Schara v. Commercial Envelope Manufacturing Co.

United States Court of Appeals
For the First Circuit

No. 02-1804

LEON SCHARA,

Plaintiff, Appellee,

v.

COMMERCIAL ENVELOPE MANUFACTURING CO., INC.,

Defendant, Appellant.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Frank H. Freedman, Senior U.S. District Judge]

Before

Boudin, Chief Judge,

Torruella and Lynch, Circuit Judges.

Jack F. St. Clair, with whom Charles K. Bergin, Jr. was on
brief for appellee.

John W. McConnell, with whom Wachtel & Masyr, LLP was on brief
for appellant.

February 28, 2003
 LYNCH, Circuit Judge. Leon Schara sued his former

employer, Commercial Envelope, in federal court for bonuses not

paid to him during his three years' employment there. Schara

alleged that his original employment contract had provided for a

one percent bonus on non-house accounts only, and that this

agreement was subsequently revised, following Commercial's failure

to obtain life insurance for him, to a bonus on all accounts.

Commercial responded that neither the original agreement nor the

revised agreement had ever been signed by Commercial, and so no

agreement existed. Commercial requested that the judge deliver a

jury instruction on the Statute of Frauds; the judge refused,

saying he had ruled the Statute inapplicable but he did not give

his reasons for that conclusion. The jury found for Schara,

awarding him damages of over $220,000, equivalent to a bonus on all

of the accounts. Commercial now appeals the judge's refusal to

submit the issue to the jury, and to deliver a jury instruction on

the Statute. We affirm.

I.

In 1995, Leon Schara was 58 years old and had undergone

quintuple heart bypass surgery. He had worked at Westvaco Company,

an envelope manufacturing company, for 23 years and was their

national sales manager for national and wholesale accounts. In

March of that year, Ira Kristel, Chairman of Commercial Envelope,

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another envelope manufacturer, approached Schara about taking a job

as National Sales Director.

Schara was interested, but told Ira Kristel that he had

"had a couple of heart attacks, . . . five bypasses, and . . . two

stents put in." As a result, he wanted a half million dollar life

insurance policy "because I don't expect to outlive my wife." (At

Westvaco, he had a life insurance policy of around $330,000.)

During the course of negotiations, according to Schara, Ira Kristel

personally assured him that Commercial would get him life

insurance. Ira Kristel also promised him a bonus of one percent of

the increase in sales, excluding "house" accounts -- a specified

list of sales accounts which predated Schara's arrival. He also

assured Schara's wife that Schara would receive life insurance.

On June 23, 1995, Commercial's external counsel, Steve

Cohen, forwarded an employment agreement to Schara for his

signature. Cohen did so at Steven Kristel's instruction, after

Steven Kristel had reviewed the contract. Steven Kristel is Ira's

son and Vice President of Commercial. In his cover letter, Cohen

described the agreement as "final" and asked Schara to "return both

contracts signed by yourself to Ira Kristel." That agreement

called for Commercial to take out life insurance for Schara in the

amount of $500,000. It also provided for a one percent bonus on

all business, above the base level set in 1995, excluding

designated house accounts. One provision of the contract provided

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for a severance payment in the event that more than half of

Commercial was sold and Commercial was unable to perform as a

result. This pay-out would take place over a two-year period.

The cover letter said that the list of house accounts

would be provided to Schara directly by Commercial. The appendix

listing house accounts was blank, however, according to Schara.

He said he asked Ira Kristel about the blank page, and was told

"Sign it. It's in your favor." Schara signed the contract and

returned it to Ira Kristel; he never received a copy signed by Ira

Kristel. Schara testified that when he called Ira Kristel to ask

about the contract, he was assured that Kristel had signed the

agreement. Subsequently, Schara received a six-page list of house

accounts, some time after he began work for Commercial in July

1995.

Because of Schara's medical history, however, Commercial

could not obtain life insurance for him. This was apparently

discovered after Schara started work for Commercial, although there

is some dispute as to the exact timing. Schara testified that he

met with Steven Kristel and attorney Wachtel, another lawyer for

the Kristels. They agreed that, in lieu of life insurance, Schara

would receive a bonus based on all of Commercial's accounts,

including house accounts.

On November 29, 1995 attorney Cohen faxed a revised

employment contract to Schara for his signature. The cover letter

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stated, "At the request of Steven Kristel, I have revised your

employment agreement by deleting Section (d) to Appendix B."

Section (d) referred to the $500,000 life insurance provision.

