Court Opinion

ID: 873009
Source: CourtListenerOpinion
Date Created: 2013-05-28 15:20:43.990408+00
Date Added: 2024-06-11T09:07:00.378506
License: Public Domain

United States Court of Appeals
                            For the Eighth Circuit
                        ___________________________

                                No. 12-1956
                        ___________________________

         Robert W. Kramer, III, doing business as CIS Internet Services,

                       lllllllllllllllllllll Plaintiff - Appellant,

                                           v.

      Cash Link Systems, A Florida corporation; AmeriP O S, Inc. a Florida
 corporation; OTB Products, A Florida corporation; AMP Dollar Savings, Inc. an
    Arizona corporation doing business as MortgageLeads.tv, doing business as
Leads.tv; Healthstop, Inc. a Minnesota corporation, doing business as Health Stop
  Shop; Michael Moebeck, a Minnesota resident; Joseph Ingersoll, a Minnesota
resident; Internet Services Zocalo, a California corporation; GZ Media, Inc. a New
  York corporation, doing business as 24/7 Downloads; TEI Marketing Group, a
                                Florida corporation,

                            lllllllllllllllllllll Defendants,

             National Credit Systems, Inc. a New York corporation,

                      lllllllllllllllllllll Defendant - Appellee,

 Jerry Poole, a Florida resident; Carmen Lyman, a Massachusetts resident, also
known as Carmen Rodriguez; Kevin Hertz, a California resident; Mihir Teneja, a
                                 Florida resident,

                            lllllllllllllllllllll Defendants.
                                     ____________

                    Appeal from United States District Court
                  for the Southern District of Iowa - Davenport
                                 ____________
                           Submitted: December 12, 2012
                               Filed: May 28, 2013
                                  ____________

Before LOKEN, MELLOY, and COLLOTON, Circuit Judges.
                           ____________

COLLOTON, Circuit Judge.

       Robert Kramer alleged that National Credit Systems (“NCS”) conducted a
spam e-mail campaign that harmed his business, in violation of Iowa and federal law.
After a bench trial, the district court1 entered judgment in favor of NCS and dismissed
Kramer’s claims. Kramer appeals, and we affirm.

                                          I.

       Robert Kramer owned and operated CIS Internet Services (“CIS”), a small
Internet service provider in Clinton, Iowa. Kramer claims that between 2001 and
2003, spam e-mails flooded CIS’s server, interfering with the ability of CIS’s
customers to access the Internet. Many of the spam e-mails advertised the debt
collection services of NCS.

       After filing an initial complaint against 300 unnamed defendants, Kramer filed
an amended complaint in 2004, naming NCS, a New York corporation, as a
defendant, and asserting that NCS was responsible for many of the spam e-mails that
damaged CIS. Kramer alleged violations of the Iowa anti-spam statute in effect at the
time, Iowa Code § 714E.1 (2003) (repealed 2005), the federal Racketeer Influenced
and Corrupt Organizations Act, 18 U.S.C. § 1962, and the federal Computer Fraud

      1
       The Honorable Charles R. Wolle, United States District Judge for the Southern
District of Iowa.

                                         -2-
and Abuse Act, 18 U.S.C. § 1030. He also brought several Iowa common-law causes
of action. NCS denied the allegations, and the case proceeded to a bench trial.

       At trial, Kramer sought to prove that William Stolars, a salesman, sent the e-
mails on behalf of NCS. The e-mails at issue advertised NCS’s services, were similar
to other NCS advertisements, and contained accurate contact information for NCS.
But all of that information was publicly available, and an information-technology
specialist testified that the e-mails had been routed through servers in foreign
countries, so none of them could be traced to the original sender. Chris Rehkow and
Lynn Goldberg, the only shareholders of NCS, both testified that they neither sent the
spam e-mails themselves nor authorized any employee to send the e-mails.

       Kramer and his former attorney, Pete Wellborn, testified that Stolars admitted
to sending the e-mails. In his deposition, Wellborn claimed that he called the
telephone number listed in the e-mails and spoke with Stolars. According to
Wellborn, Stolars admitted that he worked for NCS and that he was sending the spam
e-mails on behalf of NCS. Kramer testified that he spoke with Rehkow and Stolars,
both of whom acknowledged that Stolars was sending the e-mails. According to
Kramer, Rehkow admitted that Stolars was in charge of marketing and was running
the e-mail campaign. Rehkow denied ever speaking with Kramer. Stolars was
unavailable to testify because he died before the trial.

       Goldberg acknowledged that a salesperson could have conducted the e-mail
campaign without telling him or Rehkow. But Goldberg explained that the entire
sales force—including Stolars—operated as independent contractors, rather than as
employees. NCS introduced several sample contracts that it executed with its sales
force, all of which provided that the salespeople would be independent contractors.
Although Stolars’s contract was lost, Goldberg stated that Stolars would have signed
a form contract similar to the contracts in evidence.

