Mittleider v. Canadian Pacific Railway Company et al
Filing
78
ORDER denying 63 Motion for Summary Judgment. Signed by U.S. District Judge Karen E. Schreier on 3/19/2014. (KC)
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION
CLYDE F. MITTLEIDER,
Plaintiff,
vs.
DAKOTA, MINNESOTA, AND
EASTERN RAILROAD;
CANADIAN PACIFIC RAILWAY
COMPANY; and
CANADIAN PACIFIC RAILWAY LTD.,
Defendants
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CIV. 11-4054-KES
ORDER DENYING DEFENDANTS’
MOTION FOR SUMMARY
JUDGMENT
Plaintiff, Clyde F. Mittleider, brought suit against defendants, Dakota
Minnesota, and Eastern Railroad (DM&E), Canadian Pacific Railway Company
(CP Company), and Canadian Pacific Railway Ltd. (CP Ltd.), claiming he is
entitled to damages arising from promises made to him by DM&E. Defendants
move for summary judgment, arguing that DM&E did not make an enforceable
promise to Mittleider or, alternatively, that performance has been discharged.
Separately, defendants CP Company and CP Ltd. (collectively, CP defendants)
argue that they cannot be held liable for promises made by DM&E. For the
following reasons, defendants’ motion for summary judgment is denied.1
1
Defendants request oral argument pursuant to D.S.D. Civ. LR 7.1,
which provides that the court may order oral argument on a motion. Finding
oral argument unnecessary to resolve this motion, defendants’ request is
denied.
BACKGROUND
The facts, viewed in the light most favorable to Mittleider, the nonmoving
party, are as follows:
Mittleider began working as a conductor and brakeman for DM&E in
1987. In 1990, DM&E entered into a collective bargaining agreement setting
out seniority rules for union members with the United Transportation Union
(Union). At that time, Mittleider held brakeman, conductor, and engineer
seniority. In 1996, DM&E promoted Mittleider to manager of train operations in
Huron, South Dakota, which was a non-union position but still allowed
Mittleider to retain and accumulate seniority.
In 2002, DM&E, through its wholly-owned subsidiary, Cedar American
Rail Holdings, acquired the assets of I&M Rail Link and formed a new corporate
entity called Iowa, Chicago, and Eastern Railroad (IC&E). During this
acquisition period, DM&E was actively involved in recruiting and staffing
employees who would work for IC&E.2 Mittleider was one of these employees.
Kevin Schieffer, DM&E’s then-president, and Robert Brownell, DM&E’s then-
2
Immediately after the acquisition of I&M Rail Link, DM&E and IC&E
had to be run separately until they received regulatory approval from the
Surface Transportation Board to run the railroads under common control.
2
vice-president of operations,3 approached Mittleider and offered him a position
with IC&E as a superintendent in Mason City, Iowa. Mittleider was reluctant to
accept the position because he feared he would lose his seniority status if he
left DM&E and began working at IC&E. Believing Mittleider was the right
person for the job, Schieffer and Brownell attempted, on multiple occasions, to
convince Mittleider to accept the job offer. They promised Mittleider that if he
accepted the IC&E position he would not lose his seniority status.4 They also
promised Mittleider that if he ended up losing his seniority status, he would be
made whole. Based on these promises, Mittleider accepted the superintendent
position with IC&E by signing an employment contract,5 and he moved to
Mason City, Iowa. Mittleider remained in that position until 2004, when he
moved to Sioux Falls, South Dakota, after he was promoted to assistant chief
3
Brownell eventually became the president of IC&E. Prior to Brownell
becoming president of IC&E, Schieffer convinced Brownell to come out of
retirement and hired him as vice-president of operations with the expectation
that Brownell would assist in the acquisition of I&M Rail Link.
4
This promise is evidenced by a letter—on DM&E letterhead—addressed
to Mittleider from Brownell, in his capacity as DM&E’s vice-president of
operations, which stated, “This will confirm our discussion of the issue and
that you will retain your position on the DM&E UTU Train and Engine Service
Seniority Rosters as currently shown.” Docket 66-3.
5
The employment contract with IC&E contains an integration clause
stating, “This document constitutes the entire understanding and agreement
between the parties, and supercedes [sic] any previous written or verbal
understandings or agreements of the parties.” Docket 66-3 at 2. Noticeably,
DM&E was not a party to the agreement.
