Mercer v. C. A. Roberts Co.

• Decision Date: 06 April 1978
• Docket Number: No. 76-2651,76-2651
• Parties: Robert L. MERCER, Plaintiff-Appellant-Cross Appellee, v. C. A. ROBERTS COMPANY, Defendant-Appellee-Cross Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1232

570 F.2d 1232

Robert L. MERCER, Plaintiff-Appellant-Cross Appellee, v. C. A. ROBERTS COMPANY, Defendant-Appellee-Cross Appellant.

No. 76-2651.

United States Court of Appeals Fifth Circuit.

April 6, 1978.

Tom Thomas, Dallas, Tex., for plaintiff-appellant-cross appellee.

Wentworth T. Durant, Ronald G. Williams, Dallas, Tex., for defendant-appellee-cross appellant.

Appeals from the United States District Court for the Northern District of Texas.

Before THORNBERRY, AINSWORTH, and MORGAN, Circuit Judges.

THORNBERRY, Circuit Judge:

This diversity dispute ¹ centers around an oral employment agreement, its modification, and the fallout resulting therefrom. Bad feelings abound between former employee and former employer, and we resolve the dispute by affirming the district court's decision that both sides take nothing.

Defendant C. A. Roberts Co., an Illinois corporation, distributes tubing, pipes, and similar metal goods. Although the company has done business in Texas for more than 40 years, it did not have an employee in the state until July 1968, when it hired plaintiff Mercer. A Dallas sales office was established a few months later, with Mercer as its manager. The employment agreement between the parties was oral and was without a definite term of duration; however, it was understood that Mercer would develop the Dallas office to maturity, a process that would take from three to five years. Mercer was well-suited for the job, having left the employ of one of Roberts' competitors to assume this position.

In August 1970, it was agreed that Mercer would receive incentive compensation in addition to his regular salary. This bonus plan consisted of fifteen per cent of the Dallas office's contribution to the company's annual profits. The bonus was payable quarterly and retroactive to January 1, 1970. Again there was no written agreement. More than four years later, in August 1974, Mercer was informed of a change in his compensation formula retroactive to January 1 of that year. Apparently the unanticipated revenue from the Dallas office resulted in Mercer's compensation under the formula being disproportionate to the compensation received by other employees. Dissatisfied with this revision, Mercer resigned on January 20, 1975.

Upon leaving the company, Mercer took with him a "customer data book" containing the names of all his customers, the types of materials purchased by each, their purchasing habits, information on various suppliers, and the like. He also took the company's price book, which contained a list of every item it sold and the price. Mercer has since engaged in a competition with Roberts and has solicited business from Roberts' customers in the Dallas area. The day after he resigned, he formed a Texas corporation C. A. Roberts Co., Inc. with himself as sole stockholder. However, pursuant to the Texas "assumed name" statutes, ² he filed a certificate with the clerks of Dallas and Tarrant Counties to do business under the name "Mercer Metals." Defendant Roberts had never registered or reserved its corporate name with the Texas Secretary of State. ³ Mercer subsequently dissolved his corporation and now makes no claim to its name.

Mercer filed this suit on the day of his resignation, seeking approximately $37,000 in unpaid salary and bonuses, plus attorney's fees. Roberts filed an answer and counterclaimed for injunctive relief and some $35,000 in damages on the theory that Mercer had breached his fiduciary duty to the company by appropriating trade secrets and engaging in unfair competition. The district court held that the employment contract was unenforceable under the statute of frauds, Tex.Bus. & Comm.Code § 26.01, and that Mercer had not taken any trade secrets, engaged in unfair competition, or breached a fiduciary duty. Accordingly, judgment was entered for Roberts on the complaint and for Mercer on the counterclaim. Mercer brought this appeal, and Roberts cross-appealed.

I. STATUTE OF FRAUDS

The Texas "statute of frauds" is found in Tex.Bus. & Comm.Code § 26.01, which provides in pertinent part:

(a) A promise or agreement described in Subsection (b) of this section is not enforceable unless the promise or agreement, or a memorandum of it, is

(1) in writing; and

(2) signed by the person to be charged with the promise or agreement or by someone lawfully authorized to sign for him.

(b) Subsection (a) of this section applies to . . .

(6) an agreement which is not to be performed within one year from the date of making the agreement; . . . .

In interpreting this provision, ⁴ the Texas courts have consistently held that where the time for performance of an oral agreement including an oral employment agreement is uncertain and performance can conceivably occur within one year, the statute of frauds is inapplicable, even if performance within the year is highly improbable. Miller v. Riata Cadillac Co., 517 S.W.2d 773 (Tex.1974); Bratcher v. Dozier, 162 Tex. 319, 346 S.W.2d 795 (1961); Hall v. Hall, 158 Tex. 95, 308 S.W.2d 12 (1957).

