AM Gen. LLC v. Armour

• Decision Date: 16 December 2015
• Docket Number: No. 71S03–1507–PL–407.,71S03–1507–PL–407.
• Parties: AM GENERAL LLC, Appellant (Plaintiff below), v. James A. ARMOUR, Appellee (Defendant below).
• Court: Indiana Supreme Court

46 N.E.3d 436

AM GENERAL LLC, Appellant (Plaintiff below)

v.James A. ARMOUR, Appellee (Defendant below).

No. 71S03–1507–PL–407.

Supreme Court of Indiana.

Dec. 16, 2015.

John D. LaDue, Erin Linder Hanig, LaDue Curran & Kuehn LLC, South Bend, IN, Ronald L. Marmer, Marmer Law Offices LLC, Chicago, IL, Attorneys for Appellant.

James F. Groves, Lee Groves & Zalas, South Bend, IN, Daniel F. Wachtell, Elkan Abramowitz, Thomas M. Keane, Morvillo Abramowitz Grand Iason & Anello P.C., New York, NY, Attorneys for Appellee.

On Petition to Transfer from the Indiana Court of Appeals, No. 71A03–1402–PL–58

DAVID

, Justice.

Today this Court holds that the promissory note in the present case does not satisfy the requirement of “payment” under the disputed employment contract. This issue arose when James Armour's employment contract with AM General entitled him to payment of a long-term incentive plan (LTIP). When Armour retired in early 2012, he was to receive a lump sum LTIP payment on or about January 20, 2012. Instead, Armour started receiving quarterly installment payments in the form of checks, which Armour accepted.

However, in December of 2012, AM General attempted to make the final installment payment with a subordinate promissory note (the Note). The language within the Note provided that acceptance would function to fully release AM General from its obligations under the LTIP provision of the Employment Agreement. It also contained various other conditions on payment and transferability. Armour promptly rejected the Note, requesting full payment. This case reaches us today based upon Armour's claim that the Note did not constitute payment under the Employment Agreement.

We agree. The term “pay” within the Employment Agreement obligated AM General to make the LTIP payment to Armour in cash or a cash equivalent. The Note tendered to Armour was merely a conditional promise to pay and cannot constitute payment where no provision within the Employment Agreement permits payment in the form of a subordinate promissory note. As such, AM General breached the Employment Agreement when it failed to pay Armour the LTIP amounts when due. We affirm the trial court's award of summary judgment in favor of Armour, including the award of pre-judgment interest.

Facts and Procedural History

On November 14, 2007, James Armour entered into an employment contract (Employment Agreement) with AM General, LLC. Under that contract, AM General “shall pay to [Armour]” an annual salary, an annual bonus, and a long-term incentive plan (LTIP). (A230–31, A241.) (emphasis added). Under the Employment Agreement, the LTIP payment was to be made “at the time bonus payments under Section 2(a)(ii) are paid to other employees of [AM General] with respect to the Employer's 2011 fiscal year.” (A242, Tr. Ct. Order at 3.) On or about January 2, 2012, Armour retired as President, CEO, and Chairman of AM General. However, on or about January 20, 2012, when Armour and other AM General employees received their 2011 fiscal year bonuses, Armour did not receive his LTIP payment.

Rather, Armour began receiving his LTIP payment in installment checks. The first payment was made by check dated March 14, 2012. The second payment was made by check dated May 15, 2012. The third payment was made by check dated August 15, 2012. Armour accepted each of the three installment payments. Then, Armour received a promissory note from AM General dated December 14, 2012. The Note promised to pay Armour the remaining amount owed under the LTIP provision of his Employment Agreement. The Note provided, “in accepting delivery of this Note, [the Holder] acknowledges that delivery of this Note satisfies all obligations of the Company under [the LTIP provision] of the Employment Agreement.” (A161.) Full payment of the Note was not due until 2015, the Note was unsecured, transferable only upon certain conditions, and subordinate to other debts owed by AM General.

On December 20, 2012, Armour's attorney responded to the receipt of the Note, and expressly refused to accept the Note as payment under the Employment Agreement. The letter demanded payment of all of the amounts owed to Armour under the Employment Agreement. In response, AM General filed a complaint seeking a declaratory judgment that AM General had not breached the LTIP portion of its Employment Agreement with Armour. AM General expressed its belief that payment via the Note satisfied its obligations under the Employment Agreement and “was in the best interests [sic] of AM General.” (A14.)

