Iverson v. Johnson Gas Appliance Co.

• Decision Date: 22 March 1999
• Docket Number: No. 98-1959,98-1959
• Citation: 172 F.3d 524
• Parties: 14 IER Cases 1654 Gregory L. IVERSON, Plaintiff-Appellant, v. JOHNSON GAS APPLIANCE CO., an Iowa corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 524

172 F.3d 524

14 IER Cases 1654

Gregory L. IVERSON, Plaintiff-Appellant, v. JOHNSON GAS APPLIANCE CO., an Iowa corporation, Defendant-Appellee.

No. 98-1959.

United States Court of Appeals, Eighth Circuit.

Submitted Feb. 8, 1999.

Decided March 22, 1999.

Steve G. Heikens, Minneapolis, MN, argued, for Plaintiff-Appellant.

Julie Allen, Chicago, IL, argued (Jean F. Holloway and Max C. Heerman, on the brief), for Defendant-Appellee.

Before: McMILLIAN, LAY, and MURPHY, Circuit Judges.

MURPHY, Circuit Judge.

Gregory L. Iverson was associated with Johnson Gas Appliance Company (Johnson Gas) for many years, as an employee and as a joint owner of a subsidiary retail business known as Summit Energy East Stores / Summit Home Center Stores (Summit stores). The parties entered into a number of written agreements and Iverson eventually sued Johnson Gas for fraud and breach of contract, as well as on several other causes of action. He served early discovery requests but Johnson Gas filed a motion to stay discovery and to dismiss, and Iverson obtained no discovery. After a hearing the district court converted the motion to dismiss to one for summary judgment, ruled in favor of Johnson Gas, and denied the motion to stay discovery as moot. Iverson appeals from the judgment, arguing that he should have been allowed to conduct discovery and to amend his complaint and that genuine disputes over material issues of fact precluded summary judgment. We affirm in part and reverse in part and remand for further proceedings.

I.

Johnson Gas is an Iowa corporation which manufactures gas furnaces and high-efficiency gas fireplaces. Its principal place of business is Cedar Rapids, Iowa, and Barnes O'Donnell is the president and owner. This action grows out of written contracts and oral communications between O'Donnell and plaintiff Gregory Iverson, a Minnesota resident. Iverson was associated with Johnson Gas for many years, both as an employee responsible for national sales to wholesalers and distributors, and as a manager and joint owner of the Summit stores. The first formal employment contract between Johnson Gas and Iverson in the record is a 1995 agreement in which Johnson Gas employed Iverson as a national sales manager for its Mendota Hearth Division for two years.

In late 1987 Johnson Gas and Iverson agreed to go into a new business together. On December 9, 1987 they agreed in a written contract that they would jointly own and operate a subsidiary retail operation--the Summit stores. These Minnesota-based retail outlets would be managed by Iverson and would sell products manufactured by Johnson Gas and others. A loan from Johnson Gas provided the capital for the new business. Iverson did not receive an additional salary for his management role, but he was to receive commissions and a percentage of the profits. All of the financial accounting for the stores appears to have been handled by Johnson Gas.

The 1987 management agreement was replaced on January 1, 1988 with a new Summit Energy East Management Agreement. This agreement provided that revenue from the Summit stores would be expended in the following order of priority: operating expenses, interest on the debt to Johnson Gas, and repayment of the debt to Johnson Gas at the minimum rate of 25% per year starting in January 1989. Any additional profits would be distributed 40% to Iverson and 60% to Johnson Gas. The agreement also gave Iverson specific rights if the business were to be sold. In the event of a sale he would have the option of either purchasing the business at 60% of the amount of any bona fide offer or receiving 40% of the total sale price after all expenses and debts had been paid. Iverson admits receiving some payments under the agreement, but in most years Johnson Gas apparently told him that the stores were not profitable and he rarely received a distribution of annual profits.

In 1996 Johnson Gas decided to sell the Summit stores. ¹ In preparation for a potential sale, O'Donnell called Iverson to his corporate headquarters on May 16, 1996 to discuss renegotiating the terms of their agreements, allegedly because Iverson's right of first refusal was hampering negotiations with a potential buyer. On May 16, Iverson and O'Donnell signed two new agreements--a new employment agreement for Iverson with Johnson Gas and an agreement in which Iverson relinquished his rights under the 1988 Summit management contract. These two agreements and the oral representations allegedly made on May 16 are central to the dispute between the parties.