                                         -3-
       The district court entered judgment in favor of NCS. The court credited the
testimony of NCS’s principals, describing their testimony as “the most persuasive
evidence” of Stolars’s relationship to NCS. It also noted that Kramer and Wellborn
had reasons “to stretch the truth about what Stolars told them on the phone,” and
found that they were “not sufficiently credible” to support key parts of their testimony
about the telephone calls. The district court did not make a finding about whether
Stolars sent the spam e-mails. But the court ruled that even if he did, then NCS was
not liable, because Stolars was an independent contractor, not an employee as Kramer
asserted. The court concluded that “neither Re[h]kow nor Goldberg, nor any other
authorized NCS agent, initiated SPAM e-mails to market NCS’s debt collection
business or for any other purpose.”

      We dismissed Kramer’s first attempt to appeal the district court’s decision for
lack of a final judgment. Now that all remaining defendants have been dismissed
with prejudice, the judgment below is final, and we have jurisdiction over this appeal.
See 28 U.S.C. § 1291.

                                          II.

       Kramer contends that the district court erred in rejecting two alternative
theories of recovery. First, he asserts that NCS’s principals, Rehkow and Goldberg,
authorized the spam e-mail campaign, and that the district court erred in finding to
the contrary. Second, he argues that NCS is accountable for the actions of its
employees, and that the district court erred by concluding that Stolars was not an
employee of NCS. While Kramer’s state-law claims are governed by the substantive
law of Iowa, see Erie R. Co. v. Tompkins, 304 U.S. 64 (1938), the standard of review
is a procedural issue that is governed by federal law. Mayer v. Gary Partners & Co.,
29 F.3d 330, 334 (7th Cir. 1994); Felder v. United States, 543 F.2d 657, 664 (9th Cir.
1976); see Newberry v. Burlington Basket Co., 622 F.3d 979, 983 (8th Cir. 2010).

                                          -4-
We thus apply Federal Rule of Civil Procedure 52(a), which provides that we must
not set aside the district court’s findings of fact unless they are clearly erroneous.

                                         A.

      Kramer argues that documentary evidence contradicts the testimony of Rehkow
and Goldberg that NCS did not engage in any “mass mail campaigns” or direct
anyone to send spam e-mails. He contends that the inference is inescapable that the
principals employed e-mail marketing techniques, because the spam e-mails
advertised NCS’s services with a valid e-mail address, the messages were similar to
various online advertisements posted by NCS, and NCS elsewhere encouraged
customers to contact the company by e-mail. This evidence might support an
inference that NCS’s principals were involved with the e-mails, but it does not
compel that conclusion. The e-mails could not be traced to NCS, and anyone could
have composed the e-mails by copying and pasting text from NCS’s website or its
other advertisements. Therefore, the testimony of Rehkow and Goldberg on this
score was not contradicted by the documentary evidence.

       Kramer also contends that the court should have credited his testimony that
Rehkow admitted over the phone that NCS was responsible for the e-mail campaign.
Kramer relies on an e-mail that he says was written to memorialize the conversation.
In the e-mail, Kramer wrote that after he called NCS to complain about spam e-mails,
a receptionist told him to expect a call from the chief executive officer of NCS, and
that he then received a call from a man named “Chris,” which is Rehkow’s first name.
Chris purportedly said that “he could not understand how anything like this could
happen,” and that “cis.net was not on their list.”

     On its face, however, Kramer’s summary of the call does not reflect an
admission by Rehkow that NCS was responsible for the spam e-mails. The quoted
comments are more akin to a denial. The district court, moreover, thought Kramer’s

                                         -5-
e-mail “deserve[d] less weight than if it were notes handwritten or prepared at the
precise time” of the conversation. The court also was generally skeptical of Kramer’s
credibility, saying that he “exaggerated” his testimony about NCS’s responsibility and
damages, provided testimony that was “not always consistent with the content of
documentary evidence,” and “gave guarded and unpersuasive answers” about some
of his activities. It was not clear error for the court to find no admission by Rehkow.

      If a witness’s testimony is “coherent and facially plausible,” and is not
contradicted by extrinsic evidence, then a district court’s decision to credit the
testimony “can virtually never be clear error.” Anderson v. City of Bessemer City,
470 U.S. 564, 575 (1985). The district court heard from Kramer, Rehkow, and
Goldberg in a bench trial, and it found NCS’s principals more credible than Kramer.
The evidence cited by Kramer does not establish a clear error.

                                          B.

       Kramer next contends that the district court erred by concluding that Stolars
was an independent contractor rather than an employee of NCS. Kramer argues that
because Stolars sent the spam e-mails as an employee of NCS, the company should
be vicariously liable for his actions. The district court made no finding about whether
Stolars sent the e-mails, but it rejected Kramer’s theory of vicarious liability because
it concluded that Stolars was an independent contractor. Assuming for the sake of
analysis that NCS could be held responsible for the actions of its employee under
each of Kramer’s causes of action, we agree with the district court that Stolars is
better viewed as an independent contractor.

