Brian Olander v. State Farm Mutual Automobile Insurance Company

317 F.3d 807, 60 Fed. R. Serv. 447, 19 I.E.R. Cas. (BNA) 922, 2003 U.S. App. LEXIS 836, 2003 WL 138877

• Court: Court of Appeals for the Eighth Circuit
• Decided: January 21, 2003
• Docket: 01-1947
• Status: Published

Opinions

LOKEN, Circuit Judge.

Brian Olander became a State Farm insurance agent in Mandan, North Dakota in 1981. In August 1996, Olander was charged with murder after a violent altercation with a neighboring landowner. When Olander refused to take a leave of absence until the criminal charges were resolved, State Farm terminated his agency agreement and assigned other agents to serve the State Farm policyholders previously served by Olander’s agency. In 1999, Olander commenced this diversity action against State Farm, alleging wrongful termination of the agency agreement and related claims. The district court¹ granted State Farm’s motion for summary judgment, concluding that Section III.A. of the written State Farm Agent’s Agreement unambiguously made the parties’ contractual relationship terminable at will. Section III.A. provides:

This Agreement will terminate upon your death. You or State Farm have the right to terminate this Agreement by written notice delivered to the other or mailed to the other’s last known address. The date of termination shall be the date specified in the notice, but in the event no date is specified, the date of termination shall be the date of delivery if the notice is delivered, or the date of the postmark, if the notice is mailed. Either party can accelerate the date of termination specified by the other by giving written notice of termination in accordance with this paragraph.

On appeal, a divided panel of this court reversed. The panel concluded that two other provisions of the Agreement create an ambiguity as to whether it was terminable only for cause; therefore, summary judgment was inappropriate because extrinsic evidence is admissible to construe this essential contract term. Olander v. State Farm Mut. Auto. Ins. Co., 278 F.3d 794, 798-99 (8th Cir.2002). Because this decision may affect countless State Farm agency relationships in the Eighth Circuit and nationwide and conflicts with a number of decisions by other courts construing the standard form State Farm agency eon-tract, we granted State Farm’s petition for rehearing en banc and now affirm.

The issue on appeal may be quickly summarized. If the Agreement was terminable at will by either party, then Olander has no wrongful termination claim, and his related claims were properly dismissed as well. Under North Dakota law, the construction of a written contract is initially a question of law. Olander argues that extrinsic evidence — most of it pre-dating his State Farm Agent’s Agreement — establishes State Farm’s intent that its agents be terminated only for cause. Under North Dakota law, such evidence is not admissible to vary the terms of an unambiguous written contract. “However, if a written contract is ambiguous, extrinsic evidence may be considered to show the parties’ intent.” Des Lacs Valley Land Corp. v. Herzig, 621 N.W.2d 860, 863 (N.D.2001). “A contract is ambiguous when rational arguments can be made for different positions about its meaning.... When a contract is ambiguous, the terms of the contract and the parties’ intent become questions of fact.” Kaler v. Kraemer, 603 N.W.2d 698, 702 (N.D.1999) (citations omitted). Here, the district court concluded the contract is unambiguous and refused to consider Olander’s extrinsic evidence. Our panel disagreed. Whether a written contract is ambiguous must be determined from the four corners of the document, construing the contract as a whole. See Burk v. Nance Petroleum Corp., 10 F.3d 539, 542 (8th Cir.1993) (applying North Dakota law). Ambiguity is a question of law that we review de novo, just as we review the grant of summary judgment de novo. Kaler, 603 N.W.2d at 702.

