Opinion
NO. 3-98-CV-0645-BD.
June 13, 2000
MEMORANDUM OPINION AND ORDER
This case was tried to a jury from January 24, 2000 to February 3, 2000. The jury found that Defendant Colonial Life Accident Insurance Company breached its Marketing Director Agreements with Plaintiffs Larry Allbritton and Doug Barnette. No damages were awarded to Allbritton. Barnette was awarded $106,036 in past damages and $4,144,318 in future damages. Three motions remain pending before the Court: (1) Colonial's renewed motion for judgment as a matter of law; (2) Barnette's motion for entry of judgment; and (3) Allbritton's motion for reinstatement of his Marketing Agreement. For the reasons stated herein, the Court will enter judgment on the verdict in favor of Barnette, with future damages discounted to present value. Allbritton's motion for reinstatement is denied.
I.
A brief review of the evidence is necessary to the disposition of the pending motions. Colonial sells disability, cancer, and life insurance policies to employees of different companies. The premiums on these policies are paid through payroll deductions. The end result is a tripartite relationship between Colonial as the insurer, the employee as the insured, and the employer who provides a mechanism for the payment of premiums.
Colonial has established a network of independent contractors to solicit insurance applications from employees. These contractors can be grouped into three categories: (1) Career Sales Representatives; (2) Marketing Directors; and (3) Sales Directors. A Career Sales Representative solicits applications directly from employees and receives a commission based on a percentage of premiums collected. A Marketing Director recruits, trains, and motivates Career Sales Representatives. He receives override commissions on policies sold by agents that are coded to him. A Sales Director solicits insurance applications from employees and helps train Career Sales Representatives. In consideration for doing this job, the Sales Director is compensated under a hybrid system.
Larry Allbritton and Doug Barnette have been affiliated with Colonial for many years. In 1987, both Allbritton and Barnette became Marketing Directors and signed Marketing Director Agreements. This contract outlined a sales distribution scheme known as the "traditional system." A key component of this contract was the right of the Marketing Director to terminate the agreement at will. (Plf. Exh. 6, ¶ X-D). However, Colonial could only terminate the contract for "just cause." ( Id. ¶ X-A). Included in the definition of "cause" is the "fail[ure] to comply with the terms and conditions of this Agreement." (Id.).
In 1995, Colonial instituted a new sales distribution scheme called the "Roles Specialization Program." Two years later, this program was abandoned in favor of a "Channels Distribution System," which remains in effect. Under the current program, Marketing Directors became District Sales Managers and were required to transition to a new contract. Significantly, this contract can be terminated by Colonial if the District Sales Manager fails to meet performance standards established by the company. Barnette refused to sign the new District Sales Manager Agreement because he believed it gave Colonial the right to terminate him at will.
Allbritton and Barnette contend that, despite its legal inability to do so, Colonial attempted to coerce its sales people into signing contracts under the Roles Specialization Program and Channels Distribution System. Barnette claims that Colonial would not let him recruit Career Sales Representatives unless he signed a new contract. As of January 1998, Colonial has allegedly prohibited Barnette from recruiting anyone. Allbritton contends that Colonial terminated his Marketing Director Agreement for failure to meet performance goals, and demoted him to Sales Director in March 1997. Thereafter, Colonial transferred all the agents who reported to Allbritton to other District Sales Managers in his region. As a result, Allbritton does not receive any commissions on business written by his former agents.
Allbritton and Barnette sued Colonial for breach of contract. After a nine-day trial, the jury found in favor of both plaintiffs as to liability. No damages were awarded to Allbritton. Barnette was awarded $106,036 in past damages and $4,144,318 in future damages. Colonial now moves for judgment as a matter of law on three grounds: (1) there is no evidence that Colonial breached the Marketing Director Agreements; (2) Barnette is estopped from recovering damages because he continued to work and receive commissions under his Marketing Director Agreement with full knowledge that Colonial no longer entered into traditional contracts with sales representatives; and (3) there is no competent evidence of future damages. Barnette has filed a motion for entry of judgment on the verdict. Allbritton, dissatisfied with the jury's verdict on damages, seeks equitable relief in the form of reinstatement of his Marketing Director Agreement. The issues presented by these motions have been fully briefed by the parties and are ripe for determination.
