UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
July 18, 1988
DENNIS A. SUROVCIK, Plaintiff
D & K OPTICAL, INC. and LARRY JOEL, individually, Defendants
The opinion of the court was delivered by: RAMBO
SYLVIA H. RAMBO, UNITED STATES DISTRICT JUDGE.
On July 30, 1986 plaintiff, Dennis A. Surovcik, filed a complaint claiming breach of an employment contract and fraudulent misrepresentation. On May 5, 1987 the court entered an order denying defendant Larry Joel's motion to dismiss, 702 F. Supp. 1166. Defendants have filed a motion for summary judgment. This motion has been fully briefed and is ripe for consideration. The court exercises jurisdiction pursuant to 28 U.S.C. section 1332(a)(1).
Plaintiff Surovcik became acquainted with defendant Joel during the negotiation and acquisition process between defendants Joel and D & K Optical, Inc. (D & K Optical), and Duling Optical Corporation (Duling) and Dentsply International, Inc. (Dentsply), the owner of Duling. The transaction involved defendants purchasing Duling (which consisted of retail optical stores) from Dentsply. Joel, a Kentucky resident, first contacted plaintiff, a Pennsylvania resident, in April 1982 about the purchase of Duling. Plaintiff was (and is) employed by Dentsply. On April 20, 1982 plaintiff received a document indicating defendant Joel was the authorized representative of a group of three people who later formed D & K Optical, a Minnesota corporation. The three were Joel, Orien Kirschbaum, and Brian Krasnik. The document was signed by the three men. Contact between the parties in the following months included telephone calls and Joel's and his partners' visits to Pennsylvania on various occasions to discuss the purchase of Duling.
After several weeks of negotiations, plaintiff contends during one of the telephone calls which plaintiff received at his home in York, Pennsylvania, Joel inquired whether plaintiff would be interested in leaving Dentsply and accepting a position with a new business entity to be created by the group to acquire Duling. Plaintiff alleges following this offer of employment numerous telephone conversations took place between plaintiff and Joel to negotiate the terms of this contract. Plaintiff drafted a document, an alleged employment agreement, and it was signed by plaintiff and Joel at the O'Hare International Airport in Chicago, Illinois on August 17, 1982.
Plaintiff contends he provided Joel with valuable information which helped in his procurement of Duling. These alleged exchanges of information continued until March 4, 1983, when Duling was purchased by D & K Optical. After the purchase of Duling, Surovcik repeatedly informed Joel both orally and in writing he was available for employment pursuant to the terms of their agreement. Plaintiff alleges defendants D & K Optical and Joel have refused to honor the employment agreement.
Federal Rule of Civil Procedure 56(c) states, summary "judgment . . . shall be rendered forthwith if . . . there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." The Third Circuit has instructed "the nonmoving party must produce specific facts showing that there is a genuine issue for trial . . .; a genuine issue means that the evidence must create a fair doubt, and wholly speculative assertions will not suffice." Jersey Central Power & Light Co. v. Township of Lacey, 772 F.2d 1103, 1109 (3d Cir. 1985). With the standard for summary judgment in mind, the court examines the parties' respective positions.
Construction of the Contract
Defendants argue summary judgment should be granted on the breach of contract claims because neither of two contingencies expressly provided for in the alleged contract occurred, and material terms necessary for the creation of a contract are lacking.
Taking the lack of material terms argument first, the court is unpersuaded the alleged contract is deficient. The alleged contract is merely an agreement to enter into a future employment relationship. "To be enforceable, a contract must be complete. . . . It must represent a meeting of the parties' minds on the essential terms of the agreement." Yellow Run Coal Co. v. Alma-Elly-Yv Mines, Ltd., 285 Pa. Super. 84, 426 A.2d 1152, 1154 (1981). The document in question contains specifics on whom plaintiff was to work for, his compensation (outlined in detail), and the term of employment. That the agreement does not contain specifics on job title, duties, and financing arrangements does not render it unenforceable.
The contingencies theory is based on the following language in the alleged contract:
I, Dennis A. Surovcik, an individual residing at 4196 Caldwell Rd., York, Pa. 17402 (Party of the First Part), hearby [sic] agree to accept employment for and in behalf of Dr. Larry Joel, an individual residing at (Party of the Second Part) as of upon the satisfactory completion of the following events:
1) The successful purchase by the Party of the Second Part of the Retail Optical Companies owned by Dentsply International Inc. (DII)
2) The execution of an employment contract between the Party of the First Part and the Party of the Second Part . . . .
