DUMAS v. AUTO CLUB INSURANCE ASSOCIATION
Case Details
- Citation
- 437 Mich. 521
- Judge(s)
- Brickley and Griffin, JJ., concurred with Riley, J.; Mallett, J., took no part in the decision of this case.
- Procedural Posture — the stage the case had reached
- appeal
- State
- Michigan
Related Laws
No specific laws identified for this ruling.
Claim Types
Outcome
Michigan Supreme Court reversed the Court of Appeals and held that plaintiffs could not maintain breach of contract or unjust enrichment claims based on an alleged promise of a permanent seven percent commission compensation plan. The court declined to extend the legitimate-expectations doctrine from wrongful discharge cases to compensation policy changes.
Excerpt
DUMAS v AUTO CLUB INSURANCE ASSOCIATION Docket No. 83982. Argued October 2, 1990 (Calendar No. 2). Decided July 31, 1991. Dissenting opinion by Levin, J., filed August 2, 1991. Rehearing denied 438 Mich 1202. Richard Dumas and approximately 180 other current and past members of the insurance sales staff of the Auto Club Insurance Association brought an action .in the Wayne Circuit Court, alleging breach of contract, violations of civil rights, fraud and misrepresentation, unjust enrichment, and promissory estoppel as a result of a change by the employer of a compensation plan. The court, John H. Hausner, J., for purposes of clarity, divided the plaintiffs into three groups: Group A was comprised of those plaintiffs who claimed that at the time of hiring they were informed by the defendant of a seven percent commission system, but not that they were informed that the system would remain in place for a particular duration; Group b was comprised of plaintiffs who claimed that before or at the time of hiring they were told that the system would remain in place as long as they were employed or forever or words to that effect; Group c was comprised of plaintiffs who claimed that they began employment with the same understanding claimed by the plaintiffs in Group a, but later were told that the system would last as long as they were employed or forever or words to that effect. The court then granted summary disposition for the defendant. The Court of Appeals, Doctoroff, P.J., and Cynar and P. D. Hour, JJ., reversed in an opinion per curiam with regard to the claims for breach of contract and unjust enrichment (Docket No. 96212). The defendant appeals. In an opinion by Justice Riley, joined by Justices Bricrley and Griffin, and opinions by Chief Justice Cavanagh and Justice Boyle, the Supreme Court held: The plaintiffs may not maintain actions against the defendant for breach of contract or unjust enrichment. No express promises of permanent employment were made to the plaintiffs in Group a. Promises claimed by the plaintiffs in Group c to have been made subsequent to the time of hiring lacked objective support. The defendant was not unjustly benefited by virtue of changing its compensation plan: with regard to Groups a and c, the action was within the realm of defendant’s managerial powers; with regard to Group b, the claim lacked record support. Justice Riley, joined by Justices Brickley and Griffin, further stated that no express promises of permanency were made to the plaintiffs in Group a; thus, any contractual rights to that effect must result from the legitimate-expectations leg of the holding in Toussaint v BCBSM, 408 Mich 579 (1980). However, Toussaint involved a claim of wrongful discharge, and, given the traditional reluctance of courts to interfere with management decisions and the needed flexibility of businesses to alter policies to respond to changing economic conditions, its holding should not be extended to cases involving permanent compensation plans. Any promises claimed by the plaintiffs in Group b to have been made at the time of hiring that they would receive seven percent renewal commissions forever were unenforceable under the statute of frauds as not capable of being performed within one year. These provisions were severable from the remainder of the employment contracts. Justice Boyle, concurring, stated that the plaintiffs’ proofs are insufficient to support an inference of a contract providing termination only for just cause or an enforceable promise not to change the payment plan; nor was any evidence presented that the employer’s statements, interpreted in the light of trade usage or course of performance, would permit the conclusion that the factfinder could draw an inference of a durational term for the method of compensation. Chief Justice Cavanagh, concurring in the result, stated that the plaintiffs’ claims clearly rest solely on a theory of express oral contract, not a legitimate-expectations theory arising from the defendant’s policy manuals. With respect to the plaintiffs in Group a, there is no basis for the express oral contract theory. With regard to all plaintiffs, the evidence presented indicates that summary disposition for the defendant was properly granted. Reversed. Justice Levin, dissenting, stated that this is not an action for wrongful discharge, but rather an ordinary action for breach of contract for failure to pay agreed-upon compensation