# FILED

July 1, 1997 Cecil Crowson, Jr . App ellate C ou rt Clerk IN THE COURT OF APPEALS OF TENNESSEE WESTERN SECTION AT JACKSON

_______________________________________________ ANTHONY P. GUILIANO, Plaintiff-Appellee, Vs. Shelby Circuit No. 67428 C.A. No. 02A01-9608-CV-00201 CLEO INC., Defend ant-App ellant.

__________________________________________________ __________________________ FROM THE SHE

LBY COUNTY CIRCUIT COURT THE HONORABLE JAMES E. SWEARENGEN, JUDGE

Frank L. W atson, II

I; Warin g Cox, PLC of

Memphis For Appellee James H. Stock, Jr. and George H. Rieger, II; Weintraub, Robinson, Weintraub, Stock, Bennett, Ettingoff & Grisham , P.C. of Me

mphis For Appellant

REVERSED AND REM ANDED Opinion filed:

W. FRANK CRAWFORD,

PRESIDING J

UDGE, W.S.

CONCUR: ALAN E. HIGH

ERS, JUDGE HEWITT P. TOM LIN, JR., SE NIOR JUDGE This is a breach of

an employment contract case. Defend ant, Cleo, Inc. (Cle o), appe als the order of the trial court granting summary judgment in favor of plaintiff, Anthony P. Guiliano1 At all times relevant to this dispute, CEO was a wholly owned subsidiary of Gibson

Greetings, Inc. 2 (Guiliano). The material facts are

essentially undisputed. Cleo is a Tennessee corporation engaged in the production andmanufacture of gift wrap and related accessorie s, and its principal place of business is in Memphis, Tennessee. In 1991, Cl eo hired Guiliano as one of its directors of marketing. In November of 1992, Cleo promoted Guiliano to Vice President of Marketing and entere d into a contract (Agree ment) sta ting the te

rms of this employme

nt. This Ag

reemen t, consisting of a lette

r from M ichael Pi etrangelo, then Cleo’s President and Chief Executive Office r, provid ed in rel evant pa

rt as foll ows: Cleo Inc and I are very pleased tha tyou have agreed to serve as Vice President, Marketing of Cleo Inc (the “Company”), a wholly owned subsidiary of Gibson Greetings, Inc. 1 As Vice Presiden t, Marketing you will re

port to the Presi dent, and perfor m those functions curren

tly assigned, which f

unctions a nd respo nsibilities can be changed at the discretion of the Company. The following terms and conditions will govern your service to the Company: 1. You will the serve the Compan y on a full -time bas is as a senior executive employee, and

the Company will employ you as such, for a period of

three years commencing November 1, 1992 and ending October 31, 1995 unless you are termi nated at an earlier date pur suant to Pa

ragraphs 6, 7, or

9 of this Ag

reemen t. Your annual salary will be $103,000 . . . . N o later th an six months prior to the expiration of the original term, or any renewal term, of this Agr

eement, it will be reviewed by the Company for the purpose of deciding whether or not it will be renewed upon its expiration. You will be notified of a decision not to renew. If you are not notified of a decision not to renew, the Agree ment will automatically renew from year to year.

* * * 7. In the event you voluntar ily termin ate your employment during the term o f this Agr eement, or if the Company terminates this Agreement and

your empl oyment fo

r cause , your right to all compensation hereunder shall cease as of the da te of termination. As used in this Agreement, “cause” shall mean dishonesty, gross negligence, or willfu l m isconduct in the performance of your duties or a willful and material bre ach of t his Agree ment. Termination of employment shall terminat

e this Agr eement w ith the exception of the provisions of Paragraphs 8, 9, 10, and 12. 8. Also in the eve nt you volun taril y terminate you r employment hereunder, or in the event the Company terminates this Agreement and

