Robert MEYER and Janet Meyer, Plaintiffs-Appellants, Cross-Appellees, v. AMERISOURCEBERGEN DRUG CORPORATION, Defendant-Appellee, Cross-Appellant.
Nos. 06-4456, 06-4457
United States Court of Appeals, Sixth Circuit
Feb. 13, 2008
ROGERS, Circuit Judge.
This case involves the interpretation of a private employment contract. Plaintiffs Robert and Janet Meyer appeal the district court‘s grant of summary judgment in favor of Robert‘s former employer, AmerisourceBergen Corporation, arguing that: (1) the district court erred in concluding that AmerisourceBergen‘s promise to pay Meyer incentive compensation was illusory and unenforceable; and (2) the district court erred in concluding that AmerisourceBergen did not breach the provision of the agreement requiring Meyer‘s consent to a change in his employment duties or, alternatively, that if there was a breach, Meyer waived his right to assert damages. The Meyers additionally appeal the district court‘s denial of prejudgment interest on $163,172.85 of severance and insurance pay, which the district court awarded in its sua sponte entry of summary judgment in the Meyers’ favor on their claim of entitlement to severance and insurance payments under the employment agreement. Defendant AmerisourceBergen cross-appeals, arguing that the district court erred in entering summary judgment for the Meyеrs on their claim of entitlement to severance and insurance pay.
The district court correctly concluded that Meyer was not entitled to incentive compensation under the employment agreement; that AmerisourceBergen did not breach the agreement provision requiring Meyer‘s consent to a change in his employment duties; and that Meyer was entitled to severance and health care premiums under the agreement. We therefore affirm the district court‘s grant of summary judgment to AmerisourceBergen and Meyer, respectively, on these issues. Because the district court erred in denying the Meyеrs prejudgment interest on their severance and insurance premium award, however, we reverse its denial and remand with instructions to amend the judgment to include an award of prejudgment interest.
Robert Meyer was employed by AmerisourceBergen and its predecessors from approximately 1985 until his retirement in 2003. In early 2000, Meyer began discussions with the president of AmeriSource about reducing his responsibility, with an eye toward retirement. Meyer and his attorney negotiated and executed an employment agreement with AmeriSource, which became effective April 1, 2000. By its terms, the Agreement is governed by Ohio law.
The Agreement defined Meyer‘s employment duties as “the administration and planning of AmeriSource University programs, special projects related to Home Health Care and Health Services Plus as well as AmeriSource Medical Supply,” and provided that Meyer would not generally be expected to work more than twenty-four hours per week. Section 1(c) of the Agreement provided that “[t]he duties of [Meyer] may be changed by the written mutual consent of the Company and Meyer.”
In addition, the Agreement provided that Meyer would receive a salary of $73,800 for each year of the employment period, which was to expire after three years on March 31, 2003. Section 3(b) of the Agreement allowed for the possibility of incentive compensation:
As additional compensation, during the Employment Period, [Meyer] may be entitled to receive incentive compensation (“Incentive Compensation“) as may be authorized, declared and paid by the Board of Directors of the Company based upon personal and Company performance at a rate applicable to comparable Company executives.
Upon termination of Meyer‘s employment for any reason other than “for сause” or Meyer‘s own voluntary termination, Meyer was entitled under Section 11(e) of the Agreement to a severance payment of $147,600:
In the event of any termination of Meyer‘s employment hereunder pursuant to Sections [11(a)(i)-(iii)] or 11(a)(v), the Company shall pay Meyer a lump sum severance amount equal to two (2) times his annual salary. This severance benefit shall be due and payable to Meyer for termination of employment herein, except the Company is not obligated to pay the lump sum severance if Meyer‘s termination of employment is due to “cause” as set forth in Section 11(a)(iv) or voluntary termination of employment by Meyer pursuant to Section 11(a)(vi).