By its terms, the May 1996 Summit agreement canceled the January 1, 1988 Summit Energy East Management Agreement. In the new agreement Iverson gave up his right either to purchase the Summit business for 60% of a bona fide offer or to receive 40% of the profits from its sale. In exchange for relinquishing these options, Iverson was to get $12,500 upon closing of the sale of the Summit stores. The agreement also included a provision giving Iverson 75% of some unspecified royalty payments and licensing and manufacturing rights to the Mendota brand and/or design of Gas Residential Hearth products manufactured in Australia/New Zealand. It further provided that Iverson could look at outside opportunities for the manufacture and/or sale of gas fireplaces, stoves, and inserts.

The May 1996 employment agreement provided that Johnson Gas would hire Iverson as a national sales manager for twelve months beginning July 1, 1996. It purported to terminate and supercede the 1995 employment agreement and specified Iverson's salary, commissions, and benefits. It also provided that Johnson Gas would pay Iverson 120 days salary and commissions if he was fired without cause before the end of the twelve month period unless he meanwhile secured alternative employment.

A few weeks after the May 16 agreements, Johnson Gas sold the Summit stores to a third party--Clopay. The record does not contain the exact date of the sale, the sale price, or the amount of profit Johnson Gas received from the sale. In response to a question at oral argument, counsel for Johnson Gas suggested that its profit was approximately $100,000 less costs and that it had also received promises from the buyer to serve as an exclusive dealer for its products in other markets. It is undisputed that after the sale Iverson received a check for $8500 and fireplace equipment worth $4000.

With the consummation of the sale, Johnson Gas no longer had a Minnesota retail business, and on July 8, 1996 it informed Iverson that it was terminating his employment as a national sales manager. It continued to pay his salary for four months and also gave him a check in the amount of $11,994.28 for four months commissions. Iverson kept this check, but did not cash it at that time.

Iverson contacted an attorney, and this action against Johnson Gas was started in state court. The original complaint and summons and a detailed request for document production were served on defendants in October 1997. The complaint alleged fraud, promissory estoppel, age discrimination, defamation, and breach of contract. It asserted that O'Donnell made misrepresentations to Iverson in order to get him to sign away his rights under the 1988 agreement. Iverson maintains O'Donnell promised him employment for as long as O'Donnell remained in business and represented that continued employment with Johnson Gas was more valuable than Iverson's right of first refusal to purchase the Summit stores. The complaint also alleged that Iverson relied on O'Donnell's statements and that this reliance was detrimental to him. Iverson soon amended his complaint, but Johnson Gas maintains the amended complaint was never properly filed and served. It nevertheless indicated in its motion to dismiss that it was moving on both the original and the first amended complaint, which added an additional breach of contract claim. In this sixth cause of action, Iverson alleged that defendants breached the 1988 Summit Energy East Management Agreement by not paying Iverson his share of profits due under the arrangement. Iverson also submitted a second demand for the production of documents, including Johnson Gas financial records for the Summit stores and Iverson's personnel files. He also submitted a request for admissions.

Johnson Gas removed the case to federal court on November 12, 1997, pursuant to 28 U.S.C. § 1441, and filed its motion to dismiss and for a stay of discovery. Accompanying this motion, Johnson Gas submitted affidavits by president Barnes O'Donnell and by counsel. Four relevant contracts were attached as exhibits to O'Donnell's affidavit, and Iverson's discovery requests were attached to counsel's affidavit. Iverson filed a response to the motion to dismiss which included his affidavit and that of counsel. Counsel's affidavit indicated that he believed that in order to respond appropriately to the motion to dismiss, Iverson needed to conduct discovery, specifically noting that he needed to review the documents sought in his discovery requests and to depose certain individuals. Johnson Gas submitted five additional affidavits with its reply brief to support its assertions regarding the date of service of the amended complaint and the absence of any defamatory remarks; it submitted three more related affidavits in early January.

Shortly after the briefing on the motion to dismiss was completed, but prior to the hearing, Steve G. Heikens replaced Iverson's original attorney, and the hearing was delayed approximately one month. On February 6, 1998 Heikens filed a motion to remand to state court, challenging the timeliness of the removal and the amount in controversy.

The district court held a hearing on February 20, 1996 to consider the pending motions. At the hearing, Iverson voluntarily dismissed with prejudice his claims based on promissory estoppel, age discrimination, and breach of the 1996 employment agreement....