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S. Zeilinger v. Sohio AK Petroleum Co. (1/3/92), 823 P 2d 653
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NOTICE: This opinion is subject to formal correction
before publication in the Pacific Reporter. Readers are
requested to bring typographical or other formal errors to
the attention of the Clerk of the Appellate Courts, 303 K
Street, Anchorage, Alaska 99501, in order that corrections
may be made prior to permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
SANDRA L. ZEILINGER, )
)
)
Appellant, ) File No. S-3717
)
v. ) 3AN 85-17392 CIV
)
SOHIO ALASKA PETROLEUM ) O P I N I O N
COMPANY, )
)
Appellee. ) (No. 3794-January 3, 1992)
________________________________)
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, J. Justin Ripley, Judge.
Appearances: Lee Holen, Law Offices of Lee
Holen, Anchorage, for Appellant. Terrance A.
Turner, Scott J. Nordstrand, Owens & Turner,
Anchorage, for Appellee.
Before: Rabinowitz, Chief Justice, Burke,
Matthews, Compton and Moore, Justices.
BURKE, Justice.
RABINOWITZ, Chief Justice, dissenting.
In this appeal, Sandra Zeilinger seeks to avoid summary
disposition of her wrongful discharge case against SOHIO Alaska
Petroleum Company, her former employer. We affirm in part and
reverse in part.
I
Sandra Zeilinger was employed by the SOHIO Alaska
Petroleum Company (SAPC) in a non-exempt clerical position1 from
March 6, 1978, to September 30, 1985. From November 1979 until
the date of her termination, Zeilinger worked on the North Slope;
she worked a one week on/one week off schedule, and during the
weeks she was off duty she returned to Anchorage.
SAPC notified Zeilinger on August 29, 1985, that a
reduction in force (RIF) necessitated her termination as of
September 30, 1985. Apparently as part of this notification,
SAPC offered her an "Involuntary Separation Program." This
program consisted of various benefits, worth approximately
$10,000; the recipient of those benefits was required to sign a
separation agreement which, in part, released SAPC from any legal
liability in connection with the recipient's discharge. The
benefits offered Zeilinger included severance pay and three
months' life and medical insurance coverage.
According
to Zeilinger,
the RIF came as
a complete
surprise.
Although she
was aware that
SAPC and its
parent, SOHIO
Petroleum
Company (SPC),
were in the
process of
reorganizing,
she was under
the impression
from "town
meetings" with
SAPC management
that this
reorganization
would not
affect her.
Zeilinger, along with two other non-exempt workers who
had received RIF notices, met with SAPC management officials in
Anchorage shortly after her RIF notification. At that meeting,
SAPC denied Zeilinger's request for additional time within which
to consider whether to sign the agreement, and refused to allow
her to make any alterations to the agreement. According to
Zeilinger, when she asked one of the management officials "if
this was really a reduction in force, . . . Mr. Lockard told
[her] that's a question for the judge to decide or a question for
the jury to decide." When she asked if her position was being
eliminated, "he answered that it was for the jury to decide."
Following the meeting, Zeilinger consulted counsel, who
told her that if she signed the agreement she was giving up her
right to challenge it. After hearing about Zeilinger's finances,
however, counsel opined that her economic situation might allow
her to challenge the agreement on grounds of economic duress.
Several days later, Zeilinger contacted counsel again, after
learning that SAPC was inviting other employees to apply for her
position. Counsel then told her that such action might also
provide a ground for challenging the document, should she decide
to sign it.
On September 16, 1985, Zeilinger signed the separation
agreement and accepted the severance benefits offered by SAPC.
According to Zeilinger, she did so because she felt her economic
situation left her no choice. Even before the termination, her
obligations exceeded her income by about $2,000 per month.
Family medical problems made her feel that she could not forgo
the medical insurance which would only be available if she signed
the agreement. Moreover, there is evidence in the record from
which a jury could reasonably conclude that SAPC was aware of her
financial situation. When Zeilinger endorsed the check that she
received as part of the separation package, she wrote on it
"partial payment accepted under protest."
It is apparently undisputed that a RIF was undertaken
by SAPC at the direction of its parent company. After having
drawn up a list of exempt employees to be terminated, SAPC was
directed on or about August 22, 1985, to further cut its North
Slope staff. SAPC then decided to terminate some non-exempt
personnel, including Zeilinger. SAPC decided which non-exempt
employees to terminate by examining their performance ratings;
Zeilinger was selected because she was considered "a marginal or
poor employee within the criteria that [had been] set." SAPC
concedes, however, that absent a bona fide RIF, it did not have
cause to terminate Zeilinger based on performance alone.
