Court Opinion

ID: 159664
Source: CourtListenerOpinion
Date Created: 2010-08-14 06:29:31+00
Date Added: 2024-06-11T15:03:04.892155
License: Public Domain

F I L E D
                                                                  United States Court of Appeals
                                                                          Tenth Circuit
                      UNITED STATES COURT OF APPEALS
                                                                         MAY 23 2000
                                     TENTH CIRCUIT
                                                                     PATRICK FISHER
                                                                              Clerk

 RICHARD DOUGLAS; NANCY
 DOUGLAS,

          Plaintiffs - Appellants,
                                                        No. 98-8076
 v.
                                                  (D.C. No. 97-CV-1029-J)
                                                   (District of Wyoming)
 ORKIN EXTERMINATING
 COMPANY, INC.,

          Defendant - Appellee.

                             ORDER AND JUDGMENT *

Before TACHA, KELLY and LUCERO, Circuit Judges.

      In this diversity action governed by Wyoming law, plaintiff-appellant

Richard Douglas appeals the district court’s grant of summary judgment in favor

of defendant-appellee Orkin Exterminating Company (“Orkin”) and the dismissal

of his claims for breach of his employment contract, breach of the implied

covenant of good faith and fair dealing, and intentional infliction of emotional

      *
        This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. This court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
distress. 1 Douglas had become an Orkin employee as part of an integrated

transaction which included the sale of his pest-control business to Orkin.

Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we reverse the district

court’s dismissal of Douglas’s breach of contract and intentional infliction of

emotional distress claims and affirm its dismissal of the breach of the implied

covenant of good faith and fair dealing claim.

                                         I

      Douglas founded, owned, and operated Cowboy Pest Control, Inc., with his

wife Nancy. In 1992, he and his wife entered into negotiations with Orkin for the

sale of their business, during which they discussed with Orkin a document entitled

“Potential Compensation Package,” which indicated they would earn up to

$663,216 over ten years from the proposed transaction. On March 29, 1994, the

parties signed a letter of understanding which outlined a $75,000 purchase price

for Cowboy’s assets, payment of $50,000 to Douglas and his wife in consideration

for a covenant not to compete, employment of Douglas by Orkin as manager of

the acquired operation at an annual base salary of $30,000, and a potential earn-

out bonus of $15,000 at the end of Douglas’s first year of employment. On April

      1
        Nancy Douglas, Douglas’s wife and the second named plaintiff, does not
appeal the disposition of her claims below.

                                        -2-
28, 1994, the parties signed an Asset Purchase Agreement with a Form of

Employment Agreement attached.

      The transaction was closed on December 9, 1994. At closing, Douglas and

his wife signed a non-competition agreement with Orkin and an agreement

assigning to Orkin the employment contracts between Cowboy and its employees.

He also signed an Employment Agreement substantially similar to the Form of

Employment Agreement attached to the Asset Purchase Agreement. The

Employment Agreement contained the following relevant terms:

      1. The Company hereby employs the Employee as Manager for the
      Rock Springs location of Orkin Exterminating Company, and agrees
      to pay the Employee a salary of $2,500 monthly. After the first year,
      Employee shall receive a Salary Performance Review.
      ....
      [1(e).] The Employee’s title and/or compensation may be changed
      periodically after the initial year but, notwithstanding whether the
      specific changes are reflected in a revised written agreement, the
      provisions of the balance of this Agreement shall remain in full force
      and effect.
      ....
      [5(c)(ii).] The Company may, at any time, terminate the Employment
      Agreement, at its option and without notice or payment of any
      terminal compensation if the Employee shall, at any time, conduct
      himself in such a manner as to injure or endanger the reputation of
      the Company, or become involved in any offense involving moral
      turpitude, or fail to faithfully perform his duties as assigned by the
      Company in a manner in keeping with this Agreement and the rules
      and regulations of the Company . . . .

      6. This contract includes the entire agreement of the parties.

(I Appellant’s App. at 264-67.)

                                        -3-
      More than one year after beginning employment with Orkin, both Douglas

and Orkin’s Regional Manager Howard E. Smith expressed dissatisfaction with

Douglas’s position and performance. Over the next few weeks, Orkin suggested

that Douglas transfer to various other positions including branch manager trainee,

technician, sales representative, and a combined sales representative and service

technician position. All of those offers were withdrawn because the positions

were not actually available. Orkin then offered Douglas a position as a “swing

tech[nician]” allegedly paying approximately $1,100 a month plus commissions.

