I.      INTRODUCTION AND STATEMENT OF CASE


         This appeal arises out of the failure of Appellee SkyTel Communications, Inc. to pay Appellant Karen Kelly the full commissions owed to her as a sales representative for the company. In her complaint, Kelly alleged causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, misrepresentation and sex discrimination. The trial court granted SkyTel’s motion for summary judgment in its entirety, finding that SkyTel had unfettered discretion on the award of excess commissions. Kelly appeals from that judgment as to three of her four causes of action; Kelly does not challenge summary judgment of her sex discrimination claim.

         Kelly worked for over a year on one of the largest sales SkyTel ever made in Northern California. To ensure the success of the sale, Kelly had daily contact with the client, NationsBanc Montgomery Securities. For many months she spent 70% of her time on the deal, preventing her from prospecting for new clients. When the sale closed, Kelly submitted a commission statement to SkyTel’s Excellence Committee. Although her submission was substantially approved by her supervisor, the district director, the regional manager, and the director of commission administration, the Excellence Committee decided at the last minute to give half of Kelly’s commission to her supervisor, Steven Holetz. (See Excerpts of Record, Tab 9, pp. 125-126 (Gibson Depo; 19:25-:22:11); p. 133 (70:6-71:3, 73:5-20); p. 135 (83:12-18); p, 216 (Bowen depo; 63:1-64:6); and p. 233 (Holetz depo; 20:1-7)) This was the only time in the history of SkyTel that a supervisor had been given part of a salesperson’s commission. (Id., pp. 137-138 (Gibson Depo; 100:2-17.)

         The alleged basis for this split is that Holetz performed duties over and above his normal duties as sales manager and was instrumental in closing the sale. The Excellence Committee based its decision on the word of one person, Regional Manager Jim Bowen. Bowen spoke to Holetz about his contribution but never spoke to Kelly. He requested written summaries of their work on the sale from Holetz and Kelly nearly four months after he had first talked to Holetz about giving him half of Kelly’s commission - and after the Excellence Committee had already voted to give half to Holetz. (Excerpts of Record, Tab 8, pp. 113, 116-118.)

         If SkyTel had bothered to make the most basic inquiry, it would have learned that Kelly - not Holetz - was the driving force behind the NationsBanc deal; that Kelly devoted the majority of her time to the deal; that Kelly had gained the trust of the client; and that she was far more instrumental than Holetz in closing the deal. (Tab 8, pp. 114, 119; Tab 7, pp. 2-3.)

         On or about July 27, 2000, SkyTel filed a motion for summary judgment on Kelly’s claims. (Tab 1.) SkyTel argued that SkyTel’s commission agreement and its Excellence Committee Mission, Process and Criteria gave it absolute unhindered discretion whether to award any commission to a sales representative above the maximum compensable amount, and how much commission to award.

         On September 26, 2000, Northern District of California Judge Ronald M. Whyte granted SkyTel’s motion for summary judgment in its entirety. (Tab 13, at pp. 278-284.) The lower court granted SkyTel’s motion with respect to Kelly’s breach of contract and bad faith claims on the ground that SkyTel “expressly retained discretion to set the amount of any excess commission awarded by the Excellence Committee.” (Id. at p. 282.) The court further held that Kelly could not “contradict the discretionary language of the [commission] plan with an implied covenant of good faith and fair dealing.” (Id.) Since Kelly’s fraud claim is premised on her contract claim, her fraud claim was dismissed as well. (Id.)

         Kelly contends that the lower court erred in ruling that SkyTel had absolute discretion to decide whether and how much to award in supplemental commissions, without regard to the totality of the written agreement and practices of SkyTel. As is shown in detail below, the lower court almost exclusively relied upon the California Court of Appeal decision in Brandt v. Lockheed Missiles & Space Co. (1984) 154 Cal. App. 3d 1124 which, unlike this case, contained a clear and uncontradicted contractual clause granting absolute discretion to the company regarding the award of additional compensation to an employee. Although SkyTel’s commission contract does contain some discretionary language, the agreement, when taken in its entirety, is ambiguous as to whether SkyTel had absolute, or limited, discretion regarding commission payments. The contract has extensive “criteria” listed for SkyTel’s Excellence Committee to use in determining commission payments, which imply that an employee who satisfies the criteria will be paid the excess commission. In fact, the Excellence Committee’s practices are consistent with this interpretation of the contract. (Excerpts of Record, Tab 9, pp. 150-160.) The contract also contains a formula for calculating commissions. (Tab 5, pp. 68, 70). The evidence suggests that the Committee has routinely paid submissions that comply with the criteria and has calculated commissions according to the terms of the formula. Footnote

         In addition, whatever discretion SkyTel had on whether or how much commission to award is limited by the implied covenant of good faith and fair dealing. The evidence suggests that SkyTel breached the implied covenant by failing to obtain Kelly’s and the customer’s input into her role in the deal, by arbitrarily deciding at the last minute to give Kelly’s boss half of her commission contrary to established practice, by basing its decision on inaccurate information concerning Holetz’s level of effort, and by treating Kelly differently from other, similarly situated employees.

         Triable issues of fact also exist regarding Kelly’s claim for promissory fraud. Despite the language to the contrary in its commission agreement and Excellence Committee criteria, SkyTel admits that it never intended to award commissions to employees who satisfied all the criteria. As such, SkyTel’s state of mind for purposes of promissory fraud is in issue.

II.     JURISDICTION

         The District Court had diversity jurisdiction over this case, pursuant to 28 U.S.C. §1332. The instant appeal is from a final judgment granting summary judgment that disposed of all of Kelly’s claims. (Excerpts of Record, Tab 13, p. 277.) This Court has jurisdiction to review the district court’s order granting summary judgment, pursuant to 28 U.S.C. §1291. Kelly filed her Notice of Appeal on October 24, 2000, and this opening brief is similarly being filed in a timely fashion. (Id., Tabs 14 and 16.)

III.   ISSUES PRESENTED FOR REVIEW

         1)      Can SkyTel’s Commission Agreement and Excellence Committee Mission, Process and Criteria - when read in their entirety and in the context of SkyTel’s actual practices - be interpreted to give SkyTel limited rather than absolute discretion regarding commissions to be paid?

 

         2)      Are there genuine issues of material fact that SkyTel breached the implied covenant of good faith and fair dealing by failing to consider Kelly’s contributions to the NationsBanc sale, by failing to obtain accurate information regarding Kelly’s contributions, by splitting Kelly’s commission with her supervisor, and by treating Kelly differently than other similarly situated sales representatives?

 

         3)      Are there genuine issues of material fact that SkyTel made fraudulent promises to Kelly by representing in the Excellence Committee Mission, Process and Criteria that commissions would be approved “in compliance with the Excellence Committee criteria” when, in fact, SkyTel never intended to pay its sales representatives commissions according to the Criteria?

 

IV.    STATEMENT OF FACTS

         Kelly received a lead for NationsBanc Montgomery Securities in October of 1997. She contacted the prospective client and over the next several months gained the trust and respect of the client. She put together an extensive proposal which drew praise from the prospective client and was instrumental in closing the deal. Because the deal was so large, she was required to expend an extraordinary amount of time and effort. Although her manager, Steven Holetz, also helped with the deal, his work was part of his normal duties as manager. His role and significance in closing the deal paled in comparison to plaintiff’s. (Excerpts of Record, Tab 7, pp. 110-111; Tab 8, p. 114.)