Both parties agree that from the time of the RIF on
September 30, 1985, to the end of 1986, the number of non-exempt
employees on the North Slope first decreased, then increased.
SAPC attributes the ultimate increase, "at least in part,"to the
integration of non-exempt employees from a sister corporation
that had been closed; these employees brought with them some new
job functions. Although the integration did not take place until
after the beginning of 1986, a jury could reasonably conclude
that, at the time they terminated Zeilinger, SAPC management was
aware that the integration would take place.2 A jury also could
reasonably conclude that SAPC received more new employees as a
result of the integration than it received new job functions.3
Three months after she was terminated, Zeilinger filed
suit against SAPC to rescind the separation agreement and to
recover damages for wrongful discharge. Over the next four
years, the superior court granted various motions for partial
summary judgment, which are discussed below. The remaining
issues came on for trial by jury in October 1989. At the conclu
sion of the plaintiff's case, the superior court directed verdict
in favor of SAPC. Zeilinger appeals.
II
Zeilinger's case depends first upon avoiding summary
judgment or directed verdict on her attempt to rescind the
separation agreement, which contains a release clause.4 She
seeks to rescind the separation agreement on any of three
theories: that SAPC obtained the agreement by misrepresenting the
reason for Zeilinger's discharge; that SAPC's actions in
obtaining the separation agreement breached the covenant of good
faith and fair dealing implied in Zeilinger's employment
agreement; and that Zeilinger involuntarily assented to the
separation agreement while under economic duress.5
A
To avoid enforcement of a contract on the ground of
misrepresentation, a party must show four things:
First, there must have been a
misrepresentation. Second, the
misrepresentation must have been either
fraudulent or material. Third, the
misrepresentation must have induced the
recipient to make the contract. Fourth, the
recipient's reliance on the misrepresentation
must have been justified.
Johnson v. Curran, 633 P.2d 994, 997 (Alaska 1981) (quoting
Restatement (Second) of Contracts 301-15, Introductory Note
(Tent. Draft No. 11, 1976)). Zeilinger's claim, of course, is
that SAPC misrepresented the real reason for her dismissal. On
this issue, the superior court granted summary judgment in favor
of SAPC. The court pointed out that Zeilinger herself explicitly
denied that she relied on any misrepresentation by insisting that
she signed involuntarily due to her economic distress.6
Before this court, Zeilinger continues to insist that
she signed the agreement involuntarily: "Zeilinger had no choice
at the time the termination benefits were offered to her but to
accept them; she feared bankruptcy, loss of her home and assets,
and loss of health insurance and other benefits." Appellant's
Brief at 5 (citing Zeilinger's trial testimony). Without
citation or explanation, she asserts that "[i]t was error for the
trial court to preclude Zeilinger's misrepresentation defense,
simply because she asserted an economic duress defense, as well."
Even assuming that there are factual issues concerning
the other three elements of Zeilinger's misrepresentation, she
cannot avoid summary judgment unless there is also a factual
issue concerning reliance. There is simply no way a jury could
conclude that Zeilinger relied on SAPC's representations that a
RIF was the reason for her dismissal. In addition to her
explicit and continuing insistence to the contrary, there are
also the facts that she signed the severance check as accepted
under protest and that she filed suit against SAPC within three
months of her release. Furthermore, she notes that she
explicitly questioned whether the RIF was real before she signed
the separation agreement, without receiving a satisfactory
response. Far from presenting evidence which reasonably tends to
dispute SAPC's proffered facts, the essence of her evidence
compels the conclusion that SAPC is entitled to judgment as a
matter of law on the issue of whether Zeilinger relied on any
misrepresentation concerning the real reason for her dismissal.
B
Subsequent to the grant of summary judgment concerning
the issue of misrepresentation, Zeilinger amended her complaint
to add a claim for breach of the covenant of good faith and fair
dealing as another defense to the separation agreement. The
theory behind this claim is that SAPC's alleged misrepre
sentations concerning the true reason for releasing Zeilinger
constitute a breach of the covenant of good faith and fair
dealing implied in every employment contract in Alaska, Mitford
v. De Lasala, 666 P.2d 1000, 1007 (Alaska 1983), and that "a
breach of the covenant during her employment relationship should
work to let her out of that release agreement." The superior
court granted summary judgment in SAPC's favor on this issue.
