Simpson v. Norwesco, Inc.

Decision Date25 September 1978
Docket NumberNo. 78-1038,78-1038
PartiesMichael SIMPSON, d/b/a Delta Enterprises, Appellee, v. NORWESCO, INC., a corporation, Appellant.
CourtU.S. Court of Appeals — Eighth Circuit

Edward J. Parker of Lindquist & Vennum (argued), and J. Kevin Costley, Minneapolis, Minn., on brief, for appellant.

Gale E. Fisher of May, Johnson, Doyle, Becker & Fisher, Sioux Falls, S.D., argued and on brief, for appellee.

Before STEPHENSON, Circuit Judge, INGRAHAM, * Senior Circuit Judge, and HENLEY, Circuit Judge.

STEPHENSON, Circuit Judge.

In this diversity action Norwesco, Inc. appeals from the judgment of the district court 1 holding it liable to plaintiff-appellee Michael Simpson for breach of an employment contract in failing to pay commissions due plaintiff. 2 After a three-day trial, the jury returned a verdict of $90,381.68 in favor of plaintiff Simpson. Following the verdict, the district court granted Simpson's petition for an award of prejudgment interest. On this appeal, Norwesco contends (1) as a matter of law Simpson accepted a modification of his commission rate by continuing to work for Norwesco after notice of the modification; (2) Simpson is estopped by his conduct from claiming past commissions; (3) the jury was improperly instructed on the matter of explicit reservation of rights; (4) exhibit 35 was improperly admitted into evidence; and (5) Simpson is not entitled to prejudgment interest. We affirm.

We note that there is some dispute between the parties concerning the factual background of this case. For purposes of this appeal, we, of course, view the record in the light most favorable to sustaining the findings of the jury and must give the prevailing party the benefit of every reasonable inference which may be drawn from the evidence. Davis v. Burlington N. Inc.,541 F.2d 182, 186 (8th Cir.), Cert. denied, 429 U.S. 1002, 97 S.Ct. 533, 50 L.Ed.2d 613 (1976); Linn v. Garcia, 531 F.2d 855, 858 (8th Cir. 1976).

In 1966 Simpson began working for Raven Industries as a fiberglass salesman. He was promoted to sales manager, and in that capacity he met manufacturers of agricultural equipment and sold agricultural spray tanks to customers in the South Dakota area. Rotonics, a division of Norwesco, wanted to establish itself as a spray tank manufacturer and a competitor of Raven Industries. Simpson's expertise and knowledge of area customers were attractive to Rotonics. As a result, on July 28, 1970, Rotonics entered into a written employment contract with Simpson. By this contract, Simpson agreed to act as a manufacturer's representative for polyethylene spray tanks manufactured by Rotonics.

This employment contract provided that Simpson would receive a commission of ten percent on sales of proprietary sprayer tanks, a commission of six percent on sales of custom sprayer tanks, and a commission of six percent on sales to Campbell Manufacturing. 3 The president of Norwesco, David Baldwin, testified that he approved the commission figure of ten percent on proprietary sprayer tank sales because he felt that Norwesco needed Simpson to build up sales in the South Dakota market. In addition, the contract provided that it was "terminable at the will of either party upon six months written notice."

For approximately two years, both parties worked under the contract without serious difficulty. However, shortly thereafter Rotonics began to suffer from a variety of economic problems. Competition in the agricultural sprayer tank market was intense, and in this competitive environment operating deficits in the Rotonics division of Norwesco increased. Evidence at trial suggests that Rotonics suffered from delivery problems and from an unusually high number of defective products. As a response to these economic maladies, Rotonics decided to reduce their operating costs by reducing Simpson's commission rate on proprietary sprayer tanks from ten percent to seven percent. Simpson's commission rate on sales of custom tanks and sales to Campbell Manufacturing was increased from six percent to seven percent, which offset a part of the reduction in commissions. Simpson was informed of this change in his commission rates by a letter from Norwesco president Baldwin dated August 10, 1972.

Simpson replied to Baldwin's letter by a letter of August 28, 1972. After expressing his dissatisfaction concerning general business practices of Rotonics, Simpson closed his letter with the following declaration: "I plan to continue with the same efforts in accordance with the terms of the original agreement." Following the receipt of this letter, Norwesco did not communicate to Simpson that he must either accept the new commission schedule or find other employment. 4 However, Simpson did begin to receive monthly commission statements which reflected the change in commission rates outlined in Baldwin's letter of August 10, 1972.