Section III of the State Farm Agent’s Agreement is entitled “Termination of Agreement.” Other than providing that the Agreement terminates upon the death of the agent (which confirms this is a personal services contract), Section III does not specify the grounds for termination. It simply provides, “You [the agent] or State Farm have the right to terminate this Agreement by written notice delivered to the other.” In many cases, a contract’s silence on an issue creates an ambiguity. But in this case, the contract’s silence is itself unambiguous. The general rule in this country has long been that a personal services contract of indefinite duration may be terminated at will by either party. See Willcox & Gibbs Co. v. Ewing, 141 U.S. 627, 635-36, 12 S.Ct. 94, 35 L.Ed. 882 (1891); 1 RICHARD LORD, WILLISTON ON CONTRACTS § 4.20 (4th ed.1990). We have applied this general rule in many cases, including Martin v. Equitable Life Assurance Soc’y of U.S., 553 F.2d 573, 574-75 (8th Cir.1977), where we held that an insurance agency contract having no fixed term was unambiguously terminable at will under South Dakota law.² Likewise, a leading insurance treatise states as the general rule for insurance agency contracts: “If the agency contract fixes no time for its duration, as a general rule, the agency contract may be terminated at any time at the election of either party.” 13 ERIC HOLMES, HOLMES’ APPLE-MAN ON INSURANCE 2D § 99.2, at 788-89 & n. 25 (1999). Accord Kaldi v. Farmers Ins. Exch., 117 Nev. 273, 21 P.3d 16, 18, 20 (2001); Patillo v. Equitable Life Assurance Soc’y of U.S., 199 Mich.App. 450, 502 N.W.2d 696, 699 (1992); James H. Washington Ins. Agency v. Nationwide Mut. Ins. Co., 95 Ohio App.3d 577, 643 N.E.2d 143, 147 (1993).

North Dakota has codified this general rule for contracts of employment. See N.D. CENT. CODE § 34-03-01. The Supreme Court of North Dakota has also applied the rule to personal services contracts, under which agents and professionals who are not employees provide ongoing services of indefinite duration. See N. Am. Pump Corp. v. Clay Equip. Corp., 199 N.W.2d 888, 894 (N.D.1972) (exclusive agency agreement to sell equipment); Myra Found. v. Harvey, 100 N.W.2d 435, 437 (N.D.1959) (bookkeeping services). That the Supreme Court of North Dakota would apply the general rule to Section III.A. of the State Farm Agent’s Agreement is confirmed by Wadeson v. Am. Family Mut. Ins. Co., 343 N.W.2d 367, 371 (N.D.1984). In Wadeson, a contract between an insurer and its district manager provided, like Section III.A., that it “may be terminated by any party as to its interest by giving written notice to the other,” without specifying the grounds for termination. The court held that the contract was terminable at will, not only for good cause.

Thus, the North Dakota general rule establishes that the Agreement’s silence as to its duration is, without more, an unambiguous declaration that it is terminable at will by either party. Seeking to avoid the general rule, Olander argues, and the panel majority agreed, that two other provisions of the Agreement create an ambiguity that requires the consideration of extrinsic evidence.

First, Section III.B. of the Agreement provides: “In the event [State Farm] terminate[s] this Agreement, you are entitled upon request to a review in accordance with the termination review procedures approved by the Board of Directors of [State Farm], as amended from time to time.” The panel majority surmised that “one rational explanation for the existence of the review procedure is to ensure that any termination was made for good cause, and not capriciously.” 278 F.3d at 798. However, two courts have squarely rejected the contention that this provision renders the State Farm Agent’s Agreement ambiguous. See Mooney v. State Farm Ins. Cos., 344 F.Supp. 697, 699-700 (D.N.H.1972); Ex parte Gardner, 822 So.2d 1211, 1219 (Ala.2001). Another court construed a Farmers Insurance Exchange agency contract as unambiguously terminable at will despite a similar review provision:

The review board process gives the agent the opportunity to assert that it is not in the best interest of Farmers to sever the agency relationship. It also gives the agent, in appropriate circumstances, a forum in which to argue that the termination was the product of bias or prejudice on the part of the person who made the initial decision to terminate the relationship.... Thus, even without a requirement of cause, the review board serves a viable purpose under the contract.

Kaldi, 21 P.3d at 21. Similarly, many other cases have held that an employer’s contract termination procedures did not render an employment relationship terminable only for cause. See, e.g., Taliento v. Portland W. Neighborhood Planning Council, 705 A.2d 696, 699 (Me.1997); Suburban Hosp., Inc. v. Dwiggins, 324 Md. 294, 596 A.2d 1069, 1076-77 (1991); Vancheri v. GNLV Corp., 105 Nev. 417, 777 P.2d 366, 369-70 (1989).

Second, the panel majority relied upon the statement in the Agreement’s preamble that the parties “expect that by entering into this Agreement, and by the full and faithful observance and performance of the obligations and responsibilities herein set forth, a mutually satisfactory relationship will be established and maintained.” However, this hortatory language may not properly serve to create an ambiguity in an otherwise unambiguous termination provision. See Aramony v. United Way of Am., 254 F.3d 403, 413 (2d Cir.2001) (holding that recitals in a contract’s preamble may be useful in interpreting ambiguous terms but “cannot create any right beyond those arising from the operative terms of the document”). When one operative term in a contract is unambiguous, as the termination provision is here, other provisions must be read so that they are consistent with the plain meaning of the unambiguous term. See Burk, 10 F.3d at 543-44.

