Wilson v. Rollins Inc

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

_____________________

No. 96-11436
_____________________

TERRY WILSON; JAN WILSON,

Plaintiffs-Appellants,

versus

ROLLINS, INC.; ORKIN EXTERMINATING, INC.,

Defendants-Appellees.

_________________________________________________________________

Appeal from the United States District Court
for the Northern District of Texas
(3:94-CV-0192-G)
_________________________________________________________________
September 29, 1997
Before DUHÉ and BARKSDALE, Circuit Judges, and COBB, District
Judge.1

PER CURIAM:2

For this FED. R. CIV. P. 54(b) appeal in a diversity action, Jan

and Terry Wilson challenge the judgment as a matter of law in favor

of Rollins, Inc., and Orkin Exterminating, Inc., on the Wilsons’

fraud and intentional infliction of emotional distress claims; and

1
District Judge of the Eastern District of Texas, sitting
by designation.
2
Pursuant to 5TH CIR. R. 47.5, the Court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR. R.
47.5.4.
the denial of relief on their declaratory judgment claim, which

sought reformation of non-compete covenants. We AFFIRM and REMAND.

I.

In January 1992, after lengthy negotiations, Rollins purchased

for $380,000 the assets of JTW, Inc., located in Texas and owned by

the Wilsons. JTW consisted of a commercial interior plantscaping

business, managed by Mrs. Wilson; and a wholesale supplier of

plants and related goods, managed by Mr. Wilson.

In conjunction with the sale of JTW’s assets, the Wilsons

entered into five-year employment contracts with Orkin, wholly-

owned by Rollins. Those contracts provided for an annual base

salary of $40,000 for each of them, contained covenants not to

compete with Orkin, and provided for termination for cause. And,

JTW and the Wilsons executed non-competition agreements.

Mr. Wilson was placed initially in January 1992 as manager of

plantscaping supply; he was removed from that position that May and

accepted a position as a national sales manager. That December,

Orkin eliminated his position because it was not generating enough

revenue to pay his salary. He was then offered the option of

either accepting a greenhouse manager position at a lower salary or

returning to the national sales position on a straight commission

basis. Mr. Wilson accepted the greenhouse manager position, and

Orkin continued to pay him $40,000 annually.

- 2 -
 At the end of September 1993, Orkin decided to close the

greenhouse facility and to cease unprofitable wholesale and

greenhouse operations. Mr. Wilson was given the option of being

terminated for cause, resigning, taking back his former business,

or accepting a new position and pay cut. He refused each option.

In mid-October, Orkin advised Mr. Wilson that there were no

suitable positions in Texas and that he probably would be assigned

to California. Orkin later offered him an entry level position on

a delivery and installation crew. Mr. Wilson refused that offer

for medical reasons. Orkin also offered him his former position as

a national sales manager, but he refused that position because it

had been eliminated previously when he was unable to achieve its

goals. As of 30 November 1993, Mr. Wilson considered himself

constructively discharged; Orkin, that he abandoned his employment.

Mrs. Wilson began her employment with Orkin in January 1992 as

a branch manager, at an annual salary of $40,000. That November,

she was reassigned as a major account specialist; although her

compensation was changed from a salary to a “guaranteed draw”, the

amount was not changed. In July 1993, her compensation was

decreased after Orkin put her on a commission basis. She was still

employed by Orkin at time of trial in early 1996.

The Wilsons and JTW filed this diversity action against Orkin

and Rollins in January 1994, claiming breach of contract and fraud.

The Wilsons also claimed intentional infliction of emotional

- 3 -
distress; and they sought a declaratory judgment that the non-

compete covenants should be reformed.

In mid-January 1996, the declaratory judgment request was

tried to the court, while the other claims were tried to a jury.

The jury awarded $100,000 to Mrs. Wilson and $150,000 to Mr. Wilson

for fraud, and $200,000 to Mrs. Wilson for breach of contract;

found in favor of Rollins and Orkin on JTW’s claims for breach of

contract, fraud, and exemplary damages; but did not reach a verdict

on the Wilsons’ claims for emotional distress and exemplary

damages, and on Mr. Wilson’s claim for breach of contract.

The district court granted judgment as a matter of law against

the Wilsons on their fraud, emotional distress, and exemplary

damages claims; remitted Mrs. Wilson’s breach of contract damages

to $52,000 (which she accepted); and ruled that Mr. Wilson would be

allowed to retry his breach of contract claim. It denied a

declaratory judgment, and, along that line, refused the Wilsons’

request for findings and conclusions.

