FILED
United States Court of Appeals
Tenth Circuit
April 18, 2011
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
DAVID GERAS,
Plaintiff–Appellant,
v. No. 10-1352
INTERNATIONAL BUSINESS
MACHINES CORPORATION,
Defendant–Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
(D.C. No. 10-CV-00001-WDM-CBS)
Robert M. Liechty of Cross Liechty Lane PC, Greenwood Village, Colorado, for
Plaintiff–Appellant.
Thomas G. Mackey of Jackson Lewis LLP, Los Angeles, California (Jennifer S.
Harpole of Jackson Lewis LLP, Denver, Colorado, with him on the brief), for
Defendant–Appellee.
Before LUCERO, McKAY, and GORSUCH, Circuit Judges.
McKAY, Circuit Judge.
Plaintiff David Geras, a former employee of Defendant IBM, appeals from
the district court’s Rule 12(b)(6) dismissal of his contract claims against IBM for
commission payments and separation pay. The district court concluded that
Plaintiff’s contract claim for commission payments failed because IBM’s
employee incentive plan did not constitute an enforceable contract. As for
Plaintiff’s claim for separation pay, the court concluded that Plaintiff was not
entitled to this pay because he had not complied with the requirement to sign a
release of claims. This appeal followed.
BACKGROUND
In his complaint, Plaintiff alleged he worked for IBM from January 2000
until August 15, 2007, and IBM owed him $156,071.98 for commissions accrued
in the month of June 2007 and recorded on IBM’s web-based Field Management
System. He also alleged IBM failed to pay him $35,831.60 in separation pay
when he left his employment.
IBM then filed a motion to dismiss, to which it attached the Field
Management System letter explaining the incentive plan for the relevant
employment period. After setting out the plan details, this incentive letter stated:
OTHER IMPORTANT INFORMATION
Right to Modify or Cancel: The Incentive Plan is described on the
Internal Incentive Plan Website . . . , and you should rely on the
details provided within the Website for up-to-date information. The
Plan does not constitute an express or implied contract or a promise
by IBM to make any distributions under it. IBM reserves the right to
adjust the Plan terms, including but not limited to any quotas or
target incentives, or to cancel the Plan, for any individual or group of
individuals, at any time during the Plan period up until any related
payments have been earned under its terms. . . . Employees should
make no assumptions about the impact potential Plan changes may
have on their personal situations unless and until any such changes
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are formally announced by IBM.
Advances Against Final Business Results: Because your Plan
quotas (or similar performance objectives) are based on a business
model dependent on complete, final, and accurate business results,
periodic payments you may receive under the Plan are advances.
Deductions for overpayments may be made from any advances paid
to you up until the payments are earned under the plan terms.
Payments are earned at the end of the quarter following the end of
your plan period (for example, for some six-month plans, the Plan
period ends on June 30 and therefore the payments are earned on the
following September 30th . . . ) provided the following conditions
have been met: (1) you have complied with the Incentive Plan, the
Business Conduct Guidelines and other IBM policies; (2) you have
not engaged in any fraud or misrepresentation relating to any of your
sales transactions or incentives; (3) the customer has paid the invoice
for the sales transaction related to your incentive; and (4) the
incentives processes and calculations are final and contain no errors.
If any of the foregoing conditions have not been met, then the
incentive is not earned.
....
Significant Transactions: IBM Management reserves the right to
review and, in its sole discretion, adjust incentive payments
associated with transactions which (1) are disproportionate when
compared with the territory opportunity or quota size; or for which
(2) the incentive payments are disproportionate when compared with
the individual’s performance contribution towards the transactions.
Adjustments for Errors: IBM reserves the right to review and, in
its sole discretion, adjust or require repayment of incentives
payments resulting from any errors in incentives processes or
calculations.
Progress Reports: Any information regarding Plan achievement
that may be made available to employees during the year is provided
for information purposes only, and does not constitute a promise by
IBM to make any specific distributions to any employee.
(App. at 24-25.) IBM argued the language of this letter made clear that IBM’s
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incentive plan did not create an enforceable contractual promise to pay
commissions.