for services rendered and to be rendered. The plaintiffs rely solely on claims of express promise, not on implied promises arising out of legitimate expectations. Nor does the question presented concern the scope of Toussaint. The central issue, whether the plaintiffs may maintain actions for breach of an express contract, turns on whether there is sufficient evidence to justify a finding by the trier of fact that a reasonable person in the position of the plaintiffs would conclude that the defendant intended to pay a seven percent commission on renewals written while, and for as long as, they remained in the employ of the defendant. The test is objective, focusing on the understanding of a reasonable person in the plaintiffs’ position. The subjective intent of the defendant is not relevant except insofar as such a reasonable person would have been, or possibly should have been, aware of the defendant’s intent. The majority incorrectly describes the testimony of forty of the plaintiffs, who recalled being told or informed of a durational term for the promise to pay a seven percent commission on policy renewals, as a vague and precatory promise that the commission system would last forever. However, an evenhanded summary of the affidavit on which the majority’s description is based would recognize that perhaps only one, or only a handful, of those plaintiffs may have used the word "forever” to describe the durational term. The affidavit cannot properly supply the basis for this portrayal of the plaintiffs’ deposition testimony. The majority incorrectly assumes that the defendant’s promise to pay a seven percent commission on new sales and policy renewals did not, as a matter of law, express a durational term. Contrary to the majority’s assumption, the words "policy renewals” may be interpreted and understood by the plaintiffs as implicitly stating a durational term, namely, for as long as the defendant and the customer choose to renew a policy. Because the trier of fact appropriately could find that the plaintiffs reasonably might so interpret the promise, it is not, and should not be, determinative whether the plaintiffs recall being told that renewal commissions would be paid on policy renewals "for as long as they were employed” by the defendant, or "forever,” or “always.” The trier of fact reasonably could find that the promise, so interpreted, states a durational term. It appears that the plaintiffs would be able to establish at a trial with other evidence that the promise to pay renewal commissions was for renewals written while, and for as long as, the plaintiffs remained in the employ of the defendant. The duration of the contract, therefore, is determinable and sufficiently definite, although it is uncertain how long the defendant would offer to renew, the customer would choose to renew, and the plaintiffs would remain in the employ of the defendant. Justice Mallett took no part in the decision of this case. 168 Mich App 619; 425 NW2d 480 (1988) reversed. Lopatin, Miller, Freedman, Bluestone, Erlich, Rosen & Bartnick (by Richard E. Shaw and Sheldon L. Miller) for the plaintiffs. Fox & Grove, Chartered (by Kalvin M. Grove, Steven L. Gillman, and Allison C. Blakley) and Finkel, Whiteñeld & Selik (by Robert J. Finkel) for the defendant. Amici Curiae: Conboy, Fell, Stack, Lieder & Hanson (by Lloyd C. Fell) for General Motors Corporation. Clark, Klein & Beaumont (by Dwight H Vincent, J. Walker Henry, and Rachelle G. Silberberg) for Michigan Manufacturers Association. Miller, Canñeld, Paddock & Stone (by Diane M. Soubly) for American Society of Employers, Motor Vehicle Manufacturers Association of the United States, Inc., Greater Detroit Chamber of Commerce, and Michigan State Chamber of Commerce. Mark Granzotto, Monica Farris Linkner, and Charles P. Burbach for Michigan Trial Lawyers Association. Riley, J. Two questions are presented in this appeal. First, whether plaintiffs have actions for breach of contract on the basis that they were informed of a particular compensation system upon entering defendant’s work force, and the system was subsequently changed. A subissue is whether those plaintiffs who were promised the policy would remain in force "forever” have actions for breach of contract. The second question is whether plaintiffs can maintain claims for unjust enrichment against defendant. We hold that the Court of Appeals improperly determined that plaintiffs could maintain actions against defendant for breach of contract and unjust enrichment. Therefore, we reverse the decision of the Court of Appeals. I. FACTS AND PROCEEDINGS In the instant case, approximately 180 plaintiffs are suing the Auto Club Insurance Association. Plaintiffs are current and past members of defendant’s insurance sales force. Upon commencing employment, all plaintiffs were informed that they would be paid under the "Accrued Commission Plan.” Under the commission plan, they would receive seven percent commissions on insurance policies sold and upon policy renewals. The commission amounts were tied to policy premiums. Also, for the first year of employment, new salespersons received a base salary to supplant renewal