Kern v. Sitel Corp.

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit

FILED
February 11, 2008

No. 07-50290 Charles R. Fulbruge III
Clerk

GREG KERN

Plaintiff-Appellant
v.

SITEL CORPORATION

Defendant-Appellee

Appeal from the United States District Court
for the Western District of Texas

Before GARWOOD, GARZA, and BENAVIDES, Circuit Judges.
BENAVIDES, Circuit Judge:
Appellant Greg Kern appeals the district court’s denial of his motion for
summary judgment and the grant of summary judgment for Appellee SITEL
Corporation (“SITEL”), in which the district court found the 2003 Sales
Compensation Plan (“the Plan”) ambiguous and, therefore, subject to SITEL’s
final interpretive authority. Although we agree with Kern that the Plan is
unambiguous, we find that, under Texas law, SITEL retains final interpretive
authority under the Plan. Therefore, we AFFIRM.
I.
Kern was hired by SITEL as Vice President, Business Development in
June 2003. He received an annual salary of $110,000 with the possibility of
 No. 07-50290

earning an incentive payment based on his sales performance, in accordance
with terms outlined in the Plan. Specifically, the Plan provided that Vice
Presidents, Business Development receive incentive compensation for “new
SITEL services business sold to new accounts and new SITEL services sold to
existing accounts.” Vice Presidents, Business Development were to be
compensated for “all SITEL services that are invoiced to clients during the
fiscal year . . . .”
Any incentive payment was based on the budgeted target revenue. If
Vice Presidents, Business Development reached 100% of their target revenue,
they were entitled to 100% of their incentive payment. However, if they
exceeded their target revenue, they could receive a larger incentive payment–
up to 250% of their base salary if their sales were twice their target revenue.
Kern’s target revenue goal for the 2004 fiscal year was eight million
dollars. It is undisputed that Kern sold several contracts to Dell USA LP,
which generated a total invoiced revenue of $16,846,659.50. Consequently,
Kern achieved sales over twice his target revenue for the year. Kern argues
that this should have entitled him to an incentive payment of $275,000, or
250% of his base salary. SITEL, however, capped Kern’s incentive payment
at $150,000 based upon its interpretation of section 20.0 of the Plan. Kern
then brought suit claiming SITEL breached the Plan, seeking $125,000 in
additional incentive pay.
The parties filed cross-motions for summary judgment. Kern argued
that section 20.0 of the Plan only placed a cap on the incentive payment a
Vice President, Business Development could earn on a single sale contract.
SITEL argued that the cap applied to each client, not to each sale, and that it
retained final interpretive authority over any dispute pursuant to section 6.0
of the Plan. The district court granted SITEL’s motion and denied Kern’s
motion, finding that both parties had presented reasonable interpretations of

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the Plan and, therefore, it had to defer to SITEL’s interpretation pursuant to
section 6.0 of the Plan.
II.
The district court’s grant of summary judgment is reviewed de novo.
Gonzalez v. Denning, 394 F.3d 388, 391 (5th Cir. 2004). It is undisputed that
Texas law governs this case.
III.
In determining Kern’s incentive compensation under the Plan, the
parties rely heavily on the language of sections 6.0 and 20.0. These sections
provide in pertinent part:
6.0 Employer’s Rights:
The Business Unit President and Vice President of Human
Resources Representative will resolve disputes over interpretation
of any aspects of this plan. The decision of the Business Unit
President shall be final.

20.0 Annual Account Contract Payment Limits:
For all Vice President[s], Business Developments, the maximum
incentive payment that can be received in one fiscal year for any one
account contract is US$150,000 subject to management review.
However, there is no limit to the number of large account contracts
that can be sold by any one Vice President, Business Development
to any account(s) in one calendar year.

Kern argues that the phrase “one account contract” in section 20.0
unambiguously means one sales contract. Because “[u]nder Texas law, the
interpretation of an unambiguous contract . . . is a legal question,” Kern
argues that this Court must interpret the Plan. Steuber Co. v. Hercules, Inc.,
646 F.2d 1093, 1098 (5th Cir. 1981). In other words, Kern argues that
SITEL’s interpretative powers under section 6.0 cannot be triggered if we find
the phrase “one account contract” unambiguous. In contrast, SITEL argues
that section 6.0 unambiguously gives it final interpretation over “any aspect”

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of the Plan, including interpretation of the phrase “one account contract.”
SITEL argues that, under Texas law, its interpretation must stand unless it
can be shown that it acted with fraud, in bad faith, or with a grossly mistaken
exercise of judgment.
While we agree with Kern’s premise that the phrase “one account
contract” is unambiguous, we disagree with his conclusion that we may
interpret the Plan without regard to SITEL’s interpretive powers under
section 6.0. Rather, we find that Texas law compels the conclusion that,
where an employer retains the right to interpret and change an incentive
compensation plan, the employer’s interpretation must stand unless the
employer acted in bad faith.
A. Section 20.0 is Unambiguous
Under Texas law, “[i]f the written instrument is so worded that it can
be given a certain or definite legal meaning or interpretation, then it is not
ambiguous and the court will construe the contract as a matter of law.” Coker
v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). “A contract, however, is
ambiguous when its meaning is uncertain and doubtful or it is reasonably
susceptible to more than one meaning.” Id. Courts should “consider the
entire writing in an effort to harmonize and give effect to all the provisions of
the contract so that none will be rendered meaningless.” Id. Furthermore,
“[n]o single provision taken alone will be given controlling effect; rather, all
the provisions must be considered with reference to the whole instrument.”
Id.
SITEL argues that the phrase “one account contract” means one
“client.” In other words, SITEL argues that this phrase caps the incentive

