Automatic Sprinkler Corp. of America v. Anderson

• Decision Date: 02 July 1979
• Docket Number: No. 34337,34337
• Citation: 243 Ga. 867,257 S.E.2d 283
• Parties: AUTOMATIC SPRINKLER CORPORATION OF AMERICA v. ANDERSON.
• Court: Georgia Supreme Court

Page 283

257 S.E.2d 283

243 Ga. 867

AUTOMATIC SPRINKLER CORPORATION OF AMERICA v. ANDERSON.

No. 34337.

Supreme Court of Georgia.

Argued Feb. 19, 1979.

Decided July 2, 1979.

Rogers & Hardin, Richard H. Sinkfield, Atlanta, for appellant.

Frank E. Stevenson, Jr., Edward H. Kellogg, Jr., Tucker, for appellee.

JORDAN, Justice.

A writ of certiorari was granted in Anderson v. Automatic Sprinkler Corp., 147 Ga.App. 236, 248 S.E.2d 507 (1978), to review the question of whether good faith is a prerequisite in the exercise of an absolute discretion to withhold incentive compensation.

Respondent, Hugh B. Anderson, a sales representative for petitioner, Automatic Sprinkler Corporation of America, voluntarily terminated his employment and sued claiming appellee owed him specific amounts of both deferred and non-deferred incentive compensation under the company's compensation plan. The trial court granted petitioner's motion for summary judgment as to Anderson's claim for deferred incentive compensation. The Court of Appeals reversed that grant holding that petitioner had failed to carry its summary judgment burden of showing conclusively that its decision not to pay Anderson was a good faith exercise of the discretion it possessed under the parties' employment contract. Anderson's claim for non-deferred incentive compensation remains pending below.

While a more inclusive description of this contract can be found in the opinion of the Court of Appeals, it provided in pertinent part: "The award of any direct incentive is entirely within the discretion of the corporation and nothing contained herein will be construed to the contrary . . . With respect to those representatives whose employment with the corporation is terminated (for reasons other than their disability or retirement), the payment or nonpayment of all or any direct incentive installments previously set aside but unpaid to them at the time of their termination, will rest completely in the absolute and final discretion of the Compensation Committee of the Board of Directors."

Anderson claimed he "thoroughly" read this compensation plan before signing it. After Anderson terminated his employment, the Compensation Committee of the Board of Directors summarily rejected his request for the incentive compensation earned on sales he undisputedly made before his departure from the company. The record before us reveals no basis for the committee's decision.

The Court of Appeals held that, since Automatic Sprinkler Corporation introduced no evidence indicating a reason for its decision, it thus failed to carry the summary judgment burden of proving conclusively that it was entitled to judgment in its favor. Citing State Hwy. Dept. v. MacDougald Const. Co., 189 Ga. 490, 6 S.E.2d 570 (1939) and Jones v. Vulcan Materials Co., 112 Ga.App. 402, 145 S.E.2d 268 (1965), the court held that petitioner's "failure to exercise an honest judgment" or its "abuse of discretion or failure to use discretion," if proved, would render immaterial the contractual provisions vesting discretion with petitioner. We find this conclusion erroneous and reverse.

The Court of Appeals correctly applied the 1939 holding of this court in State Hwy. Dept. v. MacDougald Const. Co., supra, in subsequent litigation between these same parties in 1965. In MacDougald Const. Co. v. State Hwy. Dept., 125 Ga.App. 591, 593, 188 S.E.2d 405, 406 (1965), the court recognized "the time honored rule that where a decision is left to the discretion of a designated entity, the question is not whether it was in fact erroneous, but whether it was in bad faith, arbitrary or capricious so...