817 F.2d 659 (10th Cir. 1987), 83-1821, McKinney v. Gannett Co., Inc.

Docket Nº:83-1821, 83-1822.
Citation:817 F.2d 659
Party Name:Robert M. McKINNEY, Plaintiff-Appellee, v. GANNETT CO., INC., and The New Mexican, Inc., Defendants-Appellants.
Case Date:April 29, 1987
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit

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817 F.2d 659 (10th Cir. 1987)

Robert M. McKINNEY, Plaintiff-Appellee,


GANNETT CO., INC., and The New Mexican, Inc., Defendants-Appellants.

Nos. 83-1821, 83-1822.

United States Court of Appeals, Tenth Circuit

April 29, 1987

Opinion on Denial of Rehearing and Rehearing En Banc June 5, 1987.

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[Copyrighted Material Omitted]

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William S. Brandt, Nixon, Hargrave, Devans & Doyle, Rochester, N.Y. (John B. McCrory was also on the brief), for defendant-appellant Gannett Co., Inc.

Stephen L. Tucker, (Jerry Wertheim was also on the brief) Jones, Gallegos, Snead & Wertheim, Santa Fe, N.M., for defendant-appellant The New Mexican, Inc.

Victor Marshall, Rodey, Dickason, Sloan, Akin & Robb, Albuquerque, N.M., for plaintiff-appellee.

Before HOLLOWAY, Chief Judge, SEYMOUR, Circuit Judge, and BROWN, District Judge. [*]

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HOLLOWAY, Chief Judge.

This diversity case arises from a written employment contract to which plaintiff-appellee Robert M. McKinney and defendant-appellant The New Mexican, Inc., were signatory parties. The New Mexican, Inc., is a wholly-owned subsidiary of defendant-appellant Gannett Co., Inc.

After a fourteen week jury trial and related post-trial hearings, a Memorandum Opinion was entered granting McKinney an option to rescind. There followed an appeal to this court, which was dismissed for lack of a final judgment, 694 F.2d 1240 (10th Cir.1982), a remand to the trial court, and more post-trial hearings. There followed a final judgment for the plaintiff ordering a tolling of the employment agreement. The judgment in effect extended McKinney's control over The New Mexican, granted by the employment contract, for a period from Gannett's first breach of contract, as found by the court, until the judgment may be affirmed--a tolling designed to give McKinney a full five-year term as Chairman, Publisher, and Chief Executive Officer and ten years as Editor-in-Chief.

Gannett appeals from that final judgment awarding tolling of the employment contract in No. 83-1822. The New Mexican appeals from dismissal of its counterclaim against McKinney in No. 83-1821.


Factual Background

The plaintiff Robert M. McKinney owned The New Mexican, Inc., a New Mexico Corporation which publishes a daily paper in Santa Fe named The New Mexican. The plaintiff had been the owner and publisher of the newspaper since 1949. During his ownership of the newspaper, the plaintiff devoted time to various other activities, including serving as a director of Trans World Airlines and as an ambassador under the Kennedy Administration. As owner, the plaintiff employed Steve Watkins as the general manager who handled the day-to-day affairs of the newspaper. The plaintiff maintained a residence in both Santa Fe and New York City.

In 1975, the plaintiff began negotiations with Gannett Co., Inc., for the sale of The New Mexican. 1 On December 18, 1975, an "Agreement and Plan of Reorganization" was executed by the plaintiff, his holding company The New Mexican, and Gannett. Pursuant to the agreement, the plaintiff agreed to transfer all of The New Mexican's common stock in exchange for 300,000 shares of Gannett stock then valued at $11,700,000. The parties agreed, however, not to complete the agreement until several related issues could be resolved and all the documents finalized.

The final agreement was executed on February 27, 1976. Among other things, the agreement included a ten-year employment contract between the plaintiff and The New Mexican. 2 The employment agreement provided that the plaintiff was to remain in charge of the business, operations, news, and editorial policies of the newspaper for the first five years of the contract period, and to remain in charge of the news and editorial policies for the second five years.

The arrangement worked well throughout 1976 and early 1977; however, the relationship between the plaintiff and Gannett deteriorated rapidly during the latter part of 1977 and early 1978. The deteriorating relations culminated in the plaintiff's filing of a lawsuit against Gannett and The New Mexican.

The plaintiff initially sued for breach of contract and fraud. He originally sought compensatory damages of $10,000,000, punitive damages of $10,000,000, and restoration of his ownership and control of the newspaper. In his amended complaint, the plaintiff alleged eleven causes of action, including breach of contract, inducement of breach, and conspiracy, seeking rescission, an accounting, compensatory damages relating to the breach, and punitive damages.

