873 F.3d 1030
8th Cir.2017Background
- Kmak exercised options to buy restricted American Century stock in 2003 and 2005 and signed Stock Restriction Agreements (SRAs) giving the company the right to repurchase shares upon termination, disability, death, or retirement.
- Kmak left employment in September 2007; American Century called his shares for repurchase in December 2011 after an arbitration between American Century and JP Morgan, timing that cost Kmak year-end dividends.
- Kmak sued in diversity court asserting breach of the implied covenant of good faith and fair dealing, alleging American Century retaliated (violating public policy) for his testimony in JP Morgan’s favor and that he reasonably expected to keep the shares absent competition.
- The district court initially dismissed; this court reversed in part (Kmak I), holding that a claimed public-policy retaliation could state a breach of the implied covenant, and remanded for discovery.
- After discovery, American Century moved for summary judgment; the district court found non-retaliatory reasons for the timing and that Kmak failed to show pretext and granted summary judgment for American Century.
- On appeal, the Eighth Circuit affirmed based on the Missouri Supreme Court’s decision in Ameren, which clarified that breach of the implied covenant is not a separate public-policy cause of action where the contract expressly permits the challenged conduct; only reasonable-expectation claims remain, and those were previously dismissed with prejudice. The Eighth Circuit also affirmed the denial of Kmak’s late motion to amend for lack of diligence (no good cause).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether exercising SRA repurchase rights to call Kmak’s shares constituted a breach of the implied covenant based on alleged public-policy retaliation for testimony | Kmak: American Century called shares in retaliation for his arbitration testimony, violating public policy and breaching the implied covenant | American Century: SRAs expressly permitted repurchase at any time; actions were lawful and supported by non-retaliatory reasons | Held: Affirmed for defendant — Missouri Supreme Court’s Ameren forecloses creating a public-policy breach of the implied covenant where contract expressly permits the conduct; only reasonable-expectation claims survive and were already dismissed. |
| Whether summary judgment should be denied because facts create inference of pretext/retaliation | Kmak: Temporal proximity and discovery evidence permit a jury to infer retaliatory motive and pretext | American Century: Presented legitimate non-retaliatory explanations (economic conditions; strategy re JP Morgan dispute); Kmak’s evidence insufficient to show pretext | Held: Affirmed summary judgment — plaintiff failed to show pretext or a viable public-policy implied-covenant claim under Missouri law. |
| Whether leave to file a Third Amended Complaint should be granted after scheduling-order deadline | Kmak: New discovery revealed claims (breach of earlier option agreements; fraud/negligent misrep.) so he had good cause and claims are not futile | American Century: Amendment was untimely, prejudicial, would expand scope, and claims are futile | Held: Denial affirmed — Kmak lacked diligence/good cause under Rule 16(b); granting would cause undue delay and prejudice. |
Key Cases Cited
- Kmak v. American Century Cos., Inc., 754 F.3d 513 (8th Cir. 2014) (earlier panel opinion reversing district court in part on pleading public-policy implied-covenant claim)
- Bishop & Associates, LLC v. Ameren Corp., 520 S.W.3d 463 (Mo. 2017) (Missouri Supreme Court: no separate public-policy implied-covenant cause where contract permits challenged conduct; plaintiff must show denial of expected contractual benefit)
- Mo. Consol. Health Care Plan v. Cmty. Health Plan, 81 S.W.3d 34 (Mo. Ct. App. 2002) (articulates reasonable-expectation standard for implied covenant claims)
- Williams v. TESCO Servs., Inc., 719 F.3d 968 (8th Cir. 2013) (Rule 16(b) good-cause/diligence standard for late amendments)
- Hartis v. Chicago Title Ins. Co., 694 F.3d 935 (8th Cir. 2012) (prejudice inquiry usually not reached when movant lacks diligence)
- Sanders v. Venture Stores, Inc., 56 F.3d 771 (7th Cir. 1995) (denying amendment where it would cause undue delay and prejudice)