Smith v. E&E Co., Ltd.
Filing
56
MEMORANDUM OF DECISION AND ORDER denying 52 Motion for Judgment as a Matter of Law, or, in the Alternative, for a New Trial. Signed by District Judge Martin Reidinger on 3/20/14. (ejb)
THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
ASHEVILLE DIVISION
CIVIL CASE NO. 1:12-cv-00018-MR-DLH
J. TEDD SMITH,
)
)
Plaintiff,
)
)
vs.
)
)
)
E&E CO., LTD.,
)
Defendant.
)
___________________________ )
MEMORANDUM OF DECISION
AND ORDER
THIS MATTER is before the Court on the Defendant’s Motion for
Judgment as a Matter of Law, or in the Alternative, for a New Trial [Doc.
52].
I.
PROCEDURAL BACKGROUND
The Plaintiff J. Tedd Smith (“Smith”) originally brought this action in
the Buncombe County General Court of Justice, Superior Court Division,
asserting a claim for breach of his employment contract against his former
employer, the Defendant E&E Co., Ltd. (“E&E”) [Complaint, Doc. 1-1]. On
January 26, 2012, the Defendant removed the action to this Court on the
basis of diversity jurisdiction. [Notice of Removal, Doc. 1].
The Defendant subsequently filed its Answer and Counterclaims for
constructive
fraud
and
deceptive
trade
practices.
[Answer
and
Counterclaims, Doc. 4]. Those Counterclaims, however, were ultimately
dismissed. [See Doc. 20].
This case proceeded to a jury trial on May 13, 2013. On May 15,
2013, the jury returned a verdict in favor of the Plaintiff.
Judgment was entered on June 12, 2013.
[Doc. 48].
[Doc. 46].
Thereafter, the
Defendant filed the present motion for judgment as a matter of law or, in
the alternative, for a new trial. [Doc. 52]. The Plaintiff has filed a response
opposing the Defendant’s motion [Doc. 54], and the Defendant has filed a
reply [Doc. 55].
Having been fully briefed, this matter is now ripe for disposition.
II.
STANDARD OF REVIEW
Rule 50 of the Federal Rules of Civil Procedure provides, in pertinent
part, as follows:
If a party has been fully heard on an issue during a
jury trial and the court finds that a reasonable jury
would not have a legally sufficient evidentiary basis
to find for the party on that issue, the court may:
(A) resolve the issue against the party; and
(B) grant a motion for judgment as a matter of law
against the party on a claim or defense that, under
the controlling law, can be maintained or defeated
only with a favorable finding on that issue.
2
Fed. R. Civ. P. 50(a)(1). If the court does not grant a Rule 50(a) motion at
trial, the movant may file a renewed motion for judgment as a matter of law
within 28 days after the entry of judgment. Fed. R. Civ. P. 50(b). Such
motion may include an alternative request for a new trial under Rule 59. Id.
A jury verdict will withstand a Rule 50(b) motion unless the
nonmovant has presented no substantial evidence to support the jury
verdict. Stamathis v. Flying J, Inc., 389 F.3d 429, 436 (4th Cir. 2004). A
Rule 50 motion for judgment as a matter of law is reviewed under the same
standard as that applied in reviewing a motion for summary judgment.
Thus, in considering the Defendant’s motion, the Court must view the
evidence in the light most favorable to the Plaintiff and draw all reasonable
inferences in the Plaintiff’s favor. See Dennis v. Columbia Colleton Med.
Ctr., Inc., 290 F.3d 639, 644-45 (4th Cir. 2002). A verdict may not be set
aside unless the Court “determines that the only conclusion a reasonable
trier of fact could draw from the evidence is in favor of the moving party.”
Tools USA and Equip. Co. v. Champ Frame Straightening Equip., Inc., 87
F.3d 654, 656-57 (4th Cir. 1996) (quoting Winant v. Bostic, 5 F.3d 767, 774
(4th Cir. 1993)).
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III.
FACTUAL BACKGROUND
Viewing the evidence presented at trial in the light most favorable to
the Plaintiff, the following is a summary of the relevant facts.
As of June 3, 2008, Smith was a principal and officer of International
Home Furnishings (“IHF”), an electric blanket business preparing to file
bankruptcy.
On that date IHF entered into an agreement whereby it
transferred its inventory, which would then be sold by E&E, which would
pay IHF based on a percentage of sale made.1
In conjunction with the Asset Sales Agreement, on June 4, 2008,
E&E and Smith entered an Executive Employment Agreement under which
E&E employed Smith as Vice President of Sales of E&E. Pursuant to this
Agreement, E&E engaged Smith to sell E&E product, including “former IHF
product.” [Answer & Counterclaims, Doc. 4 at ¶ 44].