         Kelly received $15,500 in commissions, for sales up to 500% of quota, pursuant to her written commission agreement. This sale brought Kelly to 7418% of quota. She then submitted a request for $214,458 in additional commissions to the Excellence Committee. (Id., Tab 9, p. 161.) Pursuant to company practice, her submission was reviewed and approved - with minor changes - by Sales Manager Steve Holetz, Regional Director Dora Morse, General Manager Jim Bowen, and Director of Commission Administration Vicki Gibson. (Id, Tab 9, pp. 125-126 (Gibson Depo; 19:25-:22:11); p. 133 (70:6-71:3, 73:5-20); p. 135 (83:12-18); p, 216 (Bowen depo; 63:1-64:6); and p. 233 (Holetz depo; 20:1-7)).

          Kelly satisfied all the specific criteria enumerated in SkyTel’s written commission agreements. (Tab 9, pp. 133-134 (Gibson depo; 73:5-74:7)). SkyTel’s practice was to award commissions whenever the criteria was satisfied. (Tab 9, p. 127 (Gibson depo; 30:19-31:12)). Kelly’s submission to the Excellence Committee was calculated according to the formula enumerated in SkyTel’s written commission agreement. (Tab 9, pp. 133-134 (Gibson depo; 73:5-74:7)). Kelly’s sales manager, regional director, and general manager approved the amount of her submission. Vicki Gibson, SkyTel’s Director of Commission Operations originally recommended that Kelly receive the full amount of her submission, $186,868 in commissions. (Id.) (The difference from plaintiff’s original request was due to reduction for units sold on the East Coast. (Id., p.133 (Gibson Depo; 70:16-71:3)). She changed her recommendation based only on communications with James Bowen. (Id., p. 135 (83:12-18)). Although Gibson did not have full recollection of SkyTel’s excess commission payments, the evidence indicates that SkyTel paid excess commissions according to the written formula. (See attached Appendix A.)

         Steve Holetz submitted his own request for additional commissions to the Excellence Committee for the NationsBanc deal. He had received $16,500 for commissions up to 500% of his quota. He requested an additional $15,609 from the Excellence Committee. (Tab 9, pp. 222-223; pp. 243-244 (Holetz depo; 50:7-54:14.))

         On April 26, 1999 the Excellence Committee voted to award Holetz the full amount of his requested submission ($15,609) plus half of plaintiff’s submission ($93,434). SkyTel has produced no correspondence, emails, or memoranda reflecting the basis for this decision. SkyTel has produced hand-written notes on plaintiff’s submission form reflecting the vote and a post-it stating “Jim Bowen wants ½ to be paid to Karen Kelly and ½ paid to Steve Holetz. This is in addt. to Steve’s EC submission amount.” (Tab 9, p. 174.) The Excellence Committee minutes state: “At the request of the GM, Jim Bowen, based on the effort assigned to this account by Steve, 50% of Karen Kelly’s EC submission ($93,434) will be paid to Steve.” (Tab 9, p. 182.) This is the only time the Excellence Committee has split a salesperson’s commission with a supervisor. (Tab 9, pp. 137-138 (Gibson depo; 100:2-17)).

         Gibson based her changed recommendation on Bowen’s representation that Holetz had performed work on the NationsBanc deal over and above his normal duties. (Tab 9, p. 135 (83:12-18); p. 137 (96:1-8)). Her information was inaccurate, however, as Holetz admits. Although he expended more time and effort on the NationsBanc deal because of the size, his work was not over and above his normal duties as manager, duties for which he was compensated according to his own commission plan. (Tab 9, pp. 239-240 (Holetz depo; 40:17-41:2)).

         Two days after the Committee vote, on April 28, Bowen asked Holetz and Kelly to submit a written statement detailing their work on the NationsBanc deal. Holetz submitted a conclusory statement containing a dozen lines, grossly exaggerating the amount and significance of his work. (Tab 8, p. 119.) Kelly submitted a detailed 2 ½ page statement. (Tab 8, pp. 116-118.) Bowen never asked Kelly about her role and never asked her to comment on Holetz’s statement. (Tab 8, pp. 113-114.) Of course, neither statement was reviewed by Bowen, Gibson, or the Excellence Committee before its April 26 vote. The Committee thus had nothing from Kelly on her role; it had only Bowen’s oral statements regarding Holetz’s role.

         Bowen has testified that he did not ask that the Excellence Committee award half of plaintiff’s commission to Holetz. “I did not recommend that either party receive half of anything. It was separate submissions for both parties and we determined that we would submit an equal amount for both.” (Tab 9, p. 206 (Bowen depo; 25:3-13)). Unfortunately, the Committee did not award an equal amount. It gave Holetz a total of $109,043 ($93,434 + $15,609) and plaintiff $93,434. (Tab 9, p. 137 (Gibson depo; 96:1-97:23 )). Footnote

 

V.      SUMMARY OF ARGUMENT

          Kelly contends that the discretionary language in the written commission agreement and Excellence Committee criteria is contradicted by other language setting forth specific criteria for award of commissions and a specific formula for calculation of commissions. The discretionary language is also contradicted by SkyTel’s own practices, which were to award commissions to those who satisfied the criteria and to calculate commissions based on the formula. Footnote

         Under rules of contract interpretation established by the California Supreme Court, SkyTel’s practices are probative of the meaning of the written agreements.

When read as a whole and reviewed in conjunction with SkyTel’s practices, the written agreements can reasonably be interpreted to give SkyTel limited, rather than absolute, discretion on the award of commissions. This limited discretion must, under California law, be exercised in good faith.

         The lower court mistakenly relied upon Brandt v. Lockheed Missiles & Space Co. in granting SkyTel’s motion for summary judgment. The contract language in Brandt, however, was clear and explicit, not ambiguous and contradictory as the contract language in this case. Given the ambiguity of SkyTel’s commission agreement, a court is entitled to consider terms implied by SkyTel’s practices.

         In addition, where a contract confers limited discretion upon one party, a duty is imposed on that party to exercise its discretion in good faith and in accordance with fair dealing. See e.g. Kendall v. Ernest Pestana, Inc. (1985) 40 Cal. 3d 488, 500. The evidence shows that SkyTel breached the implied covenant of good faith and fair dealing by failing to consider Kelly’s contributions to the sale, failing to obtain accurate information, and by treating Kelly differently than other employees.

         Kelly’s claim for promissory fraud is based upon the fact that SkyTel misrepresented its commission plan and never intended to pay her commissions according to its published criteria.

VI.    ARGUMENT

         A.      Standard of Review

         A grant of summary judgment is reviewed de novo. A court of appeal must determine, viewing the evidence in the light most favorable to the nonmoving party, whether genuine issues of material fact exist and whether the district court correctly applied the relevant substantive law. Bagdadi v. Nazar (9th Cir. 1996) 84 F. 3d 1194, 1197. See also Harris v. Itzhaki (9th Cir. 1999) 183 F. 3d 1043; Anderson v. Reno (9th Cir. 1999) 190 F. 3d 930.

         B.      Genuine Issues of Material Fact Exist With Regard to Appellant’s Claims for Breach of Contract and Breach of the Covenant of Good Faith and Fair Dealing.

1. SkyTel’s Commission Agreement Does Not Clearly And Explicitly Give SkyTel Absolute Discretion Regarding Whether To Award Commissions Over The Maximum Compensable Amount Or The Amount Of Commissions To Be Paid; The Agreement Taken As A Whole Can Reasonably Be Interpreted To Give SkyTel Only Limited Discretion Which Must Be Exercised In Good Faith.



