Shаwn C. Jeanes; Wayne Mains, Plaintiffs - Appellees, v. ALLIED Life Insurance
No. 01-3443
United States Court of Appeals FOR THE EIGHTH CIRCUIT
Submitted: May 14, 2002; Filed: August 23,
Before BOWMAN, LOKEN and BYE, Circuit Judges.
LOKEN, Circuit Judge.
Shawn C. Jeanes and Wayne Mains resigned as insurance agents and regional directors for ALLIED Life Insurance Company, an Iowa insurer. Jeanes and Mains then filed this diversity action, alleging they were forced to resign after discovering that ALLIED failed to tell them of an improper increase in the fees charged to universal life policyholders. A trial to the district court resulted in a judgment awarding Jeanes and Mains damages totaling more than $1.3 million on their claims of breach of contract and violation of the Iowa Wage Payment Collection Law. ALLIED appeals. The district court‘s decision is reported at Jeanes v. Allied Life Ins. Co., 168 F. Supp. 2d 958 (S.D. Iowa 2001).
Iowa law governs this diversity case. Under Iowa law, when a breach of contract claim has been tried to the court, the court‘s findings are binding if supported by substantial evidence; our review is then limited to correcting errors of law. See
I. The Breach of Contract Claims.
In separate agency contracts, ALLIED appointed Jeanes and Mains as California-based independent agents authorized to solicit applications for ALLIED policies in their respective territories, and as regional directors (formerly called managing general agents) authorized to supervise and encourage life insurance sales by assigned ALLIED Property/Casualty agents. Jeanes and Mains received commissions on premiums paid on ALLIED policies issued through them, and override commissions on premiums paid on ALLIED policies issued through their assigned agents. At issue in this lawsuit is paragraph 3(b) of the agency contracts, which prоvided:
Good Faith: Both parties will, at all times, act in good faith when dealing with our policyholders and each other. You will not make any actions that suggest or encourage any policyholder to surrender or lapse any policy or to cease premium payments. Any such activity gives us [ALLIED] the right to terminate this Agreement for cause.
In January 1994, ALLIED decided to increase by two percent the cost-of-insurance (COI) fees charged on outstanding universal life policies. After the increase was implemented in September, ALLIED charged COI fees at the new rate as each policy reached its anniversary date. The increased fee was not discеrnible on the policies’ annual statements, and ALLIED did not otherwise disclose the increase to its universal life policyholders. During a February 1995 meeting, ALLIED informed regional directors of the fee increase but did not explain the reason for the increase. In response to concerns that the fee increase might be invalid, ALLIED discоntinued collecting it in April 1995 and eventually rolled back the additional charges by increasing the interest paid to policyholders on the affected policies.
In June 1997, Jeanes and Mains were told by another ALLIED regional director that the two percent COI fee increase had been imposed to maximize executive bоnuses. After contacting an attorney handling a class action lawsuit against another life insurer, they resigned as ALLIED agents and regional directors on January 9, 1998, expressing concern that “unresolved issues” and “Senior Management‘s standards for operation” could jeopardize their integrity as agents and their relationships with clients and оther agents. This lawsuit followed. Following a bench trial, the district court ruled in favor of Jeanes and Mains on their breach of contract claims and awarded damages of $1,164,663.25 on those claims.
Our task on appeal is simplified by noting at the outset what is not at issue. First, the district court determined that ALLIED breached the universal life policies by impоsing the two percent COI fee increase because the policies provide that COI fees will be determined “based on [ALLIED‘s] expectations as to future mortality experience.” The court did not find that the increases were motivated by a desire to increase executive bonuses, as Jeanes and Mains argued, but it did find that the reasons put forward by ALLIED trial witnesses were not limited to the company‘s expectations as to mortality experience, as the policies required. These findings and conclusions are not challenged by ALLIED on appeal.
Second, the district court concluded that ALLIED breached the express good faith provision in paragraph 3(b) of the agency contracts:
In this case, good faith would certainly include an obligation on the behalf of Allied to make changes in the cost of insurance known to its policyholders.