Paragraph 4 of the Executive Employment Agreement, titled
“Termination of Employment,” provided, in pertinent part, for severance
payments on the following terms and conditions:
In the event this Agreement is terminated by [E&E]
for any reason other than for cause shown, [Smith]
will receive the severance payment of $100,000.
1
This was done through a third party, 1967 Bedding. The details of this convoluted
arrangement are not pertinent to an understanding of the issues presented in this
motion.
4
However, if this agreement is terminated within the
first year the severance shall be $150,000. Such
payment will be payable in full within ninety (90)
days after such Termination notice is received in
writing by [Smith] from [E&E]….
[Executive Employment Agreement, Doc. 1-1 at 9 ¶ 4]. Subparagraph 4(a)
of the Agreement further provided as follows:
Notwithstanding anything to the contrary stated
above, [E&E] may, at its option, terminate this
Agreement for cause shown, such termination to be
effective upon the giving of written notice thereof to
[Smith]. As used in this paragraph 4, the phrase ‘for
cause shown’ shall included [sic] but not limited to
the following:
…
(2) Failure by [Smith] to generated [sic] a minimum
of $ two million sales [sic] per contract year. …”
[Id. at 9 ¶ 4(a)].
On or around February 27, 2009, less than nine months into Smith’s
employment, E&E transmitted to Smith a written notice of termination which
stated, in pertinent part, as follows:
As per your employment agreement, this letter
serves as notice of termination which will be
effective as of today 2/27/2009. This termination is
due to the following:
Failure to generate a minimum of $2 million dollars
in sales per year.
…
5
Due to the above reasons, this letter serves as
termination to the employee effective today
February 27, 2009.
[Termination Letter, Doc. 1-1 at 13]. In terminating Smith, E&E refused to
pay the $150,000 severance payment contemplated by paragraph 4 of the
Agreement. This action followed.
IV.
DISCUSSION
In its Rule 50(b) motion, E&E argues that the only reasonable
conclusion that a jury could reach from the unambiguous language of the
parties’ contract and the facts presented at trial is that Smith was
terminated “for cause shown” and therefore, E&E did not breach its
employment contract with Smith when it failed to pay him a $150,000
severance payment. In particular, E&E contends that “cause shown” was
established by (1) evidence of Smith’s failure to reach the $2 million sales
benchmark for the sale of the JLA Bedroom Ensemble product line in the
first year of his contract; and (2) Smith’s habitual neglect of duties during
the first nine months of his employment, as reflected in his low sales
numbers, lack of sales presentations, and lack of an action plan to address
low sales.
Alternatively, E&E argues that a new trial is warranted due to the
improper admission of the testimony of William Clarke concerning the
6
bankruptcy proceedings of IHF, which E&E contends was irrelevant to the
issue before the Court and was highly prejudicial to E&E. E&E argues that
a jury could reasonably have rendered a verdict against it based on this
inadmissible and prejudicial evidence.
The Court will address each of
these arguments in turn.
A.
Whether Termination was for “Cause Shown”
Under California law,2 the primary goal of contract interpretation is to
give effect to the intent of the parties at the time they contracted. Cal. Civ.
Code § 1636. The Court ascertains the intent of the parties from the writing
alone, if possible, and the contract language governs its interpretation, if
clear and explicit. Cal. Civ. Code §§ 1638-1639. “The whole of a contract
is to be taken together, so as to give effect to every part, if reasonably
practicable, each clause helping to interpret the other.” Cal. Civ. Code §
1641.
Further, the “contract may be explained by reference to the
circumstances under which it was made, and the matter to which it relates.”
Cal. Civ. Code § 1647.
In the present case, the Executive Employment Agreement required
E&E to pay Smith a severance payment of $150,000 if it terminated the
2
The Executive Employment Agreement provides that it “shall be construed and
enforced in accordance with, the laws of the [S]tate of California.” [Executive
Employment Agreement, Doc. 1-1 at 11 ¶ 14].
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Agreement in less than a year “for any reason other than for cause shown.”
[Executive Employment Agreement, Doc. 1-1 at 9 ¶ 4]. At trial, two E&E
officers, Edmond Jin (“Jin”) and George Kerr (“Kerr”) testified that E&E
terminated Smith for the reason stated in the written notice of termination.
[Transcript May 14, 2013, Doc. 51 at 168, 170-73, 252-53, 255].
