Simpson v. Norwesco, Inc.

• Decision Date: 06 December 1977
• Docket Number: Civ. No. 76-4077.
• Citation: 442 F. Supp. 1102
• Parties: Michael SIMPSON, d/b/a Delta Enterprises, Plaintiff, v. NORWESCO, INC., a Corporation, Defendant.
• Court: U.S. District Court — District of South Dakota

442 F. Supp. 1102

Michael SIMPSON, d/b/a Delta Enterprises, Plaintiff, v. NORWESCO, INC., a Corporation, Defendant.

Civ. No. 76-4077.

United States District Court, D. South Dakota, S. D.

December 6, 1977.

Gale E. Fisher, of May, Johnson & Burke, Sioux Falls, S. D., for plaintiff.

Michael F. Pieplow, of Davenport, Evans, Hurwitz & Smith, Sioux Falls, S. D., and Edward J. Parker, of Lindquist & Vennum, Minneapolis, Minn., for defendant.

MEMORANDUM DECISION

NICHOL, Chief Judge.

This was an action to recover commissions allegedly owed to the plaintiff as a result of a breach of the employment contract by the defendant. The case was tried to a jury from June 20 to June 22 of 1977. At the conclusion of the three day trial the jury returned a verdict of $90,381.68 in favor of the plaintiff. Based on this verdict plaintiff petitions this court for an award of pre-judgment interest. On the other side, defendant has moved that this court grant a motion for judgment notwithstanding the verdict or in the alternative grant a new trial.

As mentioned by the defendant in its brief, there is little dispute as to the essential facts surrounding this matter. Plaintiff, Michael Simpson, was employed as a sales manager for Raven Industries. At Raven, plaintiff sold spray tanks to customers in this area. Rotonics, a division of defendant Norwesco, wanted to establish itself as a competitive force in this market. Plaintiff's expertise and exclusive knowledge of customers in this area was attractive to the defendant. As a result, on July 28, 1970, plaintiff entered into a written contract with Rotonics wherein plaintiff agreed to act as Rotonics' manufacturer's representative for polyethylene spray tanks. (Plaintiff's Exhibit No. 1).

The employment agreement contained two terms critical to this lawsuit. First, the agreement provided that plaintiff would receive a commission of 10% on sales of proprietary sprayer tanks, a commission of 6% on sales to a certain specified customer, Campbell Manufacturing, and a commission of 6% on sales of custom sprayer tanks. In addition, the agreement provided that it was "terminable at the will of either party upon six months written notice."

The parties were able to operate under this agreement for approximately two years before serious problems developed. After this period of time, however, the economic picture began to appear unsound for Rotonics. Rotonics was facing intense competition in the agricultural sprayer tanks market. (Plaintiff's Exhibits 6, 7). Faced with increased deficits in the Rotonics Division, it became apparent to the management of Norwesco, the parent corporation of Rotonics, that losses would have to be cut in order for that division to remain in business. Plaintiff's Exhibit No. 11). The evidence was inconclusive as to the cause of the losses within the Rotonics Division. Although such losses were blamed on the stiff competition alone, there was testimony suggesting poor management in terms of unfulfilled deliveries as well as losses attributable to an inordinate amount of defective products. (Plaintiff's Exhibits 13, 14).

Although the cause of Rotonics' economic malady was unclear, the evidence is lucid as to who was expected to bear the brunt of the curative measures: the plaintiff, Michael Simpson. Consequently, defendant reduced plaintiff's commission rate on sales of proprietary tanks from ten percent to seven percent. As a partial offset to this reduction, defendant increased plaintiff's commission on sales to Campbell Manufacturing from six percent to seven percent and increased plaintiff's commissions on sales of custom tanks from six percent to seven percent.

Plaintiff was informed of this change in commission rates by letter from David Baldwin, president of Norwesco, dated August 10, 1972. (Plaintiff's Exhibit No. 11). In response to this information, plaintiff sent a letter to Mr. Baldwin on August 28, 1972. (Plaintiff's Exhibit No. 12). In this letter plaintiff expressed several of his complaints regarding the operation of Rotonics. He concluded the letter by rejecting any commission reduction and reserving his rights under the original agreement:

"I plan to continue with the same efforts in accordance with the terms of the original agreement."

Following receipt of Simpson's reply, Norwesco management communicated no statements to Simpson to indicate that if he did not accept the reduction he would be terminated. There is no evidence that in fact he was given the specific directive of accepting the reduction or terminating his employment. Under the terms of the contract any such notice of termination by Norwesco required a six month written notice. Plaintiff did, however, receive monthly commission statements and checks that reflected the changed commission rate.

