Forrest McCluney v. Jos. Schlitz Brewing Co.

649 F.2d 578, 107 L.R.R.M. (BNA) 2759, 1981 U.S. App. LEXIS 13104

• Court: Court of Appeals for the Eighth Circuit
• Decided: May 20, 1981
• Docket: 80-1383
• Status: Published

Opinions

HEANEY, Circuit Judge.

The Jos. Schlitz Brewing Company appeals from a judgment pursuant to a jury verdict finding Schlitz liable for breach of an employment contract (Count I), and willful and malicious violation of the Missouri service letter statute, Mo.Ann.Stat. § 290.-140 (Count II). We affirm as to Count I and reverse as to Count II.

I

In 1955, Forrest McCluney was a vice president for the Geo. Muehlbach Brewing Company in Kansas City, Missouri. Schlitz purchased Muehlbach in 1956 and hired McCluney as the industrial relations manager for its Kansas City plant; in 1962, Schlitz promoted McCluney to plant manager.

In 1970, Schlitz offered McCluney the position of plant manager at its Winston-Salem plant. That plant was considerably larger than the Kansas City plant. The promotion afforded him greater responsibility and promised a significant challenge. After weighing the competing benefits and burdens of accepting Schlitz’s offer, he decided to accept it. Accordingly, he moved to North Carolina and started his new job. McCluney retained it for nearly five years.

In May, 1975, the executive vice president of Schlitz, Gene Peters, offered McCluney another promotion, the position of vice president of plant operations at Schlitz’s corporate headquarters in Milwaukee, Wisconsin. This promotion promised McCluney even greater responsibilities, including overseeing corporate staff responsible for plant operations. A substantial salary increase was also part of the offer. McCluney accepted the offer for the challenge it presented and for the opportunity it offered to implement his management ideas. He moved to Wisconsin to begin his new job.

Once in Wisconsin, McCluney sought the transfer of his secretary, Lois Rinne, from Winston-Salem to Milwaukee. The company refused to transfer her, citing its formal management policy as the reason for the denial. McCluney asked Peters to make an exception in Ms. Rinne’s ease and push through the transfer. This request was also denied. McCluney persisted with his request, arguing to Peters that Schlitz’s management policy was on shaky ground from a legal standpoint as it had a discriminatory impact on women employees. He told Peters that if an exception was not made for Ms. Rinne, there would “come a parting of the ways.” Peters replied that if McCluney persisted, Schlitz would have to demand his resignation. This confrontation took place on Friday, August 22,1975. The next Monday, Peters asked McCluney if he had changed his mind. McCluney stated that he had not and Peters responded by asking for his resignation. McCluney retorted: “Oh no. When I resign, I will pick the time, and when you fire me, you will pick the time.” Peters then instructed McCluney to clean out his desk. A replacement was subsequently named.¹

Although Schlitz requested a letter of resignation from McCluney, he refused to tender one, reasoning in part that he would lose his severance pay if he did. Later that day, Schlitz issued a press release that stated McCluney had resigned. That release appeared in the Schlitz Management Bulletin and was reported in the Wall Street Journal, the Milwaukee Sentinel and the Twin City Sentinel (Winston-Salem). Three days after McCluney’s termination, Schlitz sent McCluney a letter and enclosed a check as “final salary payment * * * following your resignation * * *.” McCluney returned the check, denying that he had resigned.

A few months later, McCluney requested a service letter from Schlitz in the form provided for under Mo.Ann.Stat. § 290.140 (Vernon). Schlitz responded that McCluney had resigned. Thereafter, McCluney filed suit in the Circuit Court of Jackson County, Missouri, alleging breach of contract, violation of the Missouri service letter statute and libel. Schlitz removed the case to federal court. The libel claim was dismissed on Schlitz’s motion for partial summary judgment, and no appeal was taken from that dismissal. McCluney’s other claims were tried to a jury.