Plaintiffs also sued for tortious interference with existing contracts and tortious interference with prospective business relations. The Court granted summary judgment in favor of Colonial as to those claims. See ORDER, 11/14/99.
II.
A party is entitled to judgment as a matter of law if "there is no legally sufficient evidentiary basis" to submit an issue to the jury. FED. R. Civ. P. 50(a)(1); Conkling v. Turner, 18 F.3d 1285, 1300 (5th Cir. 1994). A mere "scintilla" of evidence is insufficient. There must be a conflict in substantial evidence to create an issue of material fact. Boeing Co. v. Shipman, 411 F.2d 365, 374 (5th Cir. 1969). The motion should be granted only "if the facts and inferences point so strongly and overwhelmingly in favor of the moving party . . . that reasonable jurors could not have arrived at a contrary verdict." Crist v. Dickson Welding, Inc., 957 F.2d 1281, 1285 (5th Cir.), cert. denied, 113 S.Ct. at 187 (1992); Shipman, 411 F.2d at 374. The entire record must be viewed in the light most favorable to the party opposing the motion, Resolution Trust Corp. v. Cramer, 6 F.3d 1102, 1109 (5th Cir. 1993); Barnett v. IRS, 988 F.2d 1449, 1453 (5th Cir.), cert. denied, 114 S.Ct. 546 (1993).
III.
Three issues are raised in the cross-motions for judgment filed by Barnette and Colonial: (1) whether the evidence was legally sufficient to establish a breach of the Marketing Director Agreements with Allbritton and Barnette; (2) whether Barnette is estopped from recovering damages; and (3) whether Barnette was competent to testify regarding his future damages. The Court will address these issues in turn.
A.
Colonial contends that there is no evidence that it breached the terms and conditions of the Marketing Director Agreements with Allbritton and Barnette. According to Colonial, Allbritton was terminated for failing to recruit, train, and motivate independent sales representatives. This is the principal business activity of a Marketing Director and thus constitutes a material condition of the Agreement. However, the parties adduced conflicting evidence as to whether Allbritton failed to comply with this condition. The jury was entitled to resolve this conflict in favor of Allbritton.
Colonial contends that the evidence conclusively shows that Allbritton failed to meet minimum performance standards for 1996. However, these standards were not part of the Marketing Director Agreement. The failure to meet these performance standards does not necessarily establish that Allbritton failed to recruit, train, and motivate independent sales representatives. At most, it is evidence that could be considered by the jury.
Colonial further argues that its refusal to allow Barnette to recruit new sales representatives does not constitute a breach of the Marketing Director Agreement. It points to Paragraph I-C of the Agreement in support of its position:
MD may recommend persons for appointment of sales representatives with Colonial. The determination of whether such persons become contracted with Colonial is within the sole discretion of Colonial and no appointment shall be effective unless approved by Colonial.
(Plf. Exh. 6, ¶ I-C). Although this provision gives Colonial "sole discretion" whether to contract with sales representatives, the evidence shows that Barnette was effectively prohibited from recruiting any new sales representatives because he refused to abandon his traditional Marketing Director Agreement in favor of the Channels Distribution System. (Barnette Tr. at 80-81, 84-87). The ability to recruit and recommend sales representatives was not only contemplated by Marketing Director Agreement, it was the very essence of the contract. The evidence was more than sufficient to support the jury's verdict as to liability.
Barnette testified that he was not allowed to recruit sales representatives after July 14, 1997. (Barnette Tr. at 87).
B.
Next, Colonial maintains that Barnette is estopped from recovering damages because he continued to work and receive commissions under his Marketing Director Agreement with full knowledge that Colonial no longer entered into traditional contracts with sales representatives. In support of this argument, Colonial cites Facelli v. Southeast Marketing Co., 327 S.E.2d 338 (S.C. 1985). The Facelli court held that a party who continues to work despite a change in his compensation is estopped from seeking damages for breach of contract. Id. at 339. However, the plaintiff in Facelli did not complain about his revised compensation formula until after he was terminated. Id. Here, the evidence shows that Barnette repeatedly objected to the rescission of his Marketing Director Agreement. (Barnette Tr. at 43-44, 67-68). There is no estoppel under these circumstances. See Estes v. Roper Temporary Services, Inc., 403 S.E.2d 157, 158 (S.C.App. 1991) (no estoppel where employee objects to change in compensation).