 

a) Applicable Principles of Contract Interpretation

 

         When a dispute arises over the meaning of contract language, the first question the court must decide is whether the language is “reasonably susceptible” to the interpretation urged by a party. Foster -Gardner, Inc. v. Nat’l Union Fire Ins. Co. (1998) 18 Cal. 4th 879, 880; Badie v. Bank of America (1998) 67 Cal. App. 4th 779, 798. The court can determine whether the contract is reasonably susceptible to the party’s interpretation from the language of the contract or from extrinsic evidence of the party’s intent. So. Cal. Edison Co. v. Superior Court (1995) 37 Cal. App. 4th 839, 848; Badie, supra, 67 Cal. App. 4th at 798. If a contract is capable of more than one reasonable interpretation, it is ambiguous, and it is the court’s task to determine the ultimate construction to be placed on the ambiguous language by applying the standard rules of interpretation in order to give effect to the mutual intention of the parties. Badie, supra, 67 Cal. App. 4th at 798.

         The “paramount consideration” in the interpretation of a contract is the mutual intention of the parties at the time of contracting, as far as it is ascertainable. Civil Code §1636; Western Camps Inc. v. Riverway Ranch Enterprises (1977) 70 Cal. App. 3d 714, 723. In interpreting a contract, the California Supreme Court has held:

[E]ven if it be assumed that the words standing alone might mean one thing to the members of the court, where the parties have demonstrated by their actions and performance that to them the contract meant something quite different, the meaning and intent of the parties should be enforced. In such a situation the parties by their actions have created the ‘ambiguity’ required to bring the rule into operation. If this were not the rule the courts would be enforcing one contract when both parties have demonstrated that they meant and intended the contract to be quite different.

Crestview Cemetary Assn. v. Dieden (1960) 54 Cal. 2d 744, 745 (emphasis added), cited with approval by Corwin v. Los Angeles Newspaper Service Bureau, Inc. (1978) 22 Cal. 3d 302, 314. See also Kalmanovitz v. Bitting (1996) 43 Cal. App. 4th 311, 316 (“the party’s practical construction of a contract, as shown by their actions, is important evidence of their intent”); Herndandez v. Badger Const. Equip. Co. (1994) 28 Cal. App. 4th 1791, 1814 (“[c]ourts will adopt and enforce the parties’ practical construction when reasonable.”)

         In resolving ambiguity, the court may consider not only the express, but the implied terms of the contract as well. Floystrup v. City of Berkeley Rent Stabilization Board (1990) 219 Cal. App. 3d 1309, 1317-1318. The existence and terms of an express contract are stated in the words or writings of the parties; whereas, the existence and terms of an implied contract are inferred from the conduct of the parties. Civil Code §§ 1620, 1621; BAJI 10.56. In cases of uncertainty, the court should interpret the language of a contract most strongly against the party who caused the uncertainty. Civil Code § 1654; Taylor v. J.B. Hill Co. (1948) 31 Cal. 2d 373, 374; Badie v. Bank of America, supra, 67 Cal. App. 4th at 801.

          In addition, “A contract should be construed as an entirety, the intention being gathered from the whole instrument, taking it by its four corners. Every part thereof should be given same effect.” Kerr v. Brede (1960) 180 Cal. App. 2d 149, 151. See also Civil Code § 1641 (“the whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.”) A party may not seize upon a single part of an agreement no matter how “clear and explicit” as “conclusive” evidence of the parties’ intention. Rosen v. E.C. Losch, Co. (1965) 234 Cal. App. 2d 324, 330; Alperson v. Mirisch Co. (1967) 250 Cal. App. 2d 84, 90. See also Badie v. Bank of America (1998) 67 Cal. App. 4th 779, 800; Moore v. Wood (1945) 26 Cal. 2d 621, 630 (the meaning of the contract is not determined by isolating one term used by the parties and defining it without reference to other language of the contract.) A court must also view the language of the contract as a whole and not use a “disjointed, single-paragraph, strict construction approach.” City of El Cajon v. El Cajon Police Officers’ Assn. (1996) 49 Cal. App. 4th 64, 71; see also Appalachian Ins. Co. v. McDonnell Douglas Corp. (1989) 214 Cal. App. 3d 1, 11. (Emphasis added.)

b) Applying the foregoing contract interpretation principles, it is evident that the SkyTel commission agreement is ambiguous as to whether SkyTel had absolute, or limited, discretion regarding supplemental commission payments.


         The lower court relied almost exclusively upon the case of Brandt v. Lockheed Missiles & Space Co. (1984) 154 Cal. App. 3d 1124 in granting SkyTel’s motion for summary judgment. Brandt involved an employee patent agreement which expressly provided that the employer “may, but is not obligated to, grant to the inventor-employee a Special Invention Award.” Id. at 1128. The court in Brandt found the above contractual provision to be “clear and explicit” and an express reservation of discretion which could not be obviated by the implied covenant of good faith and fair dealing. Id. at 1129-1130.

         In this case, the lower court determined that the contractual provisions are “at least as clear as those in Brandt that management retained discretion to determine the amount of any supplemental commissions.” (Excerpts of Record, Tab 13, p. 281.) Further, the lower court ruled that SkyTel “expressly retained discretion to set the amount of any excess commission awarded by the Excellence Committee. This case falls squarely under Brandt and Plaintiff cannot contradict the discretionary language of the plan with an implied covenant of good faith and fair dealing.” (Id., Tab 13, p. 282.)

         In its decision, the lower court failed to address other language in the contract which contradicts the alleged express discretionary language and creates an ambiguity which must be resolved by examining the parties’ practical construction of the contract. This language related to the specific criteria used by SkyTel’s Excellence Committee to determine whether to give a sales representative supplemental commission, and the formula set forth in the contract to be used for determining how much commission to award. These specific contract provisions are contradicted by the general discretionary language in the contract, relied upon by the lower court, which states that the Excellence Committee had the right to use other means to determine a suitable payout (rather than the specific formula) and that it could change the criteria at any time. When general and specific provisions of a contract deal with the same subject matter, the specific provision, if inconsistent with the general provision, controls. Continental Casualty Co. v. Zurich Ins. Co. (1961) 57 Cal. 2d 27, 35.

         Moreover, the lower court failed to consider material factual differences between Brandt and the present case. These differences are set forth in the


the following table:


COMPARISON OF BRANDT and KELLY

 

BRANDT

KELLY

Contract contains discretionary language on whether to award commissions

x

x

Contract contains specific criteria for award of commissions

 

x Footnote

Defendant’s practice was to follow criteria

Not applicable

x Footnote

Contract contains discretionary language on how much commission to award

Not specified but implied

x

Contract contains formula for calculating commission

 

x Footnote

Defendant’s practice was to follow formula

Not applicable

x Footnote


          The lower court stated in its opinion that “in Brandt...the California Court of Appeal rejected a contract claim almost identical to Plaintiff’s in this case.” (Excerpts of Record, Tab 13, pp.280-281.) The contract provision in Brandt, however, was not “almost identical” to the provisions at issue in this case. In Brandt, only one contract provision was at issue, the one which provided that the Invention Awards Committee “may, but is not obligated to” grant the employee a Special Invention Award, and that all decisions by the Committee “shall be final and conclusive.” There was no evidence of any contradictory or ambiguous contract language, as there is in this case. There was also no evidence of the actual practices of the parties which contradicted the discretionary language of the contract, as there is in this case.

