Opinion
Civil Action No. SA-04-CA-800-XR.
June 9, 2005
ORDER
On this date, the Court considered Plaintiff's motion for summary judgment (docket no. 14), Plaintiff's motion to strike evidence contained in Defendant's response to the motion for summary judgment (docket no. 17), Defendants' motion for leave to file an amended counterclaim and answer (docket no. 21), and Defendants' motion for a hearing on Plaintiff's motion for summary judgment (docket no. 27).
I. Facts and Procedural Background
Plaintiff, Steve Spratt, originally filed this lawsuit in state court and thereafter Defendants timely removed to this federal court. Plaintiff asserts that he and defendants entered into a personal services contract for a period of one year. No party has explained to the Court what type of business this case involves. From the Court's own independent inquiry it appears that Forward Technology designs and manufactures plastic assembly equipment and its parent company, Crest Ultrasonics, manufactures a line of precision cleaning equipment. Spratt alleges that defendants terminated his contract without just cause. He brings suit for breach of contract, or in the alternative in quantum meruit. Defendants have filed a counterclaim alleging that Plaintiff breached his contract, committed fraud, and they seek recovery for payment to Plaintiff of commissions allegedly wrongfully claimed by him.
Spratt initially began working for Crest Ultrasonics Corp. in 1999 as a vice president and national sales manager for plastic welding. The terms of the 1999 agreement were as follows: Spratt was paid a salary of $8,000 per month for August, September and October of 1999, and $120,000 per year paid weekly thereafter. Spratt was also entitled to a bonus. The contract was "guaranteed for two years" and "automatically renew[ed] thereafter unless either party [gave] the other party 90 days written notice prior to year end. It [could not] be canceled by either party during the first two years."
On January 5, 2004, Forward Technology Industries, Inc. and Crest Ultrasonics offered Spratt the position of lead generation manager. The January 5 letter states, in part, the following:
3. Compensation: Salary and Incentive: Your starting annual compensation is comprised of a base salary of $45,000. In addition you will earn the following incentives based on customer leads for plastic assembly products. . . .
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7.2 Employment Commitment. In consideration of my employment and continued employment by Forward Technology Industries, Inc. . . . as an employee at will, the undersigned Employee covenants and agrees [to certain noncompetitive activities].
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8. Contract Length: This employment contract is effective for a period of 1 year, from January 5, 2004 to December 31, 2004. Thereafter you will be considered an at will employee and the provisions of this agreement will remain in effect.
Plaintiff asserts that he was wrongfully discharged from his employment in April 2004.
II. Summary Judgment Standard
A summary judgment movant must show by affidavit or other evidence that there is no genuine issue regarding any material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). To establish that there is no genuine issue as to any material fact, the movant must either submit evidence that negates the existence of some material element of the nonmoving party's claim or defense, or, if the crucial issue is one for which the nonmoving party will bear the burden of proof at trial, merely point out that the evidence in the record is insufficient to support an essential element of the nonmovant's claim or defense. Lavespere v. Niagra Machine Tool Works, Inc., 910 F.2d 167, 178 (5th Cir. 1990), cert. denied, 510 U.S. 859 (1993). Once the movant carries its initial burden, the burden shifts to the nonmovant to show that summary judgment is inappropriate. See Fields v. City of South Houston, 922 F.2d 1183, 1187 (5th Cir. 1991).
Summary judgment is required if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp., 477 U.S. at 322. In order for a court to conclude that there are no genuine issues of material fact, the court must be satisfied that no reasonable trier of fact could have found for the nonmovant, or, in other words, that the evidence favoring the nonmovant is insufficient to enable a reasonable jury to return a verdict for the nonmovant. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 n. 4 (1986). In making this determination, the court should review all the evidence in the record, giving credence to the evidence favoring the nonmovant as well as the "evidence supporting the moving party that is uncontradicted and unimpeached, at least to the extent that evidence comes from disinterested witnesses" and disregarding the evidence favorable to the nonmovant that the jury is not required to believe. Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 152 (2000).
III. Analysis
A. Spratt was not employed on an at-will basis
Plaintiff asserts that pursuant to the January 5, 2004 agreement, his employment contract was effective for a period of 1 year (January 5, 2004 to December 31, 2004). He further asserts that pursuant to the terms of that agreement he would be considered an at will employee only after December 31, 2004. Accordingly Plaintiff argues that his discharge in April 2004, without good cause, constitutes a breach of contract.