(Id. at 160.) The parties dispute whether this position would constitute a

demotion as well as the level of his potential earnings with commissions. Orkin

asserts that he would have earned at least $2,500 a month in the swing technician

position, but Douglas claims it was the lowest-paying position available in the

Rock Springs area, with potential earnings of substantially less than $2,500.

Douglas turned down the offer and his employment was terminated.

      Douglas and his wife brought suit in Wyoming state court against Orkin,

alleging breach of contract, breach of the implied duty of good faith and fair

dealing, intentional infliction of emotional distress, and promissory estoppel, and

seeking punitive damages. Based on diversity of citizenship, Orkin removed the

case to federal district court. See 28 U.S.C. §§ 1332 & 1441. The district court

                                         -4-
granted summary judgment to Orkin on all of Douglas’s claims. This appeal

followed.

                                         II

       We review the grant of summary judgment de novo, applying the same

legal standard used by the district court under Fed. R. Civ. P. 56(c). See United

States v. Hess, 194 F.3d 1164, 1170 (10th Cir. 1999). Summary judgment is

appropriate if, after viewing the evidence in the light most favorable to the

non-movant, there is no genuine issue of material fact, and the movant is entitled

to judgment as a matter of law. See UMLIC-Nine Corp. v. Lipan Springs Dev.

Corp., 168 F.3d 1173, 1176 (10th Cir. 1999); Fed. R. Civ. P. 56(c).

      The substantive law of Wyoming applies in this diversity action, see Budd

v. American Excess Insurance Co., 928 F.2d 344, 346 (10th Cir. 1991), and in the

absence of Wyoming law directly on point, we attempt to predict how Wyoming’s

highest court would rule, see Wood v. Eli Lilly & Co., 38 F.3d 510, 512 (10th

Cir. 1994); see also Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). The district

court’s interpretation of state law is subject to de novo review. See Salve Regina

College v. Russell, 499 U.S. 225, 231 (1991).

                                         A

      We must determine whether Orkin breached its employment contract with

Douglas when it terminated him after he refused to accept an alleged demotion

                                         -5-
and reduction in compensation. If the language of the employment contract is

plain and unequivocal, that language is controlling. See Lyman v. Jennings, 637

P.2d 259, 260 (Wyo. 1981). “[O]ur primary purpose is to determine the true

intent and understanding of the parties at the time and place the contract was

made.” Simek v. Rocky Mountain, Inc., 977 P.2d 687, 690 (Wyo. 1999) (citing

Examination Management Servs., Inc. v. Kirschbaum, 927 P.2d 686, 690 (Wyo.

1996)).

      The parties dispute whether the provisions of the contract governing the

terms of Douglas’s employment and termination are ambiguous. This presents a

question of law. See Sowerwine v. Keith, 197 P.2d 1018, No. 99-190, 2000 WL

211571, at *2 (Wyo. Feb. 24, 2000). “When deciding whether a contract is

ambiguous, we endeavor to determine the intention of the parties.” Id. (citing

Wolter v. Equitable Resources Energy Co., 979 P.2d 948, 951 (1999)).

“Ambiguity exists where a document ‘is obscure in its meaning because of

indefiniteness of expression or because it contains a double meaning.’” Lamb v.

Wyoming Game & Fish Comm’n, 985 P.2d 433, 437 (Wyo. 1999) (quoting Martin

v. Farmers Ins. Exch., 894 P.2d 618, 620 (Wyo. 1995)) (further citation omitted).

Therefore, “[w]e turn to extrinsic evidence and rules of contract construction only

when the contract language is ambiguous and its meaning is doubtful or

uncertain.” Sowerwine, 2000 WL 211571, at *2 (citing Wolter, 979 P.2d at 951).

                                         -6-
      It is undisputed that, pursuant to clause 1 of the employment contract,

Douglas was initially employed as “Manager for the Rock Springs location of

Orkin Exterminating Company” and Orkin “agree[d] to pay [Douglas] a salary of

$2,500 monthly.” (I Appellant’s App. at 264.) After his first year of employment

with Orkin, however, the contract provided that he would “receive a Salary

Performance Review.” (Id.) Clause 1(e) of the contract also provided that his

“title and/or compensation may be changed periodically after the initial year.”

(Id. at 265.) Relying on this clause, Orkin contends it had the contractual right to

change his position after one year, as it attempted to do in this case.