         The lower court also cited Third Story Music, Inc. v. Waits (1995) 41 Cal. App. 4th 798 which, similarly to Brandt, held that the implied covenant of good faith and fair dealing did not apply to a contract that contained an express grant of discretionary power. In Third Story the contract explicitly provided that the record company “may at [its] election refrain” from marketing an artist’s music. A close comparison of Brandt and Third Story with this case, as well as a contrary holding in Locke v. Warner Bros, Inc. (1997) 57 Cal. App. 4th 354, establishes that the lower court erred in ruling that SkyTel had absolute discretion to set the amount of excess commissions. Footnote

         Locke, a case raised by appellant in the lower court but not distinguished by the court Footnote , came to a different conclusion than Brandt and Third Story. Locke involved a contract which gave Locke a “first look deal” and the defendant Warner the choice either to use Locke’s services as a director or pay her a fee. The court rejected Warner’s argument that Locke was attempting to rewrite the contract to limit its discretionary power. The court held that:

The Locke/Warner agreement did not give Warner the express right to refrain from working with Locke. Rather, the agreement gave Warner discretion with respect to developing Locke’s projects. The implied covenant of good faith and fair dealing obligated Warner to exercise that discretion honestly and in good faith.

Id. at 367. (emphasis in original)

         In the case at bar, some provisions do grant SkyTel discretion regarding whether and how much to pay in supplemental commissions. However, the provisions taken in their context within the agreement, rather than in a “disjointed, single-paragraph, strict construction approach,” do not make it clear or explicit that SkyTel had absolute discretion regarding whether or how much commission to pay. On the contrary, as explained in detail below, the contract provisions are ambiguous and contradictory. Specific contract provisions are contradicted by general provisions. Although SkyTel specifically sets forth “criteria” for whether supplemental commission will be paid and a formula for how much supplemental commission should be paid, it also inserts language in the contract allegedly giving it discretion to change the criteria or use other means to determine payout.

         When attempting to interpret an ambiguous contract, it is the court’s task to determine the ultimate construction to be placed on the ambiguous language by deciphering the mutual intention of the parties. Where the actions of the parties to the contract create an ambiguity, the court must enforce the intent of the parties, as is evidenced by their actions, not simply by the words of the contract. See Crestview Cemetary Assn. v. Dieden (1960) 54 Cal. 2d 744, 745; Corwin v. Los Angeles Newspaper Service Bureau, Inc. (1978) 22 Cal. 3d 302, 314.

         Appellant will take each applicable contract provision at issue individually in order to show the full context of the contract language. The first four contract provisions go to whether SkyTel had absolute discretion to pay supplemental commissions. As is explained below, these provisions are not determinative to this case since it is undisputed that SkyTel considered Kelly for supplemental commissions and paid them to her. There is also evidence that SkyTel’s Excellence Committee regularly awarded supplemental commissions. (Tab 5, pp.72-82.)

         The final contract provision goes to whether SkyTel had absolute discretion as to how much to pay in supplemental commissions. As is explained below, this provision is ambiguous and contradictory since it sets forth a formula to use in determining how much to pay (which was initially followed in Kelly’s case), yet the provision also states that SkyTel had the right to “use other means to determine a suitable payout.”

         The first contract provision Footnote , although relied upon by the lower court, is not decisive to the court’s determination of this matter. The discretionary language in that provision would only be relevant if SkyTel’s Excellence Committee had not evaluated Kelly’s performance for additional incentive payment. It is undisputed, however, that the Excellence Committee did, in fact, consider Kelly for additional commissions.

         The second contract provision Footnote was not even raised by the lower court as relevant to its analysis, even though Kelly addressed the provision in her opposition papers. (Tab 6, p. 93.) Kelly contends that this provision shows that SkyTel does not retain absolute discretion on whether to award commissions. The language in the provision that consideration for commissions on sales over 500% of quota “must be reviewed and approved by the Excellence Committee in compliance with the published Excellence Committee criteria and process” may reasonably be read to require the Excellence Committee to “review” a submission in compliance with the criteria and process and to “approve” the submission if it complies with the criteria and process.

         The third contract provision at issue Footnote , though relied upon by the lower court as giving SkyTel absolute discretion regarding excess commissions, is also not dispositive. Although this provision appears in the Compensation Plan and not in the Excellence Committee Mission, Process and Criteria, Vicki Gibson claims that it also applies to Excellence Committee submissions. (Tab 9, pp. 127-128 (Gibson depo; 32:17-34:11)). Gibson’s interpretation, if accepted, means that the SVP’s opinion can trump that of the Excellence Committee. In view of SkyTel’s stated reasons for establishing the Excellence Committee, such a result would be absurd and not a reasonable interpretation of the contract. A more reasonable interpretation would be that the SVP has discretion regarding commissions that do not qualify for review by the Excellence Committee. In any event, this provision contradicts the specific criteria and formula applicable to Excellence Committee submissions.

         The fourth contract provision at issue was also heavily relied upon by the lower court in deciding to grant summary judgment. However, the lower court raised only part of the contract language in its analysis. The lower court did not explain that the general provision it cited followed a listing of numerous specific “criteria” for SkyTel to use in determining whether to pay supplemental commissions. (There are six listed criteria in the 1998 contract and ten in the 1999 contract.) Instead, the lower court simply focused on the language that “The Committee has the right to modify or change the criteria at any time and has final decision on any over maximum payments.” (Tab 9, pp. 170, 173.) The statement that the Excellence Committee had the right to modify or change its criteria implies that the Committee will follow the criteria in effect at the time of the submission. Otherwise, there would be no reason for the Committee to reserve the right to modify the criteria. It is undisputed that the Excellence Committee did, in fact, change the criteria from 1998 to 1999. However, that is irrelevant to this case since it is also undisputed that Kelly satisfied the criteria listed in both the 1998 and 1999 contracts. (Tab 9, p. 126 (Gibson depo; 26:5-18); pp. 133-134 (73:5-74:10)). There is also evidence that SkyTel used the criteria in all prior cases.

         The provision stating that the Excellence Committee has “final decision on any over maximum payments,” when considered within the context of its location in the contract following the specific “criteria”, cannot be read to give SkyTel absolute discretion regarding how much to award in supplemental commissions. Rather, it can reasonably be read to simply set forth SkyTel’s right to have final decision as to whether to award supplemental commissions pursuant to the criteria. As already explained previously, the “criteria” relates to whether SkyTel will even pay supplemental commissions which is not at issue in this case since such commissions were paid to Kelly. Although the contract in Brandt, supra, contained language that “all decisions by the Committee...shall be final and conclusive”, the contract language at issue in that case dealt with whether or not a Special Invention Award would be made, not the amount of such an award as is at issue in this case.

         The final contract provision at issue Footnote must be read in conjunction with the specific formula for calculating how much to award in supplemental commissions which is set forth right above the provision that “The Committee reserves the right to use other means to determine a suitable payout.” The contract provision is contradictory and ambiguous since the formula would be rendered meaningless if the Excellence Committee had used “other means to determine a suitable payout.” In cases of uncertainty or contradiction, the court should interpret the language of a contract most strongly against the party who caused the uncertainty. Civil Code § 1654; Taylor v. J.B. Hill Co. (1948) 31 Cal. 2d 373, 374. In addition, when general and specific provisions of a contract deal with the same subject matter, the specific provision, if inconsistent with the general provision, controls. Continental Casualty Co. v. Zurich Ins. Co. (1961) 57 Cal. 2d 27, 35.

         In Kelly’s case, the Committee followed the formula set forth in the contract. Gibson used the formula in calculating plaintiff’s submission amount. At the meeting, however, the Committee simply split Kelly’s commission with Holetz. In addition to initially using the formula to calculate Kelly’s commission, it was SkyTel’s practice to award commissions based upon the formula, as discussed above.

