McMahon v. Pennsylvania Life Ins. Co.

Citation891 F.2d 1251
Decision Date12 December 1989
Docket NumberNos. 88-3463,89-1007,s. 88-3463
Parties116 Lab.Cas. P 56,339 Gordon W. McMAHON, Plaintiff-Appellant Cross-Appellee, v. PENNSYLVANIA LIFE INSURANCE COMPANY, Defendant-Appellee Cross-Appellant, and Stanley Beyer, Kenneth Opstein, Gerald Weiner, Timothy C. McKinney, Rodney Mitchell and James W. Henry, Defendants-Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)

Joseph Owens (argued), Pangman & Associates, Waukesha, Wis., for plaintiff-appellant cross-appellee.

Michael H. Auen (argued), Gordon Davenport, III (argued), Foley & Lardner, Madison, Wis., for defendants-appellees.

Before EASTERBROOK and MANION, Circuit Judges, and GRANT, Senior District Judge. *

MANION, Circuit Judge.

Gordon McMahon, a former agent and agency manager for Pennsylvania Life Insurance Company (Penn Life), was fired in 1982. He sued Penn Life in 1988 under several causes of action. Only one count--breach of implied contract--made it to trial. The jury found that Penn Life had good cause to fire McMahon. However, the jury also found that Penn Life violated the implied contractual covenant of good faith and fair dealing, and awarded McMahon $43,923 in damages.

McMahon appeals the district court's grant of summary judgment for Penn Life on breach of fiduciary duty and conspiracy to defraud counts, and its refusal to allow presentation of evidence on consequential damages. Penn Life cross-appeals the judgment for McMahon.

We affirm the district court's summary judgment and evidentiary rulings for Penn Life and reverse the judgment for McMahon because the cause of action on which the jury hinged liability is barred by the applicable statute of limitations.

I. BACKGROUND

Pennsylvania Life Insurance Company is a corporation selling various kinds of insurance, primarily life and disability. Penn Life promotes itself by emphasizing commitment to employees. Salesmen are recruited and motivated by a marketing theme describing employees as "partners" in the company's growth and success.

Penn Life hired McMahon as a salesman (agent) in 1967 to work on a commission basis in Madison, Wisconsin. He progressed through several management positions and became a district manager in Ontario, Canada in 1971. Three years later McMahon became a "participating manager" pursuant to a written contract called an "agency manager's agreement." The contract provided for McMahon to be paid a $500.00 salary per month, while receiving a percentage of any profits. 1 One provision of the employment contract governed termination This Agreement shall terminate automatically upon the occurrence of any of the following conditions: death, termination of insurance license, total disability of the Agency Manager, the termination of the right of the Company to do business in the Province of Ontario, Dominion of Canada. Otherwise, termination of this Agreement shall be effected by means of registered mail-return receipt requested, to the last known address of the party to this Agreement.

Trial testimony revealed that sales by McMahon's Ontario office declined substantially in the years prior to his termination. Sales of new policies fell from more than $700,000 in 1976 to less than $200,000 in 1981, while the sales force diminished from 26 agents in 1977 to 10 in 1981. McMahon's superiors at Penn Life testified that McMahon became increasingly uncooperative and unwilling to follow their directions or heed their warnings.

McMahon received written notice of termination, effective February 4, 1982. McMahon contractually was entitled to post-termination commissions from renewal premiums. He has received and continues to receive these renewal premiums. Because McMahon's commissions were not subject to overhead costs and expenses post-termination, his income actually increased in the years following his dismissal. In 1981, his last full year of work, McMahon earned approximately $40,000 from profit participation. After termination, his profit participation--based on renewals without deductions for office and other expenses--increased to $69,000 in 1982, then gradually declined to $58,000 in 1983, $53,000 in 1984, $47,000 in 1985 and $41,000 in 1986. McMahon continues to receive renewal profits.

