Kenneth Deane v. Pacific Financial Group Inc.

• Court: Court of Appeals for the Ninth Circuit
• Decided: February 23, 2022
• Docket: 21-35184
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS FEB 23 2022 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

KENNETH I. DEANE, a single man, No. 21-35184 21-35248 Plaintiff-Appellee, D.C. No. 2:19-cv-00722-MJP v.

PACIFIC FINANCIAL GROUP INC., a MEMORANDUM* Washington corporation; MEGAN P. MEADE, an unmarried woman; NICHOLAS B. SCALZO, a married man; JAMES C. MCCLENDON, a married man; JOAN A. MCCLENDON, a marital community; GAETAN T. SCALZO, a married man; SHERRIE SCALZO, a marital community,

Defendants-Appellants.

KENNETH I. DEANE, a single man, No. 21-35202

Plaintiff-Appellant, D.C. No. 2:19-cv-00722-MJP

v.

PACIFIC FINANCIAL GROUP INC., a Washington corporation; MEGAN P. MEADE, an unmarried woman; NICHOLAS B. SCALZO, a married man; JAMES C. MCCLENDON, a married man; JOAN A. MCCLENDON, a marital community;

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. GAETAN T. SCALZO, a married man; SHERRIE SCALZO, a marital community,

Defendants-Appellees.

Appeal from the United States District Court for the Western District of Washington Marsha J. Pechman, District Judge, Presiding

Argued and Submitted February 10, 2022 Seattle, Washington

Before: BYBEE, BEA, and CHRISTEN, Circuit Judges.

Kenneth Deane sued his former employer, the Pacific Financial Group

(TPFG), alleging that TPFG paid him smaller “termination payments” than he was

owed under his employment contract; Deane brought a breach of contract claim and

a claim under Washington Rev. Code § 49.52.050. After a bench trial, the district

court found for Deane on his contract breach claim and for TPFG on Deane’s

Washington state law claim. TPFG appeals the judgment for Deane on Deane’s

claim of contract breach, arguing that the district court incorrectly interpreted

Deane’s employment contract.1 Deane cross-appeals the judgment for TPFG on

Deane’s Washington state law claim. Because the parties are familiar with the facts,

we recite only those necessary to decide the appeal. We have jurisdiction under 28

U.S.C. § 1291, and we affirm.

1 TPFG also appeals the district court’s decision to award attorney’s fees to Deane, but only on the basis that the district court’s merits decision was wrong.

2 First, Deane’s contract interpretation claim. We review a “district court’s

interpretation of contract provisions de novo,” OneBeacon Ins. Co. v. Haas Indus.,

Inc., 634 F.3d 1092, 1096 (9th Cir. 2011), but when a district court “uses extrinsic

evidence to interpret a contract, we review [the district court’s] findings of fact for

clear error,” Marlyn Nutraceuticals, Inc. v. Mucos Pharma GmbH & Co., 571 F.3d

873, 878 (9th Cir. 2009).

Deane’s contract entitled him to termination payments based on all investor

clients “procured by [Deane]” in his territory. The parties dispute whether this

means all clients in Deane’s territory (as Deane argues) or only the clients in sub-

regions of Deane’s territory that were not served by an external wholesaler who

worked under Deane’s supervision (as TPFG argues).

The ordinary meaning of “procured”—to “bring about, effect, or cause,”

Black’s Law Dictionary (11th ed. 2019)—supports neither party’s interpretation.

Rather, the ordinary meaning suggests that the person who convinced a client to

invest with TPFG is the person who “procured” that client. But this interpretation

of Deane’s contract is impossible to implement because TPFG did not record who

was responsible for acquiring each individual client, and neither party argues for this

interpretation. Still, Deane’s interpretation has some textual basis. Deane could be

said to have “procured” all investor clients in his territory because he supervised and

assisted all the salespeople and thus has some causal connection to every client

3 acquired.

Because the text of Deane’s employment contract provides us with no clear

answer, Washington state law authorizes us to consider extrinsic evidence of the

parties’ expressed intent. See Hearst Commc’ns, Inc. v. Seattle Times Co., 115 P.3d

262, 266 (Wash. 2005). The extrinsic evidence of the contract’s meaning supports

Deane’s interpretation. The district court found that “Deane and [TPFG Co-CEO]

Meade . . . agreed that the termination payments would be based on the assets under

management (AUM) in Deane’s territory.”2 Further, TPFG and Deane did not

renegotiate his termination payments even though they renegotiated his

commissions, strengthening the inference that Deane’s contract still entitled him to

termination payments based on all clients in his assigned territory, even after TPFG

hired additional salespeople to work under Deane. All told, Deane’s interpretation

of the contract is the stronger of the parties’.3 We thus agree with the district court’s

interpretation of Deane’s employment contract and affirm the judgment for Deane

2 TPFG argues that Meade and Deane had no such agreement but the district court found that they did, and we review the district court’s factual findings for “clear error.” Marlyn Nutraceuticals, 571 F.3d at 878. TPFG gives us no reason to find that the district court’s said factual finding was “illogical, implausible, or without support in inferences that may be drawn from the facts in the record.” United States v. Hinkson, 585 F.3d 1247, 1263 (9th Cir. 2009) (en banc). 3 We also reject TPFG’s argument that Deane’s termination payments should be calculated as “one-half of the percentage” that he earned in commissions. This interpretation of Deane’s contract finds no support in either the contract’s text or the available extrinsic evidence.

4 on his breach of contract claim.4

Second, Deane’s claim under Washington state law. Under Washington state

law, an employer that “willfully” underpays its employee is liable for double

damages. See Wash. Rev. Code §§ 49.52.050, 49.52.070. But even if an employer

does pay an employee less than the amount specified in the parties’ employment

contract, the employer does not do so “willfully” (and thus is not liable under

§ 49.52.050) if the employer had a “genuine belief” in a “fairly debatable” reason

for underpaying the employee. See Hill v. Garda CL Nw., Inc., 424 P.3d 207, 211

(Wash. 2018). The district court found that Deane and TPFG’s contract

interpretation dispute was “fairly debatable” and that TPFG had a “genuine belief”

in its position. We agree.

In a suit brought under § 49.52.050, the “‘fairly debatable’ inquiry is a legal

question about the reasonableness or frivolousness of an argument that [an appellate

court] review[s] de novo.” Hill, 424 P.3d at 212. We are convinced that the parties’

dispute was fairly debatable. As discussed above, the text of Deane’s contract did

not clearly settle the parties’ interpretive dispute. The district court properly looked

to extrinsic evidence to interpret the contract and we find the issue of the proper

4 TPFG challenged the award of attorney’s fees to Deane on the sole basis that Deane should not have prevailed on Deane’s breach of contract claim. Because we affirm the breach of contract claim, we also affirm the district court’s decision to grant Deane attorney’s fees.

5 interpretation of the written contract not clear-cut. The district court thus properly

found that the contract interpretation question is “fairly debatable.”

Whether TPFG had a “genuine belief” in its position is a question of fact, see

id., and we review factual findings for clear error. The district court found that TPFG

and its employees genuinely believed in the company’s interpretation of Deane’s

contract and Deane offers no compelling reasons why that conclusion was clearly

erroneous. Indeed, Meade even corrected of her own accord a separate mistake that

TPFG made in calculating Deane’s termination payments that had erroneously

reduced Deane’s payments. This belies Deane’s argument that TPFG contested the

value of Deane’s termination payments in bad faith rather than based on a “genuine

belief” in its position.

AFFIRMED.