Bernoudy v. Dura-Bond Concrete Restoration, Inc.

• Decision Date: 13 November 1987
• Docket Number: No. 86-1986,DURA-BOND,86-1986
• Citation: 828 F.2d 1316
• Parties: 107 Lab.Cas. P 55,841 David A. BERNOUDY, Nancy V. Bernoudy, Appellees, v.CONCRETE RESTORATION, INC.; Ernest L. Alexander; Lee Popovich, Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1316

828 F.2d 1316

107 Lab.Cas. P 55,841

David A. BERNOUDY, Nancy V. Bernoudy, Appellees, v. DURA-BOND CONCRETE RESTORATION, INC.; Ernest L. Alexander Lee Popovich, Appellants.

No. 86-1986.

United States Court of Appeals Eighth Circuit.

Submitted April 15, 1987.

Decided Sept. 16, 1987.

Rehearing and Rehearing En Banc Denied Nov. 13, 1987.

Theodore J. MacDonald, Jr., Edwardsville, Ill., for appellants.

Martin M. Green, Clayton, Mo., for appellees.

Before LAY, Chief Judge, and ARNOLD and WOLLMAN, Circuit Judges.

WOLLMAN, Circuit Judge.

David and Nancy Bernoudy brought suit against their former employer, Dura-Bond Concrete Restoration, Inc. (Dura-Bond), and its two principal officers, Ernest L. Alexander and Lee Popovich, alleging breach of contract, wrongful discharge and common law fraud when their employment with Dura-Bond was terminated after eight months. The jury found in favor of the Bernoudys on the fraud count and awarded actual damages against Dura-Bond and punitive damages against Alexander and Popovich. Defendants argue on appeal that the district court erred in allowing the Bernoudys to maintain a tort action for fraud arising out of an alleged breach of an at-will employment contract. Defendants assert that under Missouri law an independent tort claim arising from a breach of contract may be maintained only where the injured party can establish a breach of duty by the employer that is exclusively incidental to the contract. Defendants claim no such incidental duty was established by the Bernoudys. Alternatively, defendants argue that the Bernoudys failed to establish a prima facie case of fraud. Defendants further assert that the district court erred in excluding mitigating evidence of the Bernoudys' future earnings potential and that the award of punitive damages against Alexander and Popovich was improper since the jury awarded no actual damages against either individual. We affirm in part, reverse in part, and remand.

I. BACKGROUND

In 1981 the Bernoudys started a concrete restoration business in St. Louis, Missouri, named Epoxy Applicators (Epoxy). Epoxy's primary market was the residential market, focusing on relieving a homeowner's nightmare, a leaky basement. Through a business venture, David Bernoudy met Lee Popovich, the vice president and general manager of Dura-Bond, an industrial and commercial concrete restoration business. Because of their mutual business interests, Popovich and Bernoudy became friends; Popovich helped Bernoudy in his new business by teaching him the tricks of the trade.

In September of 1984 Epoxy and Dura-Bond entered into a joint business venture. After the successful completion of this project, Bernoudy and Popovich began discussing the idea of Dura-Bond acquiring Epoxy and having Bernoudy open a Dura-Bond sales office in St. Louis. Popovich stated that he was very impressed with David Bernoudy's job performance and was interested in having Bernoudy be a part of Dura-Bond. On November 20, 1984, Nancy and David Bernoudy met with Popovich and Ernest Alexander, the president and chief executive officer of Dura-Bond, to discuss just such a possibility. At the meeting Alexander discussed with the Bernoudys the purchase of Epoxy, their future job descriptions, wages, and Dura-Bond's vacation policy. It is from the discussion of Dura-Bond's vacation policy that the present dispute arises.