3
transportation officer. This position had responsibilities associated with both
DM&E and IC&E.6
After Mittleider accepted the position with IC&E, the Union demanded
DM&E remove Mittleider from the seniority roster. DM&E refused, and the
Union initiated a grievance that resulted in an arbitration proceeding,
consistent with the collective bargaining agreement between DM&E and the
Union, before Public Law Board Number 6820 (PLB). In August 2005, the PLB
ruled that Mittleider’s name would be removed from the seniority roster.
Following the PLB’s decision, Mittleider again engaged in discussions
regarding his seniority status with Schieffer, who was still acting as DM&E’s
president. Schieffer assured Mittleider that DM&E would honor its promise to
him. At that time, Mittleider was working in a management position in which
his seniority status did not matter, making immediate action unnecessary.
Nonetheless, Schieffer, recognizing the commitment made by DM&E, Docket
74-3 at 6, told Mittleider that DM&E would continue to negotiate with the
Union in an effort to have Mittleider placed back on the seniority roster and, if
DM&E was unsuccessful, then Mittleider would be “taken care of.” Docket 74-3
at 6.
6
By this time, regulatory approval was given to operate DM&E and IC&E
under common control.
4
Between 2007 and 2008, CP defendants acquired control of DM&E,
IC&E, and Cedar American Rail Holdings. In a letter addressed to all DM&E,
IC&E, and Cedar American employees from Fred Green, president and CEO of
Canadian Pacific, Green stated, “CP purchased the equity of the DM&E, IC&E
and Cedar American. The equity includes all contracts and all agreements, not
just the assets of your organization.” Docket 43-1 at 1. At some point during
the acquisition period but before receiving approval from the Surface
Transportation Board, CP defendants were informed of DM&E’s “outstanding
commitment that was made by Mr. Schieffer to Mr. Mittleider.” Docket 74-4 at
7.
In 2010, Mittleider was informed that his position in Sioux Falls, South
Dakota, would be terminated, and he was offered a management position in
Minneapolis, Minnesota. Mittleider refused to accept the offer because he did
not want to relocate to Minneapolis and because he believed he would forfeit
his rights to be made whole for losing his seniority status if he accepted the
position. Docket 74-2 at 6-7. Mittleider was also told that he could apply for a
conductor position, which he refused for the same reasons. Shortly thereafter,
Mittleider’s employment with defendants ended.
Upon ending his employment, Mittleider asked defendants to compensate
him for losing his seniority status as was promised under the agreement he
5
had with DM&E. Defendants refused, and Mittleider filed suit, alleging claims
for breach of contract and promissory estoppel.
LEGAL STANDARD
Summary judgment is appropriate if the movant “shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(a). The moving party can meet this
burden by presenting evidence that there is no dispute of material fact or that
the nonmoving party has not presented evidence to support an element of his
case on which he bears the ultimate burden of proof. Celotex Corp. v. Catrett,
477 U.S. 317, 322-23 (1986). “The nonmoving party may not ‘rest on mere
allegations or denials, but must demonstrate on the record the existence of
specific facts which create a genuine issue for trial.’ ” Mosley v. City of
Northwoods, Mo., 415 F.3d 908, 910 (8th Cir. 2005) (quoting Krenik v. County
of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995)).
Summary judgment is precluded if there is a dispute in facts that could
affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248 (1986). For purposes of a summary judgment motion, the court views the
facts and the inferences drawn from such facts “in the light most favorable to
the party opposing the motion.” Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 588 (1986).
6
Because this is a diversity action, the court applies the law of the state in
which it sits, which here is South Dakota. Prudential Ins. Co. of Am. v. Kamrath,
475 F.3d 920, 924 (8th Cir. 2007). Under South Dakota law, “[a] contract is to
be interpreted according to the law and usage of the place where it is to be
performed or, if it does not indicate a place of performance, according to the
law and usage of the place where it is made.” SDCL 53-1-4. Because the
evidence before the court does not easily lend itself to a choice of law
determination and because the parties appear to agree that South Dakota law
controls Mittleider’s claims,7 the court assumes without deciding that South
Dakota law applies to Mittleider’s claims.
DISCUSSION
Mittleider alleges that DM&E, acting through its agents, made two
separate promises to him that form the basis for his claims. The first promise
was that Mittleider would not lose his union seniority status if he accepted the
IC&E position. The second promise was that, if Mittleider did lose his seniority
status as a result of taking the IC&E position, he would be “made whole,” or in
other words, compensated. As detailed above, Mittleider accepted the IC&E
position, lost his seniority status, and has not been compensated for such.