Complaint, Exhibit B at 1.
It is defendants' position the language of the alleged contract is plain and unambiguous. They contend the term "Party of the Second Part" refers to Joel as an individual only. From that premise, they conclude the two contingencies (Party of the Second Part purchasing the Dentsply companies and the Parties then executing an employment contract) did not occur. It is uncontested Joel himself did not purchase the Dentsply companies; D & K Optical, of which Joel had been president, purchased the Dentsply companies. And, Joel and Surovcik never executed an employment contract.
Plaintiff counters defendants' contingencies theory with his contention that the term "Party of the Second Part" does not refer to Joel as an individual, but rather refers to Joel in his representative capacity as agent for the group which formed D & K Optical. It is plaintiff's contention the name of the party Joel represented was undetermined at the time the alleged contract was executed, and that is why there are blank spaces after the words "(Party of the Second Part) as." Plaintiff argues those spaces would have been filled-in to indicate Joel's position, i.e., president, secretary, etc., and the name of the corporate entity or partnership. In further support of his agency theory, plaintiff points out paragraph seven of the alleged contract. It reads:
The Party of the Second Part, and his associate Brian Krasnik, an individual residing at , agree to personally guarantee the performance of the employment contract in their individual capacities as and of Company.
Complaint, Exhibit B at 6 (emphasis added). Surovcik argues had Joel been the "Party of the Second Part" in his individual capacity only, paragraph seven would have been superfluous because Joel's mere signing of the alleged contract would have made him personally liable.
If plaintiff's agency theory were accepted by a factfinder, the first contingency (the purchasing of the Dentsply companies) would be found to have occurred because D & K Optical did in fact purchase the Dentsply companies, and Joel had been president of D & K Optical. The second contingency, though, still would not be found to have occurred; it is undisputed that no employment contract was ever executed. Plaintiff argues the contingency is really a condition subsequent and not a condition precedent to the enforceability of the document in issue. The court is somewhat perplexed by plaintiff's characterization of the clause because a condition subsequent is not something which triggers performance, but something which excuses performance. A condition subsequent can be defined as "any event the existence of which, by agreement of the parties, operates to discharge a duty of performance. . . ." J. Calamari & J. Perillo, Contracts § 11-7 (3rd ed. 1987). Although the court finds the clause a condition precedent, its non-occurrence does not necessarily render the document in issue unenforceable.
Parties to a contract have a duty to act in good faith and to deal fairly. Restatement (Second) of Contracts § 205 (1981). Plaintiff contends after D & K Optical purchased the Dentsply companies, Joel repeatedly evaded the subject of plaintiff's employment. Plaintiff testified he made numerous attempts to bring about the execution of an employment contract, but Joel had not cooperated. Supplemental Appendix to Plaintiff's Brief in Opposition, Surovcik Deposition at, e.g., 103, 108 and 116. "Subterfuges and evasions violate the obligation of good faith in performance. . . . Bad faith may be overt or may consist of inaction.. . ." Restatement (Second) of Contracts § 205 comment a (1981). A jury could find Joel failed in his obligation to act in good faith to execute an employment contract. Such a finding would bear on whether the non-occurrence of the event relieved the parties of their obligations under the alleged contract.
Defendants assert plaintiff's agency theory is wholly unreasonable. They contend the only logical fill-ins for the blank spaces appearing after the words "(Party of the Second Part) as" are words which would indicate what position plaintiff would hold in the yet-to-be-purchased Dentsply companies, i.e., the position of "Northeast Regional Manager" of "ABC Opticals." Defendants argue further that on the signature page of the document in question, Joel is designated as and signed as "Party of the Second Part" without reference to any representative capacity.
Pennsylvania applies the "plain meaning" rule of interpretation of contracts. E.g., Steuart v. McChesney, 498 Pa. 45, 444 A.2d 659 (1982). This approach to contract interpretation assumes
the intent of the parties to a written contract is . . . embodied in the writing itself, and when the words are clear and unambiguous the intent is to be discovered only from the express language of the agreement. . . . Hence, where language is clear and unambiguous, the focus of the terms of the agreement as manifestly expressed, rather than as, perhaps, silently intended.