      The contract also stated, however, that if Douglas’s title and/or

compensation were changed, “the provisions of the balance of [the employment

contract were to] remain in full force and effect.” (Id.) The other relevant

provision of the contract to which we must give “full force and effect” is clause

5(c)(ii), which encompasses the parties’ agreement that Douglas’s employment

was not at-will, but rather for cause:

      The Company may, at any time, terminate the Employment
      Agreement, at its option and without notice or payment of any
      terminal compensation if the Employee shall, at any time, conduct
      himself in such a manner as to injure or endanger the reputation of
      the Company, or become involved in any offense involving moral
      turpitude, or fail to faithfully perform his duties as assigned by the
      Company in a manner in keeping with this Agreement and the rules
      and regulations of the Company, or failure to comply with the
      Company’s procedures for insuring strict compliance with these
      requirements. . . .

                                          -7-
(Id. at 266.) Douglas argues these clauses—1, 1(e), and 5(c)(ii)—when read

together, are ambiguous and therefore the court must consider parol evidence to

determine the intent of the parties.

      Douglas’s argument hinges on the assertion that a substantial demotion and

reduction in pay constitutes constructive discharge. Orkin responds that these

clauses can easily be reconciled: “After the first year of employment, whatever

position . . . Douglas held, terminating his employment from that position would

have to be for cause.” (Appellee’s Br. at 17.) The crux of the issue does not rest

on whether Orkin could change Douglas’s title and/or compensation because

clause 1(e) clearly contemplates such changes, but rather whether drastic changes

in title and compensation may be so unreasonable—when read in conjunction with

clauses 1 and 5(c)(ii)—as to constitute a breach of the employment contract.   2

      The doctrine of constructive discharge is most often employed in the

context of claims of workplace harassment. In that context, “[c]onstructive

discharge occurs when a reasonable person in the employee’s position would view

the working conditions as intolerable.”    Yearous v. Niobrara County Mem’l

      2
         Douglas also contends that the term “title” as used in clause 1(e) is
ambiguous because it is unclear whether that term refers to the name associated
with a position or the position itself. The only credible interpretation is the latter.
Indeed, Douglas adopts this interpretation when he suggests the court should read
clause 1(e) as permitting only promotions and salary increases. That
interpretation is also unsupported by the language of the contract, which does not
distinguish between promotions and demotions.

                                           -8-
Hosp. , 128 F.3d 1351, 1356 (10th Cir. 1997);      see also Woodward v. City of

Worland , 977 F.2d 1390, 1401 (10th Cir. 1992). The Wyoming Supreme Court

has recognized the doctrine of constructive discharge, but in contexts differing

from this case.   See Employment Sec. Comm’n of Wyo. v. Western Gas

Processors, Ltd. , 786 P.2d 866, 871-72 (Wyo. 1990) (finding “that the employer’s

demand to the employee that he yield up a sample of his urine . . . or resign on the

spot was unreasonable and the resulting resignation” constituted a constructive

discharge); Jewell v. North Big Horn Hosp. Dist.       , 953 P.2d 135, 139 (Wyo. 1998)

(holding that the plaintiff had stated claims for breach of contract and breach of

the implied covenant of good faith and fair dealing because “in Wyoming, a

choice to resign or be fired is recognized as constructive discharge”). If the

Wyoming Supreme Court has not yet addressed a legal question, we may attempt

to predict how that court would decide the question.       See Wood , 38 F.3d at 512;

Farmers Alliance Mut. Ins. Co. v. Bakke      , 619 F.2d 885, 888 (10th Cir. 1980). In

conducting our inquiry, we are free to consider all resources available, including

decisions of Wyoming courts or the courts of other states as well as federal court

decisions, in addition to the general weight and trend of authority.    See id.

       We conclude, based on prior Tenth Circuit case law, as well as state

precedent from other jurisdictions, that “[a] demotion or reassignment to a job

with lower status or lower pay may, depending upon the individual facts of the

                                             -9-
case, constitute aggravating factors that would justify a finding of constructive

discharge.” James v. Sears, Roebuck & Co., Inc.   , 21 F.3d 989, 993 (10th Cir.

1994); accord Barrett v. Wyerhaeuser Co. Severance Pay Plan, 700 P.2d 338, 342

(Wash. Ct. App. 1985) ; Kass v. Brown Boveri Corp., 488 A.2d 242, 245-46 (N.J.