The
notice stated that E&E terminated Smith for “[f]ailure to generate a
minimum of $2 million dollars in sales per year” and stated no other reason
for the termination. [Termination Letter, Doc. 1-1 at 13].
At trial and now in its motion, E&E contends that Smith failed to
generate $2 million in sales in his first year of employment and that E&E
accordingly terminated Smith “for cause shown” under subparagraph
4(a)(2) of the Executive Employment Agreement, for failure to generate a
minimum of $2 million in sales in a contract year. A reasonable jury could
find, however, that by the express and plain language of subparagraph
4(a)(2), Smith could not have failed to generate $2 million in sales in a
“contract year” because at the time of his termination, he had been
employed less than a year. Therefore, there is substantial evidence to
support the jury’s determination that E&E did not have “cause” to terminate
Smith.
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Further, Smith presented substantial evidence from which a
reasonable jury could find that Smith had in fact generated more than $2
million in sales in the first year following the execution of the Agreement in
the form of sales of JLA Home Fabric product, sales of IHF inventory, and
sales of E&E product on IHF contracts and accounts. By E&E’s admission,
Smith generated more than $500,000 in sales of JLA Home Fabric product
during the course of his employment. [Transcript May 13, 2013, Doc. 49 at
53-54; Transcript May 14, 2013, Doc. 51 at 189-91]. He further generated
more than $1.2 million in E&E sales of IHF inventory. [Transcript May 13,
2013, Doc. 49 at 52, 54-55; Transcript May 14, 2013, Doc. 51 at 39-40, 4345].
Finally, there was evidence presented that Smith generated
approximately $7 million in sales of E&E electric blankets and other E&E
product on the IHF contracts and IHF accounts. [Transcript May 13, 2013,
Doc. 49 at 55-57; Transcript May 14, 2013, Doc. 51 at 21-25, 31-32, 3539].
E&E argues that the “sales” benchmark referenced in subparagraph
4(a)(2) was limited to sales of Smith’s “core product categories,” namely
the products of JLA Home Fabric, Inc., sometimes called the JLA home
fabric division of E&E (“JLA Home Fabric”).
however, does not support this contention.
9
The
parties’
contract,
By its express terms, the
Agreement provided that Smith was responsible to develop business in
connection with the “Company’s” product.
[Executive Employment
Agreement, Doc. 1-1 at 8 ¶ 2.1]. Under the Agreement, “Company” meant
E&E and was not limited to any particular division of E&E. Further, this
paragraph provided that Smith’s responsibilities for developing sales
extended to “Company’s product includ[ing] but not limited to fashion
bedding collection for JLA home fabric division” product. [Id.]. By its very
terms, the Agreement contemplated Smith developing and generating sales
of all types of E&E product, not just the sales of JLA Home Fabric product.
Accordingly, a reasonable jury reading the contract as a whole could
interpret the “sales” benchmark referenced in subparagraph 4(a)(2) as
encompassing all sales of E&E’s products, including not only sales of JLA
Home Fabric product but also the sale of inventory acquired by E&E from
IHF.3
Additionally, the Agreement contemplated Smith generating sales of
“Company’s product includ[ing] but not limited to … all type of electric
blanket[s]….” [Executive Employment Agreement, Doc. 1-1 at 8 ¶ 2.1].
3
This interpretation is also supported by the testimony of both Jin and Kerr, who
testified that “Company’s products” meant the products E&E was selling, regardless of
which business entity actually owned the product. [Transcript May 14, 2013, Doc. 51 at
184-85, 267].
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E&E argues that this paragraph was intended to reference only electric
blankets sold by JLA Home Fabric.
However, there was substantial
evidence at trial that showed that JLA Home Fabric never sold or even
developed any electric blanket product at any time from 2008 through the
time of trial in 2013. [Transcript May 13, 2013, Doc. 49 at 34; Transcript
May 14, 2013, Doc. 51 at 185-87, 267-68]. Indeed, before execution of the
Executive Employment Agreement in June 2008, E&E had never sold any
electric blanket product.
[Transcript May 13, 2013, Doc. 49 at 34;
Transcript May 14, 2013, Doc. 51 at 268]. Accordingly, the only electric
blankets E&E had plans to sell, at the time of the Agreement’s execution or
at any time from June 2008 through May 2009 (the first “contract year”
following execution of the Agreement), were electric blankets from the IHF
inventory and E&E electric blankets (the former IHF product) sold on IHF
contracts and accounts. [Transcript May 13, 2013, Doc. 49 at 34-35;
Transcript May 14, 2013, Doc. 51 at 268].
