Tvedt v. Farmers Insurance Group of Companies

No. 02-523

IN THE SUPREME COURT OF THE STATE OF MONTANA

2004 MT 125

LYLE LEROY TVEDT, and
L. L. TVEDT INSURANCE, INC.,

Plaintiffs and Appellants,

v.

FARMERS INSURANCE GROUP OF COMPANIES;
FARMERS INSURANCE EXCHANGE; TRUCK
INSURANCE EXCHANGE; MID-CENTURY
INSURANCE COMPANY; FARMERS NEW
WORLD LIFE INSURANCE COMPANY; and
FARMERS GROUP, INC.,

Defendants and Respondents.

APPEAL FROM: District Court of the Fourth Judicial District,
In and For the County of Missoula, Cause No. DV 2001-981,
Honorable John W. Larson, Presiding Judge

COUNSEL OF RECORD:

For Appellants:

Curtis G. Thompson, Thompson, Potts & Donovan, Great Falls, Montana

For Respondents:

Mark D. Parker, Parker Law Firm, Billings, Montana

Submitted on Briefs: April 3, 2003

Decided: May 12, 2004

Filed:

__________________________________________
Clerk
Justice Jim Rice delivered the Opinion of the Court.

¶1 Plaintiffs Lyle LeRoy Tvedt and L. L. Tvedt Insurance, Inc. (Tvedt), appeal the May

23, 2002, opinion and order of the Fourth Judicial District Court, Missoula County, wherein

the court granted summary judgment in favor of Farmers Group of Companies (Farmers) on

his claims for breach of contract, wrongful discharge, and indemnification of employment

expenses. We affirm in part and reverse in part.

¶2 Tvedt presents the following issues on appeal:

¶3 1. Did the District Court err in granting summary judgment to Farmers on Tvedt’s

two breach of contract claims: (a) the implied covenant of good faith and fair dealing; and

(b) waiver of the “at will” termination clause?

¶4 2. Did the District Court err in granting summary judgment to Farmers on Tvedt’s

wrongful termination claim?

¶5 3. Did the District Court err in dismissing Tvedt’s claims for business expense

indemnification?

FACTUAL AND PROCEDURAL BACKGROUND

¶6 Tvedt commenced working as an insurance agent for Farmers in 1978. Eight years

later, on December 1, 1986, when Farmers offered Tvedt the position of District Manager

in Missoula, Tvedt entered into a contract with Farmers called the District Manager’s

Appointment Agreement (Manager’s Agreement). The Manager’s Agreement appointed

Tvedt as “District Manager.”

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¶7 On February 10, 2000, after serving thirteen years as District Manager, Tvedt formed

a corporation called L. L. Tvedt Insurance, Inc., which, according to his affidavit, was for

the purpose of facilitating operation of an incorporated insurance agency for tax purposes.

¶8 On January 8, 2001, a second agreement, called Corporate District Manager

Appointment Agreement (Corporate Agreement), was entered into, this time between L. L.

Tvedt Insurance, Inc., and Farmers. The Corporate Agreement appointed L. L. Tvedt

Insurance Agency, Inc., as “District Manager,” and Tvedt, individually, as “Supervising

District Manager.”

¶9 The Manager’s Agreement and the Corporate Agreement (collectively, Agreements)

contained several mutual clauses applicable to this appeal. Both agreements contained an

“at will” termination clause which permitted cancellation of the agreement by either party

without cause on thirty days’ written notice. Further, both agreements contained a “contract

value” clause which established a liquidated value of the contract based upon years of

service with the company. The Corporate Agreement provided that, in the event Farmers

terminated the agreement, Farmers would pay the liquidated sum to the terminated party.

The Manager’s Agreement also required a compensation payment by Farmers upon

termination, but provided that an amount less than the “contract value” could be negotiated

by the parties. Both agreements contained an “independent contractor” clause which stated

that nothing in the agreement was intended to create an employer-employee relationship, but,

rather, that district managers worked in the capacity of an independent contractor.

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¶10 In 1996, Farmers published District Manager Performance Standards and

Expectations (Standards) which set forth standards for district managers, including Tvedt.

In 1998, Farmers published a second edition of the Standards which included, inter alia: (1)

a clause indicating the Standards would be applied to determine renewability of district

managers’ contracts, and (2) a clause indicating the Standards in no way modified Farmers’

right to terminate on thirty days’ notice.