Zeilinger, in her brief, makes no legal or logical
argument as to how a breach of the employment agreement should
act to set aside the separation agreement that released SAPC from
liability for any breach of the employment agreement. She merely
asserts that "[b]reach of the covenant in obtaining the release
should allow the employee to avoid the separation agreement." As
SAPC points out, this argument is circular: Zeilinger seeks to
avoid her release of claims on the ground that she had a claim.
The argument suffers from an additional flaw in that it is
founded upon SAPC's alleged misrepresentation as to the real
reason for her dismissal. While the misrepresentation by itself
might support a breach of contract action on the employment
agreement, it has no demonstrable relation to the separation
agreement, unless the misrepresentation somehow played a part in
inducing Zeilinger to give up rights under the employment agree
ment. This, however, is merely a restatement of the
misrepresentation theory that has already failed.
C
Zeilinger's final ground for setting aside the
separation agreement is that she signed it while under economic
duress. The superior court directed a verdict on this issue, in
SAPC's favor, at the conclusion of Zeilinger's case. When
reviewing directed verdicts, this court determines whether the
evidence, when viewed in the light most favorable to the
nonmoving party, is such that reasonable persons could not differ
in their judgment. Bendix Corp. v. Adams, 610 P.2d 24, 27
(Alaska 1980).
This court first addressed the claim of economic duress
in Totem Marine Tug & Barge, Inc. v. Alyeska Pipeline Serv. Co.,
584 P.2d 15 (Alaska 1978). While noting the difficulty in outlin
ing a single formula for what constitutes economic duress, id. at
21 (quoting Dawson, Economic Duress--An Essay in Perspective, 45
Mich. L. Rev. 253, 289 (1947)), the court referred approvingly to
the following approach: "[D]uress exists where: (1) one party
involuntarily accepted the terms of another, (2) circumstances
permitted no other alternative, and (3) such circumstances were
the result of coercive acts of the other party." Id.; see also
Helstrom v. North Slope Borough, 797 P.2d 1192, 1197 (Alaska
1990) (applying this test).
In this case, Zeilinger claims she acted involuntarily,
and SAPC concedes the point inasmuch as the test is subjective.
Helstrom, 797 P.2d at 1197. As to the second requirement,
Zeilinger points to apparently dire consequences should she find
herself without an income, without insurance, and without the
severance pay that was offered: "[S]he was in danger of losing
her home and assets, she believed she might be forced into
bankruptcy, and she desperately needed the medical insurance."
Appellant's Brief at 43. SAPC asserts that Zeilinger had a
reasonable alternative, in that "she had ample time to seek a
judicial remedy barring her termination." Appellee's Brief at
27.
In determining whether a reasonable alternative was
available, we employ an objective test, and the outcome depends
on the circumstances of each case. Totem Marine, 584 P.2d at 22;
Helstrom, 797 P.2d at 1197. A legal remedy may constitute a
reasonable alternative. Totem Marine, 584 P.2d at 22. It would
not be adequate, however, if delay in obtaining it "would cause
immediate and irreparable loss to one's economic or business
interest." Id. SAPC refers to no evidence in the record that
would compel a jury to conclude that legal action offered
Zeilinger a reasonable alternative to signing the separation
agreement, nor can we find any. SAPC may be able to present such
evidence in its case-in-chief, but until such a showing is made,
a directed verdict is inappropriate with regard to this
requirement.
Zeilinger, however, has to demonstrate a factual issue
concerning each of the three prongs. See Wassink v. Hawkins, 763
P.2d 971, 974 (Alaska 1988) (failure to show factual dispute on
third prong fatal to appeal from summary dismissal of economic
duress argument). The third prong embodies two requirements: (a)
coercive acts on the part of the other party and (b) a causal
link between the coercive acts and the circumstances of economic
duress. The court in Helstrom noted with approval that the
"`coercive acts' prong has been liberally construed, requiring
that the strained circumstances be the result of acts which are
criminal, tortious, or even merely `wrongful in the moral
sense.'" Helstrom, 797 P.2d at 1198. Even thus construed,
however, no "coercive act"is present in Zeilinger's case.