      To urge that Stolars was an employee, Kramer relies on the test employed by
federal courts to determine whether a party is an “employee” for the purposes of
federal statutes that use the term without defining it. See Nationwide Mut. Ins. Co.
v. Darden, 503 U.S. 318, 322-23 (1992); Cmty. for Creative Non-Violence v. Reid,

                                          -6-
490 U.S. 730, 739-41 (1989). In Darden and Reid, the Supreme Court applied the
following common-law test:

      In determining whether a hired party is an employee under the general
      common law of agency, we consider the hiring party’s right to control
      the manner and means by which the product is accomplished. Among
      the other factors relevant to this inquiry are the skill required; the source
      of the instrumentalities and tools; the location of the work; the duration
      of the relationship between the parties; whether the hiring party has the
      right to assign additional projects to the hired party; the extent of the
      hired party’s discretion over when and how long to work; the method of
      payment; the hired party’s role in hiring and paying assistants; whether
      the work is part of the regular business of the hiring party; whether the
      hiring party is in business; the provision of employee benefits; and the
      tax treatment of the hired party.

Darden, 503 U.S. at 323-24 (quoting Reid, 490 U.S. at 751-52). No single factor is
determinative, Reid, 490 U.S. at 752, and courts should consider “all aspects of the
working relationship.” Wilde v. Cnty. of Kandiyohi, 15 F.3d 103, 106 (8th Cir. 1994).
But the first factor—whether the hiring party has the right to control the means of
performance—is a “primary consideration.” Schwieger v. Farm Bureau Ins. Co. of
Neb., 207 F.3d 480, 484 (8th Cir. 2000).

       Although the parties do not mention it, Iowa law sets forth a similar but not
identical analysis for distinguishing employees from independent contractors. Iowa’s
test takes account of ten factors:

      (1) the individual’s right to control the physical conduct and progress of
      the work, except as to final results; (2) whether the individual was on the
      employer’s payroll; (3) the method of payment, whether by time or by
      job; (4) the individual’s obligation to furnish necessary tools, supplies,
      and materials to accomplish the work; (5) the existence of a contract for
      the performance by a person of a certain piece or kind of work at a fixed

                                          -7-
      price; (6) the independent nature of the individual’s business; (7) the
      individual’s employment of assistants, with the right to supervise their
      activities; (8) the time for which the individual is employed; (9) whether
      the work is part of the regular business of the employer; and (10) the
      intent of the parties.

Fesler v. Whelen Eng’g Co., 688 F.3d 439, 442-43 (8th Cir. 2012) (citing Iowa Mut.
Ins. Co. v. McCarthy, 572 N.W.2d 537, 542-43 (Iowa 1997)). As under federal law,
“the primary focus is on the extent of control by the employer over the details of the
alleged employee’s work.” McCarthy, 572 N.W.2d at 542.

      Whether an individual is an employee or an independent contractor is a
question of law, so we consider the question of employment status de novo. Fesler,
688 F.3d at 442. Because this case turns on factors common to the analysis under
both federal and state law, we analyze all of Kramer’s claims together.

       Kramer disputes the district court’s findings that the testimony of NCS’s
principals was “the most persuasive evidence” of “Stolars’ relationship to NCS,” and
that the testimony was “entirely consistent” with the sample contracts in evidence.
A typical sample contract provided that the sales representative “is at all times under
this Agreement an independent contractor to [NCS],” that he would be “free of
Company direction and control,” and that he “shall determine his own hours, days,
and methods of selling National Credit Systems’ services.” According to Kramer,
however, other evidence contradicted Rehkow and Goldberg and showed that Stolars
was an employee.

       Kramer’s main argument for employee status is that NCS controlled the
activities of Stolars and other salespeople by requiring a rigorous training regimen.
Kramer relies on two pieces of evidence: that NCS gave its salespeople a lengthy
sales manual with specific directions about how to sell NCS’s services, and that

                                         -8-
Rehkow testified he would call the salespeople five times a week to discuss their
progress and offer instruction.

        While it is true that NCS distributed a sales manual and that Rehkow
maintained telephone contact, Kramer presented no evidence that the sales force was
obliged to follow the manual or to accept Rehkow’s advice. Instead, Rehkow
testified that the salespeople “could market pretty much any way they wanted to,” and
that “their time [was] their own,” such that the sales force could choose how long to
work, and whether to work from the office or from home. In fact, the salespeople
usually only came to the office two or three times per week. Where a sales
representative has the option to set his own schedule and to train himself, he is not
subject to the sort of control that exists in the traditional employer-employee
relationship. See Schwieger, 207 F.3d at 484-85.

       Other factors point in both directions. Some favor independent-contractor
status. Stolars was paid by commission. He was responsible for his own taxes and
insurance. See id. at 486. Kramer responds by citing factors that tend to show
employment status: NCS provided marketing brochures and order forms used by the
sales force; the job required no particular skills except those taught by NCS; and the
work of the sales force was an integral part of NCS’s business. The primary
consideration, however, is the hiring party’s control over the means of performance,
and we agree with the district court that the weight of the evidence taken as a whole
establishes an independent contractor arrangement. As such, we reject Kramer’s
contention that an employment relationship makes NCS responsible for any e-mail
activity by Stolars.

                                  *       *       *

      The judgment of the district court is affirmed.
                      _____________________________

                                         -9-