As a result of defendants’ refusal to compensate Mittleider for the loss of
his seniority status, Mittleider asserts claims for breach of contract and
7
Both parties cite South Dakota law extensively in their briefs.
7
promissory estoppel. Defendants argue that (1) there was never an enforceable
contract between Mittleider and DM&E with the rights and obligations
Mittleider is now attempting to enforce; (2) even if there was an enforceable
contract, impracticability discharged their performance obligations; and (3)
promissory estoppel does not apply under the circumstances here. Separately,
the CP defendants argue Mittleider’s claims can only be asserted against
defendant DM&E, which is a separate corporate entity.
I.
Proper Corporate Defendants
Before delving into Mittleider’s claims, the court first examines whether
Mittleider can assert his claims against the CP defendants. CP defendants
claim that any alleged agreement between Mittleider and DM&E cannot create
liability for CP defendants because they are only parent corporations, not
parties to the alleged agreement. Mittleider responds by arguing (1) that CP
defendants acquired the debts and obligations of DM&E and thus are
responsible for DM&E’s performance obligations, or (2) that CP defendants are
liable for DM&E’s obligations under a “degree of control” theory.
Whether the CP defendants acquired the debts and obligations of DM&E
depends on the corporate transaction—e.g., via a merger, stock purchase, or
asset purchase—the CP defendants used to acquire DM&E. There is a dispute
between the parties regarding this issue. See Docket 72 at 5. Defendants claim
DM&E was acquired through a merger in which an indirect subsidiary was
8
merged with and into DM&E.8 Mittleider, on the other hand, directs the court
to a letter sent by Fred Green, President and CEO of Canadian Pacific,9 in
which Green states, “CP purchased the equity of the DM&E, IC&E and Cedar
American. The equity includes all contracts and all agreements, not just the
assets of your organization.”10 Docket 43-1 at 1. Nothing else in the record
provides conclusive proof as to the corporate transaction used. Because the
type of corporate transaction the CP defendants used to acquire DM&E frames
the entire issue of whether the CP defendants are liable for DM&E’s obligations
and because there is a question of material fact as to the type of transaction
used, summary judgment is denied on this issue.
II.
Breach of Contract Claims
Mittleider alleges defendants breached two promises made to him: (1)
that he would retain his seniority status in the event he accepted the IC&E
position, and (2) in the event he lost his seniority status after accepting the
8
If such is the case, it seems unlikely that the CP defendants would be
liable for DM&E’s obligations because DM&E would still be in existence.
9
Because the letterhead only identifies “Canadian Pacific,” it is unclear
whether Green is the President and CEO of CP Company, CP Ltd., or both.
10
“A contract obligation is ordinarily due only to those with whom it is
made, and generally corporations purchasing assets of other corporations will
not be subject to the sellers’ liabilities.” Parker v. W. Dakota Insurers, Inc., 605
N.W.2d 181, 184 (S.D. 2000). Nonetheless, there are certain situations in
which the purchaser assumes the obligations of the seller. Id. “The conduct
and representations of parties to a transaction may suggest intent by the
acquiring company to assume the liabilities of the selling corporation.” Id. at
186.
9
IC&E position, that he would be made whole. Defendants argue that the
promises are not enforceable because there was a lack of consideration, there
was a lack of mutuality, and the doctrine of impracticability discharged
performance.11 Separately, defendants argue the “make whole” promise was
vacated by Mittleider’s employment contract with IC&E.
A.
Consideration
A valid and enforceable contract requires “sufficient cause or
consideration.” SDCL 53-1-2. “Any benefit conferred or agreed to be conferred
upon the promiser by any other person to which the promiser is not lawfully
entitled, or any prejudice suffered or agreed to be suffered by such person,
other than such as he is at the time of consent lawfully bound to suffer as an
inducement to the promiser, is a good consideration for a promise.” SDCL 536-1. “Moreover, contractual consideration may ‘move’ to the benefit of someone
other than the one making or receiving a promise.” Harms v. Northland Ford
Dealers, 602 N.W.2d 58, 63 (S.D. 1999).