McMahon sued Penn Life and six individual defendants on six counts: 1) breach of express contract; 2) breach of implied contract; 3) promissory estoppel; 4) breach of fiduciary duty; 5) conspiracy to defraud; and 6) civil RICO. McMahon agreed to dismiss all the individual defendants as lacking the required minimum contacts with the state of Wisconsin. He further agreed to dismiss the sixth cause of action (civil RICO) as untimely following the Supreme Court's decision regarding civil RICO statutes of limitations in Agency Holding Corp. v. Malley-Duff & Associates, Inc., 483 U.S. 143, 107 S.Ct. 2759, 97 L.Ed.2d 121 (1987) (four-year statute of limitations applicable to Clayton Act civil enforcement actions applies in RICO civil enforcement action). The district court dismissed the fourth cause of action (breach of fiduciary duty) due to expiration of Wisconsin's two-year statute of limitations.

The district court granted summary judgment for Penn Life on the first (breach of express contract), third (promissory estoppel), and fifth (conspiracy to defraud) causes of action. McMahon does not appeal dismissal of the first and third counts.

The case proceeded to trial on the sole remaining count, breach of implied contract. The district court concluded that this count presented two claims under California law: 2 1) breach of an implied agreement to terminate only for cause; and 2) breach of the implied covenant of good faith and fair dealing. The jury found first that, although there was an implied agreement to terminate only for good cause, Penn Life had good cause to terminate McMahon. However, the jury also found that Penn Life violated the implied covenant of good faith and fair dealing, and awarded $43,923 in damages. The district court did not allow the jury to consider potential consequential damages.

II. McMAHON'S APPEAL
A. Partnership

McMahon argues that the "core issue on appeal is whether the contractual relationship constituted a partnership business venture, or whether it was purely one of employee-employer." McMahon claims a partnership existed between McMahon and Penn Life that created obligations for Penn Life above and beyond the terms of the employment contract. Thus McMahon appeals the district court's dismissal of the breach of fiduciary duty count and grant of summary judgment for Penn Life on the conspiracy to defraud count, alleging that the district court wrongly failed to consider these claims under the law of partnership.

The district court rejected the partnership argument, holding that even if a partnership claim were properly alleged in the pleadings, 3 and even if a partnership existed, McMahon's recovery would be no greater than under a breach of employment contract theory. We agree with the district court that the existence of a partnership could not possibly lead to a greater recovery for McMahon, because recovery is limited by the terms of the agency manager's agreement.

McMahon sought without success to have the district court look at his relationship with Penn Life as a partnership, "rather than as one between an employee and his employer." 4 He assumes that by casting the relationship in that light, he will be entitled to a portion of the "going concern" and the future profits of Penn Life's Ontario office. But partnerships are bound, just like terms of employment, by the written contracts that give them birth. 59A Am.Jur.2d §§ 1, 96. Mursor Builders v. Crown Mountain Apt. Assoc., 467 F.Supp. 1316, 1332 (D.V.I.1978), Adams v. United States, 328 F.Supp. 228, 230 (D.Neb.1971). And the agency manager's agreement in this case does not provide for McMahon to recover anything other than what he has received and continues to receive--a share of the renewal premiums on policies written during his tenure as agency manager.

The relevant portions of the agency manager's agreement provide:

The Agency Manager's proportional share of the Agency profits shall be vested in him even if he is permanently and totally disabled, or after his death in his heirs and assigns, so long as the Agency Manager remains in compliance with [various terms and conditions of the agreement]....

It is understood that all of the insurance business transacted in the territory shall be considered business of the Company ...

The "Agency Manager's proportional share of the Agency profits" was determined according to a "Profit Distribution Formula" (emphasis added):

(1) For the purpose only of determining the distribution of profits payable to the Agency Manager under the contract of which this is a part, the following formula shall apply:

(a) There shall be allocated to the agency certain commissions, first year and renewal, from the gross premiums actually received by the Company on business produced by the agency

....

(b) There shall be deducted from all such commissions allocated to the agency the following:

(1) All salaries, commissions, overwriting fees, service fees and the like, first year and renewal, payable [to all employees]....

(2) All expenses and overhead of the agency....

(c) After all of the aforesaid computations have been made, the Agency Manager shall receive thirty percent (30%) of the resulting profits....

The contract is quite specific in describing the compensation to which McMahon is entitled. This incentive-based, profit-sharing agreement makes clear that McMahon receives, and has vested in him after termination, only the "Agency Manager's proportional share" of profits. The "Profit Distribution Formula" indisputably was the formula used to determine McMahon's share of the agency profits, and therefore also governs his share of renewal profits from policies sold during his tenure as...

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