Id. at 48-49, 444 A.2d at 661. In Steuart, the Pennsylvania Supreme Court reaffirmed its application of the plain meaning approach to contract construction after examining other approaches and policies. Id. at 48-52, 444 A.2d at 661-63. The court recognized "the dangers of focusing only upon the words of the writing in interpreting an agreement." Id. at 50, 444 A.2d at 662 (quoting In re Estate of Breyer, 475 Pa. 108, 115 n.5, 379 A.2d 1305, 1309 n.5 (1977)). And, all important to the instant action, is that court's acknowledgement that "whether the language of an agreement is clear and unambiguous may not be apparent without cognizance of the context in which the agreement arose. . . ." Id. 498 Pa. at 50, 444 A.2d at 662. With these considerations in mind, the court reaffirmed its application of the plain meaning approach citing the proper role of the courts as interpreters of contracts not drafters of contracts. In addition, the court found "the plain meaning approach enhances the extent to which contracts may be relied upon by contributing to the security of belief that the final expression of consensus ad idem will not later be construed to import a meaning other than that clearly expressed." Id. at 52, 444 A.2d at 663.
Whether the plain meaning rule is applicable depends on whether the contract is ambiguous. A contract is ambiguous "if . . . [it] is reasonably susceptible of different construction, is obscure in meaning through indefiniteness of expression or has a double meaning." Commonwealth, Dept. of Trans. v. Mosites Constr. Co., 90 Pa. Commw. 33, 36, 494 A.2d 41, 43 (1985). Ambiguities in contracts can be either patent to latent.
'A patent ambiguity is that which appears on the face of the instrument, and arises from the defective, obscure, or insensible language used.' Black's Law Dictionary 105 (rev. 4th ed. 1968). In contrast, a latent ambiguity arises from extraneous or collateral facts which make the meaning of a written agreement uncertain although the language thereof, on its face, appears clear and unambiguous.
Steuart v. McChesney, 498 Pa. at 53, 444 A.2d at 663. According to the Pennsylvania Supreme Court, the most common latent ambiguity "'is one in which a writing refers to a particular person or thing and is thus apparently clear on its face, but upon application to external objects is found to fit two or more of them equally.'" Id. (quoting Easton v. Washington County Ins. Co., 391 Pa. 28, 35, 137 A.2d 332, 336 (1957)).
In construing the instant alleged contract, the court is mindful "a contract is not rendered ambiguous by the mere fact that the parties do not agree upon the proper construction." Commonwealth State Highway and Bridge Authority v. E.J. Albrecht Co., 59 Pa. Commw. 246, 251, 430 A.2d 328, 330 (1981) (quoting 8 P.L.E. Contracts § 146 (1971)). There must exist "objective indicia that . . . the terms of the contract are susceptible of different meanings." Mellon Bank, N.A. v. Aetna Business Credit, Inc., 619 F.2d 1001, 1011 (3d Cir. 1980). Whether an alleged ambiguity is patent or latent, a court can look to extrinsic evidence to determine the intent of the parties. Z & L Lumber Co. v. Nordquist, 348 Pa. Super. 580, 586, 502 A.2d 697, 700 (1985).
The alleged contract at issue in the instant action has both patent and latent ambiguities. The patent ambiguity results from the use of the word "individual." In the opening part of the document, Joel is described as an individual and at the end of the document he signs his name apparently as an individual, as there is no language indicating he is signing as anything but an individual. However, in paragraph seven it states Joel personally guarantees performance of the alleged contract. As plaintiff argues, if Joel were indeed signing in an individual capacity, this seventh paragraph would be unnecessary. This inconsistency renders the document patently ambiguous.
The latent ambiguity results from particular extraneous collateral facts. It is undisputed Joel was in contact with Dentsply to work out a purchase of the Dentsply companies for the group of people which eventually formed D & K Optical. Surovcik knew Joel was representing this group, not merely through conversations with Joel or others in the group, but through a document given to him and signed by Joel and his business associates, Kirschbaum and Krasnik. Complaint at para. 8 and Exhibit A. This document is dated April 20, 1982 and states in pertinent part:
Please be advised that a group of investors has been formed for the purpose of acquiring retail optical stores. The group consists of three (3) parties . . . [Joel, Kirschbaum, and Krasnik]. The group has met on various occasions and has agreed and approved that the group's representative would be, Dr. Larry Joel. Any future transactions will be carried on as a group.
Id. at Exhibit A.
Given Surovcik's knowledge of Joel's relationship to "the group" of investors, and given Surovcik's knowledge of the intention of this group to purchase the Dentsply companies, the document is rendered latently ambiguous. Even though a contract to be construed against the party who drafted it, Rusiski v. Pribonic, 511 Pa. 383, 515 A.2d 507 (1986), it would not be unreasonable, as a matter of law, for a jury to conclude the "Party of the Second Part" referred to the group which became D & K Optical.
