Dykes v. DePuy, Inc.

CourtUnited States Courts of Appeals. United States Court of Appeals (1st Circuit)
Citation140 F.3d 31
Docket NumberNo. 97-1592,97-1592
Parties73 Empl. Prac. Dec. P 45,362, 8 A.D. Cases 213, 12 NDLR P 95, Pens. Plan Guide (CCH) P 23942G, Pens. Plan Guide (CCH) P 25,284 Jim DYKES, Plaintiff, Appellant, v. DEPUY, INC., Defendant, Appellee. . Heard
Decision Date04 September 1997

Page 31

140 F.3d 31
73 Empl. Prac. Dec. P 45,362, 8 A.D. Cases
213, 12 NDLR P 95,
Pens. Plan Guide (CCH) P 23942G,
Pens. Plan Guide (CCH) P 25,284
Jim DYKES, Plaintiff, Appellant,
DEPUY, INC., Defendant, Appellee.
No. 97-1592.
United States Court of Appeals,
First Circuit.
Heard Sept. 4, 1997.
Decided April 3, 1998.

Page 33

David C. Casey, Boston, MA, with whom Michael G. Donovan and Peckham, Lobel, Casey, Prince & Tye, were on brief, for appellant.

Donald E. Knebel, Indianapolis, IN, with whom Dwight D. Lueck and Barnes & Thornburg, were on brief, for appellee.

Before STAHL, Circuit Judge, CAMPBELL and BOWNES, Senior Circuit Judges.

CAMPBELL, Senior Circuit Judge.

This appeal arises from the district court's grant of summary judgment in favor of defendant-appellee DePuy, Inc. ("DePuy") on six counts of an eleven-count amended complaint brought against DePuy by plaintiff-appellant Jim Dykes. In 1994, DePuy terminated Dykes and his firm from continuing to act as its New England sales representative. Dykes had, by then, represented DePuy in one or another capacity for over sixteen years. When terminated, Dykes was still four years away from possible qualification under DePuy's "Compensation Upon Termination" program, which would have allowed him to claim a substantial annual income for ten years. He sued DePuy alleging federal claims under ERISA and the ADA, and state claims, including bad faith termination. In awarding summary judgment to DePuy, the district court concluded, inter alia, that Dykes was an independent contractor, hence barred from suing under ERISA and the ADA. The court further rejected his state-law claims for bad faith termination. The court also refused to allow Dykes to engage in further discovery. We affirm.


Because this case comes to us after a grant of summary judgment, we state the facts in the light most favorable to the nonmoving party, indulging all inferences in that party's favor. See Ortiz-Pinero v. Rivera-Arroyo, 84 F.3d 7, 11 (1st Cir.1996).

DePuy is an Indiana-based company that manufactures orthopedic products. During the time period relevant to this action, DePuy marketed its products via a network of "sales representatives," each of which was responsible for sales within an assigned territory. Sales representatives, in turn, hired "sales associates" to help them conduct business.

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In 1977, Dykes was hired as a sales associate by DePuy-Morse, a sales representative of DePuy located in South Easton, Massachusetts. Dykes held that position until 1981, when he was hired as a sales associate by Ron Wood of Wood-Yates, a sales representative of DePuy located in Cheshire, Connecticut. Dykes performed extremely well as a sales associate; he was named Sales Associate of the Year in 1986.

In 1988, when Dykes learned that Ron Wood planned on retiring, Dykes formed Health Systems, Inc. ("Health Systems"). On July 1, 1988, Health Systems, Dykes, and DePuy entered into a Sales Representative Agreement ("SRA"). According to the SRA, Health Systems was the "Representative," defined as the "exclusive Sales Representative for all products sold by DePuy," and Dykes was the "Principal," meaning that he was the "owner of all or substantially all of the outstanding shares of Representative."

The SRA not only set out the terms under which the parties would conduct business but also undertook to define the legal relationship between the parties. Thus, it expressly declared that the Representative was an independent contractor and that the persons hired by the Representative were not employees or independent contractors of DePuy itself. The SRA gave the Representative discretion regarding the time and manner of making sales calls and the responsibility for paying taxes, unemployment compensation, workers' compensation, and insurance premiums. The SRA lasted for one year and renewed automatically "unless terminated by either party giving at least 90 days' notice prior to the end of the initial period or any renewal period." The SRA did not require "good cause" termination or place any other limitation on the parties' ability to sever their relationship.