your employment for

cause you agree that for a period of

two year s after s uch term inatio n, you will not compete, directly or indirectly, with the Company or with any division, subsidiary, or affiliate of theCompany or particip ate as3 a director, officer, employee, consultant, advisor, partner, or joint venturer in any bu siness engaged in the manufacture or sale of greeting cards, gift wrap, or oth er products produced by the Company, or by any

divisio n, s ubsidiary, or affiliate of the Company, w ithout the C ompany’sprior wr itten con sent. 9. In the event the Company terminates this Agreement and your employme

nt without c ause, yo u shall co ntinue to b e paid your then cur rent sa lary from the date of termination through October 31, 1995. In 1994, Cleo

underwe nt some ch anges in its upper m anageme nt. Jack Ro hrbac h replaced Michael Pietrangelo as the President of Cleo, a nd M arc Eng lish joined

Cleo as its Senior Vice President of Marketing and Creative. On September 13, 1994, Cleo info r med Guiliano that it would not renew his employment contract and that his employment would end

on Oc t ober 31, 1995. The re is no evidence

in the re cord tha

t Cleo had a

ny cause to termina

te Guiliano. Jack Rohrbach later testified that he decid ed at abo ut this time

not to use Guiliano as Vice President of Marketing in the future. On September 28, 1994, Guiliano received a letter from Cleo informing him that he was “relieved of his duties as Vice President Marketing,” tha t he was to receive any future assignments from the preside nt of the company, and that h e was to perform these as signments f

rom home. The lette

r also advised Guiliano t

hat he ha d no autho

rity to bind, repre sent, or speak fo r Cleo in a

ny manner . Rohrbac

h also tes tified tha

t it was his opinion that Cleo did not have a Vice President of Marketing at this time. Instead, the majority of Guiliano’s authority and responsibilities were assumed by Marc English. On November 3, 1994, Cleo sent Guiliano a letter informing him that he was not authorized to use anycorpora te credit cards and that he was to return these credit cards to Cleo. Guiliano later received another letter, dated November

17, informing him that as of December 1, 1994, Cleo would no longer answer a telephone

line for him, that all calls would be screened to determine if they we re of a business or personal nature, and that only the personal calls would be di rected to Guiliano’s home phone. The letter further informed Guiliano that he could retrieve only the personal names in his Rolodex because t he business c ontacts w ere the propert y of Cleo. In an af

fidavit submitted in supportof Guilia no, Jan Sob ierski sta

ted that u pon placing a tele

phone ca ll to Cleo and asking to s peak to G uiliano, th

e rece ptionist sa

id that G uil iano was no longer with the2 At the summary judgment hearing, Cleo insisted that this affidavit should be

stricken on the gro

unds that t

he affi davit set f

orth fac ts that would not be a dmissible i n evidence as required by Tenn. R. Civ. P. 56.05. We disagree . This is clearly an admission by an agent of Cleo that is against Cleo’s interest, as argued by Guiliano, and would be admissible as such under the Tennessee Rules of Evidence 803( 1.2)(D). In any event, there is ample other evidence to support our conclusion.

3 Cleo makes much of the fact that Guiliano indicated that he was cur rently employed on his application to Wang’s. This does not present a genuine issue of material fa ct. The issue in this case is whether the removal of Guiliano’s duties was a construc tive termination in breach of the contract, not whether Guiliano wa s actually terminated or whether he perceived that he had been terminated. 4 company. 2 Guiliano did not receive any assignments from Cleo after September 28, 1994, but he received his full salary and benefits. On Dec ember 12, 1994, Guiliano accepted employment with Wang’s International, Inc. (Wang’s) a t a salary of $110,000 a year. 3 On January 26, 1995, G

uiliano fi led a com

plaint, a lleging tha

t Cleo “te rminated ” him without cause in breach of the Agree m ent. In this complaint, Guiliano avers that Cleo constructively terminated him when it reduced and removed his duties and that he is therefore entitled to damages. On March 29, 1995, Cleo filed its answer admitting that it relieved Guiliano of his duties as Vice President of Marketing, but denying that it constructively terminatedhim in breach of the Ag

