Wooldridge v. Central United Life Ins. Co., 95-1544

• Decision Date: 18 June 1997
• Docket Number: No. 95-1544,95-1544
• Citation: 568 N.W.2d 44
• Parties: Jerry E. WOOLDRIDGE, Appellee, v. CENTRAL UNITED LIFE INSURANCE COMPANY and Life of America Insurance Company, Appellants.
• Court: Iowa Supreme Court

Page 44

568 N.W.2d 44

Jerry E. WOOLDRIDGE, Appellee, v. CENTRAL UNITED LIFE INSURANCE COMPANY and Life of America Insurance Company, Appellants.

No. 95-1544.

Supreme Court of Iowa.

June 18, 1997.

Rehearing Denied Sept. 18, 1997.

John D. Mayne of Mayne & Mayne, Sioux City, for appellant.

Marvin F. Heidman and Sabra K. Craig of Heidman, Redmond, Fredregill, Patterson, Schatz & Plaza, L.L.P., Sioux City, for appellee.

Considered en banc.

CARTER, Justice.

Defendant, Central United Life Insurance Company (Central United), appeals from an adverse judgment in an action brought by Jerry E. Wooldridge, who had been terminated as president of the company. That action, Woodbury County No. 107264C, was based on a severance agreement between Wooldridge and his employer and, in addition, sought benefits allowed under the provisions of Iowa Code chapter 91A (1993). The defendant asserts several grounds for reversal. We separately consider these contentions and affirm the judgment of the district court on all issues except the award of attorney fees under Iowa Code section 91A.8. On the attorney-fee issue, we modify the judgment. In a separate action, Woodbury County No. 110449C, Central United sought damages from Wooldridge for the improper performance of his duties as president of the company. That action was dismissed on the ground that it was required to be included as a compulsory counterclaim in No. 107264C. On Central United's appeal from that ruling, we reverse the judgment and remand the case to the district court for further proceedings.

Wooldridge was, at all relevant times, president of Central United, an Iowa corporation with its principal place of business in Sioux City. He had been with the company since 1964 and had been president since 1972. At the time of the transactions at issue here, all of the stock of Central United was owned by Central United Corporation, a holding company incorporated in Iowa. Eighty-five percent of Central United Corporation's outstanding stock is owned by Central Mutual Insurance Company, an Ohio corporation with its home office in Van Wert, Ohio. Sometime in 1991, Central Mutual decided it wanted to cease its life insurance operations. As a step in that direction, Central Mutual decided to dispose of Central United. That decision was made without the knowledge of Wooldridge. He learned of the decision when he attended a meeting of Central United's board of directors in February 1992. At this time he was informed of Central Mutual's decision to negotiate disposition of Central United. In order to encourage Wooldridge to remain as Central United's president during the transactions leading to the disposition of that company, he was offered certain incentives contained in a letter from the chairman of Central United's board who was also president and chairman of the board of Central Mutual. This letter, dated February 5, 1992, contained the following provisions.

In addition to your usual duties as President, you are to do the following:

1. Keep confidential and not disclose directly or indirectly to any person any trade secret, proprietary information or other business secret belonging to CUL, including but not limited to nonpublic information concerning the operations, financial condition, products or distribution system of CUL. In furtherance of such efforts, you will not duplicate, distribute or discuss any of the information with any party unless authorized in writing to do so by myself or Gerald Thatcher. You will abide by our determination as to what information is confidential. Thirty days after the sale offering memorandum is mailed by KPMG/Peat Marwick's prospective buyers, we will provide you with an authorization to seek other employment opportunities on a discreet basis.

2. Use your best efforts to assist in the preparation of documents, reports, and other information we will need for the sale of CUL.

3. Refrain from disclosing or discussing the proposed sale of CUL with any of the employees until authorized in writing to do so by myself or Gerald Thatcher.

4. Refer any and all prospective buyers to ... KPMG/Peat Marwick....

5. Except as directed by myself or Gerald Thatcher, refrain from participating in any negotiations for the purchase of CUL while an employee of CUL.

6. Remain in the employ of CUL until we determine your services are no longer needed.

As consideration for your performance of the above-enumerated responsibilities, we will pay you at the time of closing the sale of CUL but not later than December 31, 1992, a lump sum fee of $10,000 and will transfer to you title to the 1990 Suburban. You will be responsible for taxes and any fees connected with the $10,000 payment and vehicle transfer.