II.

Our court denied the Wilsons’ petition for leave to take an

interlocutory appeal, but held that the appeal could proceed under

Rule 54(b). JTW dismissed its appeal.

This being a diversity action, Texas substantive law applies.

E.g., Erie R. Co. v. Tompkins, 304 U.S. 64 (1938); Vaught v. Showa

Denko K.K., 107 F.3d 1137, 1145 (5th Cir. 1997). And, concerning

- 4 -
this limited Rule 54(b) appeal, although the appellees contended in

their brief that the district court erred by denying them judgment

on Mr. Wilson’s contract claim, they conceded at oral argument that

the issue is not properly before us. Likewise, neither is the same

claim by Mrs. Wilson. In sum, at issue is only whether the

district court erred by granting judgment against the Wilsons’

fraud and emotional distress claims, and by denying relief on the

non-compete claims.

A.

For the fraud and emotional distress issues, the judgments as

a matter of law are reviewed de novo. E.g., Conkling v. Turner, 18

F.3d 1285, 1300-01 (5th Cir. 1994). Such judgment is appropriate

if, viewing the trial record in the light most favorable to the

Wilsons, there is no “legally sufficient evidentiary basis” for a

reasonable jury to find for the Wilsons. Id. (quoting FED. R. CIV.

P. 50(a)); see also Boeing Co. v. Shipman, 411 F.2d 365, 374-75

(5th Cir. 1969) (en banc), overruled in part on other grounds,

Gautreaux v. Scurlock Marine, Inc., 107 F.3d 331 (5th Cir. 1997).

1.

Judgment was granted against the fraud claims on the ground

that they sounded only in contract. The Wilsons contend that the

jury verdict should be reinstated because the legal analysis

- 5 -
applied by the district court is inapplicable to claims for

fraudulent inducement.3

The proper legal analysis is provided by Formosa Plastics

Corp. USA v. Presidio Engineers & Contractors, Inc., ___ S.W.2d

___, 40 Tex. Sup. Ct. J. 877, 1997 WL 378129 (Tex. 1997), decided

the day after we heard oral argument (but not yet released for

publication in the permanent law reports and therefore subject to

revision or withdrawal). There, the Texas Supreme Court clarified

when tort damages may be recovered for fraudulent inducement of a

contract. It noted that “Texas law has long imposed a duty to

abstain from inducing another to enter into a contract through the

use of fraudulent misrepresentations”; that “it is well established

that the legal duty not to fraudulently procure a contract is

separate and independent from the duties established by the

contract itself”; that it had “repeatedly recognized that a fraud

claim can be based on a promise made with no intention of

3
The appellees contend that the Wilsons did not properly
plead a fraudulent inducement claim. To the contrary, they alleged
that “Defendants made misrepresentations and promises in which it
[sic] had no intention to keep” in connection with the ongoing
operation of Mr. Wilson’s wholesale business, and that the
defendants committed fraud by, inter alia, making “promises and
representations without intention of honoring them” and “to induce
Plaintiffs into the transaction and acquire their customer base”.
In any event, and far more importantly, the jury was instructed,
without objection, that “[a] misrepresentation may also include a
promise of future performance made with a present intent on the
part of the person making the promise not to perform as promised.”
See FED. R. CIV. P. 15(b), 51.

- 6 -
performing, irrespective of whether the promise is later subsumed

within a contract”; and that it was clearly established that “tort

damages are not precluded simply because a fraudulent

representation causes only an economic loss”. Id. at *6. The

court concluded that “tort damages are recoverable for a fraudulent

inducement claim irrespective of whether the fraudulent

representations are later subsumed in a contract or whether the

plaintiff only suffers an economic loss related to the subject

matter of the contract.” Id. at *7.

In the new light of Formosa, the district court erred by

concluding that the Wilsons’ claims sound only in contract. Of

course, this does not end our inquiry; we also must determine

whether legally sufficient evidence supports the jury’s (1) finding

of fraud and (2), if it does, award of damages. See id. See also,

e.g., Foreman v. Babcock & Wilcox Co., 117 F.3d 800, 804 (5th Cir.

1997) (“We must affirm a judgment of the district court if the

result is correct, even if our affirmance is upon grounds not

relied upon by the district court.”)

