Fessler v. Int'l Bus. Machs. Corp.

• Decision Date: 14 May 2020
• Docket Number: No. 18-2497,18-2497
• Citation: 959 F.3d 146
• Parties: Justin FESSLER, Plaintiff – Appellant, v. INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendant – Appellee. Metropolitan Washington Employment Lawyers Association; North Carolina Advocates for Justice, Amici Supporting Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

959 F.3d 146

Justin FESSLER, Plaintiff – Appellant,

v. INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendant – Appellee.Metropolitan Washington Employment Lawyers Association; North Carolina Advocates for Justice, Amici Supporting Appellant.

No. 18-2497

United States Court of Appeals, Fourth Circuit.

Argued: January 29, 2020

Decided: May 14, 2020

ARGUED: Mark Russell Sigmon, SIGMON LAW, PLLC, Raleigh, North Carolina, for Appellant. Justin Robert Barnes, JACKSON LEWIS P.C., Atlanta, Georgia, for Appellee. ON BRIEF: Jeremy R. Williams, Matthew E. Lee, WHITFIELD, BRYSON & MASON, LLP, Raleigh, North Carolina, for Appellant. Matthew F. Nieman, JACKSON LEWIS P.C., Reston, Virginia, for Appellee. James Edward Rubin, RUBIN EMPLOYMENT LAW FIRM, P.C., Rockville, Maryland, for Amicus Metropolitan Washington Employment Lawyers Association. S. Luke Largess, Cheyenne N. Chambers, TIN FULTON WALKER & OWEN, PLLC, Charlotte, North Carolina, for Amicus North Carolina Advocates for Justice.

Before GREGORY, Chief Judge, KING, and QUATTLEBAUM, Circuit Judges.

Vacated and remanded by published opinion. Chief Judge Gregory wrote the opinion, in which Judge King and Judge Quattlebaum joined.

GREGORY, Chief Judge:

Justin Fessler brings this suit against his former employer, International Business Machines Corporation ("IBM"), for unpaid commissions. Fessler alleges that IBM unlawfully "capped" his sale commissions despite representing to him that his commissions would be uncapped. The district court dismissed his claims on the basis that the Incentive Plan Letters ("IPLs") that IBM presents to its employees foreclosed any reasonable expectation that Fessler would receive additional commissions. For the reasons explained below, we find that Fessler adequately states claims for fraud, constructive fraud, unjust enrichment, quantum meruit, and punitive damages.¹ We thus vacate the judgment of the district court and remand the case for further proceedings consistent with this opinion.

I.

Fessler joined IBM in October 2008 and started working as the company's inside sales information specialist for the United States Federal Government in 2009. His compensation consisted of both a base salary and commissions. Fessler had three commission plans that are relevant here: the first was in effect from January 1, 2016 through June 30, 2016; the second, from January 1, 2017 through June 30, 2017; and the third, from July 1, 2017 through December 21, 2017. A part of each written commission plan was sent to Fessler as an IPL.² The plans contained several disclaimers that were in large part similar to each other. First, the IPL contained a "Right to Modify or Cancel" disclaimer. In the first half of 2017, the IPL stipulated:

The Plan does not constitute an express or implied contract or a promise by IBM to make any distributions under it. IBM reserves the right to adjust the Plan terms, including, but not limited to, changes to sales performance objectives, assigned territories or account opportunities, applicable incentive payment rates or similar earnings opportunities, or to modify or cancel the Plan, for any individual or group of individuals, including withdrawing your accepted Incentive Plan Letter if your incentive eligibility status changes.

J.A. 815. The IPLs for the first half of 2016 and the second half of 2017 contained similar disclaimers. However, unlike the IPLs from 2017, the IPL from 2016 stipulated that "IBM reserves the right to adjust the Plan terms ... up until any related payments have been earned under the Plan terms." J.A. 815.

The IPLs also contain disclaimers about "Adjustments for Errors." Specifically, each IPL provided:

IBM reserves the right to review and, in its sole discretion, adjust or require repayment of incorrect incentive payments resulting from incomplete incentives processes or other errors in the measurement of achievement or the calculation of payments, including errors in the creation or communication of sales objectives. Depending on when an error is identified, corrections may be made before or after the last day of the full-Plan period, and before or after the affected payment has been released.

J.A. 815.