The parties agreed that "all questions and issues relating to the validity of or performance under this Agreement shall be governed by the laws of the State of South Carolina." (Plf. Exh. 6, ¶ XIII). The Court is not convinced that this choice of law provision is applicable to Colonial's estoppel defense. However, Barnette apparently is content with South Carolina law on this issue.
C.
The most troublesome aspect of the jury's verdict involves the $4,144,318 in future damages awarded to Barnette. Colonial challenges this award on two grounds: (1) Barnette was not competent to testify regarding his future damages; and (2) there was no evidence of present value.
1.
Barnette was the only witnesses to testify regarding future damages. He was neither designated nor called as an expert on this subject. Rather, Barnette offered lay opinion testimony as to his own damages.
Under appropriate circumstances, a lay witness may offer an opinion on the issue of damages. See Teen-Ed, Inc. v. Kimball International, Inc., 620 F.2d 399, 403 (3d Cir. 1980); Ganz v. Lyons Partnership, L.P., 961 F. Supp. 981, 991 (N.D. Tex. 1997). Although the witness need not be qualified as an expert, his testimony must still meet the requirements of Rule 701 of the Federal Rules of Evidence. This rule provides:
If the witness is not testifying as an expert, the witness' testimony in the form of opinions or inferences is limited to those opinions or inferences which are (a) rationally based on the perception of the witness and (b) helpful to a clear understanding of the witness' testimony or the determination of a fact in issue.
FED. R. EVID. 701. The first requirement ensures "that the factual predicate of the testimony [is] within the witness's perception." Teen-Ed, 620 F.2d at 403. The second requirement demands that the opinion be reliable. In other words, "Rule 701 requires that a lay opinion witness have a reasonable basis grounded either in experience or specialized knowledge for arriving at the opinion that he or she expresses." Asplundh Manufacturing Division, a Division of Asplundh Tree Expert Co. v. Benton Harbor Engineering, 57 F.3d 1190, 1201 (3d Cir. 1995).
Colonial argues that Barnette's testimony was deficient in both respects. First, Colonial claims that the factual predicate of Barnette's testimony was not based entirely on his own perception but rather on extraneous sources of information. Second, Colonial asserts that Barnette was not qualified to make many of the assumptions that underlie his opinions. An understanding of how Barnette calculated his damages is helpful to the resolution of this issue.
a.
Barnette began working for Colonial on June 1, 1978. (Barnette Tr. at 8). Although he was still employed at the time of trial, Barnette testified that Colonial began to interfere with his Marketing Director Agreement in 1994 and effectively prevented him from recruiting new sales representatives in late 1997 or early 1998. ( Id. at 80-81, 84-87). To calculate his past damages, Barnette reviewed his earning statements from 1979 through 1997. Based on the increase in his earnings over that period of time, he determined that his income had grown at an average rate of 12.5% per year. ( Id. at 102; Plf. Exh. 397d, Sheet 5b). However, Barnette used only a 10% growth rate to calculate lost earnings from 1997 until the time of trial "to be completely conservative and to lower my damages as much as I thought was feasibly [sic] possible." (Barnette Tr. at 102). Barnette determined that he would have grossed $185,844 in 1998 and $204,428 in 1999 under his Marketing Director Agreement. (Plf. Exh. 397d, Sheet 1). Based on historical data, Barnette estimated that 27% of his total expenses for those years would have been related to Colonial business. He then adjusted his projected gross income by these expenses. ( Id., Sheet 1 9). Finally, Barnette deducted what he actually earned in 1998 and 1999. (Barnette Tr. at 104; Plf, Exh. 397d, Sheet 1). The resulting figures showed that Barnette lost $40,507 in 1998 and $65,529 in 1999 as a result of the breach of his Marketing Director Agreement. (Barnette Tr. at 105; Plf. Exh. 397d, Sheet 1). This was the amount the jury awarded as past damages.
