Kingsley v. Baker/Beech-Nut Corp.

• Decision Date: 09 February 1977
• Docket Number: No. 76-1660,BEECH-NUT,76-1660
• Citation: 546 F.2d 1136
• Parties: 1 Fed. R. Evid. Serv. 790 Dean KINGSLEY, Plaintiff-Appellee, Cross-Appellant, v. BAKER/CORPORATION, Defendant-Appellant, Cross-Appellee. Summary Calendar. *
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1136

546 F.2d 1136

1 Fed. R. Evid. Serv. 790

Dean KINGSLEY, Plaintiff-Appellee, Cross-Appellant, v. BAKER/BEECH-NUT CORPORATION, Defendant-Appellant, Cross-Appellee.

No. 76-1660

Summary Calendar. ^*

United States Court of Appeals, Fifth Circuit.

Feb. 9, 1977.

Rehearings Denied March 11, 1977.

Richard L. Jackson, Dallas, Tex., for defendant-appellant, cross-appellee.

R. W. (Bill) Glenn, Plano, Tex., for plaintiff-appellee, cross-appellant.

Appeals from the United States District Court for the Eastern District of Texas.

Before AINSWORTH, CLARK and RONEY, Circuit Judges.

CLARK, Circuit Judge:

Plaintiff, Dean Kingsley, appeals from the district court's reformed judgment denying recovery of a statutory award of attorney's fees in a diversity action claiming severance compensation under a personnel policy of the defendant, Baker/Beech-Nut Corporation. Defendant cross-appeals, arguing (1) that the district court committed various evidentiary errors and improperly instructed the jury; (2) that the court erred in awarding severance pay to Kingsley as no contract existed between the parties; (3) that assuming the liability award was proper, entry of the judgment on the jury verdict for exemplary damages is improper. We affirm the denial of attorney's fees. As to the cross-appeal, we affirm the district court's evidentiary rulings and instructions and the jury's findings of the defendant's liability, but we reverse the award of exemplary damages.

Kingsley, a former Division Manager of the Baby Food Division of Beech-Nut Inc., (Beech-Nut) for a territory encompassing Texas, Oklahoma, and Louisiana, contacted wholesale brokers to increase the sales of and obtain new distribution for Beech-Nut baby foods. During Kingsley's tenure of employment with Beech-Nut, it adopted a personnel policy entitled "Severance Compensation Exempted Salaries Employees" (Severance Compensation Policy). Employees, such as Kingsley, who qualified under the policy were entitled to severance pay upon discharge from the company but not upon resignation.

On February 23, 1973, Baker/Beech-Nut Corporation (Baker/Beech-Nut) purchased the Baby Food Division of Beech-Nut, and personnel within the Baby Food Division, including Kingsley, became employees of Baker/Beech-Nut. In the purchase agreement Baker/Beech-Nut expressly assumed the liabilities of Beech-Nut under its Severance Compensation Policy as to these new employees. Baker/Beech-Nut later announced at a corporate meeting that it would apply the policies and procedures of Beech-Nut to employees who had worked in the Beech-Nut Baby Food Division.

Afterwards, on August 15, 1974, Mr. A. R. Jackson, a superior of Kingsley within the Baker/Beech-Nut Sales Division, met with Kingsley and informed him that due to Jackson's personal dissatisfaction with Kingsley's work, he would recommend to his superiors that Kingsley be fired. Jackson also discussed the possibility of Kingsley's resigning rather than being dismissed, suggesting to Kingsley that this would reflect more favorably upon his employment record and offering to help Kingsley find a job elsewhere. At the close of their discussion, Jackson told Kingsley that he need not make a decision immediately and that Kingsley should consider his alternatives for a couple of days and then make a decision. On August 17, 1974, Kingsley tendered his resignation, and Baker/Beech-Nut accepted it that day.

Kingsley subsequently renounced his resignation and demanded that Baker/Beech-Nut award him severance pay under the Severance Compensation Policy. Baker/Beech-Nut refused Kingsley's demand. More than 30 days later Kingsley brought an action in the Texas District Court for the 199th Judicial District of Collin County, Texas for breach of the Severance Compensation Policy, alleging that he was entitled to $6,460 in severance pay and that his attorney was entitled to $3,750 in attorney's fees as the suit was a claim for services rendered under Tex.Civ.Stat.Ann. art. 2226 (Vernon cum. supp. 1975-1976). Baker/Beech-Nut removed the action pursuant to 28 U.S.C. § 1441(b) to the United States District Court for the Eastern District of Texas, Sherman Division.