Despite the reduction in commissions paid to Simpson, Rotonics continued to lose money. The response of management at Norwesco was a second cut in Simpson's commission rate. In September 1974 Simpson's commission rate on proprietary sprayer tanks was cut to five percent, while the commission rate on custom products remained at seven percent. Simpson maintains that he again refused to acquiesce in the newly reduced commission scale. Simpson relies on his letter of August 28, 1972, as his rejection of any reductions in commissions and a reservation of rights under the original employment contract.

In late 1974 there were further negotiations between Norwesco and Simpson. These negotiations focused upon the possibility of a new contract of employment to replace the contract presently in force. Differences between Norwesco and Simpson regarding the life of a new contract, a termination clause, and a covenant not to compete frustrated the negotiations and no new agreement was reached.

Finally, in 1976, Norwesco sold its Rotonics division to Solar, Inc. Shortly thereafter, Simpson received a letter from Baldwin which terminated Simpson's employment. This letter of termination made express reference to the original employment contract of July 28, 1970, and provided six months notice as required by that contract.

After a three-day trial, the jury returned a verdict of $90,381.68 in favor of Simpson. This award of damages represents the difference between Simpson's commissions at the rate agreed upon in the original contract and the reduced commissions actually paid by Rotonics after August 1972. The district court denied Norwesco's motion for a judgment notwithstanding the verdict and granted a petition by Simpson for an award of prejudgment interest. Simpson v. Norwesco, Inc., 442 F.Supp. 1102 (D.S.D.1977). This appeal followed.

Norwesco's first contention is that, as a matter of law, Simpson accepted a modification in his commission rate by continuing to work for the Rotonics division. In the alternative, Norwesco contends that Simpson is estopped by his actions from making a claim for past commissions. In considering these contentions, this court must be guided by Illinois law. The 1970 written employment contract between the parties provided that the agreement would be "construed in accordance with the laws of the State of Illinois." The intention of the parties, as expressed in the contract, to have their agreement construed under Illinois law will be honored. See Tele-Controls, Inc. v. Ford Inds., Inc., 388 F.2d 48, 51 (7th Cir. 1967); American Serv. Mut. Ins. Co. v. Bottum, 371 F.2d 6, 11 (8th Cir. 1967).

Norwesco relies heavily on Weiss v. Duro Chrome Corp., 207 F.2d 298 (8th Cir. 1953), in which this court affirmed an Illinois district court's dismissal of an employee's action against an employer for commissions sought under an employment contract. As noted by the district court, Simpson v. Norwesco, supra, 442 F.Supp. at 1106, there are two significant distinctions between Weiss and the case at bar. In Weiss, the original employment contract provided in specific language that the employer reserved the right to change the commission rates with no notice to the employee. Thus, subsequent changes in commission rates made by the employer did not create new agreements, rather, such changes merely carried out the terms of the original agreement. Further, in Weiss the employee failed to protest when his commissions were reduced. Unlike the employee in Weiss, Simpson's employment contract with Norwesco contained no provision allowing Norwesco to make a unilateral change in Simpson's commission rate. In addition, Simpson protested in writing when his commission schedule was altered.

There is no doubt that the parties to a contract may, by their mutual agreement, enter into a new or modified contract and extinguish the obligations of the old contract. However, one of the contracting parties, acting alone, cannot alter his obligation under a contract without the consent of the other party. York v. Central Ill. Mut. Relief Ass'n, 340 Ill. 595, 173 N.E. 80, 83 (1930). This principle has been extended to any labor or employment contract. Sterba v. Blaser, 33 Ill.App.3d 1, 337 N.E.2d 410, 416 (1975). In the present case, the employment contract between Norwesco and Simpson contained no provision to allow Norwesco to make changes without the agreement of Simpson. The terms of this contract suggest that if Norwesco made changes unacceptable to Simpson, the option would be to either retain the original agreement or terminate the contract by providing six months written notice. When Norwesco first indicated the commission schedule would be changed, Simpson's letter in response stating he was "continuing under the terms of the original contract" was far from any acquiescence in the proposed new commission scale.

Under the Illinois standard, a directed verdict for Norwesco could only have been entered if the evidence,...

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