Barnette introduced his Form 1099s and Schedule Cs from 1983 to 1997 as evidence of his actual earnings. (Plf. Exhs. 276 277). He was unable to locate his 1099 statements for 1979 to 1982. For 1979 to 1981, Barnette relied on "rep data sheets" from Colonial to document his income. By determining what fraction of the year each earnings statement represented, Barnette was able to calculate an estimated income for the year. Earnings for 1982 were calculated by "interpolation." ( Id., Sheet 5a).
Plaintiffs Exhibit 397d contains three pages labeled "Sheet 5." These pages will be referenced sequentially as Sheet 5a, 5b, and 5c.
To calculate his future damages, Barnette first assumed that he would work until the year 2014 when he reached the age of 65. (Barnette Tr. at 109; Plf. Exh. 397d, Sheet 2). He then computed his earnings had he remained employed by Colonial. In making these calculations, Barnette assumed that his income would continue to grow at an annual rate of 10% as it had in the past. He then looked at his annual expenses from 1983 to 1999 as reflected in his Schedule Cs. (Plf. Exh. 277). Noting that "5 to 6 percent of my business has always been in other companies that were not related to Colonial," Barnette deducted those expenses from his total expenses for each year. He then estimated that 27% of his expenses were related to Colonial business. (Barnette Tr. at 103; Plf. Exh. 397d, Sheet 9). This percentage was deducted from his projected income over the next 15 years under his Marketing Director Agreement. (Barnette Tr. at 110; Plf. Exh. 397d, Sheet 2).
Barnette then determined what he might expect to make by starting over with a new employer. He arrived at a figure of $39,648 by multiplying his own starting salary of $18,104 in 1979 by a factor of 2.19 to account for the reduced value of the dollar over time. This factor was derived from the Consumer Price Index and certain other information obtained from the Internet. (Plf. Exh. 397d, Sheet 7). Barnette's estimate was corroborated by Colonial's own documentation showing the projected income of a first-year sales representative. (Barnette Tr. at 191-195). Barnette assumed that his income with another company would continue grow at the same annual rate of 10% as his income with Colonial. ( Id. at 110-111; Plf. Exh. 397d, Sheet 7). Added to this figure were the total amount of "vested renewals" Barnette would receive from Colonial and a related company upon the termination of his contract. (Barnette Tr. at 110-111; Plf. Exh. 397d, Sheet 7). Barnette adjusted this gross amount by 27% to account for his expenses. The resulting figure represented the total net income Barnette anticipated making over the next 15 years. (Barnette Tr. at 112-113; Plf. Exh. 397d, Sheet 2). Finally, Barnette deducted his projected total net income from the net income he would have received had he remained employed by Colonial. He concluded that his total future loss through the year 2014 was $4,144,318. (Barnette Tr. at 113; Plf. Exh. 397d, Sheet 2). The jury awarded future damages in that amount.
Colonial did not object to this testimony on hearsay grounds.
b.
Significantly, Colonial does not object to any particular calculation as inaccurate or otherwise improper. Nor does it claim that the amount of damages is excessive. Rather, Colonial argues only that Barnette was not qualified to render a lay opinion on the issue of future damages. As noted above, a lay witness may offer an opinion or inference that is rationally based on the witness's perception if it is helpful to the c determination of a fact in issue. FED. R. EVID. 701. The Court concludes that Barnette's testimony satisfies both these requirements.
Clearly, Barnette had personal knowledge of his own income while employed by Colonial. He used historical data to determine the growth rate of his income and the percentage of his expenses related to Colonial business. These calculations were based on simple principles of multiplication that required no specialized skill or knowledge. See Pacesetter Corp. v. Barrickman, 885 S.W.2d 256, 259 (Tex.App. Tyler 1994, no writ) (plaintiff's own opinion on damages "did not require an expert economist, but, at the most, a knowledge of the multiplication tables and the calculation of simple interest"). Indeed, Colonial does not object to these calculations insofar as they apply to past damages.
