidated damage provision in a contract as long as

it is not a penalty, the Court finds that the parties agreed to accept the liquidated damages set

forth in Section 6.03 as the exclusive remedy in the event of a breach by Exel. Accordingly,

Count II of Liss's Amended Complaint must be dismissed because it violates Section 6.03 of

the parties' Employment Agreement. 

Liss contends that he did not expressly agree to waive any right to seek statutory treble

damages against Exel. According to Liss, punitive damages are not synonymous with statutory

treble damages under § 23-355; thus, while Section 6.03 may have waived his right to recover

punitive damages, it did not waive his right to pursue statutory treble damages. The Court

rejects this argument because the express language of the contract provides that Liss shall

receive liquidated damages "as his exclusive remedy for any breach of the obligations of the

[Exel]." "The construction of a contract is a question of law where the terms of the agreement

are plain and unambiguous." Shattuck v. Precisions Toyota, Inc., 115 Ariz. 586, 566 P.2d 1332

(1977). Section 6.03 is unambiguous as it clearly sets forth the compensation Liss is to receive

in the event of a breach by Exel. The distinction Liss makes between statutory treble damages

and punitive damages is merely an attempt to create a factual dispute where there is none. Liss

agreed to an "exclusive remedy" for any breach by Exel and this "exclusive remedy" is clearly

defined by the agreement. 

Liss also contends that he cannot as a matter of law be found to have waived his right

to seek treble damages under § 23-355 because he was not represented by counsel in the

negotiation of the Employment Agreement. See Swanson v. The Image Bank, 206 Ariz. 264,

77 P.3d 439 (Ariz. 2003). According to Liss, despite his business experience, he was

disadvantaged in the negotiation because he was without counsel. Moreover, Liss argues that

"whether [he] was sophisticated and was of equal bargaining strength is a matter of disputed

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fact." (Dkt. 193 at 7). In the December 12, 2005, Order denying Exel's Motion for Partial

Judgment on the Pleadings, the Court agreed with Liss's interpretation of Swanson. The Court

stated, "[t]he plain language in Swanson clearly requires three elements be present in order for

parties to a contract to waive the statutory remedy under A.R.S. § 23-355." (Dkt. 68 at 5).

Because Liss was not represented by counsel in the negotiation of the Employment Agreement,

the Court found that he could not contract to waive the statutory remedy under A.R.S. § 23-355.

On reconsideration, the Court finds that Swanson does not require three elements to be

present in order for parties to a contract to waive the statutory remedy provided under A.R.S.

§ 23-355. The trial court has the inherent power to reconsider, set aside, or amend interlocutory

orders at any time prior to entry of a final judgment. See Sch. Dist. No. 5 v. Lundgren, 259 F.2d

101, 104 (9th Cir. 1958); see generally also John Simmons Co. v. Grier Bros. Co., 258 U.S. 82

(1922). In Swanson, the Arizona Supreme Court considered whether an employment contract's

choice-of-law provision, which provided for Texas substantive law to govern any controversy

arising out of the contract, precluded recovery of a statutory claim for treble damages under

A.R.S. § 23-355. Swanson involved a dispute over post-termination compensation after

Defendants/Appellants, The Image Bank, Inc. ("TIB"), terminated Plaintiff/Appellee, Mary

Swanson ("Swanson"), and refused to make the severance payments required under her

employment contract. At conclusion of the "Discussion" section of the Opinion, the Court

stated: "we hold that Arizona statutory law does not preclude parties from agreeing by

contractual provision in a negotiated contract to surrender the right to a statutory remedy under

§ 23-355." Swanson. 206 Ariz. at 268, 77 P.3d at 443. The Court then added: 

Unlike many employment relationships, we note that the employment contract in this

case is not a contract of adhesion. Neither Swanson nor TIB can be described as

unsophisticated or inexperienced in business and commerce, and neither was in need of

protection from the other's superior bargaining power. The contract is a detailed

document, negotiated and drafted by competent counsel. We decline, therefore, to

address the result that may gave followed had this been a contract of adhesion.

Id. 

Finally, in the "Disposition" section of the opinion, the Court stated: "[w]e hold that parties

experienced in business, represented by counsel, and having relatively equal bargaining

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strength, may, by express provision in a negotiated contract, surrender the statutory remedy

under A.R.S. § 23-355." Id. at 269, 77 P.3d at 444. Here, Defendant argues that the holding in

the "Discussion" section (the "first holding") is the appropriate statement of the rule; Plaintiff

argues that the holding in the "Disposition" section ("the second holding") is controlling. 

The Court finds that the first holding, which does not require a party to be represented

by counsel, is the most accurate statement of the rule in Swanson. In Swanson, the Court

expressly limited their holding to exclude contracts of adhesion. By stating that "parties

experienced in business, represented by counsel, and having relatively equal bargaining

strength, may.... surrender the statutory remedy under A.R.S. § 23-355," the Arizona Supreme

Court was simply emphasizing that Swanson was a situation "[u]nlike many employment

relationships" since the contract at issue was not a contract of adhesion. Swanson, at 269, 77

P.3d at 444. Swanson, therefore, holds that an express contractual provision that surrenders the

right to a statutory remedy under § 23-355 will be upheld if it is contained in a negotiated

contract. Thus, this Court views Swanson as requiring courts to evaluate the contract

negotiation to determine whether the employment contract was a contract of adhesion. If the

circumstances indicate that the contract was the product of a meaningful negotiation, then the

court should allow the parties to surrender the right to a remedy under § 23-355 regardless of

whether a party was represented by counsel.