In his response to IBM’s motion to dismiss, Plaintiff agreed the letter
provided by IBM was the relevant document controlling his breach-of-contract
claim. However, he argued the language of this letter only gave IBM the right to
cancel the incentive plan or adjust the overall plan terms, while IBM had no right
to simply withhold commissions for one month in the quarterly plan period.
Plaintiff attached an affidavit and other evidence to his reply and argued that the
district court should convert the motion to dismiss into a motion for summary
judgment because the court needed to consider facts outside the pleadings.
Instead, the district court excluded Plaintiff’s proffered evidence and
decided under Rule 12(b)(6) that Plaintiff’s complaint failed to state a claim on
which relief could be granted. The court held as a matter of law that IBM’s
incentive plan did not constitute an enforceable promise of commission payments.
The court also dismissed Plaintiff’s claim for separation pay, since Plaintiff did
not allege he had signed a release of claims as required by the terms of IBM’s
separation pay agreement.
DISCUSSION
As an initial matter, we consider Plaintiff’s argument that the district court
erred in excluding his proffered evidence, reviewing this decision for abuse of
discretion. See Lybrook v. Members of Farmington Mun. Sch. Bd. of Educ., 232
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F.3d 1334, 1341-42 (10th Cir. 2000). Plaintiff argues the district court should
have considered his proffered evidence because the court considered the incentive
plan letter submitted by IBM and because his proffered evidence included facts
relevant to his claims. We are not persuaded the district court abused its
discretion when it considered evidence that was referenced in and central to the
complaint while excluding materials outside the pleadings. The court was not
required to accept Plaintiff’s evidence and convert IBM’s motion into a motion
for summary judgment simply because the court considered the relevant document
setting forth the commission plan alleged in Plaintiff’s complaint. See GFF Corp.
v. Associated Wholesale Grocers, Inc., 130 F.3d 1381, 1384-85 (10th Cir. 1997)
(explaining that a court may consider evidence referenced in and central to the
plaintiff’s complaint without conversion to summary judgment). Nor was the
court required to consider the materials submitted by Plaintiff simply because
they included facts relevant to the claims in his complaint. Cf. Prager v.
LaFaver, 180 F.3d 1185, 1189 (10th Cir. 1999) (holding that a district court has
the discretion in ruling on a Rule 12(b)(6) motion to decline to consider even
documents that are referred to in the complaint and central to the plaintiff’s
claims).
We turn now to the central issue in this case—whether IBM’s incentive
plan constituted an enforceable promise of commission payments. The parties
agree the substantive law of Colorado governs our resolution of this question.
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Thus, in the absence of a controlling state court decision, we must attempt to
predict what the Colorado Supreme Court would do if faced with this issue. See
Wankier v. Crown Equip. Corp., 353 F.3d 862, 866 (10th Cir. 2003).
Under Colorado law, an employee may seek to enforce his employer’s
personnel policies or procedures under a theory of breach of contract or
promissory estoppel. See Cont’l Air Lines, Inc. v. Keenan, 731 P.2d 708, 711-12
(Colo. 1987); see also Bullington v. United Air Lines, Inc., 186 F.3d 1301, 1322
(10th Cir. 1999), overruled on other grounds by Nat’l R.R. Passenger Corp. v.
Morgan, 536 U.S. 101 (2002). To succeed on a contract theory, the “employee
must show that the employer’s actions manifested an intent to be bound,” while a
promissory estoppel theory requires the employee to “demonstrate that the
employer should have reasonably expected the employee to consider the policy as
a commitment from the employer.” Bullington, 186 F.3d at 1322. “If the
statement is merely a description of the employer’s present policies or a forecast
of the employee’s likely career progression, it is neither a promise nor a statement
that could reasonably be relied upon as a commitment.” Soderlun v. Pub. Serv.
Co., 944 P.2d 616, 620 (Colo. App. 1997). Moreover, under either theory the
alleged promise must be “sufficiently specific so that the judiciary can understand
the obligation assumed and enforce the promise according to its terms.” Id.
