Koenings v. Joseph Schlitz Brewing Co.

• Decision Date: 26 November 1985
• Docket Number: No. 84-1028,84-1028
• Citation: 126 Wis.2d 349,377 N.W.2d 593
• Parties: Richard T. KOENINGS, Plaintiff-Appellant and Cross-Respondent-Petitioner, v. JOSEPH SCHLITZ BREWING COMPANY, a Wisconsin corporation, and The Stroh Brewery Company, a foreign corporation, Defendants-Respondents and Cross-Appellants.
• Court: Wisconsin Supreme Court

Page 593

377 N.W.2d 593

126 Wis.2d 349

Richard T. KOENINGS, Plaintiff-Appellant and Cross-Respondent-Petitioner, v. JOSEPH SCHLITZ BREWING COMPANY, a Wisconsin corporation, and The Stroh Brewery Company, a foreign corporation,

Defendants-Respondents and Cross-Appellants.

No. 84-1028.

Supreme Court of Wisconsin.

Argued Sept. 30, 1985.

Decided Nov. 26, 1985.

James A. Pitts, Timothy M. Braun, Rex Capwell on brief and Capwell, Berthelsen, Nolden, Casanova & Pitts, Ltd., Racine, and oral argument by Rex Capwell, for plaintiff-appellant and cross-respondent-petitioner.

Clay R. Williams, Gregory G. Wille, Ellen E. Hill on brief and Gibbs, Roper, Loots &amp Williams, Milwaukee, and oral argument by Clay R. Williams, for defendants-respondents and cross-appellants.

CECI, Justice.

This is a review of a published decision of the court of appeals, Koenings v. Joseph Schlitz Brewing Co., 123 Wis.2d 490, 368 N.W.2d 690 (Ct.App.1985), which affirmed in part and reversed in part the order for judgment and judgment of the Milwaukee county circuit court, Michael J. Barron, circuit judge.

This case is a dispute over the validity of a stipulated damages clause in an employment contract where an employee elected to be terminated and receive the stipulated damages amount under his employment contract. We hold that under the totality of the circumstances test, the stipulated damages clause is a legally enforceable liquidated damages clause. ¹

The trial court, in ruling as a matter of law that the damages clause was unreasonable, applied the doctrine of mitigation of damages and changed a jury verdict in favor of former employee Richard T. Koenings from $44,416.66 (representing lost salary) to zero. The court of appeals affirmed. The former employer, the Joseph Schlitz Brewing Company (Schlitz), and its corporate parent, The Stroh Brewery Company (Stroh), cross-appealed from that part of the verdict and judgment which granted Koenings $3,282.99 in damages, representing Koenings' loss of fringe benefits. The court of appeals reversed. We reverse the court of appeals and remand the case to the trial court with instructions to reinstate the verdict.

The issue in this case is essentially one of reasonableness of a stipulated damages clause in an employment contract. Did the trial court err in concluding that, as a matter of law, the stipulated damages clause in the Koenings/Schlitz employment contract was unreasonable, thereby subjecting Koenings to the doctrine of mitigation of damages? If the stipulated damages clause was unreasonable, did the court of appeals err in extending the doctrine of mitigation of damages to Koenings' fringe benefit damages award? We find Wassenaar v. Panos, 111 Wis.2d 518, 331 N.W.2d 357 (1983), controlling and hold that, under the totality of the circumstances, the stipulated damages clause was reasonable. It was error, therefore, for the circuit court to apply the doctrine of damage mitigation and to change the jury verdict with regard to the salary award. The court of appeals likewise erred in affirming the trial court and in extending the mitigation doctrine to the fringe benefit award. Because the clause is reasonable, we do not address whether the mitigation of damages doctrine applies to a fringe benefit award where the stipulated damages clause is unreasonable.

Robert Koenings graduated from law school with a joint J.D. and M.B.A. degree in 1975. He began his employment with Schlitz in 1977, when he was hired as a staff attorney. At the time, Schlitz was the second largest brewer in the United States.

Koenings rose within the ranks of the Schlitz legal department. He became a senior attorney in 1980 and was elected assistant corporate secretary in 1981. Paul Fish, general counsel at Schlitz during this time, testified at trial that Koenings was a highly valued member of his staff.

During 1981, Schlitz became a potential target for a corporate takeover for several reasons, among them Schlitz's declining sales and its production overcapacity. Schlitz and the G. Heileman Brewing Company, which had a need for increased brewing capacity, entered into friendly merger negotiations during May or June, 1981.

