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Evans v. Medical Diagnostic Laboratories, L.L.C.

Superior Court of New Jersey, Appellate Division

July 16, 2013

MARILYN EVANS, Plaintiff-Appellant,
v.
MEDICAL DIAGNOSTIC LABORATORIES, L.L.C., Defendant-Respondent.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued May 14, 2013

On appeal from the Superior Court of New Jersey, Law Division, Mercer County, Docket No. L-0459-07.

James F. Keegan argued the cause for appellant (Bendit Weinstock, P.A., attorneys; Sherri Davis Fowler, on the briefs).

Daniel S. Sweetser argued the cause for respondent (Szaferman Lakind Blumstein & Blader, P.C., attorneys; Mr. Sweetser, of counsel and on the brief).

Before Judges Fisher, Waugh, and St. John.

PER CURIAM

Plaintiff Marilyn Evans appeals the Law Division's dismissal of her breach of contract claims against defendant Medical Diagnostic Laboratories, L.L.C. (MDL), her former employer. The dispute between the parties centers on whether Evans was entitled to participate in MDL's bonus plan when she left MDL in the middle of calendar year 2006. The trial judge determined that she was not, and we affirm.

I.

We discern the following facts and procedural history from the record on appeal.

MDL hired Evans to serve as director of sales for its southeast region in January 2002. In August 2003, Eli Mordechai, Ph.D., MDL's chief executive officer, promoted Evans to director of national sales. As a result, MDL renegotiated her employment agreement. The revised contract was executed on September 28, 2003.

Article II of the agreement contained the following provision with respect to termination of the employment relationship between Evans and MDL.

2.01 The Employee's employment under this Agreement shall begin on or about the 18th day of August, 2003 and shall continue until terminated upon the occurrence of any of the following events:
B. upon thirty (30) days advance written notice by either party to the other. In either event, the Employer shall continue to pay the Employee regular compensation through the effective date of termination, but the Employer shall have the sole option to require or preclude the Employee from rendering services during such thirty (30) day period.
[(Emphasis added).]

Evans' compensation package, which was described in Article VI, was composed of a base salary, commissions calculated as a percentage of sales, and a bonus plan. With respect to the bonus plan, the contract provided:

In addition to the base salary and the commission plan set forth herein above, the Employee shall also be entitled to the following:
A. An Eighteen Thousand Dollar ($18, 000.00) bonus per One Million Dollars ($1, 000, 000) in total sales per year for the sales department to be allocated as the National Sales Director deems necessary which shall be effective January 1, 2004.

On June 8, 2006, Evans notified MDL that she was resigning effective August 11. On July 20, Evans forwarded a commission authorization to MDL's controller, in which she allocated commissions and bonuses to members of the sales department, including herself, for the year 2006 up to the date of the authorization. Of the $432, 000 available for bonus allocation, Evans allocated $237, 000 to herself.

Mordechai terminated Evans on July 21, based on her issuance of the commission authorization. MDL paid Evans her accrued salary and commissions, but refused to pay any bonus for 2006.

In November, Evans filed a complaint alleging that MDL breached her employment agreement by failing to pay her the 2006 bonus. Following further pleading and discovery, both parties moved for summary judgment in spring 2008.

The motions were argued on June 13, at which time both parties argued that there were no genuine issues of material fact and that the agreement favored their respective positions as a matter of law. According to MDL, an implied term of the agreement required that Evans be employed at the end of the calendar year in order to receive a bonus. Evans took the position that MDL's interpretation of the contract created a condition precedent not contained in the agreement, which would result in an unwarranted forfeiture of her bonus.

The motion judge held that a jury trial was necessary because the agreement was ambiguous. Both motions were denied in an order entered on June 26. Evans' motion for reconsideration was denied on August 1. We denied Evans' motion for leave to appeal both orders.

A one-day trial took place on March 9, 2010, before a different judge. Evans and Mordechai were the only witnesses. The trial judge issued a four-page written decision on June 30, 2011. She determined that Evans was not entitled to a 2006 bonus because she did not remain employed until the end of the calendar year. She explained that

the practice of MDL both before and after the parties executed the 2003 Agreement was to issue bonuses at year's end to those employees who were working for MDL at year's end. In the one instance (Quarry) where there was a slight deviation from this practice, Ms. Evans' own testimony indicates the deviation was authorized by Dr. Mordechai as he found it was "fair." [Evans] presented no evidence that Dr. Mordechai ever intended to change or agreed to change the practice of issuing year-end bonuses by executing the Agreement she prepared in 2003. In fact, in a portion of her deposition transcript which was read into the record at trial, [Evans] admits she and Dr. Mordechai never discussed this alleged exception to the general practice of bonuses only being issued to MDL employees who were still employed at year's end.
[Evans] bears the burden of proving by a preponderance of the evidence that she was entitled to a bonus in 2006 even though she left the MDL in the middle of the year. She has failed to carry her burden.