In projecting his future losses, Barnette did nothing more than extrapolate from these same historically derived percentages. As with past damages, projecting the estimated future rate of growth was nothing more than a matter of basic multiplication. Barnette did not need an expert to subtract other anticipated income and expenses from this amount. See Doddy v. Oxy USA, Inc., 101 F.3d 448, 460 (5th Cir. 1996) ("[A] person may testify as a lay witness if his opinions or inferences do not require any specialized knowledge and could be reached by any ordinary person.").
Colonial maintains that the factual predicate of Barnette's testimony was nor based entirely on his own perception because he relied on the Consumer Price index in calculating his "starting over" salary. The Court questioned Barnette outside the presence of the jury about his reliance on this information. Barnette candidly admitted that he had no prior experience in using the Consumer Price Index in the manner it was applied here. (Barnette Tr. at 198-199). Clearly, such extraneous evidence was not within Barnette's personal knowledge, and he was not qualified to offer an opinion based on it. However, Barnette pointed out that his projections were supported by Colonial's own documents showing the estimated income of a first-year sales representative, as well as his own experience based on 22 years in the insurance industry. (Id. at 191-195). These were competent alternative bases for his lay opinion. See Hughett v. Dwyre, 624 S.W.2d 401, 409 (Tex.App.-Amarillo 1981, writ ref'd n.r.e.) (plaintiffs experience in military permitted him to testify as to probable rank he would achieve in the future),
Colonial also suggests that Barnette did not have personal knowledge regarding the matters to which he testified because his calculations were prepared by "me and my family and my wife and what have you . . ." (Barnette Tr. at 154). A fair reading of this testimony reveals that Barnette actually did the damage calculations himself. Although family members may have helped gather information, the Court is convinced that Barnette had sufficient personal knowledge of the facts supporting his ultimate opinion.
Colonial further contends that Barnette's opinion was not helpful to the jury because it was based on various assumptions he was not qualified to make. For example, Colonial objects to Barnette's assumptions that his income would continue to grow at a rate of 10% per year and that his expenses would remain constant over time. As noted above, these figures were based on historical data that was within Barnette's personal knowledge. Colonial's objection goes to the weight of the evidence, not its admissibility.
2.
Colonial also challenges the jury verdict because there was no evidence as to the present value of future damages. Texas law requires that an award of future damages be discounted to present value. Republic Bankers Life Insurance Co. v. Jaeger, 551 S.W.2d 30, 31 (Tex. 1976); Texas Department of Human Services v. Hinds, 860 S.W.2d 893, 901 (Tex.App.-El Paso 1993), rev'd on other grounds, 904 S.W.2d 629 (Tex. 1995). Applying a discount rate:
The Court previously determined that this issue is governed by Texas law. See Morris v. LTV Corp., F.2d 1024, 1027 (5th Cir. 1984) (questions of remedy are governed by law of the state in which the suit is pending).
gives the breaching party the benefit of the earning power of his money. Therefore the proper measure of damages in a case such as this is a sum which, if invested at a reasonable rate of interest, will yield an annual income from both principal and interest, during the [term of the contract] equal to [what the defendant] would have paid if it had not repudiated the [contract].Jaeger, 551 S.W.2d at 31. It is undisputed that Barnette did not discount his future damages. The issue is whether this reduction must be made by the court or the jury.
Prior to 1967, discounting appeared to be an issue for the jury. See Missouri Pacific Railroad Co. v. Kimbrell, 334 S.W.2d 283, 285 (Tex. 1960); Continental Casualty Co. v. Vaughan, 407 S.W.2d 818, 825 (Tex.Civ.App.-Houston 1966, writ ref'd n.r.e.). Then the Texas legislature enacted article 5069-1.03 of the d Revised Civil Statutes. This statute provides for a "legal rate of interest" of six percent unless the parties to an account or contract agree otherwise. TEX. REV. CIV. STAT. ANN. art. 5069-1.03 (Vernon 1987). Texas courts subsequently held that this legislative enactment effectively "removed the discount rate from the fact finder as a controlling issue." Texas Dep't of Human Services v. Hinds, 860 S.W.2d 893, 902 (Tex.App. — (El Paso 1993), rev'd on other grounds, 904 S.W.2d 629 (Tex. 1995). The trial court may now determine the present discount rate as that rate is provided by statute. Id.; see also Lakeside Leasing Corp. v. Kirkwood Atrium Office Park Phase 3, 750 S.W.2d 847, 851 (Tex.App.-Houston [14th Dist.] 1988, no writ); Ponton v. Watson, 695 S.W.2d 68, 70 (Tex.App.-Corpus Christi 1985, no writ).