Armour counter-claimed, asserting that AM General breached the Employment Agreement when it failed to pay Armour the full LTIP payment when it was due in early 2012. Armour also asserted that AM General's attempt to satisfy its obligation to pay the remaining portion of the LTIP payment with a promissory note breached the duty of good faith and fair dealing. Subsequently, Armour sought summary judgment.

On June 27, 2013, a hearing was held on the summary judgment motion, and the trial court ultimately entered an order in favor of Armour. The trial court concluded that the plain meaning of “pay” or “payment” is “to exchange cash or the cash equivalent for goods or services.” (Tr. Ct. Order at 7.) The trial court concluded that the Note tendered to Armour cannot be construed as cash or its equivalent. As such, AM General breached the Employment Agreement by failing to timely pay the LTIP in cash and by Armour not accepting the Note as a substitute for payment. AM General was ordered to pay the remaining balance owed to Armour, in addition to prejudgment interest calculated from January 20, 2012, through the date of judgment.¹

A split Court of Appeals reversed the trial court, finding a genuine issue of material fact in regards to how “payment” could be made under the LTIP provision of the Employment Agreement. AM General LLC v. Armour, 27 N.E.3d 817, 821 (Ind.Ct.App.2015)

. Chief Judge Vaidik dissented, agreeing with the trial court that the term “pay” within the Employment Agreement required payment to be in the form of cash or its equivalent, and a promissory note cannot satisfy AM General's obligation to pay absent an express agreement. Id. at 821. Chief Judge Vaidik would have affirmed summary judgment in favor of Armour. Id. at 824.

Upon Armour's petition, this Court granted transfer, thereby vacating the opinion of the Court of Appeals. Appellate Rule 58(A)

; AM General LLC v. Armour, 34 N.E.3d 250 (Ind.2015) (Table). We now affirm the grant of summary judgment in favor of Armour and hold that the Note, as a matter of law, did not constitute payment under the Employment Agreement. As such, AM General breached its Employment Agreement with Armour. We also decline to find any genuine issue of material fact in relation to the calculation of pre-judgment interest and affirm the trial court's award of pre-judgment interest.

Standard of Review

Orders for summary judgment are reviewed de novo, and require this Court to apply the same standard of review that is applied by the trial court. Indiana Restorative Dentistry, P.C. v. Laven Ins. Agency, Inc., 27 N.E.3d 260, 264 (Ind.2015)

(citing Hughley v. State, 15 N.E.3d 1000, 1003 (Ind.2014) ). The movant must demonstrate that “the designated evidence raises no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law.” Id. Upon this showing, the nonmoving party then has the burden to demonstrate that there is a genuine issue of material fact. Id. All reasonable inferences will be construed in favor of the nonmoving party. Id.

Discussion

In the present case, Armour and AM General dispute whether the term “pay” within the Employment Agreement is ambiguous, and whether an ambiguity in relation to the acceptable form of payment requires consideration of extrinsic evidence. Alternatively, AM General asserts that even if payment, as a matter of law, means cash or its equivalent, the designated evidence creates a genuine issue of fact that the Note tendered to Armour is a cash equivalent, and payment via the Note satisfied AM General's obligation to pay the remaining LTIP amount under the Employment Agreement.

In the present case, the rules of contract construction govern the resolution of the disputed issue. The primary rule of construction first requires giving the words of the contract their plain and ordinary meaning. Ryan v. Ryan, 972 N.E.2d 359, 364 (Ind.2012)

(citation omitted). “Clear and unambiguous terms in the contract are deemed conclusive, and when they are present we will not construe or look to extrinsic evidence, but will merely apply the contractual provisions.” Id.

Under Indiana precedent, the term “pay” or “payment” has a plain legal meaning that can be applied in the present case. As such, we conclude that under the Employment Agreement, AM General was required to make the LTIP payments in cash or its equivalent. Because our analysis also demonstrates that the promissory Note tendered to, but rejected by, Armour was not the equivalent to a cash payment, AM General breached the Employment Agreement and Armour was entitled to summary judgment. Furthermore, the trial court did not err by ordering pre-judgment interest to be calculated from the date payment was due under the Employment Agreement.

I. Payment Due Under the Employment Agreement

Armour argues that the form of payment due under the Employment Agreement presents a question of law, not fact. Moreover, Armour contends that no genuine issue of material fact was created based upon an affidavit submitted by the Vice President of Human Resources at AM General, which provided that, “unlike bonus payments, which the contract expressly stated must be paid in cash, the contract did not address the issue of how LTIP payments were to be made.” (Pet Tr. at 6

–7 ; App. at 224.) AM General contends, among other things, that because the form of payment was not specified in the Employment Agreement, the term “pay” was...