         The foregoing analysis of the content and context of the contract provisions at issue show that the SkyTel commission agreement is ambiguous as to whether SkyTel reserved absolute discretion regarding whether to pay supplemental commissions and the amount of commissions to be paid. Read as a whole, the documents convey the impression that a salesperson who satisfies the “criteria” will receive a supplemental commission based on the formula set forth in the contract. To hold otherwise, would make the lengthy descriptions of “criteria” and the formula to be used meaningless. In addition, the evidence shows that it is SkyTel’s practice not to retain absolute discretion but to pay excess commissions according to the criteria and formula listed in its contract.

2. Because The Commission Plan And Excellence Committee Mission, Process And Criteria Are Ambiguous, The Court May Consider Terms Implied By SkyTel’s Practices.

         The evidence of the Excellence Committee practices suggests that the Committee has followed its Criteria in deciding whether and how much excess commission to award. SkyTel produced Vicki Gibson at deposition as the employee most knowledgeable regarding the reasons behind Excellence Committee votes on awarding commissions. (Tab 9, p. 123 (Gibson depo; 5:4-16; pp. 147-149.) In many instances, Gibson could not recall why salespersons received less than requested. In the instances she did recall, the reasons for differences were based on Excellence Committee Criteria such as whether the account is being paid, whether the salesperson failed to follow rate card, or whether the units are being used. (Tab 9, pp. 129-130 (Gibson depo; 42:8-52:2; Appendix A.) Significantly, the Committee did not arbitrarily modify any salesperson’s submission. Its decisions were always based on specific reasons. (Tab 9, pp. 130-131 (Gibson depo; 52:11-17)).

         Thus, genuine issues of fact exists as to whether SkyTel breached its agreement with Kelly as implied by its practices.

3. Even Where A Contract Confers Discretion Upon One Party, A Duty Is Imposed To Exercise That Discretion In Good Faith And In Accordance With Fair Dealing.


         There is inherent in every contract, a covenant of good faith and fair dealing. “This covenant implies a promise that each party will refrain from doing anything to injure the right of the other to receive the benefits of the agreement... .Where a contract confers on one party a discretionary power affecting the rights of the other, a duty is imposed to exercise that discretion in good faith and in accordance with fair dealing.” Sheppard v. Morgan Keegan & Co. (1990) 218 Cal. App. 3d 61, 66-67. See also Guz v. Bechtel National, Inc. (2000) 24 Cal. 4th 317, 352-353 (the implied covenant of good faith and fair dealing exists to prevent one contracting party from unfairly frustrating the other party’s right to receive the actual benefits of the agreement.)

         The implied covenant of good faith and fair dealing not only imposes on each party a duty to refrain from doing anything to render performance of the contract impossible, but also the duty to do everything the contract presupposes that each party will do to accomplish the purpose of the contract. Floystrup v. City of Berkeley Rent Stabilization Board, supra, 219 Cal. App. 3d at 1318. The covenant of good faith and fair dealing applies to employee incentive contracts. Foley v. U.S. Paving Co. (1968) 262 Cal. App. 2d 499, 506. In Locke v. Warner Bros., Inc. (1997) 57 Cal. App. 4th 354, 364-365, described in detail above, the court held that if the defendant “acted in bad faith by categorically rejecting Locke’s work and refusing to work with her, irrespective of the merits of her proposals, such conduct is not beyond the reach of the law.”

         In Kendall v. Ernest Pestana, Inc. (1985) 40 Cal. 3d 488, the California Supreme Court rejected the argument of a commercial lessor that it had absolute discretion to arbitrarily refuse a lessee’s request for consent to assignment of the property. The court held that, while “the lessor retains the discretionary power to approve or disapprove an assignee proposed by the other party to the contract; this discretionary power should...be exercised in accordance with commercially reasonable standards.” Kendall, supra, 40 Cal. 3d at 500. The Supreme Court further held, “[t]he assertion that an approval clause ‘clearly and unambiguously’ grants the lessor absolute discretion over assignments is untenable. It is not a rewriting of a contract...to recognize the obligations imposed by the duty of good faith and fair dealing, which duty is implied by law in every contract.” Id. at 503.

         Similarly, in the present case, SkyTel’s Excellence Committee Mission, Process and Criteria does not give the Committee the right to refuse to pay a salesperson’s submission that satisfies the criteria. If the court accepts SkyTel’s interpretation that the Committee has discretion to use “other means” to calculate the commission, that discretion - the use of “other means” - must be exercised fairly and in good faith.

         Vicki Gibson admitted as much in her deposition. “[W]e are obligated to look at each sale and look at the effort, look at the approach, look at everything involved, and we can determine based on that if any additional payment and what amount should be ....” (Tab 9, p. 127 (Gibson depo; 33:22-34:1)). According to Gibson, the Excellence Committee “must look at the amount of effort put into that account.” (Id., p. 128 (34:23-24)). “We try to make it fair because we’re trying to encourage certain sales behavior and activity, and that is to go out and view lots of large sales and generate lots of revenue.” (Id. , p. 128 (Gibson depo; 40:15-18) (Emphasis added.)

4. SkyTel Treated Kelly Unfairly And In Bad Faith By Failing To Consider Her Contributions To The Sale, By Failing To Obtain Accurate Information, By Splitting Her Commissions With Her Supervisor, And By Treating Kelly Differently Than Other Similarly Situated Employees.


         In Carma Developers (Cal.), Inc. v. Marathon (1992) 2 Cal.4th 342, the Supreme Court provided guidance on evaluating whether the implied covenant of good faith and fair dealing had been violated. The Court stated that “The covenant of good faith finds particular application in situations where one party is invested with a discretionary power affecting the rights of another. Such power must be exercised in good faith.” Id. at 372. In determining whether a party has violated the covenant, courts look at both subjective and objective aspects. “A party violates the covenant if it subjectively lacks belief in the validity of its act or if its conduct is objectively unreasonable.” Id. To show a breach of the covenant, a party does not need to show breach of a specific provision of the contract. “Were it otherwise, the covenant would have no practical meaning, for any breach thereof would necessarily involve breach of some other term of the contract.” Id. at 373.

         Comment d to the Rest 2d of Contracts, §205 notes, “[B]ad faith may be overt or may consist of inaction... . A complete catalogue of types of bad faith is impossible, but the following types are among those which have been recognized in judicial decisions: evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance . . .”

         In this case, the evidence is clear that Bowen failed to obtain accurate information before recommending that Holetz get half the commission. Bowen never talked to anyone at NationsBanc regarding the relative contributions of Kelly and Holetz. (Tab 9, p. 208 (Bowen depo; 31:14-17)). Although he claimed he spoke to Kelly about her contribution, he could remember nothing about what she told him. (Id., 29:14-20) In fact, he did not speak to Kelly about this. (Tab 8, pp. 113-114.) The person who had the most incentive to exaggerate his performance and minimize Kelly’s - Holetz - told Bowen that Kelly did “primarily information gathering ... prior to the sale.” (Tab 9, p. 209 (Bowen depo; 33:11-14)). Bowen had no idea how many times Kelly or Holetz met with NationsBanc (Id. , p. 209 (35:16-36:8); he had no idea whether Holetz modified his generic financial model for NationsBanc (Id. , p. 210 (38:10-14)). Contrary to Bowen and Gibson’s belief, Holetz did not perform any work on NationsBanc over and above his normal duties. (Tab 9, pp. 239-240 (Holetz depo; 40:17-41:2)).

         Gibson relied on Bowen in changing her recommendation. The only person Gibson received information from regarding Holetz and Kelly’s roles was Bowen. (Tab 9, p. 134 (Gibson depo; 79:5-9)). According to Gibson, Senior Vice President Pike agreed with Bowen “based on the amount of effort.” (Id., p. 135 (80:4-12)).