Applying this analysis to the present case, the Court finds that the parties were not

precluded from agreeing to surrender the right to a remedy under § 23-355 despite the fact that

Liss was not represented by counsel during the negotiation of the Employment Agreement. A

contract of adhesion is "typically a standardized form 'offered to consumers of goods and

services on essentially a take-it-or-leave-it basis without affording the consumer a realistic

opportunity to bargain and under such conditions that the consumer cannot obtain the desired

product or services except by acquiescing in the form of the contract.'" Broemmer v. Abortion

Servs., 173 Ariz. 148, 150-151 (1992) (quoting Wheeler v. St. Joseph Hosp., 63 Cal. App. 3d

345, 356, 133 Cal. Rptr. 775, 783 (1976)). As demonstrated in Swanson, the employee's

experience in business matters, the presence of counsel during the contract negotiations and the

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existence of an inequality in bargaining power, factor heavily into the determination of whether

a particular employment contract is a contract of adhesion. 206 Ariz. at 268-269, 77 P.3d at 444.

However, the absence of counsel does not automatically render an employment contract a

contract of adhesion or preclude meaningful negotiation. For example, the present case

demonstrates that a party can engage in a meaningful negotiation without the assistance of

counsel. Liss, an experienced executive with a Masters in Business Administration, spent 18

months negotiating his Employment Agreement and managed to secure a buyout provision that

was more substantial than that of the company's CEO and Chairman at the time. Multiple drafts

of the of agreement were exchanged between the parties and Liss admitted to understanding that

he could have retained counsel to assist him in the negotiations. Liss even changed the choice

of law provision from Missouri to Arizona. Based on these undisputed facts, there can be no

doubt that this was a meaningful negotiation. Accordingly, the Court finds that the parties were

not precluded from agreeing to surrender the right to a statutory remedy under § 23-355 even

though Liss negotiated the contract without counsel.

B. Liss's Claims for 2001 and 2002 Bonus Compensation

Exel moves for summary judgment on Liss's claims for 2001 and 2002 bonus

compensation, arguing that Liss cannot pursue these claims because he failed to plead them in

his Amended Complaint. Liss responds by pointing to paragraphs 19, 22, 30 and 36 of the

Amended Complaint, which he contends "refer generally to annual bonus compensation." (Dkt.

197 at 2). The Federal Rules of Civil Procedure only require that the complaint give fair notice

of a claim, Liss argues, not the particular grounds upon which the claim rests.

Federal Rule of Civil Procedure 8(a) states that "[a] pleading which sets forth a claim for

relief...shall contain...a short and plain statement of the claim showing that the pleader is

entitled to relief." A claim is the "aggregate of operative facts which give rise to a right

enforceable in the courts." Bautista v. Los Angeles County, 216 F.3d 836, 840 (9th Cir. 2000).

Rule 10(b) of the Federal Rules of Civil Procedure requires "[e]ach claim founded upon a

separate transaction or occurrence" to be "stated in a separate count or defense whenever

separation facilitates the clear presentation of the matters set forth." 

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Here, the Court finds that there is nothing in the Amended Complaint to put Exel on

notice that Liss seeks bonus compensation for the years ending December 31, 2001 and

December 31, 2002. These claims involve separate transactions and should have been listed

separately in the Amended Complaint pursuant to Fed. R. Civ. P. 10(b). In paragraphs 17 and

18 of the Amended Complaint, Liss expressly states that Exel had not paid his annual bonus for

the years 2003 and 2004. The fact that Liss makes these specific allegations regarding years

2003 and 2004 undermines his argument that the other paragraphs in the Amended Complaint,

which generally refer to annual bonus compensation, provide sufficient notice of the claims

arising out of the unpaid bonus compensation in 2001 and 2002. Given the fact the Liss only

specifically mentions unpaid bonus compensation for 2003 and 2004, the most reasonable

inference is that all subsequent general references to unpaid bonus compensation relate to these

years. If Liss wanted to pursue claims for unpaid bonus compensation for the years 2001 and

2002 as well as 2003 and 2004, then he should have expressly pled them in his Amended

Complaint.

Accordingly, because Liss's Amended Complaint does not make reference to unpaid

bonus compensation for the years 2001 and 2002, the Court will not allow him to pursue claims

for unpaid bonus compensation arising out of those years. Any claims Liss has regarding

unpaid bonus compensation shall be limited to the years 2003 and 2004. 

IV. CONCLUSION

Accordingly, in light of the reasons set forth above, 

IT IS HEREBY ORDERED that Exel's Motion for Partial Summary Judgment on

Count II of Robert Liss's Amended Complaint (Dkt. 180) is GRANTED. 

IT IS FURTHER ORDERED that Exel's Motion for Partial Summary Judgment on

Mr. Liss's Claims for 2001 and 2002 Bonus Compensation (Dkt. 188) is GRANTED.

IT IS FURTHER ORDERED that the attorneys for each party who will be responsible

for trial of the lawsuit shall appear and participate in a Final Pretrial Conference on

Wednesday, June 6, 2007 at 4:00 p.m. in courtroom 605 on the sixth floor of the United

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States Courthouse, 401 W. Washington St., Phoenix, Arizona. Because the Final Pretrial

Conference is held for the benefit of all parties, and further because the presence of all parties

will facilitate frank discussion of the pertinent issues in the lawsuit, each party, or a

representative with binding settlement authority if the party is an entity, shall attend the Final

Pretrial Conference. At the Final Pretrial Conference, the Court shall set a firm trial date.

DATED this 3rd day of April, 2007.

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