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bonus a Vice President, Business Development can receive on all sales to a
particular client.1
Kern argues that the phrase “one account contract” caps the incentive
bonus a Vice President, Business Development can receive on any one
individual sale. He argues that the plain meaning of the phrase “account
contract” is a statement of work, which is an individual contract between
SITEL and a customer. Under this interpretation, the first sentence of
section 20.0 says that the maximum incentive payment for “one account
contract” is $150,000, and the second sentence clarifies that there is no
limitation on the number of “large account contracts” a Vice President,
Business Development may sell to any “account.” In other words, section 20.0
means that Vice Presidents, Business Development cannot earn more than a
$150,000 incentive payment on any one sale/contract, but there is no limit on
the number of sales/contracts they can make to any one client (“account”).
Applying Texas principles of contract interpretation, we agree with
Kern’s argument that his interpretation of section 20.0 is the only reasonable
interpretation because SITEL’s interpretation–that “one account contract”
refers to an individual client–would render the second sentence of section 20.0
meaningless. Under SITEL’s interpretation, the first sentence of section 20.0
would mean that Vice Presidents, Business Development cannot earn more
than a $150,000 incentive payment from sales to one client. But the second

1
SITEL refers to provisions in the Plan and deposition testimony to show that the
primary duty of a Vice President, Business Development is to bring in new clients.
Accordingly, SITEL argues, incentive payments should not be uniform between sales to new
versus existing clients. We find this argument unpersuasive. First, SITEL’s interpretation of
section 20.0 sets a cap on the incentive bonus that can be earned per client, not per existing
client. A Vice President, Business Development would not be capped if he sold twice his
revenue target by selling new services to multiple existing clients. This undercuts SITEL’s
argument that the incentive structure is designed to award bringing in new clients.
Additionally, if section 20.0 was meant to further limit incentives for sales to existing clients,
it likely would have explicitly said so, like the many other provisions of the Plan that curtailed
incentives for sales to existing clients.

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sentence would mean that there is no limit on the number of clients (“account
contracts”) a Vice President, Business Development can sell on any particular
account. This interpretation is not internally coherent. Additionally, the
wording “large account contracts that can be sold” is awkward–or even
nonsensical–if “account contract” refers to a particular client. SITEL’s
interpretation reads out the distinction between “account contract” and
“account,” which appears to be the function of the second sentence.
Accordingly, SITEL’s interpretation of section 20.0 is unreasonable, and we
find the phrase “one account contract” unambiguous.
B. The Effect of Section 6.0
Finding that section 20.0 is unambiguous, Kern argues that SITEL’s
interpretive rights under section 6.0 are not implicated. Kern relies upon a
Texas Supreme Court case, Monsanto v. Boustany, 73 S.W.3d 225 (Tex. 2002).
In Monsanto, the Texas Supreme Court interpreted an employee incentive
plan and related stock option certificates. The Court found the plan
unambiguous in favor of the employer and, therefore, did not reach the
employer’s alternative argument that the plan gave it the exclusive right to
interpret the agreement. Id. at 227, 232. This case does not guide our
conclusion for two reasons. First, the Texas Supreme Court in Monsanto was
applying Delaware, not Texas, law. Id. at 229. Second, the fact that the
Texas Supreme Court did not reach the issue of the employer’s interpretive
authority–because it already found in favor of the employer based on the
plan’s language–does not offer us guidance as to how the Court would have
decided the issue, if it had determined the need to do so. Id. at 232.
Therefore, we find Monsanto inapplicable to this case.

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While there are no Texas cases involving interpretation of incentive
plan contracts directly on point,2 we find strong guidance in our prior holding
in Marsh v. Greyhound Lines, Inc., 488 F.2d 278 (5th Cir. 1974). In Marsh, a
Greyhound bus driver sued Greyhound alleging that the Trustees of the
company’s pension fund had wrongfully denied him disability retirement
benefits due to an injury he incurred on-the-job. Id. at 279. The bus driver
won a favorable verdict at trial, but on appeal, this Court reversed and
rendered judgment for the company. Id. at 284. Central to this holding was
language in the Plan stating that “all decisions of the Trustees in
administering the Plan shall be final.” Id. at 280 (internal quotation marks
omitted). This Court noted that such language did not “accord complete and
unbridled discretion to the Trust,” but nonetheless found that Texas law
required such a provision to be given effect unless there was a showing that
the Trustees acted in bad faith. Id. (“Texas law . . . is fairly clear that such a
provision is to be given effect by requiring a showing of bad faith before the
courts will interfere with a decision of the Trustees.”). The logic of Marsh was
cited favorably in Golden v. Kentile Floors, Inc., where this Court interpreted
a deferred compensation agreement with a similar interpretation clause
under New York law. 512 F.2d 838, 847 (5th Cir. 1975) (“Despite their