Texas follows the doctrine of employment at will, under which employment for an indefinite term may be terminated at will and without cause. Schroeder v. Tex. Iron Works, Inc., 813 S.W.2d 483, 489 (Tex. 1991). Absent a specific contractual term to the contrary, this doctrine permits an employer to fire an employee without liability. Id.; Massey v. Houston Baptist Univ., 902 S.W.2d 81, 83 (Tex.App.-Houston [1st Dist.] 1995, writ denied).
Although Defendants asserted affirmative defenses that Spratt was an at-will employee, nowhere in its response to the motion for summary judgment do they argue this point. All argument in response to the motion for summary judgment address the issue of how commissions were to be calculated. Defendants also assert in their answer that they had good cause to discharge Plaintiff from his employment.
The January 5, 2004 agreement is less than precise as to whether Spratt was to be considered an at-will employee. Merely hiring an employee at a base salary of $45,000 per year is insufficient to establish a modification of the at-will doctrine. Saucedo v. Rheem Mfg. Co., 974 S.W.2d 117, 128 (Tex.App.-San Antonio 1998, pet. denied). Further, in paragraph 7.2 of the January letter agreement there is a reference to Plaintiff being an at-will employee. However, paragraph 8 of the agreement states: "This employment contract is effective for a period of 1 year, from January 5, 2004 to December 31, 2004. Thereafter you will be considered an at will employee and the provisions of this agreement will remain in effect." Despite the inartful drafting, the Court concludes (and apparently Defendants concede) that the parties agreed to a specific contractual term that modified the at-will doctrine. Plaintiff's motion for summary judgment seeking an order that Defendants affirmative defense of at-will employment is inapplicable is GRANTED.
B. Mutual mistake defense
With regard to Plaintiff's incentive structure the January 5, 2004 agreement states the following:
In addition [to Plaintiff's base salary of $45,000 per year] you will earn the following incentives based on customer leads for plastic assembly products:
a) $100 per new lead, which isn't in our existing database. The sales secretary in Cokato [Minnesota] will make determination of new lead. Lead classification will be determined as follows. The lead shows that they currently use some type of plastic joining in their process, or they plan on implementing such process within the next 12 months.
b) If you bring a lead in that is already in our database, the lead payment will not be paid, unless your inquiries lead to the generation of a quote, which hasn't already been requested by the existing representative or direct sales force.
c) If you bring a lead from a company that is already in our system, but from a different contact, you will be paid the lead commission of $100.
d) For new leads that result in sales you will be paid an override commission of 3.5% on the first $50,000, and 2% commission on going during the life of employment, not to exceed $100K in any one year.
(Emphasis added). Defendants assert in their answer that with regard to the payment of lead generation payments the parties intended that these commissions be paid only when the "lead shows that they currently use some type of plastic joining in their process, and they plan on implementing such process within the next 12 months."
Defendants claim that when Spratt was re-hired as National Sales Executive in January 2004, it expected that Spratt's "primary purpose" was "lead generation." Defendants informed their sales force that "Steve will be making phone contact with existing and new potential users of Plastic Assembly Leak Testing customers across North America to develop an even wider base of customers for [sales managers and sales personnel]." Defendants further informed their sales force that the lead process will work as follows: "a) Steve will make initial contact with potential customers and obtain as much qualifying information as possible. b) Steve will contact you directly and forward leads needing immediate attention to each of you when the need arises. . . ." Defendants argue that they expected "qualifying" information to consist of "someone who had the authority, or was involved in the decision to purchase plastic assembly equipment." Brian Kivisto of Forward Technology stated the following in his affidavit: "Spratt was to be paid `lead payments' for customer and company names reported by Spratt that qualified as `leads' under the contract. It was always my understanding that the contract with Spratt required Spratt to call the customer, qualify them and determine whether the customer constituted a `lead.' If it did constitute a lead he forwarded the `lead' to our sales secretary in Cokato, Rene Sylvers, for `lead payment' of $100.00 if the company name was not already on our mailing list or if the company name was there but the contact name was not."