         Disputes exist concerning when Bowen first considered recommending that Holetz receive half of Kelly’s commission. Gibson’s failure to prepare any document evidencing Bowen’s request before the Excellence Committee meeting suggests she decided at the last minute to change her recommendation. Holetz testified, however, that he knew since January 1999 that Bowen was considering splitting Kelly’s commission with him. (Tab 9, pp. 234-235 (Holetz depo; 23:13-24:4); p. 245 (71:24-72:3)). If so, then SkyTel had nearly four months to obtain accurate and complete information about Kelly and Holetz’s respective roles. Whether their failure to do so violated the implied covenant is a question of fact for a jury.

         SkyTel also may be liable for breach of the implied covenant by treating Kelly differently than other salespersons. In Rulon-Miller v. IBM Corp. (1984) 162 Cal.App.3d 241, 247-248, the Court of Appeal stated that “The duty of fair dealing by an employer is, simply stated, a requirement that like cases be treated alike.”

         The evidence suggests that Kelly was treated differently in various respects. Kelly is the only SkyTel employee who ever had to share her commissions with her boss. Holetz used his investment matrix (cost analysis) with 20-30 prospective clients, though each was “slightly different. (Tab 9, p. 238 (Holetz depo; 34:10-25)). Nevertheless, unlike with Kelly, Bowen did not recommend Excellence Committee commissions for Holetz on any other sales using Holetz’s model (Tab 9, p. 210 (Bowen depo; 38:15-24)). Holetz admits he never split a commission with a salesperson before. (Id., p. 234 (Holetz depo; 23:4-6)).

         Thus, triable issues of fact exist as to whether defendant treated Kelly fairly and in good faith by requiring her to share her commission with her boss.

         C.      Triable Issues Of Fact Exist As To Whether SkyTel Made Fraudulent Promises To Kelly.


         Kelly alleges that SkyTel misrepresented its commission plan and that it never intended to pay her commissions according to the Excellence Committee Criteria.

         In Locke v. Warner Bros., Inc., supra, 57 Cal. App. 4th at 368, the court reinstated Locke’s fraud claim, holding that the evidence raised an issue of fraudulent intent, i.e. whether Warner ever intended to give Locke’s proposal’s a good faith evaluation. The court noted that ‘[f]raudulent intent must often be established by circumstantial evidence...” Id.

         In the present case, SkyTel has admitted that it never intended to pay commissions to employees who satisfied the Excellence Committee criteria. (Tab 9, p. 145 (Gibson depo; 147:15-148:8)). According to Gibson, the company always intended that the Committee have discretion to do whatever it wanted. Thus, despite stating in the commission agreement that commissions must be approved “in compliance with the Excellence Committee criteria,” the company never intended to comply with those criteria.

         Kelly relied on SkyTel’s representations in her commission agreement and the Excellence Committee Criteria by structuring the deal in a way that brought her over 500% of quota. She could have structured the deal differently to avoid the Excellence Committee entirely and thus have received her full commissions. (Tab 8, pp. 115-116.)

         Thus, Kelly’s claim for promissory fraud raises triable issues of fact.

VII.   CONCLUSION

         Based on the foregoing, Appellant respectfully requests that this court reverse the order of the district court granting summary judgment, vacate the judgment, and remand the case for trial.

Dated: February 21, 2001

                                                       LAW OFFICES OF STEPHEN M. MURPHY

 

                                                         By:_________________________

                                                                 STEPHEN M. MURPHY

                                                                 Attorneys for Plaintiff



 

Statement Pursuant to Circuit Rule 28-2.6: Appellant’s counsel is not aware of any related cases pending in this Court.  

 




 



         



I.      INTRODUCTION

        The issue in this appeal is whether SkyTel retained absolute discretion regarding payment of supplemental commissions to its salespersons, despite failing to explicitly reserve absolute discretion in its commission contract. The commission agreement drafted solely by SkyTel includes specific representations regarding the criteria to be met in order to be eligible for supplemental commissions and a formula to be used in calculating commissions, while also containing general statements of discretion. As such, the agreement is ambiguous.

         Despite this ambiguity, SkyTel contends that it had absolute discretion regarding the amount of supplemental commissions to be paid to Kelly. SkyTel's contention is contradicted by its own practices to award commissions pursuant to the formula set forth in the contract, so long as the salesperson has met the applicable criteria. Footnote The facts of this case and applicable legal authorities support Kelly’s contention that SkyTel had only limited discretion that must be exercised in good faith and in accordance with fair dealing.

        Kelly does not dispute that an employer may reserve absolute discretion with regard to paying commissions to its employees. Kelly is merely arguing that this is not a case where the employer properly retained such absolute discretion. Kelly also is not asking this court to insert its own judgment as to SkyTel’s business practices. Kelly does ask this court to exercise its proper function in interpreting an ambiguous contract, and determine whether Kelly has presented genuine issues of material fact sufficient to permit this case to go to trial.

        Although SkyTel continues to insist that Kelly has not distinguished Brandt v. Lockheed Missiles & Space Co., this is simply not true. Kelly addressed the differences between her case and Brandt in detail in her opening brief, and summarizes those distinctions once again in this reply.

        In its brief, SkyTel misstates Kelly’s understanding of the commission agreement by selectively citing only portions of her deposition testimony and completely ignoring her declaration submitted in opposition to SkyTel’s summary judgment motion. Kelly was never told by anyone at SkyTel that the Excellence Committee had absolute discretion regarding the award of commissions. In addition, Kelly reasonably interpreted the SkyTel commission plan to mean that she would receive the full amount she requested from the Excellence Committee, pursuant to the formula in the contract, if she complied with the criteria set forth in the contract. While Kelly understood SkyTel could use another method to determine a suitable payout to her, she had never heard of any other method than the formula set forth in the contract being used. (In fact, SkytTel did use the formula to calculate Kelly's commission. Then SkyTel simply gave half of Kelly's commission to her supervisor.) Kelly had also learned from other SkyTel salespeople that the practice of the Excellence Committee was to pay the commission request submitted by a salesperson as long as the contract criteria were satisfied. The evidence supports Kelly’s understanding.

        In summary, Kelly has established genuine issues of material fact with respect to her claims for breach of contract, breach of the covenant of good faith and fair dealing and intentional misrepresentation.

II.    ARGUMENT

A.     Genuine Issues Of Material Fact Exist With Regard To Kelly’s Claims For Breach Of Contract And Breach Of The Implied Covenant Of Good Faith And Fair Dealing.

1.     Since SkyTel’s Commission Agreement Is Ambiguous And SkyTel’s Practices Do Not Support Its Interpretation Of The Contract, The Contract Should Be Interpreted To Give SkyTel Only Limited Discretion Which Must Be Exercised In Good Faith And In Accordance With Fair Dealing.

        In its brief, SkyTel makes a concerted effort to divert this court’s attention away from the ambiguous and conflicting provisions in the documents that make up its commission agreement. However, as Kelly explained in detail in her opening brief, there are provisions in SkyTel’s commission agreement which contradict the alleged express discretionary language and create an ambiguity which must be resolved by examining the parties’ practical construction of the contract. The SkyTel contract sets forth specific criteria to be used by the Excellence Committee to determine whether a salesperson is eligible for a supplemental commission. There is also a formula the Excellence Committee uses to determine the salesperson’s submission and, ultimately, his or her commission. These specific contract provisions are contradicted by the general discretionary language in the contract which states that the Excellence Committee has the right to use other means to determine a suitable payout, rather than the specific formula, and that it could change the criteria at any time. The law is clear: When general and specific provisions of a contract deal with the same subject matter, the specific provision, if inconsistent with the general provision, controls. Continental Casualty Co. v. Zurich Ins. Co. (1960) 57 Cal. 2d 27, 35.