reemen t. On January 5, 1996, Guiliano filed his Motion for Summary Judgment. On February 28, 1995, Cleo filed its M otion for Summary Ju dgment an d Response to Plaintiff’s Motion for Summary Judgment. After a hearing, the trial court ent ered an order

on April 16, 1 996 gran

ting Guilia

no’s Motio n for Summ ary Judgmen t and denying Cleo’s Motion for Summary Judgment. The trial co urt awarded Guiliano his salary remaining under the contract, $90,125.00, plus $14,296.54 in prejudgment interest, for a total award of $104,421.54. Cleo appeals the trial court’s decision. On appeal, Cleo presents two issues for review as stated in its brief: 1. Did the tr

ial cour t err in f ailing to grant defendant’s Motion for Sum mary Judgment w

here defendant

establish ed that it d

id no t ter minate plaintiff, it did not breach the employment agreemen t with plain

tiff, and there a re no gen uine issue s of mater

ial fact ? 2. Assuming, arguendo , that the tr ial cour t did not err in granting plaintiff’s Motion for Summary Judgment, did the trial court err in holding t

hat plain tiff was entitled t

o recove r damage s? A trial court sho uld grant a motio n for summary judgment when the movant demonstrates th at t here are no genuine issues of material fa ct and that the moving party is entitled to a judgment as a

matter of law. Tenn. R. Civ. P. 56.03. The phrase "genuine issue" as stated i n5

Rule 56.03 refers to genuine fac tual issues and does not include issues involving legal conclusions to be drawn from the facts. Byrd v. Hall , 847 S.W.2d 208, 211 (Tenn. 1993). Because the material facts are

undisputed here, we agree that granting summary judgment to one of the pa rties wa s proper . There fore, w e must decide whether

the legal conclusions on which the trial court's grant of

summary judgment was based are correct. Our review is de novo on the record with no pre sumption of

the corr ectness of the tri al court 's c o nclusions of law. Union Planters Na t'l Bank v. American Home Assurance Co. , 865 S.W.2d 907, 912 (Tenn. App. 1993). Cleo argues that the trial court erred in granting summary judgment in favor

of Guiliano for two reasons. First, Cleo contends that the Agre ement gua rantee s only that Cleo would employ Guiliano as a “senior executive employee,” a nd not as its Vice President of Marketing. Second, Cleo argues that it did not breach the contract because the Agreeme

nt specif ically states that Guiliano’s functions and responsibilities were subject to change at its discretion. Instead, Cleo maintains that Guiliano voluntarily terminated his employment with Cleo whe n he accept e d employment with Wang’s. This case ce

nters on t he constr uction of the emplo yment con

tract. As this Court stated in Park Place Center Enterprises, Inc. v. Park Place Mall Associates , 836 S.W.2d 113 (Tenn. App. 1992): The cardina l rule for interpre ta t ion of con

tracts is to ascert ain the intention of the parties and to give effect to that intention consist

ent with legal pr inciples. In constr

uing contr

acts, the words ex

pressing the part ies’ intentions should be given their usual, natural , and ord

inary me aning. All provisions of a contract should be construe d in harmo ny with ea ch other , if

such construction can be reas onably ma de, so as t o avoid repugnancy between the seve

ral provis ions of

a single contract. If the provisions are re

pugnant a nd canno t be rec oncil ed, the first and principle clause i s con trolling and the subsequent provisions repugnant thereto are void and unenforc eable. Id. at 116 (citations omitted). With the above

well-es tablished

rules in mi nd, we will now exa min e the contract in dispute. The first clause in the Agreement provides that Guiliano is to serve as “Vic e Presiden t, Marketing.” Subsequent terms in the Agreement provide that Guiliano will serve C leo as a “senior executive employee” or an “executive employ ee.” To the extent that the term “Vice Presiden t, Marketing” confl

