Kernz v. JL French Corp.

• Decision Date: 12 June 2003
• Docket Number: No. 02-1291.,02-1291.
• Citation: 667 N.W.2d 751,266 Wis.2d 124,2003 WI App 140
• Parties: James M. KERNZ, Plaintiff-Respondent-Cross-Appellant, v. J. L. FRENCH CORPORATION, Defendant-Appellant-Cross-Respondent.
• Court: Wisconsin Court of Appeals

266 Wis.2d 124

2003 WI App 140

667 N.W.2d 751

James M. KERNZ, Plaintiff-Respondent-Cross-Appellant, v. J. L. FRENCH CORPORATION, Defendant-Appellant-Cross-Respondent.¹

No. 02-1291.

Court of Appeals of Wisconsin.

Submitted on briefs December 9, 2002.

Decided June 12, 2003.

On behalf of the defendant-appellant-cross-respondent, the cause was submitted on the briefs of Joseph J. Voelkner and James O. Conway of Olsen, Kloet, Gunderson & Conway, Sheboygan.

On behalf of the plaintiff-respondent-cross-appellant, the cause was submitted on the briefs of Anthony J. Resimius and William P. Te Winkle of Rohde Dales LLP, Sheboygan.

Before Vergeront, P.J., Roggensack and Lundsten, JJ.

¶ 1. LUNDSTEN, J.

This appeal involves an employment contract dispute. Employee James Kernz negotiated a three-year contract with J. L. French Corporation that required the company to pay Kernz's salary and benefits for the remainder of the contract term if the company terminated Kernz without "just cause." Nine months into the contract, French Corporation terminated Kernz and Kernz sued for breach of contract, alleging he was terminated without "just cause." Kernz sought more than $260,000 under the contract damages clause. French Corporation countered that Kernz was terminated for "just cause" and argued in the alternative that, even if it terminated Kernz without just cause, the damages clause was an unenforceable "penalty clause." Following a jury trial in which French Corporation was found liable for termination without just cause, the trial court concluded that the damages clause was enforceable and entered judgment in favor of Kernz. French Corporation appeals from that judgment. Post-trial, the trial court entered an order denying Kernz's motion for pre-verdict interest, which forms the basis of Kernz's cross-appeal.

Background

¶ 2. On April 27, 2000, Kernz and French Corporation entered into a three-year employment contract. French Corporation offered language which permitted the company to terminate Kernz if he "shall be neglectful of the interest of the employer, or manage the business under his supervision badly or in a manner unsatisfactory to employer, or shall be guilty of misconduct." During negotiations, Kernz requested, and the French Corporation negotiator agreed, to replace the above provision with "just cause" language. The following shows the agreed change with the stricken language and the added language in italics:

If the Employee is terminated for "just cause," or by mutual agreement, shall be neglectful of the interest of the employer, or manage the business under his supervision badly or in a manner unsatisfactory to employer; or shall be guilty of misconduct, the Employer may at their option terminate this agreement and such services and compensation on thirty (30) days notice to the Employee.

¶ 3. In early 2001, Kernz was accused of committing "two safety violations of . . . plant employee safety rules." In one incident, Kernz was observed entering a secured area containing a 3,500-ton press without following the proper "lock-out" procedures. In the other incident, Kernz was observed on foot in an area where pedestrian traffic was prohibited. French Corporation terminated Kernz's employment.

¶ 4. Kernz sued, alleging that French Corporation breached the contract by terminating him without "just cause." Kernz sought a pretrial ruling declaring the phrase "just cause" ambiguous and permitting the introduction of extrinsic evidence of the phrase's meaning. The trial court concluded that the phrase "just cause" was ambiguous and ruled that extrinsic evidence would be permitted. French Corporation moved to prevent testimony of any witness's subjective uncommunicated belief regarding the meaning of "just cause." The trial court denied that motion.

¶ 5. The trial was held in two phases: the first phase was tried before a jury to determine liability, and the second phase was tried to the court to determine damages. During the liability phase, Kernz testified that, during contract negotiations, he sought inclusion of the phrase "just cause" because "I needed something where . . . [French Corporation] didn't have the option to terminate in the contract unless it was for some intentional wrongdoing." The deposition testimony of Don Porritt, the negotiator for French Corporation, was read to the jury. The French Corporation negotiator testified that "just cause to me would be if you intentionally do something." The negotiator also provided examples of intentional misbehavior that he believed constituted "just cause" for termination at French Corporation, including "fighting on company property, reporting under the influence of drugs or . . . theft, . . . those sorts of things that had already been outlined in the [employee] handbook." The French Corporation negotiator gave no further testimony about the employee handbook and there was no evidence that French Corporation employees generally understood that "just cause" has a particular meaning. Notably, neither Kernz nor the French Corporation negotiator testified that he communicated his belief about the meaning of "just cause" to the other. There was no special verdict asking the jury to make a finding on the meaning of "just cause." The jury was simply asked if French Corporation terminated Kernz for "just cause" as set forth in the contract, and the jury answered that question "No."