2
SITEL points this Court to two cases involving interpretation of incentive
compensation plans under Texas law, Stinger v. Stewart & Stevenson Servs., Inc., 830 S.W.2d
715, 717 (Tex. App. 1992) (plan provided that “this arrangement may be modified or changed
upwards or downwards at any time at the Company’s discretion”), and Nichols v. Enterasys
Networks, Inc., 2006 WL 1169146, at *1 (S.D. Tex. 2006) (unpublished) (plan provided that
“Management reserves the right to make final and binding decisions regarding the amount of
compensation earned and paid to any Plan Participant”). We agree with Kern, however, that
these cases are distinguishable because the plans in those cases explicitly gave the employer
the discretion to adjust compensation. Stinger, 830 S.W.2d at 719 (“The arrangement,
therefore, by its own terms, did not represent to promise appellant very much of anything,
except that the company promised to pay commissions based on the stated formula unless it
determined it did not want to.”). Section 6.0 of the Plan at issue here does not provide such
discretion; it grants SITEL the right to interpret the Plan, but not the right to determine the
amount of compensation at its discretion.

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reluctance to interfere with private employment affairs, courts do not step
completely aside when the party who would assume the role of sole arbiter, is
charged with fraud, bad faith, or a grossly mistaken exercise of judgment.
This was the thrust of our holding in Marsh . . . .”) (internal citations
omitted).
We find that these cases require us, in interpreting the Plan as a whole,
to honor SITEL’s interpretive rights under section 6.0, so long as SITEL did
not act in bad faith. Thus, although SITEL erred in its interpretation of “one
account contract” in section 20.0, unless this error was made in bad faith,
SITEL retains final interpretive authority over “any aspect” of the Plan, and
its determination of Kern’s incentive payment must stand.
C. SITEL Did Not Act in Bad Faith
Texas law provides that “bad faith may be established not only by direct
evidence, such as evidence of unreasonable requirements, refusal to consider
favorable information, or the use of standards more strict than those applied
to others similarly situated, but . . . may also be inferred from an adverse
decision which has no basis in fact.” Marsh, 488 F.2d at 280. Here, Kern
argues that SITEL’s bad faith can be inferred from it adopting an adverse
interpretation of section 20.0 that had no basis in the actual language of the
provision. He also notes that SITEL’s summary judgment witnesses have
previously defined terms in section 20.0 in a manner that supports his
interpretation.3
In response, SITEL argues that Kern has not put forth evidence to
indicate that it acted in bad faith. Importantly, SITEL points to testimony

3
Kern relies upon testimony from SITEL’s Chief Operating Officer. However, as stated
in section 6.0 of the Plan, SITEL’s Business Unit President and Vice President of Human
Resources Representative retain interpretive authority over “any aspect” of the Plan. The fact
that one SITEL official, who was not familiar with the details of the Plan at issue, agreed with
Kern’s interpretation does not establish that SITEL acted in bad faith.

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stating that it has consistently interpreted section 20.0, including applying
the $150,000 cap to another Vice President, Business Development who only
sold services to an already existing customer.
We find SITEL’s argument persuasive. Although there may be
circumstances where an employer’s interpretation of an unambiguous
contract is so outlandish that it constitutes bad faith, we do not find that to be
the case here. Given SITEL’s consistent (though erroneous) treatment of
section 20.0 in the past by the Business Unit President and Vice President of
Human Resources Representative, we do not believe that SITEL acted in bad
faith so as to treat Kern differently from others similarly situated. Kern
simply does not advance a sufficient rationale to establish that SITEL acted
in bad faith.4 Accordingly, SITEL retains interpretive authority under
section 6.0 of the Plan, and we will not interfere with its determination of
Kern’s incentive compensation.
IV.
In light of the foregoing, the decision of the district court is
AFFIRMED.

4
As this Court noted in Golden, we are “fully aware of the evidentiary problems that
plaintiffs face in these cases.” 512 F.2d at 849. Accordingly, “we have held that fraud or bad
faith may be proved circumstantially, as well as directly . . . .” Id. In Golden, the trial court
“apparently utilized the device of a procedural presumption in order to shift to the defendant
a burden of going forward with exculpatory evidence.” Id. “We consider the use of such a trial
tool largely a matter within the discretion of the District Judge.” Id. However, the procedural
presumption “does not shift the burden of proof unless a shift is dictated by an independent
rule of law.” Id. Therefore, any findings “based on the presumption must still follow logically
and naturally from the basic proof in the lawsuit.” Id.

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