Plaintiff first argues all of the foregoing authority is inapposite because
Colorado courts have only applied these principles in the context of termination
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decisions, where the question is whether policies set forth in an employment
manual or handbook have overcome the rebuttable presumption of at-will
employment. However, in setting forth Colorado’s test for determining whether
employees may enforce such employment policies, the Colorado Supreme Court
held in Keenan that this question should be decided under “ordinary contract
principles.” 731 P.2d at 711. The Colorado “[S]upreme [C]ourt has not purported
to create any special rules to deal with employee claims of contract breaches.”
Soderlun, 944 P.2d at 619; see also Schur v. Storage Tech. Corp., 878 P.2d 51, 53
(Colo. App. 1994) (explaining that the Colorado Supreme Court’s reference in
Keenan to a presumption of at-will employment did not refer to an evidentiary
presumption, but only emphasized that it was the employee’s burden to prove
special circumstances removing his employment situation from the default
position of at-will employment). We see no reason why the Colorado Supreme
Court would create a special rule for the employment policy at issue in the instant
case, rather than simply apply the traditional contract principles it found
applicable in Keenan. We also note that a prior panel of this court applied these
contract principles to a purported promise of promotions in Bullington, outside of
the at-will employment context of Keenan, and we have found no Colorado cases
criticizing that application or suggesting Keenan’s ruling is limited to the at-will
employment context. We thus apply the principles described in Keenan and its
progeny to determine whether IBM’s employee incentive plan constituted an
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enforceable promise of commission payments.
IBM argues the disclaimer in its incentive plan—the statement that the
letter “does not constitute an express or implied contract or a promise by IBM to
make any distributions under it”—defeats any argument that the incentive plan
constituted a promise or a statement that could reasonably be relied upon as a
commitment from IBM. IBM then argues that the presence of this clear and
conspicuous disclaimer renders other portions of the incentive letter irrelevant to
the question before us. In response, Plaintiff argues the other language in the
letter creates at least an ambiguity as to whether IBM was disclaiming the intent
to make any promises at all or whether IBM was instead indicating only that it did
not promise to base all distributions on the stated formula since adjustments could
be made under certain specified circumstances. Colorado courts have given
somewhat inconsistent guidance on whether our review of an employment policy
should end if we conclude the policy contains a clear and conspicuous disclaimer
of promissory intent or whether other language in the policy may also inform our
consideration of the issue. Compare Jaynes v. Centura Health Corp., 148 P.3d
241, 248 (Colo. App. 2006) (“Termination procedures set forth in an employee
manual or handbook do not create an implied contract where a clear disclaimer of
any contractual rights appears.”), and Ferrera v. Nielsen, 799 P.2d 458, 461
(Colo. App. 1990) (“Summary judgment denying claims based on a handbook is
appropriate if the employer has clearly and conspicuously disclaimed intent to
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enter a contract.”), with Evenson v. Colo. Farm Bureau Mut. Ins. Co., 879 P.2d
402, 409 (Colo. App. 1993) (“[E]ven if there is a disclaimer in the manual, an
employer may nevertheless be found to have manifested an intent to be bound by
its terms if the manual contains mandatory termination procedures or requires
‘just cause’ for termination.”). However, we need not decide in the instant case
how the Colorado Supreme Court would resolve this question because we
conclude, even considering the other language relied on by Plaintiff, that IBM’s
incentive letter does not manifest an intent to be bound by the terms of its
incentive plan, nor could it reasonably be relied on by an employee as a
commitment to comply with those terms.
IBM’s incentive letter makes clear IBM’s intent not to be bound by the
policies described therein. We are not persuaded by Plaintiff’s argument that
IBM’s description of situations in which it might make adjustments constituted a
promise that adjustments would be made only under those circumstances.
Nothing in the incentive letter suggested any circumstances in which the payment
of incentives could be considered mandatory, at least not until three months after
the end of the plan period at issue. 1 Although the letter contained a description of
1
It is undisputed Plaintiff was informed by August 15, 2007 that he would
not receive a commission for June, and it is likewise undisputed that any
commission for June would not be considered “earned” under the plan until
September 30, 2007, three months after the expiration of the relevant plan period.