Despite the cut in plaintiff's wages, Rotonics continued to lose money. Once again Norwesco management sought to alleviate this deficit by cutting Simpson's wages. Therefore, in September of 1974 plaintiff's commission rate on proprietary products was cut to 5%. Plaintiff's commission rate on custom sales remained at 7%. Plaintiff contends that again he refused to acquiesce in the unilateral wage cut. He relied on his letter of August 28, 1972, in which he specifically rejected any wage reduction and reserved his rights under the original agreement. Again Norwesco presented no hard alternative to Simpson of either accepting the reduction or considering his contract terminated.

During the fall of 1974, discussions were conducted between Rotonics and Simpson concerning the possibility of drafting a new written contract of employment to replace the contract presently in force. These new contract discussions and negotiations focused primarily on the life of the possible contract and its language regarding the termination clause. These discussions, however, never achieved a meeting of the minds and no new contract was ever signed. Plaintiff's employment with Rotonics continued.

Finally, Rotonics was sold by Norwesco to Solar, Inc., and Mr. Simpson's employment relationship was terminated. This was in 1976. (Plaintiff's Exhibit No. 26). The notice of termination referred to the employment agreement of July 28, 1970.

Defendant asserts four grounds to support its motion for JNOV. It is contended that (1) the court should have instructed as a matter of law that Simpson's continued employment after notice that Norwesco intended to cut his commission rate constitutes acceptance of the new commission rate by Simpson; (2) the court should not have instructed as to reservation of rights as the law does not recognize this right by a party in an employment situation such as this; (3) the court should have found as a matter of law that plaintiff is estopped from making his claims at this time for lost wages; and (4) the court should grant a new trial because of the prejudicial error involved in the court's ruling admitting into evidence Exhibit 35.

A motion for judgment N.O.V. cannot be granted unless as a matter of law the opposing party failed to make a case and a verdict in the movant's favor should have been granted. Anderson v. United States, 561 F.2d 162 (8th Cir. 1977); Davis v. Burlington Northern, Inc., 541 F.2d 182, 186 (8th Cir. 1976), cert. den. 429 U.S. 1002, 97 S.Ct. 533, 50 L.Ed.2d 613 (1976). In considering such a motion, this Court must view the evidence in the light most favorable to sustaining the verdict and give the opposing party the benefit of every reasonable inference that may be drawn from the evidence. Anderson v. United States, supra, at 11; Russ v. Ratliff, 538 F.2d 799, 804 (8th Cir. 1976).

In considering defendant's motion for judgment N.O.V., this Court must consider Illinois law as controlling. The 1970 written agreement between the parties provided in section 12 that the agreement would be "construed in accordance with the laws of the State of Illinois." (Plaintiff's Exhibit 1).

"(W)here a contract provides that the rights and obligations of employer and employee should be governed by the laws of a particular state, such a contract is valid if it is not contrary to the public policy of the forum. . . ." 1A Moore's Federal Practice Sec. 0.311(1) at p. 3411. Here, a consideration of Illinois law by this court does not appear to be offensive to South Dakota law.

After careful consideration of defendant's motion, I do not believe that the moving party has sufficiently demonstrated that the jury verdict should be disregarded. This court remains convinced that there was ample evidence to present a jury question on the alteration of the contract and plaintiff's reservation of rights.

It is elementary under contract law that the modification of a contract requires mutual consent. This is true because, in essence, what is being done is the substitution of a new contract for the pre-existing agreement. This principle of contract law has been expressly followed by the courts in Illinois. In York v. Central Illinois Mutual Relief Association, 340 Ill. 595, 173 N.E. 80, at 83 (1930), the Court noted:

There is no doubt that the parties to a contract may by their mutual agreement accept the substitution of a new contract for the old one with the intent to extinguish the obligation of the old contract, but one party to a contract cannot by his own acts release or alter its obligations. The intention must be mutual.

This rule has been held applicable "to any labor or employment contract." People ex rel. Sterba v. Blaser, 33 Ill.App.3d 1, 337 N.E.2d 410, 416 (1975).

Here evidence was presented that there was no mutual consent to the contract alteration. In fact, plaintiff's case was premised on the assertion that the change in the original contract regarding the commission rate was totally unilateral. Certainly, plaintiff's letter rejecting the change in commission rate in which he stated that he was "continuing under the terms of the original contract" does not mean that plain...