Good faith would also encompass an obligation by Allied to be honest with its Regional Directors so that they are able to bе honest with the company‘s clientele. It is clear from the record now before the Court that Allied did not raise the COI for mor[t]ality experience. It is also clear that the true reason for the increase, be it to maximize executive bonuses or to cover new legislative requirements, was not revealed and was not madе known to policyholders and to Messrs. Jeanes and Mains.
168 F. Supp. 2d at 978. These conclusions may be problematic because they were made without considering whether ALLIED‘s universal life policies obligated the company to disclose to policyholders either the fact of the COI fee increase, or the reasons for that increase. In most States, the implied covenant of good faith and fair dealing “is a method to fill gaps in a contract” and may not be used to impose duties that the contract‘s express terms do not require. Taylor Equip., Inc. v. John Deere Co., 98 F.3d 1028, 1032 (8th Cir. 1996) (quotation omitted) (applying South Dakota law). The district court did not analyze whether the Supreme Court of Iowa would adoрt this limited definition of bad faith in resolving contract performance issues and apply it in construing an express good faith covenant such as paragraph 3(b). But in any event, ALLIED has not raised the issue on appeal. Therefore, we assume without deciding that the district court correctly found a breach of paragraph 3(b).
Howеver, to prevail on their breach of contract claims under Iowa law, Jeanes and Mains must prove they suffered damages as a result of ALLIED‘s breach. Molo Oil Co. v. River City Ford Truck Sales, Inc., 578 N.W.2d 222, 224 (Iowa 1998). At trial, Jeanes and Mains failed to prove that any client lapsed or terminated a universal life policy because of the COI fee increase before Jeanеs and Mains terminated the agency contracts. Thus, Jeanes and Mains did not prove that they lost commissions due to ALLIED‘s breach. Rather, their damage claims were based upon the loss of future commission income resulting from their voluntary termination of their agency relationships with ALLIED. The district court upheld this damage theory by invoking the doctrine of constructive discharge under Iowa law. We disagree.
Under Iowa law, a constructive discharge occurs “when the employer deliberately makes an employee‘s working conditions so intolerable that the employee is forced into an involuntary resignation.” First Judicial Dist. Dep‘t of Corr. Servs. v. Iowa Civil Rights Comm‘n, 315 N.W.2d 83, 87 (Iowa 1982). The Iowa cоurts have limited the doctrine to claims of wrongful termination of employment. When an employer has forced an employee to quit, rather than firing him, constructive discharge “provides a mechanism to avoid the technical requirement that wrongful discharge be based on an employer-initiated discharge.” Balmer v. Hawkeye Steel, 604 N.W.2d 639, 641 (Iowa 2000). However, constructive discharge is not a free-standing cause of action. “Even after establishing constructive discharge, an employee must independently prove a breach of contract or tort in connection with employment termination in order to obtain damages for wrongful discharge.” Id. at 642 (emphasis added, quotation omitted).
In this case, Jeanes and Mains did not resign to avoid imminent improper termination. ALLIED did not want them to resign, its breach of the good faith covenаnt was not intended to force them to resign, and the fact that Jeanes and Mains would give up lucrative agency relationships was not a foreseeable consequence of ALLIED‘s decision to conceal from them the reasons for the rescinded COI fee increase.
Moreover, even if the Iowa courts would apply the doctrine of constructive discharge in this novel manner, we conclude that Jeanes and Mains failed to prove they were constructively discharged. The test for constructive discharge is rigorous. “The conditions giving rise to the resignation must be sufficiently extraordinary and egrеgious to overcome the normal motivation of a competent, diligent, and reasonable employee to remain on the job to earn a livelihood and to serve his or her employer.” Haberer v. Woodbury County, 560 N.W.2d 571, 575 (Iowa 1997) (quotation omitted). The Supreme Court of Iowa recently surveyed its prior decisions and noted that no plaintiff has succeеded “in establishing a constructive discharge under the facts of the case.” Balmer, 604 N.W.2d at 642. Here, ALLIED rescinded the COI fee increase after a few months and refunded the increased charges. Over two years later, Jeanes and Mains heard that the increases were imposed to fatten executive compensation -- a rumor they werе unable to prove at trial. They waited six months longer -- in order to collect their 1997 agent bonuses -- and then resigned, claiming ALLIED‘s lack of candor forced them to terminate the relationships. We are not convinced that any reasonable person would feel compelled to terminate an independent agency relationship in these circumstances. “The proper focus is on whether the resignation was coerced, not whether it was simply one rational option for the employee.” Haberer, 560 N.W.2d at 575 (quotation omitted). Though Jeanes and Mains were within their rights in terminating the agency contracts on account of ALLIED‘s breach, they were not forced to resign.