At trial, all parties agreed that Alexander explained to the Bernoudys Dura-Bond's vacation policy, i.e., one week after one year of employment, two weeks after two years, and three weeks after eight years. The Bernoudys, however, testified that Alexander went beyond merely stating the policy. Nancy Bernoudy testified that at the point the vacation policy was discussed Alexander turned to her and David Bernoudy and said, "And, of course, you will be employed for not less than eight years." She then testified that at this point Lee Popovich nodded his head in agreement and that they (the Bernoudys) said "yes." David Bernoudy's testimony was essentially the same as his wife's on this point. During the remainder of the meeting, other terms of the offer were discussed, but all of the parties agree that after this point no one again mentioned duration of employment. Both Alexander and Popovich denied at trial that Alexander ever told the Bernoudys that they would be employed for not less than eight years.

The Bernoudys began their employment with Dura-Bond on January 1, 1985. Eight months later they were fired due to alleged inadequate job performance. The Bernoudys thereafter brought suit in district court alleging breach of contract, wrongful discharge, and fraud. The jury returned verdicts in favor of defendants on the breach of contract and wrongful discharge counts but awarded the Bernoudys $120,000 each in actual damages against Dura-Bond and $15,000 each in punitive damages against both Popovich and Alexander.

II. ANALYSIS

Defendants first argue that this court's decision in Deschler v. Brown &amp Williamson Tobacco Co., 797 F.2d 695 (8th Cir.1986), precludes the Bernoudys from maintaining their fraud action. In Deschler this court held that under Missouri law "an at-will employee may not bring a wrongful discharge action sounding in tort," unless the duty breached is exclusively incidental to the contract. Deschler, 797 F.2d at 697. Defendants contend that since the Bernoudys were at-will employees and have not established that one of the defendants breached a duty incidental to their employment contract, their fraud action should be dismissed. We do not agree.

Deschler is factually inapposite to the present case. In Deschler, plaintiff executed a written employment agreement with his employer. The agreement specifically provided that it was to be an at-will contract, terminable at any time by either of the parties. After plaintiff was fired he brought suit alleging that his employer had orally promised upon signing the contract that "he would have a job for life as long as he was honest, loyal, and industrious." Deschler, 797 F.2d at 696. The plaintiff asserted that in reliance on these oral statements he had performed his job competently and rejected other job offers. This court affirmed the district court's dismissal of the tort count. The court stated that plaintiff's claim of fraudulent misrepresentation arose out of the contract claim and alleged no breach of an independent duty incidental to the contract. Deschler, 797 F.2d at 697. It amounted "merely to a restatement of his contract claim," and therefore was without merit. Id.

The claimed fraud in Deschler was the employer's misrepresentations of the duration term of the agreement to plaintiff. Plaintiff, although he signed an at-will contract, believed that he was signing a lifetime employment contract. The employer allegedly misrepresented what plaintiff was actually signing. The fraud was therefore intimately related to the actual agreement and consequently arose from the breach of the contract.

In General Dynamics v. Selb Mfg Co., 481 F.2d 1204 (8th Cir.1973), cert. denied, 414 U.S. 1162, 94 S.Ct. 926, 39 L.Ed.2d 116 (1974), upon which the Deschler court relied, the court made clear that under Missouri law only when the tort action arises from the breach of contract is a plaintiff precluded from maintaining a breach of contract and a tort action against his employer. See Dake v. Tuell, 687 S.W.2d 191 (Mo.1985) (en banc). ¹ Under Missouri law "a tort action arising from a breach of contract may be brought only if the duty owed is superimposed by operation of law as an incident of the relationship between the parties rather than the contract." (Emphasis added.) General Dynamic Corp., 481 F.2d at 1216.

The Bernoudys alleged that as an inducement to work for Dura-Bond and prior to any agreement, Dura-Bond made false representations which it never intended to keep and which they relied on to their detriment. Dura-Bond did not, as did defendant in Deschler, misrepresent to the Bernoudys what the terms of the written contract were; rather, it induced the Bernoudys to leave their old positions by fraudulently misrepresenting what the Dura-Bond--Bernoudy relationship would encompass. The fraud, therefore, does not arise out of the contract; it arises out of the negotiations prior to the employment agreement.

The fraud count,...