Ed DeWitte Ins. Agency, Inc. v. Fin. Assocs. Midwest, Inc.

• Decision Date: 16 December 2016
• Docket Number: No. 115,126,115,126
• Citation: 388 P.3d 156
• Parties: Ed DeWitte Insurance Agency, Inc., et al., Appellants, v. Financial Associates Midwest, Inc., et al., Appellees.
• Court: Kansas Court of Appeals

388 P.3d 156

Ed DeWitte Insurance Agency, Inc., et al., Appellants,

v.Financial Associates Midwest, Inc., et al., Appellees.

No. 115,126

Court of Appeals of Kansas.

Opinion filed December 16, 2016

Michael L. Blumenthal, Walter M. Brown, and Kevin J. Karpin, of Seyferth Blumenthal & Harris LLC, of Kansas City, Missouri, for appellants.

William S. Robbins, Jr., and Christopher L. Johnson, of Polsinelli PC, of Kansas City, Missouri, for appellees.

Before Schroeder, P.J., Leben and Gardner, JJ.

Leben, J.:

Beginning in the 1980s, Edward DeWitte, Leonard Filley, and Barbara Meador worked for Financial Associates Midwest, Inc., recruiting and managing agents who sold health-insurance policies, including Blue Cross Blue Shield of Kansas City policies. In 1994, Blue Cross and Financial Associates entered an administrative-services agreement under which Blue Cross paid an override fee to Financial Associates—2% of all insurance premiums that Blue Cross collected on policies sold by Financial Associates agents. The owner of Financial Associates then promised to pay DeWitte, Filley, and Meador half of that override fee in exchange for their managerial work. According to DeWitte, Filley, and Meador, Financial Associates also promised to pay that 1% override fee as a "vested renewal commission," meaning they would continue receiving the payments even after they didn't work for Financial Services anymore.

Blue Cross bought Financial Associates in late 2011, and in September 2012, Financial Associates offered DeWitte, Filley, and Meador new employment terms, which they turned down. They no longer work for Financial Associates, and Financial Associates has stopped paying them the 1% override, which they have alleged is a breach of their employment contract. The district court disagreed and granted summary judgment for Financial Associates.

On appeal, DeWitte, Filley, and Meador first argue that Financial Associates owes them the 1% override payments under the terms of their written area-manager contracts. But the language of those contracts clearly and unambiguously only governs compensation for the direct sale of insurance policies; it doesn't use the term "override" or mention any managerial responsibilities or compensation. The evidence shows that an override fee is not the same as a commission, and the contracts only govern commissions.

Next, DeWitte, Filley, and Meador argue that even if we find that the override agreement wasn't part of the written contracts, it's an enforceable oral agreement. But under the Kansas statute of frauds, contracts that can't be performed in less than 1 year are only enforceable if they are in writing. Here, the override payments are linked to and calculated based on insurance premiums Blue Cross collects on renewed insurance policies originally sold by Financial Associates agents. Since insurance policies are annual, renewed only after a full year, the oral agreement can't be performed in less than 1 year.

DeWitte, Filley, and Meador next argue that we should enforce the agreement anyway because they have fully performed under the oral agreement, and full performance is an exception to the writing requirement of the statute of frauds. It's true that DeWitte, Filley, and Meador did fully perform while they worked for Financial Associates, and they claim that they are entitled to the 1% override without doing any additional work. But the full-performance exception only applies when the only thing left under the contract is for Financial Associates to pay DeWitte, Filley, and Meador, and here, something else needs to occur—the policyholders have to decide to renew their policies to create the premiums from which the override is calculated. Different states have answered this question differently, and Kansas courts haven't considered this question before, but we find that under these circumstances, the full-performance exception doesn't apply because Financial Associates' performance depends on the decisions of independent third parties.

So Financial Associates didn't breach any contracts with DeWitte, Filley, and Meador, and we affirm the district court's judgment.

FACTUAL AND PROCEDURAL BACKGROUND

This case comes to us after the district court granted the defendants' motion for summary judgment; the facts aren't substantially in dispute.

In 1976, Charles Stumpf founded Financial Associates (now doing business as Canopy, Inc.), a company that sold health-insurance policies through a network of independent agents. In the 1980s, as the company grew, Stumpf hired DeWitte, Filley, and Meador—the plaintiffs in this case—as area managers, and they each signed an area-manager contract.