Super. Ct. App. Div. 1985); Sanders v. May Broad. Co., 336 N.W.2d 92, 95-96

(Neb. 1983); Miller v. Winshall, 400 N.E.2d 1306, 1310-11 (Mass. App. Ct.

1980); Brock v. Mutual Reports, Inc., 397 A.2d 149, 152 (D.C. App. Ct. 1979);

Loos v. Geo. Walter Brewing Co., 129 N.W. 645, 646 (Wis. 1911); cf. Trapkus v.

Edstrom’s, Inc., 489 N.E.2d 340, 344 (Ill. App. Ct. 1986); Tracey v. Sconnix

Broad. of S.C., Inc., 325 S.E.2d 542, 544 (S.C. 1985); Board of Dirs. of

Kennewick Sch. Dist. v. Lamanna, 287 P.2d 105, 107-08 (Wash. 1955); Breen v.

Central Iowa Power & Light Co., 224 N.W. 562, 564 (Iowa 1929); Cooper v.

Stronge & Warner Co., 126 N.W. 541, 541 (Minn. 1910). The record contains

support for Douglas’s allegation that he was demoted to a position with both a

lower pay and lower status; the position Orkin offered purportedly demoted him

from the highest to the lowest position available in the Rock Springs area and

reduced his compensation by more than half—from $2,500 to $1,100.

      In addition to establishing that a reduction in rank or material change in

duties occurred, however, an employee must also show that the new rank or

duties which she was asked to assume were neither encompassed by, nor included

                                         -10-
within the contemplation of, the employment contract. See, e.g., Miller, 400

N.E.2d at 1310-11 (“If an employee, especially an executive employee, is

engaged to fill a particular position, any material reduction in rank constitutes a

breach of the employment agreement and is tantamount to a discharge, unless the

employment contract, by its terms, contemplates a change in the rank and nature

of the job.”); Rudman v. Cowles Communications, Inc., 280 N.E.2d 867, 872

(N.Y. 1972) (“If an employee, a fortiori an executive employee, is engaged to fill

a particular position, any material change in his duties, or significant reduction in

rank, may constitute a breach of his employment agreement.”) (citations omitted);

Hayes v. Resource Control, Inc., 365 A.2d 399, 400-01 (Conn. 1976) (holding

that a reduction in rank or a change in the duties of an employee engaged to fill a

particular position constitutes a breach). Therefore, we must determine the

magnitude of change in title and compensation contemplated by the employment

contract.

      In doing so, we consider the contract as a whole, reading each part in the

context of the entire document. See Amoco Prod. v. Stauffer Chem. Co. of Wyo.,

612 P.2d 463, 465 (Wyo. 1980). “In other words, we analyze the ‘tenor’ of the

contract.” Fremont Homes, Inc. v. Elmer, 974 P.2d 952, 956 (Wyo. 1999)

(quoting Examination Management Servs., Inc., 927 P.2d at 690). It is

undisputed that Orkin hired Douglas for the position of Manager for the Rock

                                         -11-
Springs location with a monthly salary of $2,500 and a salary performance review

after one year. Although Orkin could change his title and/or compensation

pursuant to clause 1(e), it could not terminate him without cause, as stated in

clause 5(c)(ii). We “‘strive to avoid a construction which renders a provision

meaningless’” and “‘to reconcile by reasonable interpretation any provisions

which apparently conflict before adopting a construction which would nullify any

provision.’” Simek, 977 P.2d at 690 (quoting Examination Management Servs.,

Inc., 927 P.2d at 690).

      To construe the parties’ contract to allow Orkin to substantially alter

Douglas’s position or compensation from that set forth in clause 1 at any time

after the first year with or without cause would permit an employer to diminish

substantially the value of for-cause termination clauses. Such an interpretation

would render clauses 1 and 5(c)(ii) meaningless; the for-cause termination clause

effectively would be nullified, as would the clause allowing for a salary review of

Douglas’s performance in his management position, because Orkin could transfer

him out of management and force him into resignation at any time after one year

by unacceptably reducing his compensation and/or demoting him. Cf. Guiliano v.

Cleo, Inc., 995 S.W.2d 88, 94-96 (Tenn. 1999) (holding that an employer

breached an employment contract, which encompassed a clause allowing for

change in duties and a for-cause termination clause, when it removed the

                                        -12-
employee’s title and work responsibilities even though it maintained the same

level of compensation). Such a result would be absurd.