The order of dismissal was entered on the same day.

Evans' motion for reconsideration was denied on August 13, 2012. This appeal followed.

II.

On appeal, Evans again argues that the plain language of the employment agreement contained no requirement that she be employed by MDL at the end of a calendar year to receive a bonus for that year. Consequently, she asserts that the trial judge erred in relying on parol evidence to add an implied condition precedent that she be employed at the end of the calendar year to receive a bonus.

The rules of contractual interpretation are well established. The role of the court is to give "juristic effect" to the intention of the parties as expressed in the contract. George M. Brewster & Son, Inc. v. Catalytic Constr. Co., 17 N.J. 20, 27-28 (1954) (citing Corn Exch. Nat'l Bank & Trust Co. v. Taubel, 113 N.J.L. 605 (E. & A. 1934)); see also Domanske v. Rapid-Am. Corp., 330 N.J.Super. 241, 246 (App. Div. 2000).

For the purposes of this appeal, ascertaining the intent of the parties requires an analysis of the language of the employment agreement between Evans and MDL with respect to Evans' right to receive compensation upon her resignation from MDL. See Kearny PBA Local # 21 v. Town of Kearny, 81 N.J. 208, 221 (1979) ("The polestar of construction of a contract is to discover the intention of the parties."); Caruso v. Ravenswood Developers, Inc., 337 N.J.Super. 499, 506 (App. Div. 2001) ("Courts are generally obligated to enforce contracts based on the intent of the parties, the express terms of the contract, surrounding circumstances and the underlying purpose of the contract.").

If a contract is unambiguous, it must generally be enforced as written. Schenck v. HJI Assocs., 295 N.J.Super. 445, 450 (App. Div. 1996) (citing U.S. Pipe & Foundry Co. v. Am. Arbitration Ass'n, 67 N.J.Super. 384, 393 (App. Div. 1961)), certif. denied, 149 N.J. 35 (1997).

However, in Conway v. 287 Corporate Center Associates, 187 N.J. 259, 269 (2006), the Supreme Court held that our courts will "consider all of the relevant evidence that will assist in determining the intent and meaning of [a] contract."

This is so even when the contract on its face is free from ambiguity. The polestar of construction is the intention of the parties to the contract as revealed by the language used, taken as an entirety; and, in the quest for the intention, the situation of the parties, the attendant circumstances, and the objects they were thereby striving to attain are necessarily to be regarded. . . . The judicial interpretative function is to consider what was written in the context of the circumstances under which it was written, and accord to the language a rational meaning in keeping with the expressed general purpose.
[Ibid. (emphasis added) (quoting Atl. N. Airlines, Inc. v. Schwimmer, 12 N.J. 293, 301-02 (1953)).]

When examining the extrinsic evidence to interpret a contract, a court may consider "the particular contractual provision, an overview of all the terms, the circumstances leading up to the formation of the contract, custom, usage, and the interpretation placed on the disputed provision by the parties' conduct." Ibid. (quoting Kearny PBA Local # 21, supra, 81 N.J. at 221) (internal quotation mark omitted). "Semantics cannot be allowed to twist and distort [the words'] obvious meaning in the minds of the parties. Consequently, the words of the contract alone will not always control." Id. at 269-70 (alteration in original) (citation and internal quotation marks omitted).

Nevertheless, once the intent of the parties has been ascertained, "the parol evidence rule comes into play to prohibit the introduction of extrinsic evidence to vary the terms of the contract." Id. at 270. As the Court said in Schwimmer, supra, 12 N.J. at 301-02,

[t]he admission of evidence of extrinsic facts is not for the purpose of changing the writing, but to secure light by which to measure its actual significance. Such evidence is adducible only for the purpose of interpreting the writing -- not for the purpose of modifying or enlarging or curtailing its terms, but to aid in determining the meaning of what has been said. So far as the evidence tends to show, not the meaning of the writing, but an intention wholly unexpressed in the writing, it is irrelevant.
[(Emphasis added).]

See also Chance v. McCann, 405 N.J.Super. 547, 564 (App. Div. 2009).

The first question we must resolve is whether there was an ambiguity concerning Evans' right to receive a bonus. A contract is ambiguous if it is reasonably susceptible of two interpretations. Nester v. O'Donnell, 301 N.J.Super. 198, 210 (App. Div. 1997). The issue of ambiguity is one of law. Ibid.