For the foregoing reasons, we reverse the district court‘s award of damages for ALLIED‘s breach of paragraph 3(b) of the agency contracts.
III. The Wage Payment Collection Law Claims.
Shortly after Jeanes and Mains terminated their agency contracts and filed this action, ALLIED ceased commission payments. Jeanes and Mains then amended their comрlaint to allege that the commissions were clearly due and therefore the refusal to pay them violated the Iowa Wage Payment Collection Law,
The Iowa Wage Payment Collection Law is designed “to facilitate the collection of wages owed to employees.” Phipps v. IASD Health Servs. Corp., 558 N.W.2d 198, 201 (Iowa 1997). On appeal, ALLIED argues, as it did in the district court, that Chapter 91A does not aрply because Jeanes and Mains were independent contractors, not employees. Applying the common law test of Miller v. Component Homes, Inc., 356 N.W.2d 213, 216-17 (Iowa 1984), the district court held that Jeanes and Mains were employees because of the amount of control ALLIED exerted over its regional directors.
If the common law test for distinguishing employees from independent contractors were controlling, we would have great difficulty affirming the district court‘s conclusion that these independent insurance agents were employees of ALLIED. See Birchem v. Knights of Columbus, 116 F.3d 310, 313 (8th Cir. 1997), and cases cited. However, we conclude the common law test is not controlling because a 1985 amendment to the Wage Paymеnt Collection Law added the following sentence to the definition of “employee” in
Employee also includes a commission salesperson who takes orders or performs services on behalf of a principal and who is paid on the basis of commissions but does not include persons who purchase for their own account for resale.
1985 Iowa Acts Ch. 119. The district court downplayed the significance of this relatively recent amendment by stating, “While the statute includes commissioned salespersons, it does not include under its ambit independent contractors.” 168 F. Supp. 2d at 991. But the court cited no authority for this assertion, which is contrary to the plain meaning of the аmendment. The added sentence distinguishes between manufacturers’ sales representatives and independent distributors, two types of salespersons who are frequently independent contractors, by including the former under the statute‘s protections, but excluding the latter. The text of the amendment provides no basis for limiting the statute‘s coverage to commission salespersons who are also employees. Moreover, the Iowa Legislature could rationally conclude that commission salespersons have the same need for the protections of the statute as wage-earning employees, even if the commission salespersons are technically independent contractors. In these circumstances, lacking contrary guidance from the Supreme Court of Iowa, we will enforce amended
ALLIED next argues that plaintiffs’ claims for liquidated damages for commissions earned prior to February 12, 1999 are barred by the two-year limitations period applicable to Wage Payment Collection Law claims, because Jeanes and Mains did not amend their complaint to include these claims until Februаry 12, 2001. This contention is foreclosed by Andus v. Sabre Communications Corp., 554 N.W.2d 868, 873-74 (Iowa 1996), where the Supreme Court of Iowa held that continuously accruing commissions are a “continuous, open, current account” for purposes of
Finally, ALLIED argues the district court erred in awarding prejudgment interest on the Wage Payment Collection Law claims for the two years prior to the assertion of those claims on February 12, 2001. We agree. The applicable Iowa
The judgment of the district court is reversed insofar as it (i) awards damages on count one of plaintiffs’ complaint of $570,977.99 for Jeanes and $593,685.26 for Mains; and (ii) awards prejudgment interest as to count seven of plaintiffs’ complaint prior to February 12, 2001. The judgment is otherwise affirmed, and the case is remanded for further proceedings not inconsistent with this opinion.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.