The severance clause provided that “[s]aid severance payment shall be made to Meyer by the Company within thirty (30) days after termination.” AmeriSource also agreed in Section 11(f)(i) to pay the premiums and provide medical, health, and drug plan insurance coverage for Meyer and his wife until their 62nd birthdays, at which time they would be eligible for Medicare. Section 11(h) of the Agreement contemplated that, at some point, Meyer would sign a release of liability in favor of AmeriSource:
In the event that the Company has performed all of the obligаtions, by it to be performed under this Agreement for the benefit of Meyer, then Meyer will execute in favor of the Company a release, in standard form and satisfactory to the Company, of any claims by Meyer arising out of this Agreement or Meyer‘s termination, except such release shall exclude any continuing obligations of the Company to pay the future medical and health premiums under Section 11(f) and the insurance/indemnity obligation under Section 12 per the terms of this Agreement.
In March 2001, AmeriSource sold its Home Health Care division. Because Meyer had managed this division, the sale resulted in a reduction of Meyer‘s workload and his hours were reduced to eighteen-to-twenty per week.
In September 2001, AmeriSource merged with Bergen Corporation. Bergen had a training program similar to that of AmeriSource University, and Bergen‘s health care programs essentially replaced the divisions of AmeriSource with which Meyer had dealt. Meyer‘s duties were taken over by a Bergen employee, and AmeriSource assigned Meyer no new responsibilities. Thus, from September 2001 until his retirement under Section 11(a)(i) of the Agreement in March 2003, Meyer performed no duties for AmerisourceBergen. Nevertheless, AmerisourceBergen continued to pay Meyer his annual salary of $73,800 for the remainder of the contractual employment period.
On March 3, 2003, near the end of the three-year employment term, AmerisourceBergen sent Meyer a “Severance Letter and General Release” doсument. The document required Meyer to accept several “Severance Terms” as a prerequisite to his receipt of the severance and insurance payments described in the original agreement. Meyer refused to sign the Release, arguing that its terms varied materially from key terms of the original employment agreement and that AmerisourceBergen had not yet performed some of its obligations under the original agreement. Meyer claims that he offered to sign a more limited release, which allegation AmerisourceBergen admitted in its Answer.
Because Meyer and AmerisourceBergen nevеr agreed on a release, AmerisourceBergen never paid Meyer his $147,600 severance or the insurance premiums for Meyer and his wife. In the meantime, Meyer paid his own health insurance premiums. The parties stipulated that Meyer paid $15,572.85 in premiums that AmerisourceBergen would otherwise have paid under the Agreement.
In May 2004, Robert and Janet Meyer sued AmerisourceBergen for breach of contract.1 Meyer claimed that, among other sections of the Agreement, AmerisourceBergen breached: (1) Section 1(c) by “substantially changing [Meyer‘s] duties without his written or mutual consent“; (2) Sections 3(b) and (c) by “failing and refusing to рay [Meyer] incentive compensation and award [Meyer] stock options at a rate and in an amount applicable to comparable AmerisourceBergen executives“; and (3) Sections 11(e) and (f) by failing to pay Meyer‘s lump-sum severance and insurance premiums. Additionally, Meyer sought prejudgment interest on any award of damages.
AmerisourceBergen moved for summary judgment in November 2004, arguing that Meyer had presented no genuine issue of material fact and that AmerisourceBergen was entitled to judgment as a matter of law. The Meyers did not file a response, nor did they file their own motion for summary judgment.
In July 2006, thе district court granted AmerisourceBergen‘s motion for summary judgment on all of the Meyers’ claims ex-
The court also concluded that AmerisourceBergen had not breached the Agreement by reducing Meyer‘s workload. The court reasoned that the Agreement protected Meyer from an increase in duties without a commensurate increase in salary, “but did not guarantee his duties would remain the same,” indicating by implication that the Agreement did not require Meyer‘s consent for a decrease in duties. The court also noted Meyer‘s acquiescence in AmeriSource‘s sale of the Home Health Care division and merger with Bergen, concluding that Meyer had waived any right to claim damages from the reduction in his duties by “sitting silent for two years and colleсting his salary.” Later, in its denial of Meyer‘s motion to alter or amend the judgment, the district court reasoned that “[t]he Agreement does not guarantee Meyer any specific level of duties.”