However, when no time for performance has been specified in the agreement, a reasonable time will be implied on the basis of all circumstances surrounding adoption of the agreement, the situation of the parties, and the subject matter of the agreement. Hall v. Hall, supra; Krueger v. Young,406 S.W.2d 751 (Tex.Civ.App. Eastland 1966, writ ref. n. r. e.); Adams v. Big Three Indus., Inc., 549 S.W.2d 411 (Tex.Civ.App. Beaumont 1977, writ ref. n. r. e.). If the agreement, so interpreted, cannot be performed within one year, it comes within the statute of frauds and is unenforceable.

When the agreement is unwritten and its interpretation depends on disputed facts, the question of "reasonable duration" is one of fact to be determined by the trier of fact. Adams v. Big Three Indus., Inc., supra; McRae v. Lindale Ind. School Dist., 450 S.W.2d 118 (Tex.Civ.App. Tyler 1970, writ ref. n. r. e.). That is the situation in the instant case, and the district court found that the agreement was not performable in one year because the parties contemplated that Mercer would develop the Dallas office to maturity, a process that would take three to five years. That finding is not clearly erroneous. Rule 52(a), Fed.R.Civ.P. ⁵

Given this finding and the above-stated Texas law, it is clear that the employment agreement is within the statute of frauds and thus unenforceable. Insufficiency of a contract on such grounds precludes both recovery for specific performance and damages for breach of contract. Wilson v. Fisher, 144 Tex. 53, 188 S.W.2d 150 (1945); Edward Scharf Associates, Inc. v. Skiba, 538 S.W.2d 501 (Tex.Civ.App. Waco 1976, no writ).

Mercer argues, however, that the statute of frauds does not apply because the agreement has been fully performed. The Texas courts have, in many situations, held that full or partial performance of an oral agreement by one party precludes invocation of the statute of frauds by the other. E. g., Hooks v. Bridgewater, 111 Tex. 122, 229 S.W. 114 (1921) (contract for sale of realty); Kirk v. Beard, 162 Tex. 144, 345 S.W.2d 267 (1961) (agreement to make mutual wills that disposed of real property); Oak Cliff Realty Corp. v. Mauzy, 354 S.W.2d 693 (Tex.Civ.App. Dallas 1962, writ ref. n. r. e.) (lease of real property); Vick v. McPherson, 360 S.W.2d 866 (Tex.Civ.App. Amarillo 1962, writ ref. n. r. e.) (purchase of insurance agency); Wynnewood State Bank v. Brigham, 434 S.W.2d 874 (Tex.Civ.App. Texarkana 1968, writ ref. n. r. e.) (agreement of bank to purchase credit life insurance for maker of note). To justify such equitable intervention by the courts in light of a clear statute, there must be something more than a mere wrong or breach of contract. The situation must be such that nonenforcement of the contract would itself plainly amount to fraud. Meyer v. Texas Nat'l Bank of Commerce, 424 S.W.2d 417 (Tex.1968).

Oral employment agreements, however, have been treated as contracts of a different color. Partial or full performance of such agreements by an employee has been held insufficient to render the statute of frauds inoperative. E. g., Paschall v. Anderson, 127 Tex. 251, 91 S.W.2d 1050 (Tex.Comm.App.1936, opinion adopted); Chevalier v. Lane's, Inc., 147 Tex. 106, 213 S.W.2d 530 (1948); Collins v. McCombs, 511 S.W.2d 745 (Tex.Civ.App. San Antonio 1974, writ ref. n. r. e.); Choleva v. Spartan Aviation, Inc., 524 S.W.2d 739 (Tex.Civ.App. Corpus Christi 1975, no writ). Nonetheless, there are circumstances in which the employee's performance of the agreement may trigger equitable relief. See Paschall v. Anderson, supra, 91 S.W.2d at 1051; Chevalier v. Lane's, Inc., supra, 213 S.W.2d at 534. However, the Texas courts found no such circumstances present in the above-cited cases, and we find none here.

The result may seem harsh, since Mercer worked from January to August 1974 under the assumption that he would receive his incentive pay. In August the company altered the compensation formula and made the change retroactive to January 1. However, the Texas courts have made clear that an oral agreement within the statute of frauds will not be enforced except in egregious situations. For example, in Collins v. McCombs, supra, Collins entered into an oral agreement with McCombs under which he would receive a set salary for operating a miniature train ride. At the end of three years, he would begin to share in the profits of the business. The three years passed, with Collins receiving the agreed upon salary, but when he approached McCombs about receiving a portion of the business, McCombs told him he "was not ever going to get" such an interest. The court held the contract was within the statute of frauds and thus unenforceable.

The instant case is similar. Mercer worked from January to August expecting to receive his incentive pay. During that time he was paid his regular salary. However, in August he was informed that he would not receive the...