Therefore, under the
Agreement’s language and the parties’ situation at that time, the parties
plainly intended for Smith’s responsibilities and sales benchmarks to
include the sale of electric blankets from the IHF inventory and E&E electric
blankets sold on IHF contracts and accounts.
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That the parties contemplated Smith selling IHF product on E&E’s
behalf is also supported by the requirement in the Agreement that E&E pay
Smith “additional compensation” if his efforts generated sales of E&E
product on IHF contracts and accounts exceeding certain levels.
In
connection with the Asset Sale Agreement, E&E agreed to pay IHF’s
Bankruptcy Estate commissions on the sale of E&E product on IHF
contracts and accounts during the first blanket season thereafter. [See
Asset Sale Agreement, Doc. 4-1].
The parties contemplated these
commissions providing payment to IHF’s secured and unsecured creditors.
[Executive Employment Agreement, Doc. 1-1 at 9 ¶ 3.2(c)]. There was a
limit, however, as to the amount of commissions E&E had to pay for such
sales. Subparagraph 3.2(c) of the Agreement required E&E to pay Smith
“additional compensation” in the event E&E had sufficient sales on IHF
contracts and accounts that the resulting commissions met that limit.
[Transcript May 14, 2013, Doc. 51 at 272-75]. At trial, Jin admitted that in
the employment context, “compensation” meant pay in exchange for
services.
[Id. at 272].
Thus, based on the evidence presented, a
reasonable jury could conclude that subparagraph 3.2(c) contemplated
E&E paying Smith “compensation” for his services in generating sales of
E&E product on IHF contracts.
12
For the foregoing reasons, the Court concludes that there was
substantial evidence presented to support the jury’s finding that Smith was
not terminated “for cause shown” within the meaning of the parties’
Agreement, and that he was therefore entitled to a severance payment of
$150,000.
B.
Admission of William Clarke’s Testimony
Alternatively, E&E requests a new trial pursuant to Rule 59(e) due to
the improper admission of the testimony William Clarke, the attorney who
served as the trustee for the IHF bankruptcy proceeding. E&E contends
that Clarke’s testimony was irrelevant to the issue before the Court,
namely, the employment contract between Smith and E&E. E&E further
argues that Clarke’s testimony was highly prejudicial, as he was “called for
the simple purpose of casting a dark shadow on E&E without offering any
relevant testimony.” [Doc. 52-1 at 24].
Rule 59(a) of the Federal Rules of Civil Procedure provides that the
Court may grant a new trial “for any reason for which a new trial has
heretofore been granted in an action at law in federal court.” Fed. R. Civ.
P. 59(a)(1)(A). The admission of irrelevant and prejudicial evidence which
results in substantial harm to the losing party can be the basis for a Rule
13
59(a) motion. See 11 Charles A. Wright, Arthur R. Miller & Mary Kay Kane,
Fed. Practice and Procedure § 2805 (2012).
At trial, E&E objected to the Court allowing Clarke to testify at all, on
the grounds that Clarke had no relevant testimony to offer. [Transcript May
14, 2013, Doc. 51 at 13-17]. The Court overruled E&E’s objection, noting
that “there are at least some things that Mr. Clarke can testify to that
provide context concerning the evidence . . . [of] IHF inventory, the
amounts of those sales, the commissions on those sales, a number of
those sorts of issues.”
[Id. at 16].
Clarke went on to testify, with no
objections made as to any of the specific questions asked or answers
provided and with only one objection as to admission of an exhibit.
[Transcript May 14, 2013, Doc. 51 at 18-52].
Having reviewed Clarke’s testimony, the Court finds that such
testimony was relevant to proving the scope of E&E’s sales of IHF
inventory during Smith’s employment, the economic benefit to E&E from
such sales, the scope and nature of the sales that Smith was responsible
for generating, the volume of the sales of IHF inventory generated by
Smith, the volume of the sales that Smith generated for E&E products sold
on IHF contracts and accounts, and the fact that such sales greatly
exceeded the sales benchmark under subparagraph 4(a)(2) of the
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Agreement. Further, Clarke’s testimony assisted the jury in understanding
the situation of the parties at the time of the Agreement and the intent of
the “compensation” and sales referenced in subparagraph 3.2(c). Nothing
in Clarke’s testimony was so prejudicial to the Defendant as to warrant a
new trial in this matter. The Defendant’s alternative request for a new trial,
therefore, is denied.
ORDER
IT IS, THEREFORE, ORDERED that the Defendant’s Motion for
Judgment as a Matter of Law, or in the Alternative, for a New Trial [Doc. 52]
is DENIED.
IT IS SO ORDERED.
Signed: March 20, 2014
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