Pursuant to the SRA, DePuy offered a "Compensation Upon Termination" program to its sales representatives. Under this program, Dykes would receive substantial compensation on an annual basis for a period of ten years after the termination of the SRA if, and only if, he satisfied certain conditions precedent. In order to qualify, Dykes had to work at least fifteen years as a sales representative, or a combination of twenty years as a sales representative and sales associate, with at least ten years as a sales representative. In addition, Dykes had to sell a certain volume of DePuy's products in the year before the termination of the SRA. The SRA expressly provided that the Compensation Upon Termination program,

shall not restrict the right of DePuy to terminate Representative or restrict the right of Representative to terminate its relationship with DePuy. If that relationship is terminated before Representative and Principal have met the conditions precedent ..., Representative and Principal will have no rights under this Agreement.

According to Dykes, DePuy frequently promoted the Compensation Upon Termination program to maintain the sales representatives' loyalty and to ensure their longevity with the company.

As a DePuy sales representative, Health Systems was responsible for selling DePuy's products in "DePuy New England," a territory defined by DePuy that included Maine, Vermont, most of New Hampshire, Connecticut, and portions of Massachusetts. As the Principal of Health Systems, Dykes had a great deal of autonomy. For example, he himself decided how much compensation he would receive. DePuy never asked Dykes how many hours he worked and Dykes could take a vacation without notifying DePuy. Dykes could not recall sending DePuy any information on Health Systems's expenses or profits. DePuy provided an educational allowance to enable representatives to conduct seminars in their territory and a "bonus commission program" designed to help representatives buy medical instruments and hire sales associates, but Dykes could choose whether to avail himself of these benefits.

Dykes also controlled the day-to-day operation of Health Systems. He hired and established salaries for his office staff without consulting DePuy. He hired and paid his wife to assist him with Health Systems's business. Dykes fired at least one sales associate without DePuy's prior knowledge. Commissions on the sales made by Dykes's sales associates were paid by DePuy at first to Dykes, and then to Health Systems. DePuy

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reported this income on Form 1099s, not W-2s, and did not withhold taxes. In turn, Dykes paid each of his sales associates a commission agreed upon between Dykes and the individual associate. Dykes also did not withhold taxes from the commission checks, opting rather to send Form 1099s to the sales associates at the end of the year. Dykes does not recall sending DePuy any information on how much he paid his sales associates.

Under the terms of the SRA, Health Systems was responsible for providing health insurance for Dykes, the sales associates and office staff. DePuy recommended a particular health insurance provider and urged its sales representatives to use that provider. Health Systems used that provider for a while, but later switched carriers to obtain a cheaper premium rate. DePuy raised no objection to the change.

Health Systems was solely responsible for its business accommodations. It paid rent on and maintained its own office space. It also paid for its office furniture and supplies.

Despite the fact that Dykes was, in many ways, running his own business, DePuy maintained some control over Health Systems. A clause in the SRA required Dykes to devote all of his professional efforts toward promoting only DePuy's products unless he obtained express written consent from DePuy. The SRA also stated that "Representative and Principal shall be guided by the DePuy Sales Policy Manual and other DePuy policies that are made known to Representative." DePuy generated marketing materials that Representatives were required to use. DePuy's Sales Advisory Committee produced directives containing advice on how to sell DePuy's products that it distributed to sales representatives. In addition, all customer billing was processed through DePuy's headquarters in Indiana.

Dykes and Health Systems were successful at selling DePuy's products. From July 1988 through December 1993, sales in DePuy New England grew over twenty-six percent, eight percent above DePuy's national average, and the territory's market share rose from two percent to five-and-a-half percent. In 1991, Dykes received additional territory from DePuy and entered into a new SRA, which contained similar terms to the 1988 agreement.

Despite this success, DePuy timely notified Dykes that his SRA would terminate on April 1, 1994. At the time of termination, Dykes had sold DePuy's products for over sixteen years and was four years away from qualifying for the Compensation Upon Termination program. Dykes alleges that DePuy terminated his SRA in order to prevent him from collecting his benefits. To support this assertion, Dykes introduced affidavits from several former sales representatives, including one who stated that DePuy's CEO had declared that "DePuy's sales representatives did not deserve their retirement compensation and that he would see that they did not get it." 1 Dykes has discovered that at least twenty-nine out of forty-four sales representatives were terminated prior to vesting.

After DePuy terminated its SRA with Dykes and Health Systems, Dykes became a sales associate on a month-to-month basis. During his first month under this new arrangement, Dykes was diagnosed with cancer and underwent related surgery. On May 12, Dykes informed DePuy...

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