Evidence adduced at the trial demonstrated that Baker/Beech-Nut, through Jackson, had improperly used a threat to withhold favorable references for future employment if Kingsley would not resign. The evidence further showed that Baker/Beech-Nut did this with the deliberate intention of preventing Kingsley from receiving severance pay. The case went to the jury on a pure contract theory, and the jury found that the Baker/Beech-Nut's breach of the Severance Compensation Policy was accompanied by willful and malicious conduct of Jackson. A judgment was entered on the verdict, which awarded Kingsley $6,460 actual damages, $20,000 exemplary damages, and $3,750 attorney's fees.

In its motion for a new trial, Baker/Beech-Nut moved to eliminate the award of attorney's fees and exemplary damages. Kingsley resisted the motion, and in regard to the award of exemplary damages, sought to amend the complaint to include allegations of fraud, contending that the issues of fraud and deceit had been tried to the jury with the express or implied consent of both parties. The district court eliminated the award of attorney's fees and granted the post-trial amendment to Kingsley's complaint, leaving the award of exemplary damages intact. The appeal and cross-appeal followed. Both parties concede that Texas law applies to this diversity action.

Attorneys' Fees for Services Rendered

Tex.Civ.Stat.Ann. art. 2226 (Vernon cum. supp. 1975-1976) provides in pertinent part:

Any person . . . having a valid claim against a . . . corporation for services rendered, labor done . . . may present the same to such . . . corporation . . .; and if, at the expiration of 30 days thereafter, the claim has not been paid or satisfied, and he should finally obtain judgment for any amount thereof as presented for payment to such . . . corporation, he may, if represented by an attorney, also recover, in addition to his claim and costs, a reasonable amount as attorney's fees.

Kingsley argues that his suit for severance pay is analogous to Danaho Refining Co. v. Dietz, 398 S.W.2d 307, 317 (Tex.Civ.App.1965), in which the court held an action to enforce an employer's promise to pay as a part of each employee's salary a Christmas Bonus equal to one month's salary was one for services rendered, entitling the plaintiff to an award of reasonable attorney's fees. Kingsley contends that the services he rendered as a Division Manager of Beech-Nut and later with Baker/Beech-Nut entitle him not only to his monthly salary but also to remuneration under the Severance Compensation Policy, thus the district court's deletion of the award of attorney's fees was error.

In Knebel v. Capital National Bank, 518 S.W.2d 795, 804 (1974), the Texas Supreme Court reaffirmed its rule regarding the interpretation of statutes permitting the recovery of attorneys' fees and declared that such statutes "are in derogation of the common law, are penal in nature and must be strictly construed." Discharge of our obligation under Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), requires us, of course, to adhere to this principle.

The Texas appellate courts have consistently interpreted article 2226 as applying only to those actions in which the employee is entitled to compensation that ordinarily accrues from the employer-employee relation, Ennis Business Forms, Inc. v. Todd, 523 S.W.2d 83 (Tex.Civ.App.1975), whether due immediately, see Campbell Cleaning & Dye Works v. Barnwell, 183 S.W.2d 256 (Tex.Civ.App.1944), or on a deferred basis, Danaho Refining Co. v. Dietz, supra, for services which the employee has rendered in fact. Panhandle Broadcasting Co. v. Cercy, 363 S.W.2d 792 (Tex.Civ.App.1963).

Kingsley's suit for breach of the Severance Compensation Policy is not such an action. His claim against Baker/Beech-Nut arises only because Kingsley was allegedly dismissed from his position with the company rather than having voluntarily resigned. Any remuneration due to Kingsley for services rendered would accrue regardless of dismissal or resignation. Moreover, that benefits under the Severance Compensation Policy are not remuneration for services rendered is evidenced by the fact, for example, that eligible employees who have worked less than 1 year with Baker/Beech-Nut are entitled to the same amount of severance benefits regardless of whether they have worked with the company for 1 day or 364 days. Severance compensation for eligible employees who have worked more than 1 year with Baker/Beech-Nut is computed on the basis of the length of their employment and the employee's age when dismissed. Any benefits due under the policy neither ordinarily accrue from the employer-employee relation nor are the benefits disbursed for services rendered in fact. Accordingly, the district court's reformation of the judgment to deny the recovery of attorney's fees under article 2226 is affirmed.

The District Court's Evidentiary Rulings

On cross-appeal, Baker/Beech-Nut raises three principal issues in objecting to the district court's evidentiary rulings; (i) testimony of Kingsley's witness, Susan Harvey, was improperly admitted as it constituted hearsay; (ii) the deposition of Baker/Beech-Nut's former employee, A. J. Jackson, was improperly admitted and read to the jury; (iii) certain exhibits tendered by Kingsley were improperly introduced. We note that the district court's trial of Kingsley's action was after the effective date of the Federal Rules of Evidence. Pub.L. No. 93-595 § 1, 88 Stat. 1948 (1975). Accordingly, we apply them here in determining the propriety of the district court's rulings.

During the trial, Kingsley's attorney read the...