commissions which were unavailable during the first year. All sales employees were on the same compensation system with regard to the seven percent commissions. Early in 1977, defendant realized a substantial drop in its cash reserves and decided to address the problem. In the wake of analyses by defendant’s outside accounting firm, defendant concluded that the payment system for the commissioned sales force was a major contributor to its cash reserve problem. On December 2, 1977, defendant notified its sales force in writing of its intent to change the compensation plan. Instead of commissions based on a percentage of the premiums, salespersons would be paid a flat rate for each policy sold. Though the new plan was implemented by January 1, 1978, during the period from January to July, defendant adjusted compensation so that no employees would experience a reduction in income unless their volume of business fell. The new "unit commission plan” became fully effective July 1, 1978. On February 8, 1978, a union was certified to represent defendant’s sales force. The union filed a complaint with the National Labor Relations Board in May of 1978, alleging unfair labor practices by defendant in unilaterally changing the commission system and refusing to bargain with the union. In August, 1979, the board ruled in favor of defendant, finding that the plan was instituted before the union was certified. On May 26, 1983, plaintiffs filed a complaint in the Wayne Circuit Court, alleging breach of contract, violations of the Civil Rights Act, fraud and misrepresentation, unjust enrichment, and promissory estoppel. On January 10, 1984, pursuant to a motion for summary disposition filed by defendant in July of 1983, the circuit court dismissed claims based on new policies, or renewals based on those policies, purchased after the date of the change in payment plans. On January 18, 1984, plaintiffs filed a motion for rehearing which was denied on February 29, 1984. Subsequently, plaintiffs’ application for interlocutory appeal was denied by the Court of Appeals. On August 19, 1986, the trial court ruled on motions for partial summary disposition filed by defendant and plaintiffs respectively. For the purpose of clarity, the court divided plaintiffs into three groups: Group a consisted ,of 139 plaintiffs who were informed of the. seven percent commission system upon being hired. This group was not promised that the payment system would be in place for any particular duration. Group b consisted of twenty plaintiffs who were told by defendant prior to or at the time of hiring that the seven percent commission plan would last "forever.” Group c consisted of twenty plaintiffs. Group c began employment with the same understanding as Group a, but after they began work they were told by defendant that the seven percent plan would last "forever.” With regard to Group a, the court determined that no claim for breach of contract existed and granted summary disposition for defendant. The court reasoned that defendant did not foreclose its right to change its compensation plan. With regard to Group b, the trial court decided a factual issue existed regarding whether the word "forever” created an enforceable promise not to change the payment plan. However, the court dismissed the claims on the basis of the statute of frauds. With regard to Group c, the court granted summary disposition for defendant because the oral promise subsequent to hiring lacked consideration. The court also dismissed plaintiffs’ claims of fraud, misrepresentation, promissory estoppel, age discrimination, and unjust enrichment. On October 3, 1986, the trial court entered the final order regarding summary disposition. Plaintiffs appealed, and the Court of Appeals reversed the trial court’s grant of summary disposition regarding the breach of contract and unjust enrichment claims. Dumas v Auto Club Ins Ass’n, 168 Mich App 619; 425 NW2d 480 (1988). Defendant appealed, and this Court held Dumas in abeyance pending decisions in In re Certified Question, Bankey v Storer Broadcasting Co, 432 Mich 438; 443 NW2d 112 (1989), and Bullock v Automobile Club of Michigan, 432 Mich 472; 444 NW2d 114 (1989). On May 4, 1990, subsequent to the issuance of opinions in those cases, this Court granted leave to appeal. 434 Mich 911 (1990). ii The first question to be addressed is whether plaintiffs can maintain claims for breach of contract where defendant unilaterally altered the terms upon which plaintiffs were compensated. Plaintiffs do not challenge the new system with regard to new policies purchased after the date of the change. Plaintiffs only challenge the system as it applies to renewals of old policies purchased before the change in compensation plan. A. GROUP A Group a was informed of the seven percent commission at the time of hiring, but defendant made no explicit promises to plaintiffs regarding the duration of the policy. In framing the breach of contract action with regard to Group A, it is important to note that because no express promises of permanency were made to plaintiffs, any contractual rights to that effect had to spring from the "legitimate expectations” leg