Schlitz, pursuant to these merger negotiations, drafted and extended employment contracts to seventy of its key employees. The drafters included members of the Schlitz legal department, excluding Koenings, and outside counsel retained by Schlitz. The contracts basically gave Schlitz the right to terminate an employee without cause and the employee the right to elect to be terminated if he felt his duties were substantially reduced by Schlitz. In either case, the employee would receive his salary and fringe benefits for the duration of the agreement.

The purpose of the employment contracts, according to testimony at trial, was to allow the key management employees to feel secure in their jobs over the course of the takeover negotiations. Feeling more secure, the employees would be less inclined to leave their respective positions because of the uncertainty wrought by the merger negotiations. The board of directors of Schlitz thought that the contracts would be in the best interests of Schlitz because the contracts would ensure that key employees remain with the company during the negotiations and that Schlitz could thereby continue unimpaired brewery operations. Koenings entered into his two-year employment contract on August 19, 1981, during the midst of the Heileman/Schlitz negotiations. He was earning $41,000.00 annually at the time the contract was signed.

The merger negotiations were discontinued when the United States Department of Justice indicated in October, 1981, that it would oppose the merger because of perceived antitrust violations. Schlitz then became involved in merger negotiations with Stroh; a merger between the two was undertaken and consummated between April and June of 1982.

A reorganization and condensation of the legal departments of the two brewers followed the merger. At the time of trial, there were only five attorneys in the merged legal department of the Stroh/Schlitz combination; by contrast, there were nine attorneys comprising the two staffs prior to the merger.

In June, 1982, Mr. Koenings felt that his responsibilities within the Schlitz legal department had been reduced sufficiently as a result of the merger to warrant his exercising the termination election clause of his employment contract, paragraph 5B. ² On June 14, 1982, he elected to treat such responsibility reduction as a termination of his employment and notified Paul Fish by letter of his decision. He also requested information from Schlitz regarding the amount due him under the stipulated damages clause of the contract, paragraph 5C. ³

On June 15, 1982, the new Schlitz president, Roger Fridholm, responded to Koenings. He stated in his letter that Schlitz disagreed with Koenings' interpretation that his job responsibilities were substantially reduced. Schlitz treated Koenings' termination as a voluntary act and, therefore, refused to pay Koenings his salary and benefits under the stipulated damages clause of the contract. On this same date the Schlitz board of directors failed to reelect Koenings to his position as assistant secretary of Schlitz. Without waiving any other rights, Koenings reiterated his elected termination on June 17, 1982, citing "the substantial reduction in [his] level of responsibility which has resulted from [his] no longer being an officer of the company." Schlitz continuously maintained that Koenings' election to consider himself terminated under paragraph 5B of the contract was without justification; in other words, Schlitz believed that his job responsibilities were not substantially reduced. ⁴

After the completion of the Stroh/Schlitz merger and prior to his termination election on June 14, 1982, Koenings began looking for another position on a corporate counsel staff. He accepted such a position with the Farmhouse Food Corporation (Farmhouse) contemporaneously with his termination election with Schlitz. His annual salary with Farmhouse was $47,000.00, the same as his final annual salary with Schlitz. He worked for Farmhouse for approximately thirteen months; he then entered into the private practice of law in July of 1983. Evidence produced at trial indicated that Koenings' total compensation for his thirteen months at Farmhouse, including salary and fringe benefits, was $55,134.55.

When Schlitz failed to pay under the stipulated damages clause of his employment contract, Koenings brought this suit. He demanded that Schlitz pay his $47,000.00 final annual salary and other fringe benefits for the thirteen-month period remaining on his contract. ⁵

The trial court, at the close of all testimony, denied Schlitz's dismissal motion but ruled that the stipulated damages clause was unreasonable, and, therefore, evidence of mitigation of damages was allowable, per Wassenaar, 111 Wis.2d 518, 331 N.W.2d 357. The court then instructed the jury that the proper measure of damages in this case, if the employer was found to have breached the contract, would be the amount of unpaid salary and fringe benefits under the unexpired term of the employment contract, reduced by what the employee could reasonably have earned during the unexpired term.

In a special verdict, ⁶ the jury determined that Koenings' work responsibilities were substantially reduced and that Koenings was not in breach of the contract. The jury, apparently ignoring the mitigation of damages instruction, awarded him loss-of-salary damages of $44,416.66 based on a thirteen-month extrapolation of Koenings' annualized salary of $41,000.00 at the time the contract was signed, pursuant to the stipulated damages clause of the contract. It also awarded him $3,282.99 in fringe benefit losses.

On motions after verdict, the trial court denied Schlitz's motion for a directed verdict and, alternatively, its motion...