Thus, this case does not raise the question of whether an employee might succeed
(continued...)
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IBM’s present policies, including its policies for adjusting payments, it reiterated
that IBM retained the discretion to alter or cancel these policies, even after sales
had occurred, and it cannot reasonably be construed to be a binding promise or
commitment by IBM to provide incentive payments that had not been “earned”
under the plan’s terms. See Soderlun, 944 P.2d at 620; see also Jaynes, 148 P.3d
at 248-49 (holding that a discretionary policy does not create an implied contract
or give rise to estoppel).
This conclusion is consistent with the conclusion reached by the other
courts to have considered whether employees may enforce the policies contained
in similar IBM incentive plans. In Jensen v. IBM, 454 F.3d 382 (4th Cir. 2006),
for instance, the Fourth Circuit considered claims based on a similar IBM
incentive plan under Virginia law, which applies the same general contract law
principles as Colorado. After quoting similar language to the disclaimer language
at issue in this case, the Fourth Circuit held that IBM “did not invite a bargain or
manifest a ‘willingness to enter into a bargain.’ To the contrary, it manifested its
clear intent to preclude the formation of a contract.” Id. at 388. The court
concluded IBM’s incentive plan was “no more than an announcement of a policy
expressing its intent to pay incentives in specified amounts but retaining full
1
(...continued)
on a contract or promissory estoppel case against IBM for payments that were not
refused until after they had been deemed earned under the plan’s terms.
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discretion to determine amounts until the time that they are actually paid.” Id. at
390. The court therefore rejected the employee’s attempt “to create an
enforceable contract out of a policy that expressed IBM’s contrary intentions.”
Id.; see also Schwarzkopf v. IBM, 2010 U.S. Dist. LEXIS 46813, at *25 (N.D.
Cal. May 12, 2010) (“Any inferences that may be drawn in Schwarzkopf’s favor
with respect to the circumstances or intent of the Quota Letter are insufficient to
negate IBM’s clear intent not to contract . . . .”); Gilmour v. IBM, 2009 U.S. Dist.
LEXIS 127142, at *3 (C.D. Cal. Dec. 16, 2009) (“Indeed, IBM retained full
discretion to ‘adjust the Plan terms’ at any time. As such, the Incentive Plan and
Quota Letter did not create an enforceable employment contract.” (citation
omitted)); Rudolph v. IBM, 2009 U.S. Dist. LEXIS 75261 (N.D. Ill. Aug. 21,
2009) (“Given that Rudolph’s 1999 Compensation Plan allowed IBM to
unilaterally modify or terminate the Plan at any time, Rudolph could not have
reasonably believed that IBM made an offer with respect to incentive
compensation.”).
We agree with this reasoning and find it equally applicable in the instant
case. Because the incentive letter made clear IBM’s intent not to enter into an
enforceable contract to provide incentive payments, Plaintiff cannot succeed on a
contract or promissory estoppel claim based on this letter or the incentive plan it
described.
Because we hold that IBM’s incentive plan did not create an enforceable
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contract, we need not consider Plaintiff’s argument that IBM’s refusal to provide
a commission payment for his June sales violated the terms of that plan. We also
need not consider Plaintiff’s argument that IBM’s refusal of a commission
payment for his June sales violated the duty of good faith and fair dealing that
applies to every contract in Colorado. See Lufti v. Brighton Cmty. Hosp. Ass’n,
40 P.3d 51, 59 (Colo. App. 2001) (“Here, there was no contract, express or
implied, between plaintiff and the hospital concerning his work in the ER.
Therefore, no claim for breach of the covenant of good faith and fair dealing may
stand.”). Likewise, because Plaintiff’s arguments relating to his claim of
separation pay are entirely dependent on his contract claim for commission
payments, our ruling as to that claim disposes of his separation pay claim as well.
CONCLUSION
For the foregoing reasons, we AFFIRM the judgment of the district court.
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