Finally, after noting that “a court may enter summary judgment sua sponte in favor of a nonmoving party when the moving party has had adequate opportunity to present evidence on the issue on which summary judgment is granted,” the district court concluded that Meyer was entitled to severance and “medical, health, and drug plan coverage insurance” and sua sponte awarded the Meyers a total of $163,172.85. The district court did not award prejudgment interest on this amount.
In August 2006, the Meyers filed a motion to alter or amend the judgment, asking the court to permit a jury trial on their incentive compensation claim and to add $53,923.76 in prejudgment interest to the judgment. The district court denied the requested relief. With respect to the Meyers’ request for prejudgment interest, the court explained that, because the Agreement “clearly contemplates that Meyer would sign a release in exchange for Defendant‘s payment of severance and insurance benefits,” AmerisourceBergen did not breach the Agreement by withholding payment until a satisfactory release could be agreed upon. Noting thаt a plaintiff is not entitled to prejudgment interest when he “induced delay by refusing to sign a release” and that Meyer had not responded when AmerisourceBergen informed him that it was ready and able to pay his severance and medical premiums, the district court denied the Meyers prejudgment interest.
On appeal, the Meyers argue that AmerisourceBergen‘s promise to pay Meyer incentive compensation is not illusory, and that the district court erred in so holding. The Meyers also argue that AmerisourceBergen breached the Agreement by changing his duties without his consent, and that Meyer did not waive his right to assert damages аrising from the reduction of his duties. The Meyers also assert that they are entitled to prejudgment interest on the severance and insurance judgment awarded them.
AmerisourceBergen cross-appeals, arguing that the district court erred in entering judgment for the Meyers on their severance and medical insurance claims. AmerisourceBergen argues that: (1) the Meyers’ failure to respond to Amerisour-ceBergen‘s motion for summary judgment
Analysis
I. Meyer is not entitled to incentive compensation under the Agreement, and AmerisourceBergen did not breach the Agreement by declining to provide it.
The district court correctly concluded that Meyer was not entitled to incentive compensation under the employment agreement, and AmerisourceBergen therefore did not breach the Agreement by declining to award Meyer incentive compensation during his last two years of employment.
Section 3(b) of the Agreement provides:
As additional compensation, during the Employment Period, [Meyer] may be entitled to receive incentive compensation (“Incentive Compensation“) as may be authorized, declared and paid by the Board of Directors of the Company based upon personal and Company performance at a rate applicable to comparable Company executives.
(emphasis added). As the district court еxplained, this clause provides AmerisourceBergen with unfettered discretion regarding whether or not to award Meyer incentive compensation.2 The Agreement leaves the award of incentive compensation optional with AmerisourceBergen, and AmerisourceBergen “retains an unlimited right to determine the nature or extent of [its] performance.” Century 21 v. McIntyre, 68 Ohio App.2d 126, 427 N.E.2d 534, 536-37 (1980). Under Ohio law, which governs the Agreement, this discretion renders the incentive compensation clause of the Agreement illusory and unenforceable. See id.; Imbrogno v. MIMRX.COM, Inc., No. 03AP-345, 2003 WL 22707792, 2003 Ohio App. LEXIS 5459 (Ohio App. Nov. 18, 2003). As the Ohio courts have explained, “[a]n apparent prоmise which according to its terms makes performance optional with the promisor is in fact no promise, although it is often called an illusory promise.” Imbrogno, 2003 WL 22707792, at *2, 2003 Ohio App. LEXIS 5459, at **6 (citing Andreoli v. Brown, 35 Ohio App.2d 53, 299 N.E.2d 905, 906 (1972)). “If a promise is illusory, of course, then the contract is not enforceable.” Id. at *2, 2003 Ohio App. LEXIS 5459 at **6. Consequently, although the Agreement left open the possibility of incentive compensation, it did not guarantee such compensation, and Meyer is not entitled to bonuses or stock options.
The Meyers argue that the incentive compensation section of the Agreement is not illusory because the last clause, “based upon personal and Comрany performance at a rate applicable to comparable Company executives,” provides standards for—and a limit on—AmerisourceBergen‘s discretion regarding incentive compensation.