The basis of McCluney’s service letter claim was that Schlitz’s response was false and, therefore, actionable under Missouri law. The jury determined that Schlitz had, in fact, violated the Missouri service letter statute. It assessed nominal damages at $1.00 and punitive damages at $400,000. The basis of McCluney’s contract claim for severance pay was a company directive issued by Schlitz’s director of personnel, Robert Creviston. Creviston’s Memorandum was sent to each of the brewery industrial relations managers. Under the Creviston Memorandum, McCluney was entitled to six months severance pay for a total of $32,500. McCluney asserted that the Creviston Memorandum merely put into writing what had been the Company’s long standing practice, and that the Memorandum itself had been distributed to himself and people other than the brewery industrial relations managers. The jury determined that Schlitz had, in fact, breached its agreement to provide severance pay, and awarded McCluney $32,500.

II

The United States Constitution limits the power of a forum state to apply its substantive law to factual and legal situations with which it has little or no contact. The constitutional bases for the limitation are found in the Due Process Clause, Allstate Ins. Co. v. Hague, - U.S. -, 101 S.Ct. 633, 637-638 & n.10, 66 L.Ed.2d 521 (1981); Clay v. Sun Ins. Office, Ltd., 377 U.S. 179, 180-181, 84 S.Ct. 1197, 1198, 12 L.Ed.2d 229 (1964); Home Insurance Co. v. Dick, 281 U.S. 397, 407-410, 50 S.Ct. 338, 341-312, 74 L.Ed. 926 (1930), and the Full Faith and Credit Clause.² Allstate Ins. Co. v. Hague, supra, 101 S.Ct. at 637-638 & n.10; Clay v. Sun Ins. Office, Ltd., supra, 377 U.S. at 180-181, 84 S.Ct. 1197-1198; John Hancock Mutual Life Ins. Co. v. Yates, 299 U.S. 178, 181-183, 57 S.Ct. 129, 131-132, 81 L.Ed. 106 (1936); Aetna Life Ins. Co. v. Dunken, 266 U.S. 389, 393, 45 S.Ct. 129, 130, 69 L.Ed. 342 (1924).

Until recently, it was unclear whether the due process limitation upon a state’s extraterritorial application of law mirrored the due process analysis for determining the limits of a state court’s judicial jurisdiction. The concepts are closely linked, and commentators have suggested that essentially the same principle should be applied with reference to both situations. See Martin, Personal Jurisdiction and Choice of Law, 78 Mich.L.Rev. 872, 872-873 (1980); Reese, Legislative Jurisdiction, 78 Colum.L.Rev. 1587,1591 (1978); Reese, Limitations on the Extraterritorial Application of Law, 4 Dalhousie L.J. 589, 593 (1978). It seems that the question has been answered by the Supreme Court in Allstate Ins. Co. v. Hague, supra. In Hague, the Court stated that

for a State’s substantive law to be selected in a constitutionally permissible manner, that State must have a significant contact or significant aggregation of contacts, creating state interest, such that choice of its law is neither arbitrary nor fundamentally unfair.

101 S.Ct. at 640.

Hague is consistent with the Court’s earlier legislative jurisdiction cases and its more recent decisions in the area of judicial jurisdiction.³ The basic rule is the state whose law is chosen to control a case must have a substantial factual contact with the parties or the transaction giving rise to the litigation. Without sufficient contacts, the state has no legitimate interest in the outcome of the litigation. See Allstate Ins. Co. v. Hague, supra, 101 S.Ct. at 640; Clay v. Sun Ins. Office, Ltd., supra, 377 U.S. at 181-183, 84 S.Ct. 1198-1199; Richards v. United States, 369 U.S. 1, 15, 82 S.Ct. 585, 594, 7 L.Ed.2d 492 (1962); Home Ins. Co. v. Dick, supra, 281 U.S. at 407-408, 50 S.Ct. 341. See also R. Leflar, American Conflicts Law § 58 at 112 (1977).

The Court’s decisions can be explained on the basis of the contacts in each case. In Yates and Dick, the Court ruled that the states involved had only an insignificant contact with the parties or the cause of action and, therefore, application of the states’ laws was unconstitutional. Dick says nominal residence alone is not enough. Yates says post-occurrence change of residence to the forum state alone is not enough. See Allstate Ins. Co. v. Hague, supra, 101 S.Ct. at 639. On the other hand, the Supreme Court has found sufficient contacts to permit the extraterritorial application of the law of the forum state in a number of instances.