¶11 Tvedt has maintained throughout the dispute with Farmers that, as District Manager,

he met and often exceeded the criteria delineated in the Standards. Tvedt asserted that in the

year 2000, his production of insurance sales exceeded the production quotas, as follows: 163

percent of life insurance, 128.4 percent of automobile insurance, 104.4 percent of

commercial insurance, and 109.1 percent of fire insurance. In the first three months of 2001,

Tvedt alleged similarly high percentages.

¶12 Nonetheless, on March 6, 2001, Tvedt received the first of a series of letters from

Bruce H. Gordon, Division Marketing Manager for Farmers, criticizing his performance as

District Manager. Shortly thereafter, on May 16, 2001, Tvedt received a termination letter

from David Dela Torre, State Executive Director for Farmers, giving him thirty days’ written

notice of termination of employment, without cause, effective June 15, 2001. Enclosed with

the termination letter was a Notice of Termination of Appointment Agreement(s) and

Agencies which stated:

Please be advised that any and all appointment agreements and any and all
agencies existing between you and the undersigned, and any and all
appointments, whether as District Manager or as District Agency of and for
the undersigned, are hereby terminated pursuant to the terms of said

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 agreement(s); said termination to be effective as of the termination date shown
above [June 15, 2001] without further notice.

On June 28, 2001, Farmers issued, at Tvedt’s request, another termination letter along with

another Notice of Termination of Appointment Agreement(s) and Agencies, which extended

the effective termination date to June 30, 2001.

¶13 Pursuant to their agreements, Farmers calculated Tvedt’s “contract value” to be

$313,225.00 on the basis that Tvedt, at the time of termination, had worked fourteen years,

seven months for Farmers. On August 13, 2001, Farmers issued Tvedt a check representing

the first of four equal “contract value” installment payments. Although the record makes

reference to further payments, the total amount which has been paid to Tvedt is not specified

therein.

¶14 On December 12, 2001, Tvedt brought a three-count complaint against Farmers for

breach of contract, wrongful termination, and indemnification of expenses. Tvedt alleged

Farmers had breached the covenant of good faith and fair dealing, had waived the “at will”

clauses in the Agreements by its actions, and had erroneously characterized him as an

“independent contractor” rather than an “employee.” Claiming employee status, Tvedt

sought relief under Montana’s Wrongful Discharge from Employment Act (WDEA), set

forth in § 39-2-901, et seq., MCA.

¶15 On February 13, 2002, Farmers moved for summary judgment. On May 8, 2002,

while its motion for summary judgment was still pending, Farmers filed an answer and

contingent counterclaim whereby the counterclaim would not be pursued if the District Court

dismissed Tvedt’s complaint pursuant to Farmer’s outstanding motion for summary

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judgment. Farmers’ counterclaim stated that, in the event the District Court found that Tvedt

was an “employee” of Farmers, then Farmers’ obligations to pay Tvedt his “contract value”

should cease, and all payments to Tvedt should be returned.

¶16 On May 23, 2002, the District Court entered its opinion and order granting Farmers’

motion for summary judgment on all claims. Tvedt appeals.

STANDARD OF REVIEW

¶17 This Court’s standard of review in appeals from summary judgment rulings is de

novo. Meyer v. Creative Nail Design, Inc., 1999 MT 74, ¶ 13, 294 Mont. 46, ¶ 13, 975 P.2d

1264, ¶ 13. See also Treichel v. State Farm Mut. Auto. Ins. Co. (1997), 280 Mont. 443, 446,

930 P.2d 661, 663 (citing Motarie v. Northern Mont. Joint Refuse Disposal Dist. (1995), 274

Mont. 239, 242, 907 P.2d 154, 156). This Court reviews a summary judgment order entered

pursuant to Rule 56, M.R.Civ.P., based on the same criteria applied by the district court.

Meyer, ¶ 13; Treichel, 280 Mont. at 446, 930 P.2d at 663.