II. AmerisourceBergen did not breach the Agreement by reducing Meyer‘s workload.
AmerisourceBergen also did not breach the Agreement by reducing Meyer‘s workload. Section 1(a) defines Meyеr‘s employment duties as “the administration and planning of AmeriSource University programs, special projects related to Home Health Care and Health Services Plus as well as AmeriSource Medical Supply.” Regarding Meyer‘s workload, the Agreement provides: “Normal hours of work will be determined by the requirements of the said specified duties. Hours of work on average are not expected to exceed twenty-four (24) hours per week.” Section 1(c) requires written mutual consent of Meyer and AmerisourceBergen for a change in Meyer‘s employment duties.
Although various business decisions resulted in a total elimination of Meyer‘s workload, at no time were his duties changed without his consent. Meyer was never required to become a teacher, for example. The reduction in Meyer‘s work does not constitute a “change” in Meyer‘s Section 1(a) employment duties under a natural reading of Section 1(c) of the Agreement. As the district court reasonably explained, “[t]he Agreement does not guarantee Meyer any specific level of duties” (emphasis added). The Agreement‘s only provision with respect to workload is that Meyer will not usually be expected to work more than twenty-four hours per week. Because Meyer‘s duties were not changed, Meyer‘s argument that
III. AmerisourceBergen breached the Agreement by failing to pay Meyer‘s severance and insurance premiums.
On the other hand, AmerisourceBergen did breach the Agreement by failing to pay Meyer‘s severance and insurance premiums.
The termination of Meyer‘s employment оn March 31, 2003, triggered AmerisourceBergen‘s obligations both to pay Meyer‘s lump-sum severance and to pay the premiums and provide medical, health, and drug plan coverage insurance. Section 11(e) of the Agreement provides:
In the event of any termination of Meyer‘s employment hereunder pursuant to Sections [11(a)(i)-(iii)] or 11(a)(v), the Company shall pay Meyer a lump sum severance amount equal to two (2) times his annual salary. This severance benefit shall be due and payable to Meyer for termination of employment herein, except the Company is not obligated to pay the lump sum severance if Meyer‘s termination of employment is due to “cause” as set forth in Section 11(a)(iv) or voluntary termination of employment by Meyer pursuant to Section 11(a)(vi). Said severance payment shall be made to Meyer by the Company within thirty (30) days after termination.
(emphasis added). Regarding insurance premiums and coverage, Section 11(f) provides:
The Company shall provide and directly pay to the group insurance provider the premium cost of the Company‘s medical, health and drug plan coverage insurance for Meyer and his spouse as follows:
(i) Upon termination of Meyer‘s employment under this Agreement pursuant to Section 11(a)(i) or 11(a)(v), the Company shall pay the premiums and provide coverage....
Under the plain language of Sections 11(e) and (f), the termination of Meyer‘s employment for specified reasons is the only precondition to Meyer‘s receipt of severance and insurance coverage. The parties do not dispute that Meyer‘s employment was terminated pursuant to Section 11(a)(i). AmerisourceBergen was therefore obligated to begin payment of his insurance premiums upon his termination and to pay his severance within thirty days of March 31, 2003. Consequently, AmerisourceBergen‘s failure to pay the Meyers’ severance and medical benefits constituted a breach of contract.
Contrary to AmerisourceBergen‘s arguments, the Agreement does not require Meyer to sign a release of liability as a prerequisite to his receipt of severance and insurance benefits. First, as explained above, the only explicit precondition to Meyer‘s receipt of severance and insurance premiums under those clauses is the termination of his employment for specified reasons.4 Second, contrary to the assertions of AmerisourceBergen, the release clаuse of the Agreement does not condition Meyer‘s receipt of severance and insurance
In the event that the Company has performed all of the obligations, by it to be performed under this Agreement for the benefit of Meyer, then Meyer will execute in favor of the Company a release, in standard form and satisfactory to the Company, of any claims by Meyer arising out of this Agreement or Meyer‘s termination, except such release shall exclude any continuing obligations of the Company to pay the future medical and heаlth premiums under Section 11(f) and the insurance/indemnity obligation under Section 12 per the terms of this Agreement.