(1) When an employment contract was executed in California for work to be performed outstate and the employer, who was doing business in California, agreed to transport the worker outstate and bring him back again when the work was finished, California law was properly applied to a suit arising out of the employment relationship. See Alaska Packers Ass’n v. Industrial Acc. Comm’n, 294 U.S. 532, 55 S.Ct. 518, 79 L.Ed. 1044 (1935).

(2) When a District of Columbia company employed a D.C. resident to work in Virginia for a time certain, and when the employee commuted from his home to work and was classified by the company as an employee who performed electrical construction work in the District and its surrounding areas, the law of the District was properly applied to a dispute arising out of an accident that occurred in Virginia. See Cardillo v. Liberty Mutual Ins. Co., 330 U.S. 469, 67 S.Ct. 391, 91 L.Ed. 1028 (1947).

(3) When an insurance policy that was issued in Illinois guaranteeing nationwide coverage was coupled with property loss in Florida, the presence of the insurance company in Florida, and the plaintiff’s residence in Florida, application of Florida law was permissible in a suit on the insurance contract. See Clay v. Sun Ins. Office, Ltd., supra, 377 U.S. 179, 84 S.Ct. 1197, 12 L.Ed.2d 229.

(4) When a Wisconsin resident commuting to work in Minnesota on a daily basis was injured in a highway accident in Wisconsin, and when he later moved to Minnesota, Minnesota law was properly applied to a suit against an insurance company, present and doing business in Minnesota. See Allstate Ins. Co. v. Hague, supra, 101 S.Ct. 633.

The Court’s “significant contacts” analysis addresses the traditional concerns of due process: preventing unfairness to the parties and promoting healthier interstate relations. See World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 291-292, 100 S.Ct. 559, 564-565, 62 L.Ed.2d 490 (1980); Martin, Personal Jurisdiction and Choice of Law, 78 Mich.L.Rev. 872, 879 (1980); Reese, Legislative Jurisdiction, 78 Colum.L.Rev. 1587, 1591-1592 (1978). When parties’ expectations are rationally based upon one state’s laws, or in the negative, when their rational expectations are not based upon the laws of some other state, it violates due process to breach those expectations by applying the unexpected law. When the forum’s contacts with the parties or the transaction satisfy the Court’s “significant contacts” test, however, it follows, necessarily, that no party may “reasonably” expect that the forum state’s law cannot control the case. In such a situation, the forum state’s power to apply its own law is unquestionable.⁴

The Court’s “contacts” analysis cannot be explained by considerations of fairness to the parties alone. When a state’s law is applied to a transaction with which the state has no significant contact, it infringes upon the legitimate interests that other states may have in the transaction; this infringement is not reasonable — in a due process sense — within the context of our federal system of government. Cf. World-Wide Volkswagen Corp. v. Woodson, supra, 444 U.S. at 291-292, 100 S.Ct. at 564-565 (judicial jurisdiction); Hanson v. Denckla, 357 U.S. 235, 251, 78 S.Ct. 1228, 1238, 2 L.Ed.2d 1283 (1958) (judicial jurisdiction); New York Life Ins. Co. v. Head, 234 U.S. 149, 160-161, 34 S.Ct. 879, 880-881, 58 L.Ed. 1259 (1914) (legislative jurisdiction); Alton v. Alton, 207 F.2d 667, 677 (3rd Cir. 1953) (legislative jurisdiction), vacated on mootness grounds, 347 U.S. 610, 74 S.Ct. 736, 98 L.Ed. 987 (1954). See generally Kirgis, The Roles of Due Process and Full Faith and Credit in Choice of Law, 62 Cornell L.Rev. 94, 95-97 (1976); Reese, Legislative Jurisdiction, 78 Colum.L.Rev. 1587, 1599-1607 (1978); Reese, Limitations on the Extraterritorial Application of Law, 4 Dalhousie L.J. 589, 593, 599-602 (1978); Note, The Minnesota Supreme Court: 1979 — Conflicts of Law, 64 Minn.L.Rev. 1181, 1189-1191 (1980).