Although Texas law requires that an award of future damages be discounted to present value, it somewhat paradoxically provides that specific evidence of the discount rate need not be introduced. e.g. Missouri Pacific Railroad,S.W.2d at 286; e Gonzalez,S.W.2d 147, 160 (Tex.App.-San Antonio 1999, no pet.); Taylor Publishing Co. v. Systems Marketing Inc., 686 S.W.2d 213, 217 (Tex.App.-Dallas 1984, writ ref'd n.r.e.). It has been suggested that this rule made more sense at the time it was first stated because interest rates fluctuated very little. Such an assumption no longer applies in today's more volatile economy. See Border Apparel-East, Inc. v. Guadian, 868 S.W.2d 894, 899 (Tex.App. — El Paso 1993, no writ) (Osborn, C.J., concurring).
The text of article 5069-1.03 was slightly modified when the statute was recodified in 1997. However, the substance of the statute remains unchanged. See TEX. FIN. CODE ANN. § 302.002 (Vernon Supp. 2000).
Given these later cases, the Court finds that Barnette was not required to introduce evidence of the discount rate and ask the jury to discount his future damages to present value. The Court will make this reduction post-trial.
IV.
By separate motion, Allbritton wants the Court to reinstate his Marketing Agreement with Colonial. This request must be denied for at least three reasons. First, Allbritton did not seek reinstatement either in his complaint or the joint pretrial order. His general prayer for "appropriate injunctive relief" and "all legal and equitable remedies to which he is justly entitled" does not support the extraordinary remedy sought here.
Even if this general prayer was sufficient to raise the issue of reinstatement, such a remedy is inappropriate in this case. It is hornbook contract law that specific performance cannot be had for a personal services contract. Gage v. Wimberley, 476 S.W.2d 724, 730 (Tex.Civ.App. — Tyler 1972, writ ref'd n.r.e.); Chain v. Pye. 429 S.W.2d 630, 635 (Tex.Civ.App.-Beaumont 1968, writ ref'd n.r.e.); Martin v. Martin, 230 S.W.2d 547, 550-51 (Tex.Civ.App.-San Antonio 1950, writ ref'd n.r.e.). The Marketing Director Agreement with Colonial is such a contract. See Mission Independent School District v. Diserens, 188 S.W.2d 568, 569 (Tex. 1945).
Finally, specific performance is unavailable where a party has an adequate remedy at law. Falk v. Axiam Inc., 944 F. Supp. 542, 552 (S.D. Tex. 1996); Horton v. Robinson, 776 S.W.2d 260, 267 (Tex.App. — El Paso 1989, no writ). Here, monetary damages were available to Allbritton. That the jury chose not to award damages does not mean that this remedy was "inadequate."
CONCLUSION
Barnette's motion for entry of judgment is granted. Allbritton's motion for reinstatement and Colonial's renewed motion for judgment as a matter of law are denied. The Court will enter judgment in accordance with the jury verdict returned on February 3, 2000. However, the amount of future damages awarded to Barnette will be discounted to present value. The parties are directed to confer on a form of proposed judgment. This includes the calculation of prejudgment interest and the reduction of future damages to present value. A proposed final judgment must be hand delivered to the chambers of the magistrate judge by June 30, 2000 . The judgment must be approved as to form and signed by all counsel of record.
The parties are also directed to confer on the amount of attorney's fees to be awarded to Barnette as the prevailing party on his breach of contract claim. If this issue cannot be resolved by agreement, Barnette may file an application for fees and expenses within 14 days after the judgment is entered. See FED. R. Civ. P. 54(d).
SO ORDERED.