Finally, the IPLs contained a disclaimer providing for "Review of a Specific Transaction." For example, the IPL for the first half of 2017 stated:

If a specific customer transaction has a disproportionate effect on an incentive payment when compared with the opportunity anticipated during account planning and used for the setting of sales objectives, or is disproportionate compared with your performance contribution towards the transaction, IBM reserves the right to review and, in its sole discretion, adjust the incentive achievement and/or related payments.

J.A. 816. The other two IPLs contained similar provisions.

Around the time Fessler received each IPL, IBM also provided him with PowerPoint presentations describing the terms of the compensation plan and including information that was not in the IPLs. The PowerPoint presentations noted, no less than six times, that Fessler's payments and earnings opportunities were uncapped. Fessler alleges that these representations were repeated in sales meetings and by IBM managers. As Fessler puts it, these were part of "IBM's official policies," which "provide that sales representatives[’] commissions may be adjusted to correct errors, but their commissions may not be arbitrarily capped for the purpose of limiting the employee's earnings." J.A. 6.³

Fessler was not paid his expected commission on three separate occasions. First, Fessler was paid $50,000, rather than the expected earned commission of $258,200, from an $8,900,000 deal closed in 2016 with the United States Census Bureau. The commission he received was not paid immediately. When Fessler approached his manager about the delay, she told him that because the deal was over $5,000,000, it went through an internal review process. Fessler alleges that neither his first nor his second line manager were consulted as part of this process. And after the review, Fessler was informed that he was credited with only a fraction of the revenue due to his contribution to the deal. Yet the reviewer never explained what they understood Fessler's contribution to be, and no other sales representative was credited with the revenue that was not credited to Fessler. According to Fessler, both of his managers believed that his contribution was significant, and they did not understand why his commission was arbitrarily capped by IBM.

Second, in May 2017, Fessler was paid about $30,000, rather than the expected earned commission of $100,000, on a $2,000,000 deal with the Department of Defense Special Operations Command. IBM explained that this account was part of a special new program, a Target Account Absolute Plan, which allocated 3.5% commission to all sale representatives involved in a sale of IBM products and services to the Department of Defense. But Fessler claims that he was not made aware of this commission structure until after closing the deal with the Department of Defense. He also alleges that this commission was inconsistent with numerous representations IBM made to him.

Finally, in December 2017, Fessler closed a $5,200,000 deal with the United States Customs and Border Protection Agency. Fessler claims that his commission was once again capped by IBM, which refused to pay him any commission for this deal. When questioned, IBM officials told Fessler that he would not be compensated for this account because it was removed from his responsibility. But Fessler claims that he was responsible for all federal government accounts and it was never explained to him that the account was removed from his responsibility. Had Fessler known IBM was not going to compensate him for his efforts, he alleges, Fessler would not have worked on this account or closed this $5,200,000 deal.

Fessler alleges that, since leaving IBM, he has learned that IBM has a history of capping commissions on large deals. Fessler further alleges that although the sales field in which he works is highly competitive and most employers do not cap commissions, IBM has a practice of telling its salespeople that their commission will not be capped—and then capping high-achievers after the fact. This practice, Fessler claims, allows IBM to "have its cake and eat it too." Fessler Br. at 3. If IBM were to tell its salespeople that their commissions will be capped, its recruitment efforts would be severely hampered. For this reason, IBM engages in a practice where it tells salespeople that their commissions will be uncapped, in written documents such as the PowerPoint presentation and through oral communication by IBM executives, and then caps certain high-commission deals.

Accordingly, Fessler commenced this action against IBM, alleging that IBM owes him unpaid commissions related to the three deals above. Fessler brought claims for (1) breach of oral and/or implied contract; (2) quantum meruit; (3) unjust enrichment; (4) fraudulent misrepresentation; (5) negligent misrepresentation; and (6) punitive damages. IBM moved to dismiss Fessler's claims on the ground that the IPL foreclosed each claim. After hearing oral arguments on the Motion to Dismiss, the district court agreed with IBM and granted the motion in its entirety.

The district court first addressed Fessler's breach of oral/implied contract claim. The district court found that no meeting of the minds occurred because IBM lacked the intent to obligate itself to pay Fessler uncapped commissions. Therefore, there was no mutual assent and Fessler's claim for breach of oral/implied contract failed as a matter of law.

The district court next dismissed Fessler's quantum meruit and unjust enrichment claims. The court noted that both theories required Fessler to show that IBM reasonably expected to pay Fessler additional commissions beyond what he had received. However, the district court found that the IPLs foreclosed any...