Gram v. Liberty Mut. Ins. Co.

• Decision Date: 06 March 1984
• Citation: 461 N.E.2d 796,391 Mass. 333
• Parties: , 118 L.R.R.M. (BNA) 2401, 44 A.L.R.4th 1119 Robert E. GRAM v. LIBERTY MUTUAL INSURANCE COMPANY.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 796

461 N.E.2d 796

391 Mass. 333, 118 L.R.R.M. (BNA) 2401,

44 A.L.R.4th 1119

Robert E. GRAM v. LIBERTY MUTUAL INSURANCE COMPANY.

Supreme Judicial Court of Massachusetts,

Middlesex.

Argued May 5, 1983.

Decided March 6, 1984.

Kalvin M. Grove, Chicago, Ill. (Paul R. Garry, Chicago, Ill., with him), for defendant.

Richard K. Donahue, Lowell, for plaintiff.

Before HENNESSEY, C.J., and WILKINS, LIACOS, ABRAMS, NOLAN, LYNCH and O'CONNOR, JJ.

WILKINS, Justice.

In Gram v. Liberty Mut. Ins. Co., 384 Mass. 659, --- Mass.Adv.Sh. (1981) 2287, 2301, 429 N.E.2d 21 (Gram I ), we remanded "the case for a determination of damages, measured by the amount of renewal commissions Gram reasonably could have expected to receive, reduced to reflect the proportion of his time that would reasonably have been expected to have been devoted to the servicing of those renewal policies." We noted that "Gram has made no specific showing of his loss of any other identifiable, future benefit ... reflective of past services to Liberty." Id. We expressly stated that "[t]he amount of the renewal commissions substantially proves the outer limit of the compensation Gram lost for past service." Id. 384 Mass. at --- n. 10, Mass.Adv.Sh. (1981) at 2301 n. 10, 429 N.E.2d 21. We pointed out that "Liberty benefited from its discharge of Gram without cause" (id. 384 Mass. at ---, Mass.Adv.Sh. (1981) at 2301, 429 N.E.2d 21) and that the failure to prove that Liberty Mutual Insurance Company (Liberty) discharged Gram in bad faith did not relieve Liberty of liability "for the loss of compensation that is so clearly related to an employee's past service" (id. 384 Mass. at ---, Mass.Adv.Sh. (1981) at 2300, 429 N.E.2d 21) as are renewal commissions. On remand, a jury rendered a verdict in the amount of $325,000 in favor of Gram. Liberty appealed, and we granted Gram's application for direct appellate review. The jury's verdict must be vacated and a new trial must be ordered.

In spite of the direction that damages be measured, in their "outer limit," by renewal commissions, the remand judge improperly submitted to the jury the question of Gram's right to career credits--future compensation for future services that, under his compensation agreement, was based on the length of Gram's service as a sales representative. As a matter of law, career credits are not "renewal commissions." They compensate for future, not past, services, and are thus not recoverable in these circumstances. ¹ See Kravetz v. Merchants Distribs., Inc., 387 Mass. 457, 463, 440 N.E.2d 1278 (1982).

It is important to recall that Gram served as an employee at will. He is not entitled to damages on the basis of a breach of a contract for life or for a term of years. The recovery allowed Gram in our earlier opinion pressed to the limit the recovery allowed to an at-will employee discharged without cause. Two members of the court even rejected Gram's limited right to damages expressed in the court's earlier opinion. See Gram I, supra 384 Mass. at ---, Mass.Adv.Sh. (1981) at 2302, 429 N.E.2d 21 (Nolan, J., dissenting in part, concurring in part, with whom Lynch, J., joined). We must be careful not to approach the allowance of contract damages as if Gram had a contract for life or for a term of years. Our goal is and has been simply to deny to Liberty any readily definable, financial windfall resulting from the denial to Gram of compensation for past services. ²

Liberty argues that on termination Gram was limited by his compensation agreement to certain final adjustments and no more. In its appeal in Gram I, Liberty did not rely on limitations expressed in Gram's compensation agreement. That agreement was not printed in the record appendix in Gram I, and we did not consider it. It is too late for Liberty to argue now that Gram's rights were limited by the terms of his compensation agreement. We need not, therefore, consider the terms of the agreement, or whether, by agreement, an employer and an employee may restrict the rights of an at-will employee to compensation based on the windfall to an employer who, by discharging the employee without good cause, deprives the employee of clearly identifiable future compensation reflective of the employee's past services. ³ There was no error in denying Liberty's motion for a directed verdict or its motion for a judgment notwithstanding the verdict.