¶18 In proving that summary judgment is appropriate:

[t]he movant must demonstrate that no genuine issues of material fact exist.
Once this has been accomplished, the burden then shifts to the non-moving
party to prove, by more than mere denial and speculation, that a genuine issue
does exist. Having determined that genuine issues of fact do not exist, the
court must then determine whether the moving party is entitled to judgment
as a matter of law. [This Court] review[s] the legal determinations made by
a district court as to whether the court erred.

Bruner v. Yellowstone County (1995), 272 Mont. 261, 264-65, 900 P.2d 901, 903 (citations

omitted). In order to be granted summary judgment, the “moving party has the burden of

showing a complete absence of any genuine issue as to all facts considered material in light

6
of the substantive principles that entitle the moving party to judgment as a matter of law and

all reasonable inferences are to be drawn in favor of the party opposing summary judgment.”

Meyer, ¶ 15 (citing Kolar v. Bergo (1996), 280 Mont. 262, 266, 929 P.2d 867, 869).

DISCUSSION

Issue 1

¶19 Did the District Court err in granting summary judgment to Farmers on Tvedt’s
two breach of contract claims: (a) the implied covenant of good faith and fair dealing, and
(b) waiver of the “at will” termination clause?

¶20 Tvedt alleges that Farmers breached both Agreements by terminating the contracts

without good cause and with inadequate notice, constituting a breach of the covenant of good

faith and fair dealing implicit in both Agreements. We first address Tvedt’s assertion that

Farmers breached the Agreements on grounds of inadequate notice. Tvedt asserts that he

received the first notice of termination on May 16, 2001, with an effective date of June 15,

2001, but Farmers did not follow through on that termination. By June 28, 2001, Tvedt

contends he was still district manager. On June 28, 2001, Farmers sent Tvedt another letter

and notice of termination with an effective date of June 30, 2001. This, according to Tvedt,

amounted to a two-day notice of termination which was contrary to the thirty-day notice

provision, thus constituting a breach of contract. Farmers asserts that it voluntarily extended

the termination notice for fifteen days from June 15th to June 30th at Tvedt’s request. In a

letter from Farmers to Tvedt dated June 28, 2001, Farmers wrote:

Mr. Tvedt: Please be advised on May 16, 2001, we gave you a notice of
termination to be effective June 15, 2001. This termination date has been
extended 15 days after further discussion with you for personal reasons
effective June 30, 2001 . . . .

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¶21 The record reflects that the District Court made specific inquiry at the summary

judgment hearing regarding the reason the termination date was extended from June 15,

2001, to June 30, 2001:

Court: And . . . this was at his request the additional 15 days be given?

Counsel: Yes . . . that’s when he wanted to be terminated. I mean he says
let’s make it effective that day. Instead of two weeks ago, let’s
make it effective the end of the month.

Court: And Mr. Tvedt’s affidavit doesn’t dispute that.

Counsel: No.

Thus, the District Court did not err in concluding no breach occurred based on notice. The

fact Tvedt was granted an additional fifteen days before his position would terminate did not

constitute inadequate notice under the terms of the Agreements.

Implied Covenant of Good Faith and Fair Dealing

¶22 Tvedt asserts the District Court erred in concluding the “at will” termination clauses

precluded a finding that Farmers breached the implied covenant of good faith and fair

dealing. Tvedt further asserts the District Court erred in disregarding substantial evidence

that Farmers used discretion conferred on it by the Agreements in an unreasonable manner

to act dishonestly or outside accepted commercial practices, contrary to the mandates of the

implied covenant of good faith and fair dealing, which deprived him of the benefit of the

contracts.

¶23 Farmers counters that it did not exercise discretion in terminating Tvedt, but rather

a a right. Therefore, Farmers contends it did not breach the covenant of good faith and fair

8
dealing. Farmers alleges that, according to the “at will” termination provisions, it was at

liberty to terminate Tvedt on thirty days’ notice, with or without cause. Furthermore,

Farmers argues that according to the language of the Agreements, it did not need a reason

to terminate Tvedt, and, by signing the Agreements, Tvedt conceded as much.