The relevant contacts in this case can be simply stated. The employment contract, /. e., McCluney’s promotion to vice president of plant operations, was arranged in North Carolina and Wisconsin; and it was performed in Wisconsin. At the time of performance, McCluney was a Wisconsin resident. At all times, Schlitz was a Wisconsin corporation. The termination of McCluney’s employment occurred in Wisconsin. McCluney returned to North Carolina after his termination from Schlitz; it was while he was in North Carolina that he requested a service letter “in the form provided for” under Mo.Ann.Stat. § 290.140. After McCluney received his service letter from Schlitz, he moved to Missouri and instituted this action.

Apart from McCluney’s post-termination move to Missouri, he had had no real contact with that state for five years. Schlitz closed its Kansas City plant in September, 1973, and sold the plant in December, 1973, nearly two years prior to McCluney’s termination. Although Schlitz sells its beer f. o. b. Schlitz’s plant dock to its distributors, and some of Schlitz’s distributors are located in Missouri, Schlitz has performed no manufacturing or processing operations in Missouri since September, 1973.

The Supreme Court has recently stated that a plaintiff’s bona fide “post-occurrence” change of residence to the forum state is a relevant contact that must be assessed in determining whether a forum’s application of its state law is constitutionally permissible. Allstate Ins. Co. v. Hague, supra, 101 S.Ct. at 643-644. The Court in Hague, however, reaffirmed the rule in John Hancock Mutual Life Ins. Co. v. Yates, supra, that post-occurrence change of residence alone is not sufficient to create a “significant contact.” Allstate Ins. Co. v. Hague, supra, 101 S.Ct. at 639 & 643.

McCluney asserts that his original hiring in Missouri in 1956 constitutes a significant contact with the forum state. McCluney relies upon a recent Missouri appellate court decision that applied the service letter statute to an employment contract performed in part in Missouri and in part in several other states over a two-year period. In Bliven v. Brunswick Corp., 575 S.W.2d 788 (Mo.App.1978), the plaintiff was hired by the Brunswick Corporation to manage a bowling alley in Gladstone, Missouri. In the course of his employment, the plaintiff was transferred to a bowling alley in New Orleans, Louisiana, for five months; a bowling alley in Council Bluffs, Iowa, for two months; and a bowling alley in Wichita, Kansas, for eight months. The Missouri Court of Appeals ruled that the service letter statute applied to a discharge that occurred in Kansas.

McCluney’s argument stands or falls upon his contention that the employment contract was originally entered into in Missouri in 1956, and thereupon became fixed and immutable. McCluney’s “once a king always a king” argument is unpersuasive. Although it is not entirely clear from the court’s opinion, it would appear that the plaintiff in Bliven performed essentially the same employment function in each facility, and the court characterized the involuntary transfers as part and parcel of the original contract. Moreover, the short duration of employment in each facility highlights the transient nature of Bliven’s employment for the fifteen months he worked outside Missouri. By contrast, we hold that McCluney’s 1956 contract was discharged in 1970 when he accepted Schlitz’s offer of a promotion to plant manager of the Winston-Salem Plant. That 1970 contract was, likewise, discharged when McCluney accepted Schlitz’s offer of a promotion to vice president of plant operations in Wisconsin in 1975. The 1975 contract is twice removed from the original 1956 Missouri contract. Moreover, it is this twice removed contract upon which McCluney bases his severance pay claim; his contract claim is for six months salary of a corporate vice president in Wisconsin, not the plant manager’s salary for Schlitz’s defunct Kansas City plant. The simple fact that McCluney was originally hired in Missouri, in the light of his subsequent employment history with Schlitz, is not controlling. This suit is not upon a Missouri contract.