Furthermore, there is support for an equity-based contract construction approach to contracts with latent ambiguities. As stated by the Third Circuit,
the meaning given to the words by one party should be given effect if the other party knew or had reason to know that it was in fact so given. If the words of the contract are to be attributed to both parties alike, in equal degree, it can not [sic] in advance be determined which party's meaning should be made effective. It is then necessary to determine whether either party knew or had reason to know the meaning that was actually given to the words by the other party.
Emor, Inc. v. Cyprus Mines Corp., 467 F.2d 770, 775 (3d Cir. 1972) (quoting 3 Corbin, On Contracts, 537, at 51-42 (1960)). If one willingly enters into a contract knowing the other party's interpretation, she or he is bound by that interpretation and may not later claim she or he had a different understanding of what the contract provided. Perry & Wallis, Inc. v. United States, 192 Ct. Cl. 310, 427 F.2d 722, 725 (1970). According to the Third Circuit, Pennsylvania has applied this rule. See Emor, Inc., supra, 467 F.2d at 775. Whether plaintiff can show Joel knew or had reason to know of plaintiff's understanding of the contract is a jury question.
In sum, there are other material facts in issue regarding one, the objectively known identity of the parties to the alleged contract, and two, whether Joel made a good faith effort to execute an employment contract with plaintiff after D & K Optical purchased the Dentsply companies. Therefore, the breach of contract claim against Joel cannot be decided on a summary judgment motion.
D & K Optical's Liability Exposure
Defendants argue D & K Optical should be awarded summary judgment in its favor because it is undisputed:
(1) D & K was not in existence when the 'Agreement' in question was signed; (2) that D & K is not named in the 'Agreement' nor was a signatory to it; (3) that plaintiff never worked for D & K or Joel, nor was the 'Agreement' implemented in any way; and (4) that the requirements under D & K's corporate laws for entering into such an 'Agreement ' were not satisfied, nor was any formal corporate action taken to satisfy it. [In addition] the parties likewise agree that D & K is not liable on this pre-incorporation 'Agreement' unless, following its incorporation, it adopted it.
Defendants' Reply at 6-7. Plaintiff argues "D & K Optical adopted the alleged contract through the conduct of its officers and agents, Joel and Krasnik." Plaintiff's Brief in Opposition at 12.
D & K Optical is a Minnesota corporation. The court agrees with both plaintiff and defendants that Minnesota law provides that a contract entered into by a promoter may be affirmatively adopted formally by the corporation after formation, or affirmative adoption may be shown by actions or acquiescence. See, e.g., Battelle v. Northwestern Cement & Concrete Pavement Co., 37 Minn. 89, 33 N.W. 327 (1887). Plaintiff does not dispute D & K Optical took no formal action to adopt the alleged contract. He argues, however, D & K Optical accepted the benefits of the alleged contract and thereby bound itself to the alleged contract. These benefits, plaintiff alleges, were in the form of plaintiff sharing his expertise in the optical field with defendants. Surovcik states he would not have shared as much information or reviewed defendants' proposed purchase offer if the alleged contract in issue had not been executed. Surovcik Deposition at 322-323.
The alleged contract in issue was not a contract which called for plaintiff to perform the type of function he alleges to have performed for defendants prior to defendants' purchase of the Dentsply companies. In his complaint plaintiff states he and Joel had telephone conversations regarding what would be Surovcik's duties if he worked for the purchasers of the Dentsply companies. "He . . . was to manage Duling's optical laboratory located in Louisville, Kentucky and also be responsible for the financial and accounting operations of Duling's purchaser." Complaint at para. 12. Clearly these activities were not the activities plaintiff engaged in prior to D & K Optical's purchase. Whether the execution of the alleged contract induced plaintiff to share his expertise with D & K Optical has no bearing on the issue of corporate adoption of the alleged contract. The court finds D & K Optical, Inc. did not adopt the alleged contract and therefore cannot be held liable under it. Summary judgment will be granted in favor of D & K Optical.