(emphasis added). This clause clearly indicates that Meyer‘s obligation to execute a release of liability does not arise until after AmerisourceBergen has performed all of its contractual obligations, with the exception of its “continuing obligations ... to pay the future medical and health premiums under Section 11(f) and the insurance/indemnity obligation under Section 12....” Before Meyer is expected to sign a release, then, AmerisourceBergen is required to fully perform all of its contractual obligations except the full two-to-three years of medical coverage and indefinite indemnity—including its obligations to pay severance and begin payment on medical insurance premiums. Although AmerisourceBergen offers alternative interpretations of Section 11(h), those interpretations are not persuasive.5 Consequently, AmerisourceBergen‘s obligations to pay Meyer‘s severance and insurance premiums were triggered by Meyer‘s termination and were not affected by his failure to execute a release of liability, and the company‘s failure to fulfill these obligations constituted a breach of сontract.
IV. The district court‘s failure to provide ten days’ notice to AmerisourceBergen before sua sponte entering summary judgment in favor of the Meyers on severance and insurance premiums does not require reversal.
Moreover, the district court‘s failure to provide ten days’ notice to AmerisourceBergen before sua sponte entering summary judgment in favor of the Meyers on severance and insurance premiums does not require reversal because AmerisourceBergen was not prejudiced.
It is permissible for district courts to enter summary judgment sua sponte in favor of a nonmoving party as long as the court “afford[s] the party against whom sua sponte summary judgment is to be entered ten-days notice and an adequate opportunity to respond.” Yashon v. Gregory, 737 F.2d 547, 552 (6th Cir. 1984); see also Harrington v. Vandalia-Butler Bd. of Ed., 649 F.2d 434, 436 (6th Cir. 1981). “The party against whom sua sponte summary judgment has improperly been entered must, however, demonstrate prejudice in order to obtain relief on appeal.” Yashon, 737 F.2d at 552; see also Harrington, 649 F.2d at 436 (“A District Court‘s failure to comply with the ten-day requirement of Rule 56(c) is subject to the harmless error rule.“).
V. The district court erred in denying the Meyers prejudgment interest.
Finally, however, the district court erred in denying the Meyers prejudgment interest on their award for severance and insurance expenses. The award of prejudgment interest in the instant action is governed by Ohio law. See Hale v. Life Ins. Co. of N. Am., 795 F.2d 22, 24 (6th Cir. 1986) (“When a federal court‘s jurisdiction rests upon diversity, the award of prejudgment interest is governed by state law.“). Under Ohio law, “when money becomes due and payable upon any ... instrument of writing ... and upon all judgments, decrees, and orders of any judicial tribunal for the payment of money arising out of tortious conduct or a contract or other transaction, the creditor is entitled to interest at the rate per annum determined pursuant to section 5703.47 of the Revised Code....”
As explained above, AmerisourceBergen was contractually obligated to pay Meyer‘s severance within thirty days of his termination, and was obligated upon Meyer‘s termination to begin payments for and provision of medical coverage.6 Although trial courts have discretion to determine factual matters concerning prejudgment interest, see, e.g., Kalain v. Smith, 25 Ohio St.3d 157, 495 N.E.2d 572, 574 (1986) (trial court has discretion to determine lack of good faith in
For the reasons stated above, we: (1) affirm the district court‘s grant of summary judgment to AmerisourceBergen; (2) affirm the district court‘s sua sponte entry of summary judgment for the Meyers on their severance and insurance premium claims; but (3) reverse the district court‘s denial of prejudgment interest and remand with instructions to amend the judgment to include an award of prejudgment interest.
Notes
The Meyers also argue that the district court erred in relying on parol evidence to determine that the incentive compensation clause is illusory. However, the district court did not improperly consult “parol evidence.” Meyer‘s deposition statements were not used to contradict or alter the terms of a written agreement, but rather were simply used to bolster the clear conclusion from the plain language of the contract: that the award of incentive compensation was discretionary with AmerisourceBergen. Even if the district court‘s mention of Meyer‘s deposition statements were somehow impermissible, it would not matter because the district court‘s grant of summary judgment could be affirmed on the basis of the Agreement language alone.