Zeilinger's theory seems to be that the wrongfulness of
her discharge, if proved, would provide the necessary coercive
act. We disagree. Assuming for the sake of argument that
Zeilinger's discharge was not pursuant to a valid RIF, there is
still no evidence that the discharge was intended to, or that it
did in fact, "coerce"Zeilinger into signing the release. SAPC
notified her she was being terminated; there were no conditions,
and she was given no opportunity to avoid termination. SAPC then
offered her the chance to compromise any claims she might have
arising out of the termination in exchange for valuable consider
ation. In connection with the offered release, SAPC neither made
any threats nor undertook any action which could be considered
coercive. See Restatement (Second) of Contracts 175 (1981)
("If a party's manifestation of assent is induced by an improper
threat by the other party that leaves the victim no reasonable
alternative, the contract is voidable by the victim."); see also
Totem Marine, 584 P.2d at 22 ("In many cases, a threat to breach
a contract or to withhold payment of an admitted debt has
constituted a wrongful act.") (emphasis added). Put another way,
SAPC did not improperly induce Zeilinger to release her claims
through threats or coercion.
What did induce Zeilinger to release her claims was her
burdensome financial circumstances. These circumstances were of
her own making, and thus cannot be blamed on SAPC. See EEOC v.
American Express Publishing Corp., 681 F. Supp. 216, 219
(S.D.N.Y. 1988) (employer cannot be held responsible for pressure
employee felt from being sole supporter of family of six and
being one month behind on home and auto payments); LaBeach v.
Beatrice Foods Co., 461 F. Supp. 152, 158 (S.D.N.Y. 1978)
(employer cannot be held responsible that bank was pressuring
employee to repay $100,000 personal loan). Quite simply,
economic necessity--very often the primary motivation for
compromise--is not enough, by itself, to void an otherwise valid
release. Horgan v. Industrial Design Corp., 657 P.2d 751, 753-54
(Utah 1982).
III
Zeilinger also appeals the superior court's award of
$80,470 to SAPC for its attorney's fees. See Alaska R. Civ. P.
82(a)(1). This award represents approximately 40 percent of
SAPC's claimed actual fees of $201,175. "We will reverse an
award of attorney's fees . . . if the court abused its discretion
by compensating excessive attorney hours . . . ." O.K. Lumber v.
Providence Washington Insurance Co., 759 P.2d 523, 528 (Alaska
1988).
On its face, the claimed actual fees of $200,000 appear
clearly excessive. The facts in the case were not particularly
complex or unique, nor even subject to much dispute. The case
did not involve questions of technical expertise, the legal
issues weren't especially novel or original, and the trial was
relatively brief.
The question whether too much time was spent by SAPC's
attorneys is for the superior court. Integrated Resources Equity
Corp. v. Fairbanks North Star Borough, 799 P.2d 295, 304 (Alaska
1990). The superior court, however, gave no explanation of its
award. In light of our doubts as to the reasonableness of SAPC's
claimed fees, we elect not to approve the superior court's award
of a substantial portion of those fees absent some indication
that the court carefully scrutinized the submissions and awarded
Rule 82 compensation only on a percentage of reasonable expendi
tures. Thus, we remand for a new determination of Rule 82 attor
ney's fees.
The superior court's grants of summary judgment and
directed verdict against Zeilinger are AFFIRMED. Its award of
attorney's fees to SAPC is REVERSED and this case REMANDED for
further proceedings consistent with this opinion.
RABINOWITZ, Chief Justice, dissenting.
I dissent from the court's affirmance of the superior
court's grant of a directed verdict against Zeilinger as to her
claim that the separation agreement should be set aside because
she signed it while under economic duress.7
The court correctly concludes that a directed verdict
against Zeilinger would have been inappropriate as to the first
two elements of economic duress: an involuntary acceptance of
terms provided by another; and that the circumstances permitted
no other alternative but to execute the release. My difference
with the court's opinion centers on its conclusion that
Zeilinger's proof failed to raise a jury issue as to the third
element of economic duress. More particularly, that the
circumstances were the result of coercive acts on the part of
SAPC. Helstrom v. North Slope Borough, 797 P.2d 1192, 1197
(Alaska 1990).