Additionally, if we terminate your employment for reasons other than your breach of items 1-6, then we will provide you with the severance benefits listed on the attached Exhibit A.

Because this is a highly sensitive and confidential matter, if you fail to comply with any of the aforementioned items 1-6 or disclose the contents of this letter, you will be subject to immediate termination, and forfeit the $10,000, the Suburban, and all severance benefits on Exhibit A which are not mandated by statute.

Exhibit A to this letter agreement described, among other benefits, a provision for a service bonus equal to one week's pay for each full year of service completed as of Wooldridge's last day worked. Also included in this benefit package was a provision for maintaining a $10,000 life insurance policy for Wooldridge, the continuance of the company's health care coverage until he became eligible for Medicare, and the provision of a Medicare supplement thereafter. In addition, Wooldridge's wife was to be eligible for major medical benefits until age sixty-five and a Medicare supplement thereafter upon paying a stated fee for those coverages.

In the late spring of 1992, Life of America Insurance Company, a Texas corporation, owned primarily by David Harris, entered into negotiations with Central Mutual to acquire Central United. The negotiations matured into a formal agreement and plan of reorganization. That agreement called for Life of America Insurance Company to form a subsidiary, named LOA Merger Corporation, into which Central United would be merged. At the conclusion of this transaction, LOA Merger Corporation would own 100% of the stock of Central United. The initial proposal required approval of the Iowa Commissioner of Insurance, which was not obtained. Subsequently, Central United was redomesticated as a Texas corporation, and the transaction was consummated without the Iowa Insurance Commissioner's approval.

The lump sum payment of $10,000 and the transfer of the designated motor vehicle referred to in the February 5 letter agreement were concluded prior to December 31, 1992, as promised in the agreement. The merger agreement closed on July 31, 1993. On the next working day, David Harris went to Sioux City and terminated Wooldridge's employment with the company. In his testimony at trial, Harris indicated that this decision was not based on any particular factor relating to Wooldridge's performance but simply because he wanted to implement his own choice of the individual who would run the company. He selected for this task his own father, John Harris.

Following his termination, Wooldridge contended that his severance check was not in accordance with the letter agreement. That check consisted of one week's salary, ten days of sick leave, and twenty-six days of accumulated vacation time. When the dispute over the amount of his severance package was not resolved, he commenced the present action in August 1993. The action sought recovery for breach of the February 5, 1992 letter agreement and for wages recoverable under Iowa Code chapter 91A.

On April 4, 1994, the court established a discovery deadline, and a February 14, 1995 trial date. In December of 1994 that trial date was continued until April 1995. In January 1995 Central United requested leave to amend its answer to state a counterclaim. That request was denied as untimely as was a March 6, 1995 request by Central United to amend its answer to allege the substance of the proposed counterclaim as an affirmative defense.

Soon after its efforts to file a counterclaim were denied, Central United commenced a separate action against Wooldridge to obtain substantially the same relief as was sought in the counterclaim. That suit was ultimately dismissed on the basis that the claim was barred by the compulsory counterclaim rule contained in Iowa Rule of Civil Procedure 29(a). Appeal from that order has been consolidated with the appeal of the judgment disposing of Wooldridge's severance agreement and wage claims.

I. Denial of Central United's Application to Amend its Answer to Assert Affirmative Defenses and a Counterclaim.

The first assignment of error raised by Central United is a claim that the district court erred in refusing its application to amend its answer to add a counterclaim and affirmative defenses.

A. The proposed counterclaim. Central United's proposed counterclaim alleged that Wooldridge caused it damage by leaking sensitive policyholder data to a person or persons outside the company and by neglecting his normal duties as president of the company. In denying Central United's application to amend, the district court concluded that the proposed counterclaim would inject new issues into litigation that had been pending for some time and thus unduly delay its completion. We review rulings of that nature for an abuse of discretion. In re Marriage of Fields, 508 N.W.2d 730, 732 (Iowa 1993). It appears that both items of recovery sought to be asserted in the proposed counterclaim and the basis therefor were matters known to Central United almost from the inception of the litigation. The action had been filed in August 1993. There had already been one continuance of the original...