        When a dispute arises over the meaning of contract language, the court must decide whether the language is "reasonably susceptible" to the interpretation urged by a party. Foster-Gardner, Inc. v. Nat’l Union Fire Ins. Co. (1998) 18 Cal. 4th 879, 880. The court can determine whether the contract is reasonably susceptible to the party’s interpretation from the language of the contract or from extrinsic evidence of the party’s intent. So. Cal. Edison v. Superior Court (1995) 37 Cal. App. 4th 839, 848. If a contract is capable of more than one reasonable interpretation, it is ambiguous, and it is the court’s task to determine the ultimate construction to be placed on the ambiguous language by applying the standard rules of interpretation in order to give effect to the mutual intention of the parties. Badie v. Bank of America (1998) 67 Cal. App. 4th 779, 798.

        The "paramount consideration" in the interpretation of a contract is the mutual intention of the parties at the time of contracting. Western Camps Inc. v. Riverway Ranch Enterprises (1977) 70 Cal. App. 3d 714, 723. In her opening brief, Kelly quoted extensively from the California Supreme Court decision in Crestview Cemetary Assn. v. Dieden (1960) 54 Cal. 2d 744, 754, holding that a party’s actions and performance are relevant to determining the meaning of a contract. (See Opening Brief at p. 13). Interestingly, SkyTel did not even attempt to distinguish the California Supreme Court case of Crestview Cemetary in its opposition brief, or the supporting appellate court decisions for that matter.

        Considering all the facts and circumstances, Kelly submits that the evidence raises a triable issue as to whether SkyTel retained limited or absolute discretion regarding supplemental commissions to be paid by the Excellence Committee. If SkyTel intended to retain absolute discretion, it easily could have drafted the contract to clearly and expllcitly express that intent. If that were SkyTel’s intent, it did not need to list in the contract the six or ten specific criteria or include a precise mathematical formula. SkyTel’s practices also betray its contention that it had retained absolute discretion since it regularly awarded its salespeople what they requested, pursuant to the formula in the contract, as long as the criteria in the contract were met. SkyTel’s conduct is exactly what the California Supreme Court warned against in Crestview Cemetary; namely, that a particular narrow interpretation of a contract should not be enforced when the parties have "demonstrated by their actions that the contract meant something quite different."

        In summary, the SkyTel commission agreement is ambiguous as to whether SkyTel reserved absolute discretion regarding whether to pay supplemental commissions and the amount of commissions to be paid. Read in its entirety, the contract conveys the impression that a salesperson who satisfies the criteria will receive a supplemental commission based on the formula set forth in the contract. In addition, the evidence shows that it was not SkyTel’s practice to retain absolute discretion, but to pay excess commissions according to the criteria and formula listed in its contract. For these reasons, the contract should be interpreted to give SkyTel only limited discretion regarding supplemental commissions which must be exercised in good faith.

2.     Brandt v. Lockheed Missiles Co. Is Distinguishable

        From This Case.

        Although SkyTel continues to insist that Brandt v. Lockheed Missiles Co. (1984) 154 Cal. App. 3d 1124 involves "remarkably similar facts" and confronted the "identical issue" that confronts the court here, this is simply not true. In Brandt there was only one contract provision in dispute, as opposed to five in this case. The employee patent agreement in Brandt expressly provided that the employer "may, but is not obligated to" grant the inventor-employee a Special Invention Award. Brandt, supra, 154 Cal. App. 3d 1124, 1129-1130. Because the court in Brandt found the above contractual provision to be clear and explicit, it held the provision to be an express reservation of discretion which could not be obviated by the implied covenant of good faith and fair dealing.

        There are material factual differences in this case compared to Brandt. First, in Brandt there was no mention of any alleged contract provisions which contradicted the discretionary contract provision at issue in that case. In this case, there are provisions granting SkyTel discretion, but it is not clear whether that discretion is limited or absolute. This is particularly so in light of the other, more specific, contract provisions which set forth criteria to be met in order to be eligible for supplemental commissions and a formula to be used in calculating submissions by SkyTel salespersons for supplemental commissions.

        Unlike Brandt, the contract at issue in this case contained a specific

formula for calculating a submission amount for supplemental commission. (Excerpts of Record, Tab 9, pp. 170, 172.) Moreover, it was SkyTel’s practice to follow the formula set forth in the contract when awarding commissions. Footnote

        In addition to not having a specific formula for calculating the "submission" (a.k.a. commission) amount, the contract in Brandt did not contain criteria as specific as those set forth in the SkyTel contract. Although SkyTel contends that Lockheed did have criteria since it required the invention to be "deemed of sufficient value to apply for a patent" and that a written request for additional compensation had to be made within two years, such alleged criteria pales in comparison to the specific criteria set forth by SkyTel’s Excellence Committee. The evidence in Brandt showed that the so-called “criteria” were not actually a condition of a Special Invention Award since Lockheed still considered the plaintiffs’ request for a Special Invention Award even though they applied for the Award later than two years after the invention. Brandt, supra, 154 Cal. App. 3d at 1128. That leaves only one alleged criteria in Brandt as opposed to 10 specific criteria in SkyTel’s 1999 contract and 6 in its 1998 contract. (Tab 9, pp. 170, 173.)

        In summary, Brandt should not preclude Kelly’s claims for breach of contract and breach of the implied covenant of good faith and fair dealing given the ambiguous nature of the SkyTel contract, when compared to the contract in Brandt, as well as the fact SkyTel’s practices support Kelly’s interpretation of the contract. Footnote Unlike Lockheed, SkyTel did not expressly retain absolute discretion regarding the amount of commissions to be paid. Rather, it only retained limited discretion which must be exercised in good faith and in accordance with fair dealing. See e.g. Sheppard v. Morgan Keegan & Co. (1990) 218 Cal. App. 3d 61, 66-67.

        In her opening brief, Kelly set forth specific material facts which raise a genuine issue of material fact that SkyTel exercised its discretion in bad faith by failing to consider her true contributions to the NationsBanc sale, splitting her commission with her supervisor, and by treating Kelly differently than other similarly situated employees. (See Appellant’’s Opening Brief, pp. 28-32.)

3.This Case Involves The Interpretation And Enforcement of An Ambiguous Contract, Not A Request For The Court To Substitute Its Judgment For SkyTel’s Business Judgment.

        Kelly is not asking this court to sit as a "super-personnel department" to reexamine SkyTel’s business judgment. Instead, Kelly is simply requesting that this court interpret an ambiguous contract, which it is entitled to do, and determine whether Kelly has raised sufficient issues of material fact to proceed with her claims for breach of contract and breach of the covenant of good faith and fair dealing

        The cases cited by SkyTel regarding courts inserting their judgment into an employer’s business decisions do not apply to this case. Furnco Const. Corp. v. Waters, 438 U.S. 567 involved an appeal following a bench trial in a Title VII action alleging discriminatory hiring practices. Understandably, in that case, the court understood it was not as competent as the employer to restructure the employer’s hiring practices. Furnco, supra, 438 U.S. at 578. Marks v. Loral Corp. (1997) 57 Cal. App. 4th 30 involved an appeal from a defense verdict in an age discrimination case. In that case, the court refused to reject an employer’s defense of "business necessity" for its salary restructuring, even though the company was making a profit, on the ground that the company is the best judge of what is in the interest of its business. Marks, supra, 57 Cal. App. 4th at 64. Footnote

        It is understandable why the courts did not want to insert their judgment into situations like those raised in Furnco and Marks; however, this case presents a far different issue. This is not a case where an employee is asking a court to direct an employer’s hiring or salary practices. Rather, this case involves the interpretation of an ambiguous contract drafted solely by the employer. Permitting Kelly to proceed with her claims would not open the door to a trial in every case where an employee was not satisfied with his or her bonus. Trials would only be permitted where the employee could raise genuine issues of material fact as to a breach of a contract. Kelly has met this burden by showing that SkyTel’s commission agreement is ambiguous as to whether SkyTel had absolute, or limited, discretion regarding supplemental commission payments, and by showing that SkyTel’s actual practices support her interpretation of the contract. This court has every right to interpret the contract, in its entirety, and make a decision as to whether Kelly has presented genuine issues of fact as to whether the commission contract was breached by SkyTel, and whether SkyTel acted in bad faith.