¶ 6. During the damages phase, the trial court considered whether the contract damages clause ("If employment is terminated for other than "just cause' or mutual agreement, the Employer shall pay salary and benefits for [the] remainder of the contract.") was an illegal penalty clause or an enforceable stipulated damages provision. The trial court concluded that the damages clause was an enforceable stipulated damages provision and determined that Kernz was due $263,993.02 under the contract.

¶ 7. Kernz sought pre-verdict interest on the damages under the theory that the damages were liquidated. French Corporation objected to the taxation of prejudgment interest. The trial court agreed with French Corporation and denied Kernz's post-trial motion for pre-verdict interest.

Appeal

I. Whether Evidence of the Parties' Uncommunicated Subjective Interpretations of "Just Cause" Was Properly Admitted

[1]

¶ 8. French Corporation argues that "just cause" is unambiguous and, therefore, the trial court improperly admitted extrinsic evidence, including uncommunicated subjective interpretations of "just cause." Whether a contract is ambiguous is a question of law, which we review de novo. State v. Windom, 169 Wis. 2d 341, 349, 485 N.W.2d 832 (Ct. App. 1992)

.

[2-5]

¶ 9. "The ultimate aim of all contract interpretation is to ascertain the intent of the parties." Eden Stone Co. v. Oakfield Stone Co., 166 Wis. 2d 105, 116, 479 N.W.2d 557 (Ct. App. 1991). While this ultimate aim is clear enough, confusion frequently accompanies the search for intent because subjective intent is not the be-all and end-all. For example, regardless of the parties' intentions, unambiguous contract language controls contract interpretation. "When the terms of a contract are plain and unambiguous, we will construe the contract as it stands." State v. Peppertree Resort Villas, Inc., 2002 WI App 207, ¶ 14, 257 Wis. 2d 421, 651 N.W.2d 345. We presume the parties' intent is evidenced by the words they choose, if those words are unambiguous.

[6, 7]

¶ 10. We first determine whether a disputed contract provision is ambiguous. "Contract language is considered ambiguous if it is susceptible to more than one reasonable interpretation." Danbeck v. American Family Mut. Ins. Co., 2001 WI 91, ¶ 10, 245 Wis. 2d 186, 629 N.W.2d 150. If the contract is ambiguous, we turn to extrinsic evidence to determine the parties' intent. See Energy Complexes, Inc. v. Eau Claire County, 152 Wis. 2d 453, 468, 449 N.W.2d 35 (1989)

("Once a contract is found to be ambiguous, extrinsic evidence can be considered in order to determine the parties' intent."). Admissible extrinsic evidence might include "the surrounding circumstances including factors occurring before and after the signing of an agreement." Board of Regents of Univ. of Wis. Sys. v. Mussallem, 94 Wis. 2d 657, 671, 289 N.W.2d 801 (1980); see also Smith v. Osborn, 66 Wis. 2d 264, 272, 223 N.W.2d 913 (1974) ("In determining the [meaning of ambiguous contract language], this court has held that it is proper to consider the conduct of the parties and the negotiations which took place, both before and after the execution of the documents, and to consider all related documents of the parties."); Painter v. Estate of Grossman, 250 Wis. 457, 461, 27 N.W.2d 365 (1947) ("`The intention of the parties to any particular transaction may be gathered from their acts and deeds, in connection with surrounding circumstances, as well as from their words . . . .'" (quoting Tyler v. Burrington, 39 Wis. 376, 379 (1876))).

¶ 11. The question here is whether the contract phrase "just cause" is ambiguous and, if so, whether the parties' uncommunicated subjective beliefs regarding that phrase are admissible extrinsic evidence where the negotiating parties had substantially the same bargaining power, actually negotiated the contract term, and had substantially the same understanding of the phrase.

A. Whether the Phrase "Just Cause" is Ambiguous

¶ 12. The employment contract does not define "just cause." French Corporation argues that the phrase is unambiguous because "just cause" has a plain and ordinary meaning defined in case law. That definition, the company contends, is contained in Millar v. Joint School District, 2 Wis. 2d 303, 86 N.W.2d 455 (1957), and is "inexcusable neglect." We first observe that Millar discusses "good and sufficient cause," not "just cause." Id. at 312-14. More importantly, Millar does not involve the interpretation of a contract term, but rather addresses the implied...