Under Texas law, a fraud claim requires proof of “a material

misrepresentation, which was false, and which was either known to

be false when made or was asserted without knowledge of its truth,

which was intended to be acted upon, which was relied upon, and

which caused injury.” Formosa, 1997 WL 378129, at *7 (quoting

Sears, Roebuck & Co. v. Meadows, 877 S.W.2d 281, 282 (Tex. 1994)).

- 7 -
“A promise of future performance constitutes an actionable

misrepresentation if the promise was made with no intention of

performing at the time it was made.” Id. (citing Schindler v.

Austwell Farmers Co-op., 841 S.W.2d 853, 854 (Tex. 1992)). Thus,

to recover for fraudulent inducement, the Wilsons “had to present

evidence that [the wrongdoer] made representations with the intent

to deceive and with no intention of performing as represented.”

Id. (citing Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434

(Tex. 1986)).

The Wilsons contend that the appellees made the following

representations, upon which they relied in deciding to sell the

assets of their business (JTW) and enter into the employment

agreements and covenants not to compete: (1) that, as part of the

overall transaction, the appellees would pay a total of $800,000

(later adjusted downward $20,000 based on an audit), with $380,000

paid in cash through an asset purchase agreement and the remaining

$400,000 through five-year employment contracts with the Wilsons,

totaling $80,000 per year; (2) that the appellees did not care how

the Wilsons apportioned the annual $80,000; (3) that the appellees

wanted to use the plant supply business operated by Mr. Wilson to

purchase and supply all of the appellees’ tropical foliage,

blooming color, and hardgoods on a national basis, and that they

wanted him to manage that operation; and (4) that the Wilsons could

- 8 -
only be terminated according to Orkin’s “corrective action report”

procedures, and it would be almost impossible for them to be fired.

The Wilsons contend that such representations were false when

made, because the appellees never wanted Mr. Wilson as an employee

and never intended to give him a realistic chance to succeed;

instead, they offered to purchase his part of JTW and offered him

a position because they knew it was the only way they could

persuade the Wilsons to sell Mrs. Wilson’s part of JTW, and because

they could obtain the recurring revenues of her part at a lower

cost if they purchased his part of JTW. The Wilsons assert that

Orkin never intended to perform under their employment agreements,

because (1) the appellees intentionally failed to inform the

Wilsons prior to the closing that they had already negotiated with

another company to supply tropical foliage and blooming color; (2)

they were treated rudely, and given unreasonable and unrealistic

goals and deadlines; and (3) Orkin reduced their salaries in an

attempt to force them to resign.

But, as the appellees correctly point out, the Wilsons cannot

maintain a claim for fraudulent inducement of the sale of JTW’s

assets. The Asset Purchase Agreement was a separate document,

executed by Mrs. Wilson on behalf of JTW; the Wilsons in their

individual capacities executed separate employment contracts and

covenants not to compete. (Along this line, Rollins paid the

agreed $380,000 for JTW’s assets; the jury found that the Asset

- 9 -
Purchase Agreement was not breached and that there was no fraud as

to JTW; and JTW dismissed its appeal.)

The Wilsons have not cited any authority allowing them to

recover individually for the alleged fraudulent inducement of the

sale of corporate assets. Indeed, Texas law is to the contrary.

See Adams v. Big Three Industries, Inc., 549 S.W.2d 411, 413 (Tex.

App.—Beaumont 1977, writ ref’d n.r.e.) (“A corporation cannot be

used when it benefits the stockholders and officers and be

disregarded when it is to the advantage of the organizers to do

so.”). The Wilsons chose to operate their business as a

corporation, and they are bound by that choice. Accordingly, their

only viable fraudulent inducement claim relates to the employment

contracts.

Based on our review of the record, we conclude that there is

insufficient evidence to support finding fraudulent inducement of

those agreements. Prior to entering into them, the Wilsons signed

a letter of intent describing the terms of the contracts; it

provides that should either accept another position, the terms of

employment may be renegotiated. And, the employment contracts

executed by the Wilsons provided that their responsibilities “shall

include such duties consistent with [his/her] position with the

Company as may from time to time be assigned to [him/her] by the

Division General Manager”. Accordingly, the employment contracts

did not guarantee the Wilsons particular positions with Orkin,

- 10 -
irrespective of their performance. Indeed, Mrs. Wilson

acknowledged, on cross-examination, that she understood when she

signed the employment agreement that her position with Orkin could

be changed.