Schara signed the contract and returned it to Commercial; he never

received a copy signed by either Kristel.

Schara also testified that he spoke with Steven Kristel

on April 5, 1996. He produced notes in his handwriting from that

conversation, reading "4/15/96, revision per Steven Kristel. He'll

send me a copy of the revised contract to include these changes, no

house accounts in exchange for five hundred thousand dollar life

insurance policy."

During the three years Schara worked at Commercial

Envelope its sales grew by approximately $11 million dollars, from

$36 million dollars to $47 million dollars. Throughout this

period, Schara received his full salary, health insurance, use of

a company car, and paid membership in a country club, as he was

entitled under both written and oral assurances from Commercial.

The bonus is the only disputed aspect of his compensation. Schara

did not make a written demand for his bonuses at any time. Schara

testified that he had made oral demands, but that they were ignored

by the Kristels. He said he was afraid to press his claims while

he was still employed at Commercial for fear that they would lead

to litigation and retaliatory firing. Schara was terminated in

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1998, and subsequently brought suit for his unpaid bonuses for all

three years of employment.

A jury trial was held in May 2002. At trial, Ira Kristel

contended that there was no agreement, that he had never signed

anything. During cross-examination, Ira Kristel acknowledged that

there was probably "something owed Mr. Schara" for unpaid bonuses.

The district court denied Commercial's repeated motions for

judgment as a matter of law and a directed verdict on the basis of

the Statute of Frauds. It also refused to deliver jury

instructions on the Statute of Frauds, ruling from the bench that

the Statute did not apply. The jury found in Schara's favor, and

awarded him $223,135.39 in damages for the breach, an amount equal

to a one-percent bonus on all of Commercial's sales, including

house accounts. With interest calculated by the judge, the total

judgment was for $311,178,73. Commercial then filed this appeal,

protesting the judge's failure to give jury instructions based on

the Statute of Frauds.

II.

Our standard of review for refusal to give a requested

jury instruction is de novo. See Gray v. Genlyte Group, Inc., 289

F.3d 128, 133 (1st Cir. 2002).

The Statute of Frauds was originally promulgated in the

seventeenth century to protect against the dangers of perjury and

uncertain memory inherent in oral testimony. "Thus, the purpose

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underlying the statute of frauds is to prevent frauds by assertion

of claims not evidenced by a written agreement or by a note or

memorandum containing essential terms of the contract between the

parties." 61 N.Y. Jurisprudence 2d, Statute of Frauds, §4, at 21

(1987) (footnote omitted). This dispute is governed by New York

law. The Statute of Frauds, codified in New York, reads in

relevant part:

Every agreement, promise or undertaking is void, unless
it or some note or memorandum thereof be in writing, and
subscribed by the party to be charged . . . if such
agreement, promise or undertaking ... [b]y its terms is
not to be performed within one year from the making
thereof . . . .

N.Y. Gen. Oblig. Law § 5-701(a) (Consol. 2002).

Over the past century, there has been a general trend to

cut back on the reach of the Statute. See 2 E.A. Farnsworth,

Farnsworth on Contracts § 6.1, at 98 (2d ed. 1998). The Statute

of Frauds has been largely abolished in England since 1954. Id. at

95. In the United States, it has been "the subject of constant

erosion. Courts have long been receptive to pleas that the statute

should be narrowly interpreted so as not to cover the contract in

question." Id. at 98-99.

This erosion has happened on a number of fronts; one is

pertinent here. New York has consistently chosen to construe the

one-year provision of the Statute -- the requirement that contracts

not performable within a year fall within the Statute -- narrowly.

"Wherever an agreement has been found to be susceptible of

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fulfillment within that time, in whatever manner and however

impractical, this court has held the one-year provision of the

Statute to be inapplicable, a writing unnecessary, and the

agreement not barred." D&N Boening, Inc. v. Kirsch Beverages,

Inc., 63 N.Y.2d 449, 455 (1984). This is usually a matter of

interpretation of the contract language by the court, and often

resolved on a motion to dismiss. Id.; Cron v. Hargro Fabrics,

Inc., 91 N.Y.2d 362, 370 (1998). In any event, there are no issues

of fact on this point.