Defendants argue consideration was lacking because DM&E did not
receive any benefit from Mittleider accepting employment with IC&E. Facts in
the record suggest otherwise. At the time of the alleged promise, DM&E was in
the process of acquiring I&M Rail Link (which was renamed IC&E following
11
While the parties analyzed the two promises separately, the court
analyzes them together to avoid unnecessary repetition because much of the
analysis applies equally to both promises.
10
DM&E’s acquisition) through its wholly-owned subsidiary, Cedar American Rail
Holdings. Docket 74-1 at 3. As a parent company, DM&E had financial
interests in both the transition of the I&M Rail Link to IC&E and the ultimate
success of IC&E. This is evidenced by the fact that DM&E enticed its own
employees, including Mittleider, to transition over to IC&E. Thus, facts support
the notion that DM&E benefitted from Mittleider’s promise to accept
employment with IC&E.
Even if DM&E did not benefit from Mittleider’s employment with IC&E,
Mittleider suffered prejudice by leaving his position at DM&E. See SDCL 53-1-3
(identifying that “any prejudice suffered or agreed to be suffered . . . is a good
consideration for a promise”). Not only did Mittleider change jobs, but he also
needed to relocate from Huron, South Dakota, to Mason City, Iowa. Indeed,
Mittleider was very reluctant to leave his position at DM&E and only did so
after receiving promises from DM&E. Docket 74-2 at 9. Thus, the prejudice
suffered by Mittleider was sufficient to satisfy the consideration requirement.
See Clement v. Rowe, 146 N.W. 700, 701 (S.D. 1914) (“Damage to the promisee
constitutes as good a consideration as benefit to the promisor.”).
Additionally, there is no dispute that IC&E benefitted from the agreement
because Mittleider accepted employment with IC&E. Because contractual
consideration may ‘move’ to the benefit of someone other than the one making
or receiving a promise, Harms, 602 N.W.2d at 63, consideration existed here
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even if DM&E did not directly benefit from the consideration because it moved
to the benefit of IC&E.
Defendants also contend that DM&E did not bargain for Mittleider to
accept employment with IC&E. Consideration for a contract must be accepted
and regarded as such by both parties. Richter v. Indus. Fin. Co., 221 N.W.2d 31,
34 (S.D. 1974) (“It is a recognized principle of law that nothing is consideration
for a contract that is not accepted or regarded as such by both parties.”). Both
Schieffer and Brownell, acting in their capacities as DM&E’s president and vice
president of operations, respectively, attempted to and ultimately did persuade
Mittleider to accept the position with IC&E with the promise that Mittleider’s
seniority status at DM&E would be protected. Dockets 74-1 at 3; 74-2 at 3; 743 at 4. And there is no indication that either Schieffer or Brownell were acting
outside the scope of their employment duties during these discussions with
Mittleider. Therefore, facts show that DM&E bargained for the consideration it
received.
In sum, Mittleider brought forth sufficient facts to show that valid
consideration existed to support the alleged contract, and DM&E bargained for
the same.
B.
Mutuality
Defendants next contend that the contract fails for lack of mutuality
because Mittleider was not obligated to accept the IC&E position. This
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argument fails because the South Dakota Supreme Court has stated that “the
doctrine of mutuality has been generally abandoned.” Culhane v. W. Nat’l Mut.
Ins. Co., 704 N.W.2d 287, 293 (S.D. 2005). So long as valid consideration
exists—which it did here as discussed above—there is no additional
requirement of “mutuality of obligation.” Restatement (Second) of Contracts
§ 79 (1981) (cited with approval by the South Dakota Supreme Court in
Culhane, 704 N.W.2d at 293). Moreover, mutuality existed here. Simply put,
Mittleider promised to accept employment with IC&E, and DM&E promised to
retain Mittleider’s seniority status or compensate him if it was unable to do so.
C.
Doctrine of Impracticability
Defendants also argue that the PLB’s determination that stripped
Mittleider of his seniority status discharged DM&E from performance. The
South Dakota Supreme Court analyzed the doctrines of impracticability and
commercial frustration in Groseth Int’l, Inc. v. Tenneco, Inc., 410 N.W.2d 159,
165-68 (S.D. 1987). “Impracticability focuses on occurrences which greatly
increase the costs, difficulty, or risk of the party’s performance. Frustration
. . . focuses on a party’s severe disappointment caused by a frustration of his
principle purpose in entering the contract.” Id. at 167. Each theory requires the
occurrence or non-occurrence of some unforeseen event, and the event must
make performance impracticable or severely frustrated. Id. at 165-67.
