Kumpf v. Steinhaus, 85-1348

• Decision Date: 27 December 1985
• Docket Number: No. 85-1348,85-1348
• Citation: 779 F.2d 1323
• Parties: 121 L.R.R.M. (BNA) 3175, 104 Lab.Cas. P 55,565 William A. KUMPF, Plaintiff-Appellant, v. Orin A. STEINHAUS, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1323

779 F.2d 1323

121 L.R.R.M. (BNA) 3175, 104 Lab.Cas. P 55,565

William A. KUMPF, Plaintiff-Appellant, v. Orin A. STEINHAUS, et al., Defendants-Appellees.

No. 85-1348.

United States Court of Appeals, Seventh Circuit.

Argued Dec. 3, 1985.

Decided Dec. 27, 1985.

Brady C. Williams, Madison, Wis., for plaintiff-appellant.

Maurice J. McSweeney, Milwaukee, Wis., for defendants-appellees.

Before EASTERBROOK, Circuit Judge, ESCHBACH, Senior Circuit Judge, and GRANT, Senior District Judge. ^*

EASTERBROOK, Circuit Judge.

From 1973 until August 1983 William A. Kumpf was the president and chief executive officer of Lincoln National Sales Corp. of Wisconsin (Lincoln Wisconsin). He owned 20% of Lincoln Wisconsin's stock. Lincoln National Sales Corp. (Lincoln Sales) owned the other 80% of the stock, and two of the three members of Lincoln Wisconsin's board of directors were employees of Lincoln Sales. Lincoln Sales is in turn a subsidiary of Lincoln National Life Insurance Co. (Lincoln Life). Lincoln Sales is the marketing arm of Lincoln Life; Lincoln Wisconsin was the Wisconsin agency of Lincoln Sales.

In April 1981 Orin A. Steinhaus became an executive vice-president of Lincoln Life, leaving a post as head of Lincoln's sales agency in Columbus, Ohio. The president of Lincoln Life gave Steinhaus and other employees the task of revising the firm's sales structure, which was losing money. Lincoln Life closed 25 sales agencies and decided to consolidate others. In August 1983 Steinhaus decided to consolidate five midwestern sales agencies into a single agency. (Doubtless other officers of Lincoln Life concurred in these decisions, but for simplicity we write as if Steinhaus made all decisions himself.) He instructed Lincoln Sales's directors on the board of Lincoln Wisconsin to approve a merger of Lincoln Wisconsin into Lincoln Chicago Corp. (Lincoln Chicago); Lincoln Wisconsin's board approved the merger by a vote of two to one, over Kumpf's dissent. Lincoln Wisconsin disappeared, and so did Kumpf's job. This litigation is the residue.

The district court dismissed most of Kumpf's claims for relief but sent to the jury a claim that Steinhaus and the Lincoln corporations tortiously interfered with the employment contract between Kumpf and Lincoln Wisconsin. Kumpf was an employee at will, but even at-will employment is contractual and therefore potentially the basis of a tort action. Mendelson v. Blatz Brewing Co., 9 Wis.2d 487, 101 N.W.2d 805 (1960). Kumpf was fired by Lincoln Wisconsin, and Lincoln Wisconsin cannot "interfere" with its own employment relations. But because Lincoln Sales owned only 80% of Lincoln Wisconsin's stock, Kumpf argued that other participants in the Lincoln family of firms could not intervene.

The defendants maintain that their interference with Kumpf's contract was privileged because it took place in the course of business. Kumpf replied that it was not privileged because it was done with an improper motive. After the reorganization, Steinhaus became president of Lincoln Chicago. In the insurance business the head of an agency receives a percentage of the agency's revenue. Income that used to go to Kumpf now went to Steinhaus, and the reorganization increased Steinhaus's total income. Kumpf argued that Steinhaus engineered the reorganization to advance his personal interests, and that this defeats the claim of privilege.