As area managers, DeWitte, Filley, and Meador focused on recruiting, training, and supporting Financial Associates' agents, who sold insurance policies; they sold very few policies themselves. Stumpf assigned the agents to DeWitte, Filley, and Meador, who supervised the agents, answered questions, and provided administrative support for them.

As is traditional in the insurance industry, the agents were paid on commission for selling insurance policies—when an agent sold a policy, the insurance carrier paid the agent a percentage of that policy's premium. And every time that policy was renewed, the agent would receive another commission. Under their contracts, the renewal commissions were "vested," meaning the agents would receive these renewal commissions even if they no longer worked for Financial Associates.

Financial Associates first started doing business with Blue Cross in the early 1990s. In 1994, because Financial Associates was selling so many Blue Cross policies, it became a "Blue Chip" agency for Blue Cross. This meant that Blue Cross began paying Financial Associates an administrative-services fee to subsidize some of its administrative costs. This fee—2% of all the Blue Cross premiums on policies that had been sold by Financial Associates agents—was called an "override," and it was governed by an administrative-services agreement between Blue Cross and Financial Associates that was renewed annually.

Around the same time (after DeWitte, Filley, and Meador had worked at Financial Associates for between 6 and 12 years), Stumpf agreed that Financial Associates would pay DeWitte, Filley, and Meador half of the Blue Cross administrative-services fee—a 1% override—in exchange for their work as area managers. And for around 20 years, Financial Associates regularly did that.

Stumpf also orally agreed to pay DeWitte, Filley, and Meador this 1% override as a "vested renewal commission"—in other words, they would continue receiving the override payment even after they weren't employed by Financial Associates anymore, until the Blue Cross policies sold by agents they had supervised were no longer renewed.

But soon after Stumpf sold Financial Associates to Blue Cross, Blue Cross decided to stop paying Financial Associates the 2% override fee. (At oral argument, the parties indicated that Blue Cross actually continued making the payment. In the summary-judgment motion in the district court, the defendants alleged that Blue Cross decided in June 2012 to stop making the payment; the plaintiffs admitted that allegation.)

Financial Associates continued paying the 1% override to DeWitte, Filley, and Meador for a few more months. Then, Financial Associates—owned by Blue Cross—offered them new employment terms of a set salary plus bonus potential, but they had to release their alleged rights to the 1% override. Meador and DeWitte rejected the offer, and their employment was terminated. Filley had retired (after the sale to Blue Cross but before Financial Associates quit paying the override payments), and Financial Associates also offered him the new employment terms, even though he was retired. He also declined. At the time of their separation from Financial Associates, DeWitte, Filley, and Meador were each making between $12,000 and $20,000 per month, exclusively from the 1% override payments.

After leaving Financial Associates, DeWitte, Filley, and Meador filed this lawsuit against Financial Associates and Blue Cross, alleging that the area-manager contracts require Financial Associates to continue paying them the 1% override as "vested renewal commissions." Both parties moved for summary judgment, or a decision from the court without a trial.

After a hearing, the district court granted the defendants' motion for summary judgment and denied the plaintiffs' motion. DeWitte, Filley, and Meador filed a motion to alter or amend the judgment, which the district court also denied.

DeWitte, Filley, and Meador have appealed to our court.

ANALYSIS

The standards for summary judgment are well known:

" ‘Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. The trial court is required to resolve all facts and inferences which may reasonably be drawn from the evidence in favor of the party against whom the ruling is sought. When opposing a motion for summary judgment, an adverse party must come forward with evidence to establish a dispute as to a material fact. In order to preclude summary judgment, the facts subject to the dispute must be material to the conclusive issues in the case. On appeal, we apply the same rules and when we find reasonable minds could differ as to the conclusions drawn from the evidence, summary judgment must be denied.’ [Citation omitted.]" Drouhard–Nordhus v. Rosenquist , 301 Kan. 618, 622, 345 P.3d 281 (2015).

I. The Written Area–Manager Contracts Don't Govern the 1% Override Payments.

DeWitte, Filley, and Meador first argue that Financial Associates breached the area-manager contracts when it stopped making the 1% override payments because those payments are "vested renewal commissions" under the plain terms of the...