Opinion
No. A3-98-95
April 21, 2000.
ORDER
I INTRODUCTION
Before the court are plaintiff's motion to amend (doc. #23); defendants' motion for leave to file a reply brief (doc. #43); defendants' motion to strike, or, alternatively, for leave to respond to plaintiff's supplemental response (doc. #56); and defendants' motion for summary judgment (doc. #24).
As an initial matter, plaintiff's motion to amend his complaint (doc. #23) is GRANTED, albeit with some reservation. The court concludes plaintiff's negligent misrepresentation claim is cognizable under North Dakota law and inextricably intertwined with his existing "fraud-based" claims. See Bourgois v. Montana-Dakota Util. Co., 466 N.W.2d 813, 817-19 (N.D. 1991). The court is mindful of defendants' legal arguments with respect to plaintiff's purported "wrongful termination" claim, however, and will consider any affirmative defense to this claim when properly pled.
Defendants' motion for leave to file a reply brief (doc. #43) and motion for leave to respond to plaintiff's supplemental response (doc. #56) are also GRANTED. Defendants' motion to strike (doc. #56) is DENIED. With that, the court turns to defendants' motion for summary judgment.
II BACKGROUND
Briefly stated, defendant Clark Equipment Company (Clark) was a large manufacturer of forklift trucks, components, and other related products. Plaintiff Spolum is Clark's former senior vice president and former president of Clark's Melroe division. Erstwhile defendant Leo McKernan was Clark's president from 1984 until it was acquired by defendant Ingersoll Rand Company (Ingersoll) in 1995.
Spolum originally sued McKernan individually but has subsequently stipulated to the dismissal of those claims. See doc. #51.
This dispute arises out of defendants' decision to exclude Spolum from a November, 1992 "mega-grant" of 633,000 stock options and Stock Appreciations Rights (SARs) to senior Clark officers. During the summer of 1992, Spolum negotiated with defendants a severance package whereby he agreed, inter alia, to step down from his posts at Clark in October, 1992, and leave the company altogether the following February. Spolum executed the severance agreement in September, 1992. Meanwhile, unbeknownst to Spolum, Clark issued the aforementioned mega-grant to McKernan and other senior executives (including Spolum's successor) on November 9, 1992. The options and SARs issued at an exercise price of $18.50 per share, then the share value of Clark stock. In 1995, however, Ingersoll purchased Clark's stock at $86 per share. Consequently, McKernan, et al., were able to cash in and parachute from the company with millions, sans Spolum.
A "Stock Appreciation Right" is a form of deferred compensation in which a firm grants a corporate executive a right to a proportionate benefit that occurs as a consequence of an increase in the price of the firm's stock above a base or benchmark price, also known as the exercise price. The company sets the exercise price when it awards the SAR. The executive gains if the stock price exceeds the exercise price, and when the right is exercised, payment is made directly out of the issuer-company's treasury. See Jack E. Karns and Jerry G. Hunt, Corporate Executive Deferred Compensation: Should the Exercise of Stock Appreciation Rights (SARs) Trigger Securities Law Liability?, 75 N.D.L.Rev. 535 (1999).
Spolum agreed to serve as chairman of Melroe during the interim period.
Spolum learned of the mega-grant via a proxy statement in April, 1993.
Spolum estimates McKernan alone netted at least $20,000,000.
Spolum alleges by excluding him from the mega-grant, defendants breached certain agreements guaranteeing him the same opportunity as his fellow senior officers to earn bonus or other non-salary compensation and to participate in all employee benefits or perquisites. Spolum further alleges defendants concealed the impending mega-grant during the 1992 severance negotiations, and affirmatively misrepresented the benefits of the severance agreement in order to induce him to step down prior to the mega-grant. Spolum estimates he would have received 70,000 options and SARs worth $4,725,000 had he remained with Clark and participated in the grant. Via the instant motion, defendants argue they did not breach their contractual obligations to Spolum, and further argue they neither knew of nor were required to disclose the impending mega-grant during his severance negotiations. The motion came on for hearing February 4, 2000, in Fargo, North Dakota, and was thereafter taken under advisement by the undersigned.
III ANALYSIS
A. SUMMARY JUDGMENT STANDARDS
Summary judgment is proper only when the record shows there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); Pace v. City of Des Moines, 201 F.3d 1050, 1052 (8th Cir. 2000). A fact is "material" if it might affect the outcome of a case, and a factual dispute is "genuine" if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Churchill Bus. Credit, Inc. v. Pacific Mut. Door Co., 49 F.3d 1334, 1336 (8th Cir. 1995). See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).The "basic inquiry" for purposes of summary judgment is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one sided that one party must prevail as a matter of law." Quick v. Donaldson Co., Inc., 90 F.3d 1372, 1376 (8th Cir. 1996) (citing Anderson, 477 U.S. at 251-52). In making this inquiry, however, the court will not "weigh the evidence, make credibility determinations, or attempt to determine the truth of the matter." Id. (citing Anderson, 477 U.S. at 249). Rather, the court's function is to determine only whether a dispute is genuine, and "[i]f reasonable minds could differ as to the import of the evidence," summary judgment is inappropriate. Id. at 1377 (citing Anderson, 477 U.S. at 250). This determination is made by viewing the evidence and the inferences which may be reasonably drawn from it in the light most favorable to the nonmoving party. Lambert v. City of Dumas, 187 F.3d 931, 934 (8th Cir. 1999).