icts with subsequent terms in the Agreement, the subsequent terms6

are thereforevoid and unenforc eable because th ey are r epugnan t to the fir st and pri nciple term in the co ntract. Id. at 11 6. We find that Cleo hired Guiliano to be its Vice President of Marketing and now turn to whether Cleo breached the Agreement by removing all of Guiliano’ s duties in this capacity. Cleo relies on Canady v. Meharry Medical College , 811 S.W.2d 902 (Tenn. App. 1991). In Canady , Meharry Medical College decided not renew the one-year contract of

one its resident physicians and restricted the resident’s duties for the remainder of his contract term. Id. at 904. The resident sued for

breach of contract for the

failure to renew his contract. Id. This Court h eld in favor of

the medical college as to its failure to renew the contra ct. Id. at 906. The Court al so addressed the restriction of the resident’s duties, noting that the resident had no claim for

breach of contract because there was no provision in his contract guaranteeing the he would he assigned particular duties. Id. at 904-05. We find that Cleo’s reliance on Can a dy is misplaced. In Canady , there i s nothing to indicate that the contract called for the medical college to employ the plaintiff as anything but

a resident. In this case, the Agreement guaranteed Guiliano employment as the Vice President of Marketing with all the prestige and authority that comes with such an executive title. I n addition, the medical college in Canady merely restricted the resident’s duties. It did not remove all of his duties in the position for which he was hired, as in this case. Guiliano principally relies on one of our unpublished cases, Smith v. American General Corp. , No. 87-79-II, 1987 WL 15144 (Tenn. App. Aug. 5, 19 87), for the propositio n that a reduction in authority and responsibility can constitute a breach of an employment contract. In Smith , NTL Corporation hired Smith as its Executive Vice President of Investments and entered into an employment contract guaranteeing that Smith would be employed in “such employment

or in a position of comparable responsibility.” Id. at *1. S ubsequently, American General Corporation acquired NTL and reduced Smith’s authority and duties. Id. at *2. As a result of the change s in his author

ity, Smith resigned and sued for breach of his employment contra ct for the failure to employ him as promised. Id. On appea l, this Cour

t stated th at: Contrary to the insistenc e of d efenda nt, such r

eduction in authority an d responsibility did constitute a violation of the contract fo r which defendant

was resp onsible in

damages

. Superfic ially it may be argued that an employee whose titular position and sala

ry are c ontinued h as no basi s for com plaint as t o7 reduct ion in work load. However, to those highly skilled an d motivated employees who have the pride in their accomplishment and respon sibilit y, salary is not the only remuneration for employme

nt. To such employees, the loss of responsibility or authority is equal to or worse than los s of p ay. Section 5 [the “compar able responsibility” provision] of the cont r act recognizes this situat ion and pr

ovides fo r it. Defendant

cites authorities to the effect that change s in author

ity are not regarde d a s a breach of employment contract, howeve r, the contract in the present case expressly guar anteed the continuation of existing duties and authority or a substitution of equivalent

duties and authority. Whatever the general law on the subject, the provisions of the contract are controlling between the parties. Id. at *4. Accord Lazenby v. American Gen. Corp. , No. 89-67-II, 1989 WL 196244 (Tenn. App. Sept. 13, 1989) (holding that an employer breached an employment contrac t with a “c omparab le responsibility” provision when it reduced an employee’s duties). Cleo argues t

hat Smith is distinguishable because the Agreement in this case does not contain a provision guarantee in g Guiliano employme

nt in a position of “c omparab le responsibility.” To the co ntrary, Cleo pointsout that the Agreement specifically provides that Guiliano’s functions and responsibilities are subject to change at its discretion. We agree with the Cleo that the Agreement is distinguishable from the emp loyment contract in Smith because of the abse nce of a “comparable responsibility” provision. Even without suc