To our knowledge, every court but one has interpreted the State Farm Agent’s Agreement as being unambiguously terminable at will. See Mooney, 344 F.Supp. 697; Gardner, 822 So.2d 1211; Melnick v. State Farm Mut. Auto. Ins. Co., 106 N.M. 726, 749 P.2d 1105, 1110-11, cert. denied, 488 U.S. 822, 109 S.Ct. 67, 102 L.Ed.2d 44 (1988); Vitkauskas v. State Farm Mut. Auto. Ins. Co., 157 Ill.App.3d 317, 109 Ill.Dec. 373, 509 N.E.2d 1385, 1387 (1987). The one exception is the Ninth Circuit’s unpublished opinion in Sandberg v. State Farm Mut. Auto. Ins. Co., No. 97-55971, 1999 WL 369805 (9th Cir.1999), cert. denied, 528 U.S. 1118, 120 S.Ct. 938, 145 L.Ed.2d 816 (2000). However, in holding that summary judgment was inappropriate on the terminable-at-will issue, the court in Sandberg applied California law, which, unlike North Dakota law, permits the consideration of extrinsic evidence on the question of whether a contract is ambiguous.

Moreover, the court in Sandberg affirmed the grant of summary judgment in State Farm’s favor. Applying the definition of good cause under California law— “a fair and honest reason, regulated by good faith, that is not trivial, arbitrary or capricious, unrelated to business needs or goals, or pretextual” — the court concluded that State Farm had good cause to terminate an agent who had sued State Farm seeking punitive damages for fraud. 1999 WL 369805, at *2. Here, dander was terminated after he was indicted for murder and refused to take a leave of absence until the criminal proceedings were resolved. Thereafter, a jury convicted him of manslaughter, and he spent many months in prison before the Supreme Court of North Dakota reversed his conviction. Though he was ultimately acquitted after a second trial, State Farm’s summary judgment motion was supported by an affidavit from the Director of Agent Licensing and Investigations for the North Dakota Insurance Department averring that, had dander not lost his agent’s license when he was terminated by State Farm, “at the time of his conviction of a felony, the Department would have taken action in some form to suspend and/or possibly revoke his license.” These events make it clear that, if the definition of good cause under California law applied in this case (which of course it does not), State Farm would be entitled to summary judgment on the ground that it had good cause to protect its business interests by terminating Olander in August 1996.

Because the State Farm Agent’s Agreement was unambiguously terminable at will as a matter of law, the district court properly declined to consider the extrinsic evidence submitted by dander in granting State Farm’s motion for summary judgment. Accordingly, the judgment of the district court is affirmed.

1 . The HONORABLE RODNEY S. WEBB, Chief Judge of the United States District Court for the District of North Dakota, adopting the Report and Recommendation of the HONORABLE DWIGHT C.H. KAUTZMANN, United States Magistrate Judge for the District of North Dakota.

2 . Other cases in which we have applied the general rule include Crowell v. Campbell Soup Co., 264 F.3d 756, 761-62 (8th Cir.2001); Friedman v. BRW, Inc., 40 F.3d 293, 296 (8th Cir.1994); Engelstad v. Virginia Mun. Hosp., 718 F.2d 262, 266 (8th Cir.1983); Percival v. Gen. Motors Corp., 539 F.2d 1126, 1129 (8th Cir.1976); McGinnis Piano & Organ Co. v. Yamaha Int'l Corp., 480 F.2d 474, 479-80 (8th Cir.1973); Maple Island Farm, Inc. v. Bitterling, 209 F.2d 867, 878 (8th Cir.1954), cert. denied, 348 U.S. 882, 75 S.Ct. 123, 99 L.Ed. 694 (1954); Meredith v. John Deere Plow Co., 185 F.2d 481, 482 (8th Cir.1950), cert. denied, 341 U.S. 936, 71 S.Ct. 856, 95 L.Ed. 1364 (1951); Moore v. Sec. Trust & Life Ins. Co., 168 F. 496, 498-500 (8th Cir.1909), cert. denied, 219 U.S. 583, 31 S.Ct. 469, 55 L.Ed. 346 (1910).