4.     Kelly’s Understanding Of The Commission Agreement Supports Her Contention That The Contract Is Ambiguous.

In its brief, SkyTel selectively cites portions of Kelly’s deposition testimony and completely ignores evidence Kelly submitted in her declaration in opposition to SkyTel’s summary judgment motion. Kelly was never told by any manager or employee of SkyTel that the Excellence Committee had absolute discretion to award or not to award commissions. (Tab 8, pp. 115-116, ¶5.) If Kelly had been told that, she would have structured the NationsBanc deal differently to avoid the Excellence Committee entirely and have received her full commissions. (Id.) Kelly interpreted the SkyTel compensation plan to mean that she would receive the full amount she submitted to the Excellence Committee, calculated according to the formula in the contract, if she had complied with the criteria set forth in the contract. (Tab 8, pp. 115-116, ¶5; Tab 4, p. 37, 38-39.) Kelly had also learned from other SkyTel salespeople that the practice of the Excellence Committee was to pay the commission request submitted by a salesperson so long as the criteria were satisfied. (Id.) The evidence developed in Kelly’s case supports her understanding. (See Appendix A to Appellant’s Opening Brief.) In her deposition Kelly also testified that, while she understood SkyTel could use another method to determine a suitable payout to an employee, she had never heard of any other method being utilized other than the formula set forth in the contract. (Tab 4, p. 35.)

5.     The Issue Of Whether Or Not Kelly’s Supervisor Was Deserving Of Half Of Kelly’s Submitted Commission Amount Is A Genuine Issue of Material Fact.

SkyTel spends a significant amount of space in its brief implying that it may have been justified in splitting Kelly’s commissions with her supervisor, Steve Holetz, due to his involvement in the NationsBanc deal. However, this is clearly a fact which is in dispute. Kelly submitted extensive evidence disputing the extent of Holetz’s alleged involvement in the NationsBanc sale. (Tab 8, pp. 114, 116-119; Tab 7, pp. 2-3.) Holetz even testified that his work on the NationsBanc deal was not over and above his normal duties as a manager, duties for which he was compensated according to his own commission plan. (Tab 9, pp. 239-240 (Holetz depo; 40:17-41:2.) James Bowen, SkyTel Regional Manager, was the individual who advised the Excellence Committee to split Kelly’s commission with Holetz even though he had never talked to anyone at NationsBanc regarding the relative contributions of Kelly and Holetz. (Tab 9, p. 208 (Bowen depo; 31:14-17.)) He had no idea how many times Kelly or Holetz met with NationsBanc (Id., p. 209 (35:16-36:8)), and he never spoke with Kelly regarding her contributions to the sale (Tab 8, pp. 113-114.) Prior to this case, SkyTel had never before given a supervisor a portion of a salesperson’s commission. (Tab 9, pp.137-138 (Gibson Depo; 100:2-17.)

Moreover, the lower court did not base its decision to grant SkyTel’s motion for summary judgment upon the alleged fact that Holetz’s contribution warranted the split commission. Rather, the court ruled that SkyTel "expressly retained discretion to set the amount of any excess commission awarded by the Excellence Committee." (Tab 13, p. 282.) Thus, this Court should decide the issue of whether or not SkyTel did, in fact, retain absolute discretion regarding the amount of excess commissions to be paid, and not delve into the disputed issue of whether Holetz was entitled to the amount of commission he received. That question would properly be a question of fact for a jury.

B.     Genuine Issues of Material Fact Exist As To Whether SkyTel Made Fraudulent Promises To Kelly.

        In alleging Kelly has not raised triable issues of material fact for her promissory fraud claim, SkyTel once again selectively cites portions of Kelly’s deposition testimony. SkyTel fails to tell this court that Kelly was never told by anyone at SkyTel that the Excellence Committee had absolute discretion to award or not to award commissions. (Tab 8, pp. 115-116, ¶5.) Kelly reasonably interpreted the SkyTel compensation plan to mean that she would receive the full amount she submitted to the Excellence Committee if she complied with the criteria set forth in the contract. (Tab 8, pp. 115-116, ¶5; Tab 4, p. 37, 38-39.) While Kelly understood SkyTel could use another method to determine a suitable payout to an employee, she had never heard of any other method than the formula set forth in the contract being used. (Tab 4, p. 35.)

        The elements of a cause of action for intentional misrepresentation are a misrepresentation; defendant's knowledge of the falsity of the representation; defendant's intent to induce reliance; plaintiff's justifiable reliance on the misrepresentation and lack of awareness of its falsity; and damages. See Lazar v. Superior Court (1996) 12 Cal. 4th 631, 638. "'Promissory fraud' is a subspecies of the action for fraud and deceit. A promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation.” Ibid.

        Despite Kelly’s reasonably based belief that she would receive a supplemental commission calculated according to SkyTel’s formula so long as she complied with the Excellence Committee’s criteria, SkyTel admitted that it never intended to pay commissions to employees who satisfied the Excellence Committee criteria. (Tab 9, p.145 (Gibson depo; 147:15-148:8.)) According to Gibson, the company always intended that the Committee have discretion to do whatever it wanted. Thus, despite stating in the commission agreement that commissions must be approved "in compliance with the Excellence Committee criteria," Footnote the company did not intend to comply with those criteria. As such, SkyTel’s state of mind for promissory fraud is in issue. Kelly relied on SkyTel’s representations in the commission agreement by structuring the deal in a way that brought her over 500% of quota. (Tab 8, pp. 115-116.)

        Thus, Kelly’s claim for promissory fraud raises genuine issues of material fact.


III.  CONCLUSION

        For the reasons stated herein and in Appellant’s Opening Brief, Kelly respectfully requests that this court reverse the order of the district court granting summary judgment, vacate the judgment, and remand the case for trial.

Dated: May ___, 2001          LAW OFFICES OF STEPHEN M. MURPHY

                                          By:_______________________________

                                                           STEPHEN M. MURPHY

                                                           Attorneys for Appellant

 


 

CERTIFICATE OF COMPLIANCE

 

        Pursuant to Federal Rule of Appellate Procedure 32(a)(7)(C) and Circuit Rule 32-1 for Case Number 00-17089

I certify that pursuant to Federal Rule of Appellate

Procedure 32(a)(7)(C) and Ninth Circuit Rule 32-1, the attached Reply Brief

is proportionately spaced, with a typeface of 14 point palatino and

contains approximately ____ words.

 

                                                   LAW OFFICES OF STEPHEN M. MURPHY

 

Dated:                                         By:_____________________________

                                                           STEPHEN M. MURPHY

                                                           Attorneys for Appellant