Spratt's rendition of his tasks does not dramatically differ. Spratt, in answer to an interrogatory, stated that he made telephone contact with various companies. The company names and contacts came from a database he compiled from working in the industry for over 35 years. He determined if the company was still in business and had plastic welding equipment, he asked about future plans and/or new applications for the equipment. If a customer acknowledged that they had this type of equipment, then Spratt forwarded the lead to a marketing employee at the company's headquarters.
On or about March 30, 2004, Defendants informed Spratt that they had reviewed various leads and determined that most of them did not remember speaking to Spratt and a number of the leads were individuals who did not have any purchasing involvement. It further appears that Defendants became dissatisfied with the "quality" of the leads. For example, some of the leads submitted by Spratt were companies that only had one welder, and had no immediate plans to retain additional welders. "Identifying someone who has one or 2 machines is not a lead. Identifying someone who needs 1 or more machines is a lead." "When we negotiated with Steve to do this tele-marketing program, it was implied that he would be going after legitimate business. Companies that truly have a need for more ultrasonic, vibration or hot plate equipment. I would bet that 95% of these leads have 1 or 2 ultrasonic machines in a small molding house, and don't have a need for any more equipment. I would like to limit Steve to 10 leads per week. . . . As you know Steve, he will probably re-act very negatively to any suggestion to limit his lead generation to 10 leads per week, but the way it is going so far, we are going to be paying a lot of money for little or no new business."
A party seeking to avoid a contract on the grounds of mutual mistake must show (1) a mistake of fact, (2) held mutually by the parties, (3) which materially affects the agreed-upon exchange. Bolle, Inc. v. American Greetings Corp., 109 S.W.3d 827, 835 (Tex.App.-Dallas 2003, pet. denied).
Spratt argues that there was no mutual mistake. He argues that for three months he submitted leads, and only after Defendants became aware that he was earning more monies under the January 2004 agreement than under the 1999 agreement did Defendants claim there was a problem.
The Court concludes that there was no mistake of fact held mutually by the parties. Defendants assertion that the parties intended that commissions be paid only when the "lead shows that they currently use some type of plastic joining in their process, and they plan on implementing such process within the next 12 months" is nonsensical. The Court cannot understand how a company can currently use a process and plan on implementing such process within the next year. Perhaps Defendants meant to argue that the lead was good if the company currently used some type of plastic joining in their process and planned on implementing additional or new processes within the next year, however, that is not what their contracted stated.
Defendants further discuss at length the terms "qualify" and "qualifying information." The fact remains those terms were never used in the 2004 agreement. Plaintiff's motion for summary judgment seeking an order that Defendants' mutual mistake defense is inapplicable is GRANTED.
C. Unilateral mistake defense
The general rule in Texas "is that a unilateral mistake is insufficient to warrant setting the contract aside unless the mistake is induced by acts of the other party. . . . An exception to the general rule precluding relief for a unilateral mistake exists when: 1) the mistake is of so great a consequence as to make enforcement of the contract unconscionable; 2) the mistake relates to a material feature of the contract; and 3) the mistake is made regardless of the exercise of ordinary care. . . . In Texas, parties to a contract are chargeable with such knowledge that the exercise of ordinary diligence would have revealed and a contract will not be set aside because of a mistake if that mistake is a result of carelessness, indifference, or inattention." Interfirst Bank of Abilene, N.A. v. Lull Mfg., 778 F.2d 228, 232-33 (5th Cir. 1985).
Defendants present no evidence that any mistake was induced by Spratt. Further, the evidence described above merely reflects that Defendants were inattentive in drafting their agreement. Plaintiff's motion for summary judgment seeking an order that Defendants' unilateral defense is inapplicable is GRANTED.
D. Defendants' counterclaim for fraud
Defendants allege that in reporting certain of his leads for payment, Spratt made false representations that "the leads reported . . . were of the quality and standards agreed upon by the Plaintiff and Defendants when the leads that were reported were not, in fact, of that quality or standards."
To recover for fraud, Defendants must prove: (1) that a material representation was made; (2) that it was false; (3) that Spratt knew it was false when made or that he made it recklessly without any knowledge of the truth and as a positive assertion; (4) that he made it with the intention that it be acted upon by Defendants; (5) that Defendants acted in reliance upon it; and (6) damage. T.O. Stanley Boot Co., Inc. v. Bank of El Paso, 847 S.W.2d 218, 222 (Tex. 1992).
