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Zammer v. Herman Miller

June 22, 2010

NICHOLAS L. ZAMMER PLAINTIFF,
v.
HERMAN MILLER, INC. DEFENDANT.



The opinion of the court was delivered by: Schiller, J.

MEMORANDUM

In a five-count Complaint, Plaintiff seeks judicial declarations that an arbitration provision he signed with Defendant is unilaterally revocable and that the non-compete provision he signed with Defendant is unreasonable. Additionally, Plaintiff alleges breach of contract, fraud, and promissory estoppel. Currently before the Court are Defendant's Motion to Stay and Compel Arbitration, and its Motion to Dismiss Plaintiffs' Claims for Fraud and Promissory Estoppel. For the reasons stated below, the Court will grant Defendant's Motion to Stay and Compel Arbitration and will not comment on Defendant's Motion to Dismiss.

I. BACKGROUND

In 1986, Plaintiff Nicholas Zammer, a Pennsylvania citizen, began working as a salesman for Defendant Herman Miller, Inc. ("HMI"), a Michigan corporation that sells office furniture and equipment. (Am. Compl. ¶¶ 4--6.) He left HMI in 2001, but returned in 2003, when he was named President of Herman Miller-OP, Spectrum, LLP ("Spectrum"), an authorized HMI contract furniture dealer with a showroom in King of Prussia, PA. (Id. ¶¶ 5, 8.)

In 2003, HMI launched the "Earn In Program," ("EIP") which allowed dealers running HMI showrooms to purchase the dealership they ran via a stock sale over a five year period, provided the dealers put up a cash deposit and met certain performance goals. (Id. ¶ 23.) HMI would establish a "goodwill price" for the dealership by averaging the dealership's revenue over the prior two years and asking for a percentage of that number. (Id. ¶ 26.) Certain qualitative and quantitative factors could act to reduce the goodwill price. (Id.) Although the purported purpose of the EIP was to encourage entrepreneurial behavior, Plaintiff alleges that, in fact, HMI designed the EIP to dispose of failing dealerships for which HMI had overpaid and could not sell. (Id. ¶¶ 24--25.)

On July 14, 2006, Zammer accepted HMI's invitation to participate in the EIP. (Id. ¶ 27.) Zammer signed a "Letter of Intent" with HMI and put down a $75,132 deposit toward the purchase of the Spectrum dealership, which was refundable if the Letter of Intent was terminated by either party before the dealership was sold. (Id. ¶¶ 31--32.) The Letter of Intent did not include an arbitration provision. (Pl.'s Mem. in Opp'n to Def.'s Mot. to Compel Arb. and Stay Proceedings at 4.)

Concurrent with the execution of the Letter of Intent, Zammer and HMI also entered into a "Compensation Agreement." (Am. Compl. ¶ 33.) The Compensation Agreement provides that HMI could terminate the agreement for cause (and thus refund only half of the "bonus funds" Zammer had on deposit with HMI) if for two consecutive years, Zammer failed to meet HMI's sales goals or to achieve 3% adjusted operating income ("AOI"). (Am. Compl. ¶ 34; Id. Ex. B [Compensation Agmt.] ¶ 10.) The Compensation Agreement contained an arbitration clause, providing that "[a]ny dispute arising out of the interpretation or application of this Agreement shall be submitted to binding arbitration pursuant to the rules of the American Arbitration Association." (Id. ¶ 21.) The Compensation Agreement also contained a choice of law clause that provided that it would be governed by the laws of the State of Michigan. (Id. ¶ 15.)

Zammer alleges that HMI executives, including the CEO, repeatedly assured him that HMI would "do the right thing" and do everything possible to ensure that he would be able to purchase the Spectrum dealership, including making "mid-course corrections" during the performance of their agreement. (Am. Compl. ¶¶ 28--29.) He also alleges that HMI told him and other participants in the EIP to "'trust' HMI implicitly and not to be concerned about the terms of their respective contracts with HMI." (Id. ¶ 29.)

Zammer contends that the EIP was plagued with problems from its inception. He claims that the metrics used to calculate the "goodwill price" for the dealership were arbitrary to begin with and were changed over time to benefit HMI. (Id. ¶ 35.) HMI pressured Zammer to increase market share, often at the expense of the AOI goals he needed to meet as a condition of the EIP. (Id. ¶ 36.) For example, HMI's regional manager insisted that Zammer offer customer pricing well below Spectrum's average operating expenses and threatened to withhold competitive discounting for the Spectrum dealership if Zammer refused. (Id. ¶ 37.) Furthermore, HMI allegedly rejected Zammer's plan to reduce Spectrum's operating expenses, instead requiring him to cut employees' salaries and hours, thereby reducing morale and productivity. (Id. ¶ 38.)

On December 1, 2009, HMI terminated the Compensation Agreement and Zammer's participation in the EIP, claiming that Zammer had failed "to achieve three percent (3%) adjusted operating income for two consecutive years in accordance with Section 10 of the Compensation Agreement." (Def.'s Mot. for Stay and to Compel Arbitration Ex. D [Termination Letter].)

On March 3, 2010, Zammer brought the present lawsuit asserting five claims. Count I seeks a declaratory judgment that the arbitration provision in the Compensation Agreement is unilaterally revocable. Count II seeks a declaratory judgment that the non-compete provision in the Compensation Agreement is unreasonable and, therefore unenforceable. Count III asserts a claim for breach of contract arising from HMI's alleged breaches of the Compensation Agreement and Letter of Intent, as well as breach of alleged oral agreements made subsequent to the execution of the two written agreements. Count IV asserts a claim for fraud arising from HMI's alleged misrepresentations to Zammer in inducing him to enter into (and continue his participation in) the EIP. Count V asserts a claim for promissory estoppel.

On April 12, 2010, HMI filed a motion to stay and compel arbitration, as well as a motion to dismiss Zammer's claims for fraud and promissory estoppel.

II. STANDARD OF REVIEW

A motion to compel arbitration calls for a two-step inquiry into (1) whether a valid agreement to arbitrate exists and (2) whether the particular dispute falls within the scope of that agreement. Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529, 532 (3d Cir. 2005). When determining the scope of an ...


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