B. DEFENDANTS' MOTION FOR SUMMARY JUDGMENT
Spolum's amended complaint currently contains five counts alleging breach of contract, "failure to disclose," negligent misrepresentation, fraud and deceit, and constructive fraud, respectively. Spolum's main breach of contract claim is based upon the following provision of employment agreements he executed in 1984 and 1992:
For your services as a full-time employee of CLARK, your salary shall be fixed from time to time by the Chief Executive Officer, but shall not be less than that in effect on 23 August 1984. As a full-time employee you will be afforded the opportunity to earn a bonus or other non-salary compensation and to participate in all employee benefits or perquisites as may be made applicable to employees of like rank and position.
Spolum claims the above-emphasized language required defendants to afford him the same opportunity to participate in the mega-grant as other senior Clark officers, and, having failed to do so, defendants are in breach. Alternatively, Spolum contends the provision is ambiguous. Defendants argue the provision did not create a right or entitlement to participate in the mega-grant sufficient to support Spolum's contract claim.
The court concludes defendants have not established for purposes of summary judgment that no rational argument can be made for Spolum's interpretation of the foregoing provision. To be sure, the construction of a written contract to determine its legal effect is generally a question of law, as is the determination whether or not a contract is ambiguous; once found, however, an ambiguity creates questions of fact to be resolved by the trier of fact. See Kaler v. Kraemer, 603 N.W.2d 698, 702 (N.D. 1999) (citations and internal quotations omitted). Here, the court finds the above-emphasized language ambiguous; accordingly, fact questions remain regarding its meaning, and, of course, whether it was adhered to by defendants. Defendants' motion for summary judgment is consequently DENIED with respect to Spolum's breach of contract claim.
For the same reason, the court DENIES defendants' motion with respect to Spolum's claim he is entitled to increased benefits pursuant to Clark's Supplemental Executive Retirement Plan.
The parties lump Spolum's remaining "fraud-based" claims under the auspices of Section 551 of the Restatement (Second) of Torts, "Liability for Nondisclosure." Thus, the discourse has focused upon the existence of a fiduciary or other similar relation of trust and confidence between Spolum and defendants, sufficient to give rise to a duty to disclose under this provision.
That section provides:
551. LIABILITY FOR NONDISCLOSURE
(1) One who fails to disclose to another a fact that he knows may justifiably induce the other to act or refrain from acting in a business transaction is subject to the same liability to the other as though he had represented the nonexistence of the matter that he has failed to disclose, if, but only if, he is under a duty to the other to exercise reasonable care to disclose the matter in question.
(2) One party to a business transaction is under a duty to exercise reasonable care to disclose to the other before the transaction is consummated,
(a) matters known to him that the other is entitled to know because of a fiduciary or other similar relation of trust and confidence between them; and
(b) matters known to him that he knows to be necessary to prevent his partial or ambiguous statement of the facts from being misleading; and
(c) subsequently acquired information that he knows will make untrue or misleading a previous representation that when made was true or believed to be so; and
(d) the falsity of a representation not made with the expectation that it would be acted upon, if he subsequently learns that the other is about to act in reliance upon it in a transaction with him; and
(e) facts basic to the transaction, if he knows that the other is about to enter into it under a mistake as to them, and that the other, because of the relationship between them, the customs of the trade or other objective circumstances, would reasonably expect a disclosure of those facts.
The court is initially concerned that the preoccupation with Section 551 belies some confusion regarding the nature of Spolum's "fraud-based" claims. Clearly, Section 551 furnishes guidance in interpreting North Dakota's "Deceit" provisions. Dewey v. Lutz, 462 N.W.2d 435, 440 (N.D. 1990) (citing N.D. Cent. Code § 9-10).See Ostlund Chem. Co. v. Norwest Bank of Jamestown, 417 N.W.2d 833, 836 n. 2 (N.D. 1988); Hellman v. Thiele, 413 N.W.2d 321, 326 (N.D. 1987). However, under North Dakota law "Deceit" technically applies only to actions based upon misrepresentations "where . . . there is no contract between the parties." Hellman, 413 N.W.2d at 326. The "Deceit" provisions therefore "have no application where, as in this case," the parties are in privity.Id. Rather, actions for intentional or negligent misrepresentations, or failure to disclose, between parties to a contract, or to induce a party to enter into a contract, are governed explicitly by North Dakota's "Actual Fraud" provisions:
9-03-08 Actual fraud defined. Actual fraud within the meaning of this title consists in any of the following acts committed by a party to the contract, or with his connivance, with intent to deceive another party thereto or to induce him to enter into the contract:
1. The suggestion as a fact of that which is not true by one who does not believe it to be true;
2. The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true though he believes it to be true;
3. The suppression of that which is true by one having knowledge or belief of the fact;
4. A promise made without any intention of performing it; or
5. Any other act fitted to deceive.
N.D. Cent Code § 9-03-08. See Hellman, 413 N.W.2d at 326; see also Dewey, 462 N.W.2d at 439 ("Technically, fraud under [§ 9-03] applies only when there is a contract between the parties; deceit under [§ 9-10] applies when there is no contract between the parties."); Ostlund Chem. Co., 417 N.W.2d at 835-36 ("Because Ostlund conceded . . . it was no longer pursuing a case based upon any contract between the parties, we construe Ostlund's remaining count as a tort action for deceit under §§ 9-10-02 and 9-10-03 . . . rather than for actual fraud or constructive fraud under §§ 9-03-08 and 9-03-09. . . ."). Cf. Cooperative Power Ass'n v. Westinghouse Elec. Corp., 60 F.3d 1336, 1340-43 (8th Cir. 1995). Indeed, Spolum has alleged defendants either intentionally or negligently made affirmative misrepresentations in order to induce him to enter into the 1992 severance agreement prior to the mega-grant. Such affirmative misrepresentations constitute actual fraud under North Dakota law. See Kary v. Prudential Ins. Co. of America, 541 N.W.2d 703, 705 (N.D. 1996) (citations omitted)("Actionable fraud under Section 9-03-08 . . . includes the making of an affirmative statement of fact, known to be untrue, with intent to deceive another or induce another to enter into a contract."); Bourgois, 466 N.W.2d at 817 ("[S]ection 9-03-08[(2)] also includes as actual fraud, `[t]he positive assertion, in a manner not warranted by the information of the person making it, of that which is not true though he believes it to be true,' in order to induce a party to enter a contract."). The court invites the parties to consider the "technical" distinction between Deceit and Actual Fraud, and its effect, if any, upon Spolum's burden to establish a duty to disclose independent from the contractual obligations between the parties.
Assuming for now Spolum labors under this burden, the court nevertheless declines to resolve the question of duty at the summary judgment stage. North Dakota courts have consistently declared in fraud cases that the existence of a fiduciary relationship is generally a question of fact. L.C. v. R.P., 563 N.W.2d 799, 802 (N.D. 1997); In re Estate of Lutz, 563 N.W.2d 90, 98 (N.D. 1997); Production Credit Ass'n of Fargo v. Ista, 451 N.W.2d 118, 121 (N.D. 1990). Cf. § 551 cmt. m ("If there are disputed facts bearing upon the existence of the duty, . . . they are to be determined by the jury under appropriate instructions as to the existence of the duty."). North Dakota courts "have identified a fiduciary relationship as something approximating business agency, professional relationship, or family tie impelling or inducing the trusting party to relax the care and vigilance ordinarily exercised. A fiduciary relationship exists when one is under a duty to act or give advice for the benefit of another upon matters within the scope of the relationship[,] . . . . [and]. . . . generally arises when there is an unequal relationship between the parties." L.C., 563 N.W.2d at 802 (citations and internal quotations omitted). The court remains unwilling to accept defendants' assertion that, as a matter of law, such a relationship could not have existed between Spolum and his fellow officers at Clark. Accordingly, defendants' motion is DENIED with respect to Spolum's "fraud-based" claims, as well.
For purposes of his constructive fraud claim, it appears Spolum must establish "a duty owed by virtue of a fiduciary, confidential, or other special relationship. . . ." See Dahl v. ConAgra, Inc., 998 F.2d 619, 620 (8th Cir. 1993) (citing Bourgois, 466 N.W.2d at 819; N.D. Cent. Code § 9-03-09) (internal quotations omitted). The North Dakota Century Code defines constructive fraud as follows:
9-03-09 Constructive fraud defined.
1. In any breach of duty which, without an actually fraudulent intent, gains an advantage to the person in fault or anyone claiming under him, by misleading another to his prejudice or to the prejudice of anyone claiming under him; or
2. In any such act or omission as the law specially declares to be fraudulent without respect to actual fraud.
In light of the foregoing, defendants' motion for summary judgment (doc. #24) is DENIED.
IV SUMMARY
Plaintiff's motion to amend (doc. #23) is GRANTED. Defendants' motion for leave to file a reply brief (doc. #43) and motion for leave to respond to plaintiff's supplemental response (doc. #56) are GRANTED. Defendants' motion to strike (doc. #56) and motion for summary judgment (doc. #24) are DENIED.
IT IS SO ORDERED.