Plaintiff argues that the fraud counterclaim fails because Defendants cannot produce evidence of a knowing or reckless misrepresentation. Plaintiff further argues that Defendants cannot establish any reliance. Essentially Plaintiff relies upon the express terms of the contract. Again, Defendants were to pay Plaintiff "$100 per new lead, which isn't in our existing database. The sales secretary in Cokato [Minnesota] will make determination of new lead. Lead classification will be determined as follows. The lead shows that they currently use some type of plastic joining in their process, or they plan on implementing such process within the next 12 months."
Despite Defendants protests to the contrary, their agreement with Plaintiff only required Spratt to contact a company and thereafter notify Defendants that the company used some type of plastic joining in their process or that the company was planning on implementing such process within the next 12 months. Accordingly, if that is what Spratt did in support of his request that a commission be paid he did not make any misrepresentation.
If Spratt brought a lead that was already in the Defendants' database, a lead payment would not be paid, unless Spratt's inquiry led to the generation of a quote, which had not already been requested by the existing representative or direct sales force. If Spratt brought a lead from a company that was already in Defendants' system, but was a different contact person, then he would be paid the lead commission of $100.
Defendants argue that the above language implied that Spratt was obligated to "qualify" the person he was communicating with to insure that person had purchasing authority. That was not what they contracted with Spratt. Pursuant to their agreement, Spratt was to be paid for providing Defendants with names of companies (not already known to Defendants) that used some type of plastic joining in their process or were planning on implementing such process within the next 12 months. If Spratt brought a lead from a company that was already in Defendants' system, but was a different contact person, he would be paid a commission. Nowhere in the agreement did Defendants require Spratt to provide the names of authorized purchasing agents in addition to names of companies (not already known to Defendants).
Further, Spratt argues that there could not have been any justifiable reliance by Defendants on any misrepresentations because the sales secretary in Cokato [Minnesota] made the determination of a new lead. Apparently the secretary, Rene Sylvers, would cross reference company names and contacts provided by Spratt against the Defendants' mailing/customer list. If indeed Spratt relayed new company names to Sylvers and the secretary verified that such company names were not on the Defendants' mailing/customer list, it is difficult for the Court to fathom how Defendants relied on any materially false information to their detriment. Defendants make much of the fact that 16 of 33 verification calls they made to individuals identified by Spratt did not remember talking to him or denied any involvement in purchasing for their companies. Again, nowhere in the agreement did Defendants require Spratt to provide the names of authorized purchasing agents in addition to names of companies (not already known to Defendants).
Defendants argue that it was clear and implied that Spratt would be paid commissions for contacting only individuals with purchasing authority and who were employed by companies previously unknown to Defendants. Otherwise, they argue they would "be paying a lot of money for little or no new business." As stated above, that was not the deal they struck with Spratt. As drafters of the agreement they had the ability to state clearly what they intended. To the extent that Spratt identified 228 new business previously unknown to them, Defendants did secure some value. Regrettably, these leads were not of the quality they anticipated. Defendants have failed to establish all elements of their fraud claim and accordingly Plaintiff's motion for summary judgment is GRANTED.
IV.
Plaintiff's motion to strike Defendants' summary judgment evidence
In a reply brief, Plaintiff summarily prays that the "Court strike any extrinsic evidence offered to prove ambiguity or mistake. . . ." Plaintiff fails to identify with any specificity what specific evidence he finds objectionable. The motion to strike is DENIED.
V.
Defendants' motion for leave to file an amended counterclaim
Defendants seek leave to file an amended counterclaim to add a claim for breach of contract. Given the Court's ruling above, such a claim would be futile and accordingly the motion is DENIED.
VI.
Defendants' motion for continuance
Attached as Exhibit I to their response Defendants have included a motion to continue any decision on the Plaintiff's motion for summary judgment. Defendants contend that to properly respond to the motion they require further supplemental answers to interrogatories posed to Plaintiff and they need to depose Plaintiff. Plaintiff's deposition was scheduled for May 2, 2005. Defendants filed a supplemental response and seek leave to file the response. The motion for leave (filed May 13, 2005) is GRANTED. The motion for continuance (contained in docket no. 16) is DENIED as moot.