Gannett answered denying any wrongdoing and asserting eight affirmative defenses. The New Mexican answered also denying any wrongdoing and asserting twenty-six affirmative defenses. The New Mexican further filed a counterclaim against the plaintiff for breach of the employment contract.

Pretrial motions and rulings made during the course of trial narrowed the plaintiff's causes of action down to breach of contract and fraud. Gannett's and The New Mexican's defenses were reduced to waiver and

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legal excuse for the alleged breaches of contract. Prior to trial, the district court granted the plaintiff partial summary judgment against The New Mexican, finding as a matter of law that an editorial incident constituted a material breach of the employment contract. After fourteen weeks of testimony and arguments but before the case was sent to the jury, the court dismissed The New Mexican's counterclaim.

The jury returned special verdicts in favor of the plaintiff on the five claimed breaches of contract and for Gannett and The New Mexican on the fraud claim. Three days later, the court orally concluded that relief other than rescission would be inadequate and that rescission was not a remedy which a jury could award. Thus, the court concluded that rescission must be considered and, if appropriate, awarded by the court. Subsequently the district court found, inter alia, that its findings and conclusions coincided with the jury's special verdicts, 3 and that the plaintiff was entitled to elect rescission after an accounting. The court entered its final judgment granting the plaintiff an option at his election to rescind the "Agreement and Plan of Reorganization." All parties appealed. This court dismissed the appeals and remanded the case to the district court. 694 F.2d 1240, 1249. We held that "the trial court's judgment, affording McKinney a second right or option to rescind, following our opinion on the merits of these various conflicting claims of trial court error, renders any such opinion advisory in nature." Id. (emphasis in original). Therefore, the judgment termed a "final judgment" was not final for purposes of appeal. See id., at 1247.

On remand the district court conducted hearings on the appropriate remedy. The court ordered the equitable remedy of "tolling" the running of the employment contract for the period from March 28, 1978, (the date Gannett effectively abrogated the plaintiff's contract rights) to the disposition of this lawsuit.


The New Mexican's Counterclaim

We first address the dismissal by the district court of The New Mexican's counterclaim against the plaintiff for his alleged breach of the employment contract and of his fiduciary duties as a director and officer. In the district court's oral rulings, The New Mexican's counterclaim was dismissed because The New Mexican presented no evidence on the question of damages proximately caused by any of the breaches alleged in its counterclaim. In its Memorandum Opinion the district court dismissed the counterclaim for three independent reasons. First, in echoing its oral findings the court dismissed the counterclaim for failure of proof of damages. Second, the district court concluded that the allegations in the counterclaim resembled the affirmative defenses asserted in The New Mexican's answer and thus should be submitted and considered as affirmative defenses by Gannett. Related to this finding was the conclusion that "[t]hose allegations in the counterclaim which were not incorporated into an affirmative defense did not have sufficient support in the evidence or were legally insufficient to support a claim." Third, the district court held that "The New Mexican simply failed in its proof of any of the allegations in its counterclaim which might have entitled it to relief of any kind." On appeal, The New Mexican contends that the district court erred in dismissing its counterclaim at the close of the evidence. We disagree.

In a diversity case, federal courts are bound by Rule 50, Fed.R.Civ.P., in granting a directed verdict. Under the federal standard "a directed verdict is justified 'only if the proof is all one way or so overwhelmingly preponderant in favor of the movant as to permit no other rational conclusion.' " Kiner v. Northcutt, 424 F.2d 222, 223 (10th Cir.1970) (quoting Fisher Construction Co. v. Fireman's Fund Ins. Co., 420 F.2d 271, 275 (10th Cir.1969)). A motion for a directed verdict should be granted cautiously and sparingly. If reasonable men could differ as to the inferences drawn from facts in evidence, a motion for a directed verdict should be denied. See Hidalgo Properties, Inc. v. Wachovia Mortgage Co., 617 F.2d 196, 198 (10th Cir.1980).

The New Mexican cites three incidents where the plaintiff allegedly breached his employment contract or fiduciary duties. The New Mexican alleges that the plaintiff's extended absences from Santa Fe during the period from January 1 to September 1, 1978, detrimentally affected his

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ability to manage the newspaper. The pertinent clause in the employment contract is quite clear:

It is specifically understood, however, that the Employee shall not be required to devote all of...

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