h a provis ion, however, Cleo was unde r a duty to

act fair ly and in good faith when exercising its right to change Guiliano’s functions and responsibilities as its Vice President of Marketing. As stated in TSC Industrie s, Inc. v. Tomlin , 743 S.W.2d 169 (Tenn. App. 1987): It is true tha

t there is implied in

eve ry contract a duty of good faith and fair dealing in its performance and enf orcement, and a person is presumed to know the law. See Restatement (2d) Contract s, § 205 (1979). What thi s duty co nsists of, however, depends upon the individual contract in each case. In construing contracts, courts look

to the language of the instrument and to the intention of the parties, and impose a constr uction wh ich is fai r and reasonable. See, e.g., Covington v. Robinson , 723 S.W.2d 643, 645-6 (Tenn. App.1986). TSC Industries, 743 S.W.2d at 173. We do not believe that it is a fair and reasonable construction of the contract to say that the parties intended Guiliano to serveas Vice President of Marketing in name only and to sit at home and do nothing until the term of the Agreement expired. Our conclusion is supported by the testimony of Michael Pietrangelo, the former President and Chief Executive Officer of Cleo:8 In my opinion, Tony was - - th is documen t said you are Vice President of Marketing for the next three ye ars, an d that meant that you perform as Vice President of Marketing. Whethe r or not we add or take away respon sibi lities could be, for example, are going to put the a rt department under you, or going to take everyday gift wrap out from under you, but you are still the Vice President of Marketing. Although the Agreement certainly contemplated a rea sonable “change” in Guiliano’s functions and responsibilities, it did not contemplate the complete removal of his functions and responsibilities so that his position was rendered a vi rtual null ity

. Accord McLaughlin v. Union Leader Corp. , 116 A.2d 489, 493 (N. H. 1955); see also Rudman v. Cowles Communicatio ns, Inc. , 280 N.E.2d 867, 872 (N.Y. App. 1972) (holding that an employer could notdischar ge e mployee for refusing to perform assignments that were inconsistent with the executive position called f or in the c ontract , even tho ugh the as signments were at the company’s discretion). Theref

ore, we hold that G

uiliano wa s entitled

to treat h is employment as terminated and the contract as breached when Cleo r elieved him of all of his duties and responsibilities as Vice President of Marketing. In the second issue, Cleo argues that the trial court erred in awarding damages because Guiliano accepted

a position with Wang’s at a higher salaryand did no t suffer any actu al harm. Alternatively, Cleo argu es that the prov ision is a li quidated damagesprovision

that is unenfor ceable because it is a penalty. Guiliano, on the other hand, argues that the provi sion in the Agreement

is a severance pay provision. Even if the provision is construed to be a liquidated damages provision, Guiliano argues that it is not a penalty. Paragraph

nine of the Agree

ment stipul ates tha

t if C leo terminates Guiliano without cause, Guiliano is entitled to be paid his current salary from the d ate of te rmination to the date of the expiration of the Agreement. It appears to the Court that wha tever label or

title we put on this particu lar provision of the contrac t, it is a pr

ovision ca

lling for p ayment of

a sum cer tain in the event of a certain occasion. This is, in effect, aliquidated damages provision, which is a sum stipulated by the par

ties in the contract to be pai d to compe nsate fo r in juries in the event of a breach. See V.L. N

icho lson Co. v . Transcon Inv. & Fin. Ltd. , Inc. , 595 S.W.2d 474, 484 (Tenn. 1980). Liquidated damages provisions must be reasonab le in r elation to the terms of the contract and the certainty with which damages can be measured. McGann v. United Safari, Inc. , 6949

S.W.2d 332, 336 (Ten n. App. 1985). There must be a reasonable re lationship between the amount stipulated as liquidated damages and what might reasonably be expecte d in the event of

a breach. Id. (citing V.L. Nicholson Co., 595 S.W.2d at 484). Whet her a provision for liquidated damagesis reaso nable is determined prospectively, at the time that the parties entered into the contract, rather than retrospec tively. Kendrick v. Alexander , 844 S.W.2d 187, 191 (Tenn. App.1992). Even if the liquidated damages provision is rea sonable a t the time of contracting, recovery will be limited to actual damages if the amount stipulated as liquida ted dama ges is so greatly in exces s of actu al damag es that it i s, in effect, a penalty. Beasley v