As noted, Mrs. Wilson was still employed by Orkin at time of

trial; this hardly constitutes evidence of Orkin’s intent not to

perform. Although her salary did not remain at $40,000 annually

after she became a major account specialist, she had the

opportunity to earn more than that through commissions. See

Formosa, 1997 WL 378129, at *7 (“the mere failure to perform a

contract is not evidence of fraud”).

There is some evidence to support the contention that Orkin

did not want to employ Mr. Wilson and that Rollins was not

interested in his wholesale business. A witness, who also sold her

business to the appellees, testified that Orkin’s vice president of

national sales told her that Orkin never wanted Mr. Wilson’s side

of the business, and that Orkin “forced [him] out”. Likewise,

another former owner, still employed by Orkin at time of trial,

testified that the only reason the appellees purchased Mr. Wilson’s

part of the business was to get the recurring revenues of Mrs.

Wilson’s part, that they had never been interested in his wholesale

business, and that he was simply an expense of doing business.

Nevertheless, Orkin entered into an employment contract with

Mr. Wilson, continually offered him other positions when his

- 11 -
performance did not meet its expectations, and paid him $40,000

annually until 30 November 1993, when he refused to accept other

positions offered to him. Orkin’s vice president of corporate

development testified that, had Mr. Wilson accepted either of the

positions available to him through Orkin’s final offer, it would

have continued to pay him $40,000 annually, regardless of whether

it lost money in so doing. Needless to say, Orkin was under no

obligation to continue an unprofitable wholesale operation solely

for the benefit of Mr. Wilson. Considering all of the evidence, a

rational juror could not find that Orkin had no intent to perform

under Mr. Wilson’s employment agreement at the time it was

executed.

In sum, judgment as a matter of law against the fraud claims

was correct.

2.

As for the judgment as a matter of law on the emotional

distress claims, “[u]nder Texas law, the tort of intentional

infliction of emotional distress has four elements: (1) intentional

or reckless conduct; (2) that was extreme or outrageous; (3) that

caused emotional distress; (4) that was severe.” Atkinson v.

Denton Pub. Co., 84 F.3d 144, 151 (5th Cir. 1996) (citing Wornick

Co. v. Casas, 856 S.W.2d 732, 734 (Tex. 1993)). “Only conduct that

is ‘so outrageous in character and so extreme in degree as to go

beyond all possible bounds of human decency, and to be regarded as

- 12 -
atrocious and utterly intolerable in a civilized community’ will

satisfy the second element of the tort of intentional infliction of

emotional distress.” Id. (quoting Dean v. Ford Motor Credit Co.,

885 F.2d 300, 306 (5th Cir. 1989)). Moreover, this extreme and

outrageous element is a question of law. Wornick, 856 S.W.2d at

734; Atkinson, 84 F.3d at 151.

Judgment was granted on the basis of this second element; the

district court held that there were no facts “which would take what

the defendants did out of the realm of an ordinary employment

dispute and transform it into ‘extreme and outrageous’ conduct”.

This second element is our starting point.

The Wilsons contend that this is not an ordinary employment

dispute, but is unique because (1) they were fraudulently induced

into employment as part of a fraudulent scheme to obtain “their”

assets; (2) having fraudulently induced them into employment, the

appellees attempted to force them into quitting or accepting lower

salaries by subjecting them to unwarranted criticism, unreachable

goals, and rude treatment; (3) they were not at-will employees, but

instead were protected by written employment agreements providing

for termination for cause; (4) because of the covenants not to

compete, they could not leave to avoid harassment, without changing

careers or moving from their home; and (5) the appellees, which had

subjected them to psychological evaluations during contract

negotiations, used knowledge so gained to take advantage of their

- 13 -
particular susceptibilities to emotional distress. Concerning

these contentions, several additional points of law form the

backdrop against which the evidence on this issue is reviewed.

First, the Wilsons’ fraudulent inducement claims have been

rejected, as has the assertion that JTW’s assets are “their”

assets.