Kumpf asked the judge to instruct the jury that if the defendants' acts were "based--even in part--upon personal considerations, malice or ill will" then their acts were not privileged. Kumpf later proposed an instruction that would make privilege turn on "predominant" motivation. The district court, however, told the jury that "if you find that the actions of the defendants were motivated solely by a desire for revenge, ill will or malice, or in the case of the defendant Orin Steinhaus, solely by personal considerations, then you may find their actions improper." The jury returned a verdict for the defendants, and Kumpf attacks the "sole motive" instruction.

The Supreme Court of Wisconsin has dealt twice with related questions of privilege, and its position on whether mixed proper and improper motives defeat the privilege is unclear. Mendelson, the first case, quoted with apparent favor from a federal decision adopting the rule that any legitimate motive will support the privilege. 101 N.W.2d at 808, quoting from Tye v. Finkelstein, 160 F.Supp. 666, 668 (D.Mass.1958). But it also described, with apparently equal favor, an earlier decision said to establish that "malice is supplied when the act of procuring the discharge is done with an improper motive." Id. (emphasis added), citing Johnson v. Aetna Life Insurance Co., 158 Wis. 56, 147 N.W. 32 (1914). The most recent case says that it is sufficient "to allege that the act of procuring a breach of contract was done with an improper motive." Lorenz v. Dreske, 62 Wis.2d 273, 287, 214 N.W.2d 753 (1974) (emphasis added). Kumpf has asked us to certify to the Supreme Court of Wisconsin the question whether mixed proper and improper motives undercut the privilege. If we thought the case turned on this, certification would be an attractive route. But the case does not turn on this.

Malice, ill will, and the like mean, in Wisconsin, an intent to act without justification. Mendelson, supra, 101 N.W.2d at 808. So the initial question is whether Kumpf has identified an unsupportable consideration that led to his dismissal. The only one Kumpf presses on us is Steinhaus's self-interest (Kumpf calls it "greed"). The defendants asked the district court to dismiss the case at the close of Kumpf's evidence on the ground that Steinhaus's financial motivations were proper, and therefore the acts were privileged. The district judge allowed the jury to render a decision. When denying Kumpf's motion for a new trial, however, the judge remarked that "even had the predominant instruction been granted, ... the jury would have had no other alternative than to find for the defendant." This is a ground on which we may affirm the judgment, see Massachusetts Mutual Life Insurance Co. v. Ludwig, 426 U.S. 479, 96 S.Ct. 2158, 48 L.Ed.2d 784 (1976), and we think the defendants have a compelling argument.

The basis of the privilege in question is the economic relations among the Lincoln family of corporations. The managers of the firm at the apex of the structure have an obligation to manage the whole structure in the interests of investors. Kumpf and Lincoln Wisconsin knew that when they started--when Kumpf took the risks associated with owning 20% of the stock, and holding one of three seats on the board, in a subsidiary of Lincoln Life. The superior managers in such a structure try to serve the interests of investors and other participants as a whole, and these interests will not always be congruent with the interests of managers of subsidiaries. Corporate reorganizations may reduce the costs of operation and put the structure in the hands of better managers, though this may be costly to existing managers.

If Kumpf had directly challenged the wisdom of a business decision of the managers of Lincoln Life, he would have been rebuffed with a reference to the business judgment doctrine--a rule of law that insulates business decisions from most forms of review. Courts recognize that managers have both better information and better incentives than they. The press of market forces--managers at Lincoln Life must continually attract new employees and capital, which they cannot do if they exploit existing participants or perform poorly--will more effectively serve the interests of all participants than will an error-prone judicial process. See Joy v. North, 692 F.2d 880, 885-87 (2d Cir.1982), cert. denied, 460 U.S. 1051, 103 S.Ct. 1498, 75 L.Ed.2d 930 (1983); Aronson v. Lewis, 473 A.2d 805, 812-15 (Del.1984); Daniel R. Fischel, The Business Judgment Rule and the Trans-Union Case, 40 Bus.Law. 1437, 1439-43 (1985).

The privilege to manage corporate affairs is reinforced by the rationale of employment at will. Kumpf had no tenure of office. The lack of job security gave him a keen motive to do well. Security of position may diminish that incentive. See Richard A. Epstein, In...