This third element of economic duress consists of two
prongs: coercive acts on the part of the other party (SAPC) and
a causal link between the coercive acts and the circumstances of
economic duress. As to this third element, the court notes that
it is to be liberally construed but nevertheless holds that:
"Even thus construed, however, no `coercive act' is present in
Zeilinger's case." In support of this conclusion the court
reasons in part that Zeilinger's discharge was not intended to,
nor did it in fact, coerce her into signing the release. "What
did induce Zeilinger to release her claims were her burdensome
financial circumstances."
In regard to this latter question Zeilinger argues in
part that:
(1) Sandra's financial obligations were
based in part on assurances by SAPC
management that North Slope employees should
not expect any reductions in force; in part
upon temporary and unavoidable financial
problems;
(2) the company added Zeilinger to a
legiti-mate reduction in force in an attempt
to terminate her without utilizing the
progres-sive discipline steps to which she
was entitled; there was never any intent to
reduce the clerical force or eliminate
Zeilinger's position;
(3) the supervisor who added Zeilinger
to the RIF list was well aware of her
financial difficulties; he added her to the
RIF list to avoid the progressive discipline
policy.8
I think a jury could reasonably conclude that SAPC's
threatened deprivation of income did contribute to Zeilinger's
economic distress. Although it is correct to say that Zeilinger
incurred her financial obligations on her own, here a jury could
reasonably find that it was not her financial obligations alone
that caused her to execute the separation agreement. Rather, a
jury could reasonably determine that the imminent deprivation of
her income, which would arguably have an immediate and
catastrophic effect on her financial situation, played a direct
causal role in her decision to agree to and execute the
separation agreement.9
_______________________________
1. Non-exempt employees were generally the clerical
and secretarial support staffs. They were compensated on an
hourly basis and received overtime if they worked more than their
scheduled hours. By contrast, exempt employees were generally
salaried professionals.
2. SAPC officials testified, however, that they
opposed the integration.
3. SAPC's president testified:
A . . . One thing about the
jobs that came from SCC [the sister
company], they were coming with
them, they were not replacing
specifically SAPC. They brought
with them the job, because part of
the thing we absorbed was part of
the work from SCC.
Q So you['re] testifying
that these were brand new jobs that
were coming over from SCC and they
were not taking away from existing
SAPC jobs?
A Some of them.
4. The separation agreement provided:
In exchange for the benefits described
in paragraph 2, I release and discharge SAPC
and its officers, directors, stockholders,
employees, agents, subsidiaries, parents, and
affiliates from any and all claims, demands,
or liabilities whatsoever, which I ever had
or may now have against any of them,
including but not limited to, any claims,
demands, or liabilities in connection with my
employment.
I understand and expressly agree
that this termination agreement extends to
all claims of every nature and kind
whatsoever, known or unknown, suspected or
unsuspected, past or present, which existed
at the time of the execution of this
Separation Agreement.
5. We note our long-held view that "the preservation
of agreements entered into in good faith and the encouragement of
settlement of disputes constitute strong arguments for enforcing
releases." Witt v. Watkins, 579 P.2d 1065, 1068 (Alaska 1978).
Insofar as Zeilinger does not deny that she gave the release
"with an understanding of the nature of the instrument," the
burden was on her "to show by clear and convincing evidence that
the release should be set aside." Id. at 1069-70. Her
contention that this burden does not apply in the employer-
employee context, citing id. at 1070 n.16, misreads Witt.
Footnote 16 merely suggested the possibility that a lighter
burden might apply where an employee executed a personal injury
release with her employer. See id. (citing Ricketts v.
Pennsylvania R.R. Co., 153 F.2d 757, 760 (2d Cir. 1946) (Frank,
J., concurring)). The special pressure inherent in negotiating a
personal injury release with the party for whom one continues to
work should be obvious.
6. This court reviews grants of summary judgment to
determine whether there are any genuine issues of material fact
and, if not, whether the moving party is entitled to judgment on
the established facts. Zeman v. Lufthansa German Airlines, 699
P.2d 1274, 1280 (Alaska 1980). All inferences are drawn in favor
of the nonmoving party, in this case Zeilinger. Id.
7. I am in agreement with the court's disposition of
the remaining issues in this appeal.
8. Review of the record indicates evidentiary support
for these assertions.
9. Implicit is my further conclusion that the act
which deprived Zeilinger of her income -- more particularly her
termination, was wrongful and that Zeilinger's evidence on the
point is sufficient to withstand a motion for directed verdict.
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