Second, regarding the abusive criticism, goals, and treatment

points, our court stated in Johnson v. Merrell Dow Pharmaceuticals,

Inc., 965 F.2d 31 (5th Cir. 1992): “In order to properly manage

its business, an employer must be able to supervise, review,

criticize, demote, transfer, and discipline employees.” Id. at 34;

see also Atkinson, 84 F.3d at 151 (as a matter of law, employee’s

allegations that he was terminated without warning after long

service, that employer published false and defamatory reasons for

his termination to people inside company, and that his superiors

were disrespectful or rude to him during his employment and in the

termination meeting, are not extreme and outrageous). “Rude

behavior does not equate to outrageousness, and behavior is not

outrageous simply because it may be tortious.” Ewald v. Wornick

Family Foods Corp., 878 S.W.2d 653, 660 (Tex. App.—Corpus Christi

1994, writ denied). Likewise, “[l]iability does not extend to mere

insults, indignities, threats, annoyances, or petty oppressions.”

Ward v. Bechtel Corp., 102 F.3d 199, 203 (5th Cir. 1997).

- 14 -
 And third, as for the harassment and non-at-will points, the

Wilsons’ attempt to distinguish their situation on the basis that

they could only be terminated for cause is unavailing. Obviously,

although at-will employees are not protected by employment

contracts, their employers are still prohibited from taking adverse

employment actions against them proscribed by Title VII and other

applicable laws. Nevertheless, we have held that “[a]n employer’s

conduct, even if a Title VII violation, rises to the level of

extreme and outrageous in only the most unusual cases.” Hirras v.

Nat’l R.R. Passenger Corp., 95 F.3d 396, 400 (5th Cir. 1996)

(internal quotation marks and citation omitted); see also Hadley v.

VAM P T S, 44 F.3d 372, 375 (5th Cir. 1995) (fact that jury awarded

compensatory damages under Title VII does not mean that it also

found that plaintiff suffered compensatory damages for intentional

infliction of emotional distress); Ugalde v. W.A. McKenzie Asphalt

Co., 990 F.2d 239, 243 (5th Cir. 1993) (“Even conduct which may be

illegal in an employment context may not be the sort of conduct

constituting extreme and outrageous conduct”).

Against this backdrop, and based on our review of the evidence

for this emotional distress claim, we note, for starters, that the

Wilsons do not cite, nor do we find, evidence that the

psychological evaluation information was used improperly against

them. For the balance of the contentions, we agree with the

district court that the requisite “extreme and outrageous” element

- 15 -
is lacking. Accordingly, we need not analyze the other three

elements comprising the claim; it fails.

B.

In a claim tried to the court, the Wilsons sought a

declaration that the non-compete covenants were unreasonable and

should be modified. The court ruled that their request for

findings and conclusions was untimely and without an evidentiary

basis, and that reformation of the covenants was not a remedy

available to them. The Wilsons contend that (1) there is no basis

for the untimely-request ruling and, in any event, FED. R. CIV. P.

52(a) required the court to make findings and conclusions; (2) they

introduced evidence as to the unreasonableness of the covenants and

submitted a brief detailing such evidence; and (3) the employment

agreements expressly provide for reformation of the covenants in

the event they are found to be unreasonable. Two documents contain

the covenants.

First, the non-competition agreements were in effect for five

years after 2 January 1992. Those covenants have expired according

to their own terms; any claims regarding them are moot. Second,

the employment agreements preclude competition for two years

following either expiration of the five-year term of employment or

earlier termination. Because Mr. Wilson was last employed by Orkin

in November 1993, his two-year covenant has also expired. Mrs.

Wilson, however, is still bound by her covenant; because she has

- 16 -
not worked for Orkin since the January 1996 trial, it does not

expire until January 1998 (needless to say, relatively soon).

As noted, the covenants-claim was tried to the court. In

February 1995 (nearly a year before trial), the Wilsons filed

corresponding proposed findings and conclusions. “In all actions

tried upon the facts without a jury or with an advisory jury, the

court shall find the facts specially and state separately its

conclusions of law thereon....” FED. R. CIV. P. 52(a). Regarding

the court not making findings and conclusions, we are unable to

discern the bases for its untimely-request ruling. Nevertheless,

assuming that this non-compliance with Rule 52(a) is error, it is

harmless; Mrs. Wilson fell far short of producing sufficient

evidence of unreasonableness.

III.

For the foregoing reasons, the rulings comprising the Rule

54(b) judgment are AFFIRMED and this matter is REMANDED to the

district court for further proceedings.

AFFIRMED and REMANDED

- 17 -