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Defendants claim the event here that discharged their performance was the
PLB’s arbitration decision.
It would be disingenuous for DM&E to claim that it was unaware that
the PLB had the authority to strip Mittleider of his seniority status considering
DM&E had been operating under the collective bargaining agreement since
1990. Moreover, the agreement of the parties specifically provided for
performance in the event that Mittleider lost his seniority status, i.e., he would
be made whole. Therefore, not only was the PLB’s decision foreseeable at the
time the parties entered into the contract, but DM&E’s performance was not
severely frustrated or made impracticable by the PLB’s decision.
D.
Effect of IC&E Employment Contract
Defendants argue that Mittleider’s employment contract with IC&E
precludes enforcement of the make whole promise because the employment
contract contains an integration clause. DM&E, however, was not a party to
the employment contract. And defendants stress the fact that IC&E and DM&E
are separate entities. Defendants have failed to identify how the integration
clause in the contract between IC&E and Mittleider affected the rights and
obligations that existed between Mittleider and DM&E.
To summarize, Mittleider brought forth sufficient facts to establish the
existence of a contract between himself and DM&E in which DM&E promised
Mittleider that he would not lose his seniority status if he accepted employment
14
with IC&E or that he would be compensated if he did. Defendants failed to
identify a reason why their performance under the contract should be excused.
Therefore, summary judgment is denied to defendants on Mittleider’s breach of
contract claims.
III.
Promissory Estoppel
With respect to Mittleider’s promissory estoppel claim, defendants again
direct the court to the employment contract entered into between Mittleider
and IC&E and claim that the contract precludes Mittleider’s promissory
estoppel claim. But defendants fail to identify how the employment contract
entered into with IC&E affected DM&E’s obligations owed to Mittleider when
DM&E was not a party to the contract. Thus, it is unclear how the IC&E
employment contract would preclude a promissory estoppel claim against
DM&E.
Separately, defendants argue Mittleider’s reliance on DM&E’s promises
was unreasonable because he knew that the PLB could ultimately strip him of
his seniority status. Promissory estoppel requires the promisee “to have acted
reasonably in justifiable reliance on the promise made.” Hahne v. Burr, 705
N.W.2d 867, 873 (S.D. 2005). The deposition testimony of Mittleider, Schieffer,
and Brownell indicate that those three individuals had lengthy discussions
about Mittleider’s ability to retain his seniority status. And it seems that
DM&E, acting through Schieffer and Brownell, represented that it would use
15
its best efforts to ensure Mittleider’s seniority status would go unchanged.
Acting upon such a promise is not so unreasonable as to find against Mittleider
as a matter of law when considering the fact that DM&E would have had
substantially more bargaining power when it came to the issue of Mittleider’s
seniority status than Mittleider would have had on his own. Because DM&E
would have had substantial bargaining power with the Union, Mittleider acted
reasonably in believing DM&E could honor its promise of retaining his
seniority.
Regardless, defendants’ argument ignores the fact that DM&E also
promised to compensate Mittleider in the event he lost his seniority status and
that Mittleider relied on both promises when he accepted employment with
IC&E. This additional promise makes Mittleider’s reliance even more
reasonable. When viewing the facts in favor of Mittleider, the court cannot find
that Mittleider acted unreasonably, as a matter of law, when he relied on
DM&E’s promises. Therefore, summary judgment is denied to defendants on
Mittleider’s promissory estoppel claim.
CONCLUSION
Mittleider brought forth sufficient facts to establish an enforceable
contract existed between himself and DM&E in which DM&E promised to
compensate Mittleider in the event he lost his seniority status. Defendants were
unable to prove, as a matter of law, that performance under the agreement was
16
discharged. Also, assuming the facts in favor of Mittleider, Mittleider’s reliance
on DM&E’s promises was reasonable such that his claim for promissory
estoppel survives summary judgment.
Separately, there is a material question of fact regarding whether the CP
defendants can be held liable for agreements entered into by DM&E.
Accordingly, it is
ORDERED that defendants’ motion for summary judgment (Docket 63) is
denied.
Dated March 19, 2014.
BY THE COURT:
/s/ Karen E. Schreier
KAREN E. SCHREIER
UNITED STATES DISTRICT JUDGE
17
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