      The extent to which the parties to the contract intended to empower Orkin

to change Douglas’s employment pursuant to clause 1(e) is uncertain from the

four corners of the contract, and thus extrinsic evidence should be considered by

the fact-finder. See Sowerwine, 2000 WL 211571, at *2 (citing Wolter, 979 P.2d

at 951). We therefore reverse the district court’s dismissal of Douglas’s breach of

contract claim and remand for further proceedings to determine the parties intent

upon consideration of such evidence.

                                         B

      Under Wyoming law, a covenant of good faith and fair dealing is implied in

all employment contracts and a breach of that covenant can give rise to tort

liability. See Wilder v. Cody Country Chamber of Commerce, 868 P.2d 211, 220-

21 (Wyo. 1994). The law governing this tort, however, is not well-developed.

Since the Wyoming Supreme Court’s application of this tort to employment

contracts in Wilder, 868 P.2d 220-21, it has concluded only once, in Jewell, 953

P.2d at 139, that an employee presented sufficient evidence of this tort to

preclude summary judgment. See Dubrowski v. Wyoming, – P.2d – , No. 98-212,

2000 WL 295109, at *2 (Wyo. March 23, 2000). Accordingly, Wyoming

decisions have “repeatedly stressed that only in rare and exceptional cases is a

                                        -13-
duty created which gives rise to tort liability.” Anderson v. South Lincoln Special

Cemetery Dist., 972 P.2d 136, 140 (Wyo. 1999) (citations omitted).

      To establish a breach of the covenant of good faith and fair dealing, an

employee must first establish “a special relationship of trust and reliance,” which

may be shown by “the existence of separate consideration, common law [or]

statutory rights, or rights accruing with longevity of service.” Id. (citations

omitted). To support his claim of a “special relationship of trust and reliance,”

Douglas relies on the alleged “existence of separate consideration.” Wilder, 868

P.2d at 220-21. The analysis for separate consideration to support a special

relationship is “the same as that used to determine whether there exists additional

consideration necessary to support an express contract.” Worley, 2000 WL

295110, at *8.

      Douglas asserts he offered a discounted sale price for his business as

consideration in exchange for Orkin’s promise of long term employment.

Consideration is defined as “a legal detriment [that] has been bargained for and

exchanged for a promise.” Loghry v. Univcover Corp., 927 P.2d 706, 712 (Wyo.

1996) (citing Moorcroft State Bank v. Morel, 701 P.2d 1159, 1161-62 (Wyo.

1985)). There is no evidence, however, that Orkin bargained for such a discount

as separate consideration for a promise of long-term employment. The contracts

specify both the sale price for the business and the terms of Douglas’s

                                         -14-
employment with Orkin—but we find nothing that requires Orkin to employ

Douglas until retirement in exchange for a specified reduction in the sale price.

Douglas also argues that the non-competition agreement was bargained for as

separate consideration for his long-term employment. Again, nothing is noted in

the agreement itself to support this contention of discrete consideration; the

contract states that the Douglases were paid for their promise not to compete.

This being the situation, dismissal of Douglas’s breach of the covenant of good

faith and fair dealing claim was appropriate.

                                          C

      “In order to recover for intentional infliction of emotional distress, a

plaintiff must prove that the defendant’s conduct was extreme and outrageous and

that the defendant intentionally or recklessly caused the plaintiff to suffer severe

emotional harm.” Terry, 947 P.2d at 278 (citation omitted). In breach of

employment contract cases, “[i]f an employee’s mental distress is caused solely

by his discharge, and if the discharge was permitted in his contract, . . . the

employer has a complete defense, even if the employer is aware that the discharge

will cause emotional distress.” Id. (citation omitted). The basis of the district

court’s ruling that Orkin had a complete defense to Douglas’s intentional

infliction of emotional distress claim was that the employment contract provided

for termination. Because we reverse the district court’s dismissal of Douglas’s

                                         -15-
breach of contract claim, we likewise reverse its dismissal of his intentional

infliction of emotional distress claim for further consideration following the

court’s resolution of the breach of employment contract issue.

                                         III

      We AFFIRM the district court’s dismissal of Douglas’s breach of the

covenant of good faith and fair dealing claim. We REVERSE the district court’s

dismissal of Douglas’s breach of contract and intentional infliction of emotional

distress claims and REMAND for further proceedings in accordance with this

opinion.

                                       ENTERED FOR THE COURT

                                       Carlos F. Lucero
                                       Circuit Judge

                                         -16-