New York courts have found a range of termination

provisions sufficient to keep agreements out of the reach of the

Statute. See, e.g., Coinmach Inds. Corp. v. Domnitch, 37 N.Y.2d

889, 891 (1975) (where defendant had the option of selling at any

time the property on lease to the plaintiff); N. Shore Bottling Co.

v. Schmidt & Sons, Inc., 22 N.Y.2d 171, 176-77 (1968) (where

defendant had the option to discontinue at any time the activities

upon which the agreement was based); Nat Nal Serv. Stations, Inc.

v. Wolf, 304 N.Y. 332, 340 (1952) (where agreement merely set the

terms of anticipated prospective purchases); Blake v. Voigt, 134

N.Y. 69, 71 (1892) (where either party had the option to terminate

within seven months).

Here, the policy concerns which underlie the application

of the Statute are not at issue. This is not a situation where

Schara's claims are based solely on oral testimony, unsupported by

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writings, and subject to the vagaries of memory. Instead, he

relies on writings drafted and presented by Commercial. Moreover,

the facts surrounding the presentation of those writings -- where

each writing was presented by Commercial's attorney, labelled first

a "final" agreement and then a "revision" to a final agreement,

where Schara followed instructions to sign each and return it, and

where Commercial neither signed nor indicated to Schara that it had

not signed -- do not incline us to invoke the Statute on

Commercial's behalf. Consequently, we interpret the one-year

provision narrowly, avoiding use of the Statute to "afford persons

a means of evading just obligations." Morris Cohon & Co. v.

Russell, 23 N.Y.2d 569, 574 (1969).

The contract provided for payment of salary and a bonus

to Schara in the event the company was sold:

11. Sale of Business. If at any time during the term
hereof more than 50% of the assets or stock of the
Company is sold, and if as a result thereof, the Company
is unable to perform its obligations hereunder, the
Employee shall be entitled to receive the compensation to
which he was otherwise entitled hereunder, in addition to
severance in an amount equal to 300% of the Bonus, if
any, he received for the previous Contract Year. If such
sale is consummated during the first Contract Year
hereunder, the severance hereunder shall be $500,000.
The severance hereunder shall be paid over a period of 24
months in 48 semi-monthly installments.

This provision removes the contract from the ambit of the Statute.

A mere breach of contract within a year would not suffice

to remove a contract from the Statute under New York law. As all

contracts could be in breach, allowing breaches within a year to

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remove an agreement from the Statute would potentially vitiate it.

See Ohanian v. Avis Rent A Car Sys., Inc., 779 F.2d 101, 107-08 (2d

Cir. 1985). But the contract provision here envisions a

termination, not a breach. Likewise, if the termination provision

is not set forth explicitly in the contract, the Statute of Frauds

will apply. See Paper Corp. v. Schoeller Technical Papers, Inc.,

742 F. Supp. 808, 810 (S.D.N.Y. 1990); City of Yonkers v. Otis

Elevator Co., 649 F. Supp. 716, 727 n.15 (S.D.N.Y. 1986). Here,

however, the termination provision is express.

New York law does not allow termination provisions solely

within the control of the plaintiff to remove an agreement from the

scope of the one-year provision. But the case at hand does not

involve an oral agreement terminable within a year only by the

party that seeks to enforce the agreement; instead it is an

agreement where the right to terminate within a year is in the

hands of the defendant. New York courts have long found such

agreements to be outside of the Statute of Frauds. See Huebener v.

Kenyon & Eckhardt, Inc., 534 N.Y.S.2d 952, 955 (N.Y. App. Div.

1988).

Commercial argues that the two-year pay-out period

envisioned by paragraph 11 suffices to place this contract within

the Statute. We disagree. Because "the terms of the contract here

... included an event which might end the contractual relationship

of the parties within a year, defendant's possible liability beyond

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that time [does] not bring the contract within the statute." Cron,

91 N.Y.2d at 370 (quoting Martocci v. Greater N.Y. Brewery, Inc.,

301 N.Y. 57, 62 (1950)).

As to the two-year pay-out, Commercial stresses the

importance of the test of the "endurance of defendant's liability."

The language of "enduring liability," however, derives from cases

in which contractual rights persist other than mere pay-out of a

pre-determined severance amount. See, e.g., Martocci, 301 N.Y. at

62-63 (ongoing obligation to pay commission based on plaintiff's

introduction of defendant to customer); Cohen v. Bartgis Bros. Co.,

289 N.Y. 846, 846-47 (1943) (obligation to pay commissions

outlasting plaintiff's employment with defendant). The doctrine

does not limit Cron's holding.

Schara advances other arguments as to why the Statute of

Frauds does not apply; because we find for the above reasons that

the contract was not within the one-year provision, we do not

address them here.

The district court is affirmed. Costs to Schara.

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