of Toussaint v Blue Cross & Blue Shield of Michigan, 408 Mich 579, 598; 292 NW2d 880 (1980). Thus, the threshold inquiry for Group a should be whether to extend the "legitimate expectations” leg of Toussaint beyond wrongful discharge disputes to cover an employer’s compensation policy. We choose not to extend the "legitimate expectations” cause of action to this case. In Toussaint, this Court held that a company’s written policy statements providing for dismissal for just cause may create contractual obligations if the statements give rise in the employee to legitimate expectations of dismissal for just cause. In Toussaint, this Court found that the plaintiff’s wrongful discharge claim based on written policy statements and express oral statements could be submitted to a jury. While Toussaint created a "legitimate expectations” claim in the wrongful-discharge setting, earlier cases held that written policy statements could give rise to contractual obligations outside the discharge context. Although some of the cases dealt with compensation policies, those policies created contract rights with regard to deferred compensation. As Justice Ryan stated in his dissent in Toussaint, supra, p 648:_ In each of the cases cited, policy statements by the employer announced the existence of bonus, profit-sharing or pension benefits and the employer or the claimant-employee satisfied the burden of proof that work already performed was in consideration of the announced beneñt and that what was sought was merely deferred compensation. [Emphasis added.] In other words, a change in a compensation policy which affects vested rights already accrued may give rise to a cause of action in contract. In re Certiñed Question, supra, p 457, n 17. However, in the instant case, there were no representations made to plaintiffs with regard to deferred compensation. The right to renewal commissions depends on the contract between the agent and insurance company. Stevenson v Brotherhoods Mutual Benefit, 317 Mich 575, 580; 27 NW2d 104 (1947). Unless otherwise provided by contract, renewal commissions or future commissions do not rest upon the sale of the original policy. Renewal contracts are separate from the originals, in part requiring additional effort and consideration by salespersons in keeping policies alive. Id. at 581. In the instant case, plaintiffs do not contend that their contracts provided for the vesting of renewal commissions upon the sale of original policies. In fact, each of the cases cited in n 5 operate under traditional contract principles. For instance, in Cain v Allen Electric & Equipment Co, 346 Mich 568, 579-580; 78 NW2d 296 (1956), the Court stated: In short, the adoption of the described policies by the company constituted an offer of a contract. This offer . . . "the plaintiff accepted ... by continuing in its employment beyond the 5-year period specified in exhibit b . . . .” While the deferred compensation cases are subject to contract law, the "legitimate expectations” doctrine of Toussaint does not follow traditional contract analysis. Therefore, it does not logically follow that Toussaint should be extended to the area of compensation. Also, since employees’ accrued benefits are protected by the presence of traditional contract remedies, there is no need to extend the expectations rationale to compensation. In addition to the lack of precedent extending Toussaint to facts similar to those presented here, policy considerations weigh in favor of containing Toussaint to the wrongful-discharge scenario. Were we to extend the legitimate-expectations claim to every area governed by company policy, then each time a policy change took place contract rights would be called into question. The fear of courting litigation would result in a substantial impairment of a company’s operations and its ability to formulate policy. Justice Griffin’s majority opinion in In re Certified Question, supra, p 456, discussed the nature of a business policy: In other words, a "policy” is commonly understood to be a flexible framework for operational guidance, not a perpetually binding contractual obligation. In the modern economic climate, the operating policies of a business enterprise must be adaptable and responsive to change. Our opinion in In re Certified Question was in furtherance of this Court’s traditional reluctance to limit or second guess the decision-making ability of business management. As stated in In re Butterfield Estate, 418 Mich 241, 255; 341 NW2d 453 (1983), "[a] court should be most reluctant to interfere with the business judgment and discretion of directors in the conduct of corporate affairs.” Much the same conclusion was reached by Justice Griffin in Bullock v Automobile Club of Michigan, supra, pp 521-522: Even if it can be said that policy considerations were sufficient to justify the Toussaint intervention to protect job security, it is difficult to imagine the scope of difficulties and mischief that would be encountered if Toussaint were to be extended beyond wrongful discharge into every facet of the employment relationship. Particularly
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