In the instant case then, there is only one relevant contact between the Missouri forum and this transaction: McCluney’s post-termination change of residence to that state. Standing alone, that is not sufficient to permit Missouri law to affect a Wisconsin contract entered into between two Wisconsin residents and which is to be performed in Wisconsin. Neither party could reasonably expect that the Missouri letter statute would alter their employment contract. Moreover, the application of Missouri law to an employment arrangement which only has contacts in Wisconsin constitutes an infringement of the interest Wisconsin has in overseeing contractual arrangements entered into and performed within its territorial boundaries. Accordingly, that portion of the judgment awarding McCluney $400,001 under the Missouri service letter statute must be vacated.⁵

After careful review of the trial transcript and the record of the district court, we are convinced that McCluney’s contract claim was properly submitted to the jury. Schlitz’s central argument is that since the Creviston Memorandum was never formally recorded in its Policy Manual and never sent to McCluney through the company’s normal channels, it could not form the basis of a contract claim suitable for jury consideration.

The record, however, clearly shows that the Creviston Memorandum was in fact a codification of the termination procedure that had been Schlitz’s long established practice. The Creviston Memorandum was drafted with the consultation and approval of Schlitz’s vice president of industrial relations, and it was sent to the brewery industrial relations managers for them to implement. The record supports McCluney’s claim that the company’s severance pay policy was known throughout the work place, and that the Creviston Memorandum itself was circulated among salaried personnel other than the brewery industrial relations managers. The trial court correctly submitted the severance pay claim to the jury and the evidence fully supports the jury’s finding of liability.⁶

That portion of the judgment below awarding damages on the basis of the Missouri service statute is vacated. That portion of the judgment awarding damages for breach of contract is affirmed. Each party shall bear its own costs.

1 . A central issue at the trial was whether McCluney had voluntarily resigned or was dismissed involuntarily. The jury determined that McCluney’s termination was involuntary. The evidence clearly supports that finding and we will not disturb it on appeal.

2 . The Supreme Court has recently suggested that the two constitutional provisions are operatively identical when a state applies its substantive laws extraterritorially. Allstate Ins. Co. v. Hague, 101 S.Ct. 633, 637-638 & n.10 (1981). Mr. Justice Stevens, concurring in the result and thus creating a majority, reasoned, however, that the conceptual framework of the two clauses are different and, therefore, proper analysis under either must necessarily be logically distinct. Id. at 644-645. See generally R. Leflar, American Conflicts Law §§ 55-62 (1977); R. Weintraub, Commentary on the Conflict of Laws, § 9.2A (1980); Kirgis, The Roles of Due Process and Full Faith and Credit in Choice of Law, 62 Cornell L.Rev. 94, 95-128 (1976); Leflar, A Response from the Author, 34 Ark.L.Rev. 243, 245-250 (1980); Martin, Constitutional Limitations on Choice of Law, 61 Cornell L.Rev. 185, 186-201 (1976); Reese, Legislative Jurisdiction, 78 Colum.L.Rev. 1587, 1587-1591 (1978); Reese, Limitations on the Extraterritorial Application of Law, 4 Dalhousie L.J. 589, 589-590 (1978).

The parties in the present appeal submitted the case as a due process question. Since we determine that the extraterritorial application of the Missouri service letter statute to the facts of this case violates due process, we need not and do not address the question under the Full Faith and Credit Clause.

3 . Legislative jurisdiction does not denote simply the lawmaking power of a state; rather it refers to the power of a state to apply its laws to any given set of facts. Judicial jurisdiction, in contrast, is the power of a state to try a particular action in its courts.

4 . Sufficient contacts constitutionally empower a state to apply its laws. Of course, general conflict of laws principles of the forum state may well dictate the application of another state’s law. The Supreme Court has stated that “[w]here more than one State has sufficiently substantial contact with the activity in question, the forum State, by analysis of the interests possessed by the States involved, could constitutionally apply to the decision of the case the law of one or another state having such an interest in the multistate activity.” Richards v. United States, 369 U.S. 1, 15, 82 S.Ct. 585, 594, 7 L.Ed.2d 492 (1962),

5 . Based upon our ruling, we need not and do not address Schlitz’s alternative arguments relating to McCluney’s service letter statute claim.

6 . We have considered and rejected Schlitz’s arguments regarding the trial court’s admitting alleged hearsay testimony and other testimony without proper foundation. After a careful review of the record, we are convinced that the trial court correctly overruled Schlitz’s objections.