. Horrell , 864 S.W.2d 45, 50 (Tenn . App. 199 3); Harmon v. Eg gers , 699 S .W.2d 1 59, 163 (Tenn. App. 1985). Because forfeitures and penalties are not favor ed, any doubt

as to whether a sum is a penalty or liquidated damageswill gene rally be resolved as the former. Beasley , 864 S.W.2d at 50; Harmon , 699 S.W.2d at 163. In Norwalk Door Closer Co. v. Eagle Lock & Screw Co. , 220 A.2d 263 (Conn. 1966), the Court said: The circumstances which the parties might reasonably fore see

at the time of making a con tractcould, in any given case, be vastlydifferent

from the circumstances which actually exist when a court is called upon to enforce the cont ra ct. It is not the function of the court to determine by hindsight the reasona bleness of the expectation of

the parties at the time the contract was made, butit is the function of the court at the time of enforcement to do justice. In the or

dinary c ontract

action th e court d ete rmines th e just damages from evidence offere d. In a v alid contract for liquidated damages, the parties are pe r mitted, in o

rder to a void the uncertainties and time-consuming effort involved, to estimat e in advance the reasonably probab l e foreseeable damages which would arise in the event of a default. Implicit in the transaction is the prem

ise that th

e sum agr eed upon will be within the

fair range of those j ust damag es which would be c all ed fo r and provable had the parties resorted to proof. Consequentl y, if the damage envisione

d by the pa

rties nev er occurs

, the whole premise for th eir a

greed es timate vani

shes, and, e ven if the contract was to be construed as one for liquidated damages rather than one for a penalty, neither justice nor the i nt ent of the parties is served by enforcement. To enf orce it woul

d amount in reality to the infliction of a penalty. Id

. at 268 (emphasis added) (citations omitted). The Norwalk opinion is w ell reasoned and conforms to this Court’s perception of the law in this jurisdiction. In this case, although Guiliano was able to se cure em ployment w ith Wang’ s at a higher10

salary, this was no t certain at the tim e the par ties ente red into the contr act. Rath er, it wa s within the fair contemplation of the parties that, if Guiliano was terminated without cause, he would not be able to find a

comparable pos ition at the same salary or that he would suffer damages that would be difficult to prove, such as a loss of status or prestige or a loss of advancement opportuni ties. Therefore, the liquidated damages provision was re asonabl e at the time the contract was entered into in terms of what might have been anticipated in the event of a breach. Nonetheless, there is no proof in the record that Guiliano suffere d any actual harm as a result of the breach. The record ind icates that Guilia

no was not

only able to find co mparabl e employme

nt, but thathe found employment at a higher salary. Moreover, he presented no proof whatsoever

as to any loss of

prestige , status, advancement opportunities, or other damages. In fact, the record shows that Guiliano did not even suffer a loss in pa

y betwee n positions

. Under these facts, we conclude that the liquidated damages pr ovision, which would allow Guiliano a recovery of $90,12 5.00, plus inte rest, is gr ossly disproportionate in light of the fact that he suffered no actual harm. The purpose of a liquidated damages pr ovision is not to provide a party witha windfall. Therefore, the liquida ted dama ges provi sion in this c ase is unenfo rceabl e as a penalty. Accordingly, the judgment of the trial court is reversed, and this case is remanded for such further proceedings as are necessary. Costs of appeal are assessed a gainst the appellee.

_________________________________ W. FRANK CRAWFORD, PRESIDING J

UDGE, W.S. CONCUR:

____________________________________ ALAN E. HIGH

ERS, JUDGE

____________________________________ HEWITT P. TOM LIN, JR., SE NIOR JUDGE