The damages plaintiff claims in the fraudulent misrepresentation counts of the complaint are identical to the damages plaintiff claims in the breach of contract counts. Plaintiff alleges his damages in both causes of action to be loss of the "salary, fringe benefits and other compensation in the form of equity in D & K, as set forth in the Agreement." Complaint at para. 28, 31, and 36. These damages demonstrate harm stemming from the alleged breach of contract, not harm stemming from fraudulent misrepresentation. Lokay v. Lehigh Valley Co-op. Farmers, Inc., 342 Pa. Super. 89, 492 A.2d 405 (1985). In his brief in opposition, plaintiff puts forth for the first time the harm he alleges to have suffered from the alleged fraudulent misrepresentation. Surovcik claims he acted to his detriment on the alleged fraudulent misrepresentation in three ways:
1) [He] . . . gratuitously advised the defendants regarding their proposal to acquire the Dentsply retail optical business and on ways that business's performance might be improved;
2) [He] . . . advised his employer that he was going to be employed by defendants, and hence would be leaving his current employment, thereby damaging his prospects for advancement within Dentsply; and
3) [He] . . . refrained from seeking alternate employment opportunities outside of Dentsply until a later point in time.
Plaintiff's Brief in Opposition at 18-19.
As the Lokay court stated so succinctly, "damages for fraud are limited to what losses were immediately and proximately caused by the fraud." Lokay, 342 Pa. Super. at 99, 492 A.2d at 410. Surovcik "is entitled to all pecuniary losses which result[ed] as a consequence of his reliance on the truth of . . . [Joel's] representations." Delahanty v. First Pa. Bank, N.A., 318 Pa. Super. 90, 117, 464 A.2d 1243, 1257 (1983). The first of plaintiff's asserted harms has nothing to do with financial matters. Plaintiff cannot, and does not attempt to, show how giving his advice to Joel and the others harmed him financially. Perhaps this advice benefitted Joel and his associates, but benefit to one party does not in and of itself constitute harm to the other.
The second of the alleged harms, lost advancement opportunities, appears at first glance to have merit, but upon examination of the record, it does not. Plaintiff can cite to only one instance where he believes he could have been considered for a promotion at Dentsply were it not for his involvement with Joel. Plaintiff expressed interest in the position at Dentsply of Controller for International Operations. Surovcik testified his supervisor, John Behrmann, told Surovcik he "wasn't to be considered for that slot . . . [because he] did not have sufficient international exposure. " Surovcik Deposition at 192, 194. Plaintiff presents no evidence whatsoever which would suggest Behrmann's explanation of why Surovcik would not get the promotion was untrue or incomplete. Furthermore, Behrmann's testimony on Surovcik's job performance underscores the fact that Surovcik has presented no evidence supporting his promotion-harm claim. When Behrmann was asked whether Surovcik's involvement with Joel and his duties as a Dentsply employee ever became a problem for Dentsply because of conflict of interest, he replied: "No, not to my knowledge. I think he handled it very professionally." Defendants' Reply Brief, Attachment, John Behrmann's Deposition at 9.
The third of the alleged harms is somewhat like the first one -- regardless of whether it is true, it does not constitute harm. Plaintiff does not allege he turned down job offers, only that he did not seek employment. Even if the mere delaying of an employment search were considered harm, plaintiff would have a difficult time proving the delay was due to his reliance on Joel's representations. Plaintiff did not contact an employment search firm until June of 1987 and did not otherwise seek out other employment. Surovcik Deposition at 49, 50. That was approximately three and one half years after plaintiff felt Joel was not going to honor the alleged contract in issue. Id. at 100. Given this fact, plaintiff cannot claim he did not seek other employment because he was relying on Joel's representations.
Surovcik does not allege fraud damages in his complaint, and the alleged fraud damages in his brief in opposition do not constitute pecuniary loss. Therefore, summary judgment will be granted in defendants' favor on counts III and IV. An appropriate order will issue.
Dated: July 1988.
ORDER - July 18, 1988, Filed
In accordance with the accompanying memorandum, IT IS HEREBY ORDERED
1) Defendants' motion for summary judgment is granted in part and denied in part;
2) Summary judgment is granted in favor of defendant D & K Optical, Inc. and against plaintiff on Count I of the complaint;
3) Summary judgment is granted in favor of defendants D & K Optical, Inc. and Larry Joel and against plaintiff on Counts III and IV of the complaint;
4) This action shall proceed to trial on Count II only;
5) This action is placed on the October, 1988 trial list;
6) the pretrial conference will be held Friday, September 2, 1988 at 3:30 p.m. in the chambers of Courtroom No. 2;
7) Pretrial memoranda shall be filed on or before August 26, 1988 in conformity with the local rules;
8) Jury selection for cases on the October, 1988 list will begin at 9:30 a.m. on Monday, October 3, 1988 in Courtroom No. 2, Ninth Floor, Federal Building, Third and Walnut Streets, Harrisburg, Pennsylvania; and
9) Trials on the October list will begin at 9:30 a.m. on Tuesday, October 4, 1988.
Dated: July 18, 1988.
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