Evans correctly points out that section 6.04 of the agreement does not state that she must be an employee of MDL at the end of the calendar year to receive a bonus, which, she argues, is in contrast to the contracts she subsequently drafted for other employees. We do not view that fact as dispositive, however, because her compensation rights on a voluntary separation are specifically governed by section 2.01(B), which provides that she is entitled to her "regular compensation through the effective date of termination" (emphasis added). The contract does not say that Evans is entitled to "full compensation" or use some other phrase clearly indicative of an intention that she receive the benefit of her entire compensation package, which consisted of base salary, commissions, and a bonus. The issue becomes whether the term "regular compensation" refers to Evans' full compensation package or something less.

The characterization of the entitlement as "regular compensation" can easily be read to suggest that some other type of compensation, non-regular compensation, is excluded. Certainly, the "base salary, " payable at least monthly, would fit within the concept of "regular compensation." It is a fixed amount, payable on a regular basis. MDL itself interpreted the term to include Evans' accrued share of the commission plan established in section 6.03 of the agreement. While apparently not payable on the same regular basis as the salary, the method of calculating Evans' commission, as described in 6.03(A) and (B), is fixed at 0.5 percent of revenue, subject to a slightly higher percentage for new business she brought in. Although the amount of the commission earned might vary from year to year, the method of calculating it did not.

In contrast, the amount of the bonus was not based on a fixed amount or formula. Instead, each year, $18, 000 for each $1 million in sales was used to establish a fund for the payment of bonuses and other incentive expenses for the sales department. The amount of each bonus, including Evans' bonus, and the budget for the other expenses was "to be allocated [from the fund] as the National Sales Director deems necessary." Although Evans was the person who made the allocation, her duty of loyalty to her employer required her to make the allocations in MDL's best interests, rather than her own. See Lamorte Burns & Co. v. Walters, 167 N.J. 285, 302 (2001) ("An employee must not while employed act contrary to the employer's interest.").

Because the term "regular compensation" can reasonably be interpreted as including either (1) the entire accrued compensation package or (2) the accrued salary and commissions but not the bonus, we conclude that the agreement is ambiguous.[1]When there is ambiguity in a contract, extrinsic evidence can be used as an aid in interpreting the ambiguous terms.

In such cases, the meaning of the contract should be left for a fact finder after an appropriate evidentiary proceeding. See Bedrock Foundations, Inc. v. Geo. H. Brewster & Son, Inc., 31 N.J. 124, 133 (1959); Michaels v. Brookchester, Inc., 26 N.J. 379, 387 (1958); Trucking Emps. of N. Jersey Welfare Fund, Inc. v. Vrablick, 177 N.J.Super. 142, 148 (App. Div. 1980). Here, the trial judge, who tried the case without a jury, interpreted the agreement to preclude payment of the bonus. We now turn to the issue of whether that was a sustainable conclusion.

An appellate court will not "disturb the factual findings and legal conclusions of the trial judge unless we are convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice." Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974) (quoting Fagliarone v. Twp. of N. Bergen, 78 N.J.Super. 154, 155 (App. Div.), certif. denied, 40 N.J. 221 (1963)).

The trial judge focused on the issue of whether section 6.04 of the agreement required that Evans be an MDL employee at the end of the calendar year to be eligible for a bonus. Based on the testimony, she concluded that, with the exception of an employee who left in mid-December, MDL's practice before and after the execution of Evans' agreement was that an employee had to be employed as of the end of the year.[2] In addition, the judge relied on a January 2, 2006 commission authorization that Evans prepared for herself, which approved her 2005 "Year-End Bonus."

The judge's conclusion is not inconsistent with the fact that Evans added to other employees' contracts a specific provision making the bonus contingent on year-end employment. This action could be understood as making MDL's requirement explicit in the later contracts rather than indicating an understanding that a different rule applied to her. There are no documents in the record to support the assertion that the intention of the parties was that Evans would receive a bonus whenever she terminated her employment.

The judge's finding that there was a well-established practice of paying bonuses for MDL employees at the end of the year is fully consistent with interpreting the phrase "regular compensation" to exclude the payment of a bonus on termination mid-year, rather than requiring the payment of the full compensation package. There is a logical distinction between a base salary and a fixed-rate commission, on the one hand, and a bonus allocated on a yearly basis depending on the needs of the sales department, as determined by the director of national sales, on the other. The word "bonus" itself is indicative of extra, as opposed to regular or usual, compensation.

For all of these reasons, we conclude that the trial judge's finding that Evans was not entitled to a bonus was supported by sufficient credible evidence in the record and consistent with applicable law. Consequently, we affirm the orders on appeal.

Affirmed.


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