The judge also permitted the jury to consider future commissions expected to result from endorsements on policies procured by Gram. In Gram I, we did not discuss the question of the effect of endorsements on Gram's lost commissions. Such endorsements result from changes in the policy coverage because of changes in the policyholder's circumstances, such as the purchase of a less expensive motor vehicle or making improvements in, or an addition to, a building. Changes by endorsement might increase or decrease the premium owed by the policyholder. The question of Gram's right to credit for anticipated policy endorsements will arise at any retrial of this case and, therefore, we discuss it.

Although the question is not free from doubt, we conclude that commissions on future endorsements and the consequences of any anticipated future inflation should not be included in the measure of Gram's damages. ⁴ Future policy changes and future premium levels are speculative. We think that Gram's damages should be measured by the amount of annual renewal commissions payable under his compensation agreement in effect at the time of his discharge, recognizing the renewal of coverage but disregarding the effect of endorsements. Attrition in the block of business produced by Gram should be determined for each future year of his anticipated employment, ⁵ and anticipated future renewal commissions should be adjusted to present value. The calculation of Gram's damages should also reflect the proportion of Gram's time that would have been devoted to servicing renewal policies, but, because we exclude the effects of endorsements in measuring the renewal commissions recoverable, the portion of Gram's time reasonably expected to be devoted to servicing renewals should not include time devoted to handling endorsements. ⁶

We reverse the judgment and remand the case for a new trial consistent with this opinion.

So ordered.

LIACOS, Justice. (dissenting, with whom ABRAMS and NOLAN, JJ., join).

In Gram v. Liberty Mut. Ins. Co., 384 Mass. 659, --- Mass.Adv.Sh. (1981) 2287, 2288, 429 N.E.2d 21 (Gram I ), we held that the plaintiff in this case was entitled "to recover identifiable, reasonably anticipated future compensation, based on his past services, that he lost because of his discharge without cause."

The parties are agreed that, because this case went to trial for a second time on remand from this court, "[i]t is the duty of the trial court, unless in its discretion it permits new issues to be raised, to follow implicitly the terms of the rescript and not to travel outside what is there laid down, read in the light of the opinion on which it is founded." Lannin v. Buckley, 268 Mass. 106, 111, 167 N.E. 258 (1929). The major issue to be addressed on Liberty Mutual's appeal is whether the remand judge committed an error of law by exceeding the scope of our decision wherein we remanded this case for a new trial on the question of damages. See Gram I, supra. Cf. Loschi v. Massachusetts Port Auth., 361 Mass. 714, 715-716, 282 N.E.2d 418 (1972).

In my view, the trial judge followed faithfully the views the court expressed in Gram I. It is unfortunate that the court now requires yet another trial in this case on the basis of allegedly erroneous instructions given to the jury.

In our decision, Gram I, supra, we found that the jury were warranted "in concluding that Gram's discharge was 'bad, unjust, and unkind' ... contrary to Gram's reasonable expectations, and the product of inadequate investigation" (citation omitted). Gram I, supra, 384 Mass. at ---, Mass.Adv.Sh. (1981) at 2298, 429 N.E.2d 21. After determining that the jury correctly concluded that Gram had been discharged without good cause, we went on to consider the question of liability on the part of the defendant. We declined to adopt, as a general rule, the principle that the discharge of an at-will employee without cause is, in itself, a violation of an employer's obligation of good faith and fair dealing. Gram I, supra, 384 Mass. at --- - ---, Mass.Adv.Sh. (1981) at 2299-2300, 429 N.E.2d 21. Nevertheless, because of the windfall to, or unjust enrichment of, an employer as the result of such an employee's discharge, we concluded that "the obligation of good faith and fair dealing imposed on an employer requires that the employer be liable for the loss of compensation that is so clearly related to an employee's past service, when the employee is discharged without good cause." Gram I, supra, 384 Mass. at ---, Mass.Adv.Sh. (1981) at 2300, 429 N.E.2d 21. We affirmed the judgment of the trial court as to the defendant's liability, but having rejected as inappropriate the standard under which the jury awarded the plaintiff damages, we concluded that the plaintiff was "entitled to recover identifiable, reasonably anticipated future compensation, based on his past services, that he lost because of his discharge without cause." Gram I, supra, 384 Mass. at ---, Mass.Adv.Sh. (1981) at 2288, 429 N.E.2d 21. At the second trial conducted in 1982 as to the issue of damages, the trial judge observed: "I'm faced with [the remand decision] and I have to take all of the language. I just can't take one sentence. I've got to take all of the language and try to see if I can form an opinion from the entire language, not just one sentence.... The Court has set a new field up. And what they're doing is I think they're giving us a feel and they can't put it all in one sentence, but I do have to consider this, the very first paragraph: 'He is, however, entitled to recover...