¶24 In its order granting Farmers’ motion for summary judgment, the District Court found

no breach of the implied covenant of good faith and fair dealing with respect to either

agreement, setting forth several relevant standards recognized by this Court for contract

interpretation:

We must interpret the intent of parties to a contract from only the contract
when the terms are unambiguous. See Habets v. Swanson, 2000 MT 367, ¶
13, 303 Mont. 410, ¶ 13, 16 P.3d 1035, ¶ 13. “An ambiguity exists when the
contract taken as a whole in its wording or phraseology is reasonably subject
to two different interpretations.” Wray v. State Compensation Ins. Fund
(1994), 266 Mont. 219, 223, 879 P.2d 725, 727 (quoting Morning Star
Enterprises v. R. H. Grover, Inc. (1991), 274 Mont. 105, 111, 805 P.2d 553,
557). Whether a contract is ambiguous is a question of law that a court must
decide. See Carelli v. Hall (1996), 279 Mont. 202, 209, 926 P.2d 756, 761.

¶25 With these provisions in mind, the District Court then examined the “at will”

provisions of both the Manager’s and the Corporate Agreements. The District Court found

no ambiguity in the “at will” provision of the Manager’s Agreement, which stated “[this

Agreement . . . may be cancelled without cause by either the District Manager or the

Companies on 30 days written notice . . . ,” or the Corporate Agreement, which stated,

“[t]his Agreement may be canceled with or without cause by either the District Manager

Agency or the Companies on thirty 30 days written notice.”

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¶26 Tvedt argues, however, that even though the Agreements contained this language, the

covenant of good faith and fair dealing is not negated by the “at will” termination provisions.

He contends that where, as alleged here, an employer uses discretion conferred by contract

to act dishonestly or outside accepted commercial practices to deprive an employee of the

benefit of the contract, the covenant of good faith and fair dealing is breached despite the

existence of an “at will” provision.

¶27 This argument relies on the fifth prong of the framework for breach of implied

covenant claims as set forth in Weldon v. Montana Bank (1994), 268 Mont. 88, 885 P.2d

511: (1) every contract contains an implied covenant of good faith and fair dealing;
(2) a breach of the covenant is a breach of the contract; (3) a breach of an
express term of the contract is not a prerequisite to a breach of the implied
covenant; (4) the conduct required by the implied covenant is honesty in fact
and the observance of reasonable commercial standards of fair dealing in the
trade; and (5) when one party uses discretion conferred by the contract to act
dishonestly or to act outside of accepted commercial practices to deprive the
other party of the benefit of the contract, the contract is breached.

Weldon, 268 Mont. at 94, 885 P.2d at 515 (emphasis added). In support of their respective

positions, both parties cite Weldon for the proposition that, in the absence of contract-

conferred discretion, it is questionable whether a breach of the covenant occurs:

Without some attempt by one party to “[use] discretion conferred by the
contract to act dishonestly or to act outside the accepted commercial practices
to deprive the other party of the benefit of the contract,” it is questionable
whether any breach of the covenant occurred, even if the conduct amounts to
breaches of other common law obligations.

Weldon, 268 Mont. at 95, 885 P.2d at 515 (quoting Shupak v. New York Life Ins. Co. (D.

Mont. 1991), 780 F. Supp. 1328, 1342 (alteration in original)(citing Story v. City of Bozeman

(1990), 242 Mont. 436, 450, 791 P.2d 767, 775)). Tvedt contends Farmers’ general

10
discretion to terminate the Agreements was subject to the implied covenant of good faith and

fair dealing. Farmers, however, contends the Agreements conferred no discretion, and that,

according to express language contained therein, it could terminate on a thirty days’ notice,

with or without cause.

¶28 The holdings in several decisions of this Court support Farmers’ position. In Farris

v. Hutchinson (1992), 254 Mont. 334, 838 P.2d 374, where an employer did not renew an

employee’s one-year employment contract pursuant to a non-renewal provision of the

contract, we held that an implied covenant claim could not be sustained because the

employer had terminated the employee, without cause, under an express provision of the

contract. Farris, 254 Mont. at 338, 838 P.2d at 376. Similarly, in Prout v. Sears, Roebuck

& Co. (1989), 236 Mont. 152, 772 P.2d 288, and Stark v. Circle K Corp. (1988), 230 Mont.

468, 751 P.2d 162, where at-will employees had signed written agreements permitting

termination with or without cause, we gave effect to the written agreements by permitting

the employer to terminate without cause thereunder. Prout, 236 Mont. at 158, 772 P.2d at

292; Stark, 230 Mont. at 476, 751 P.2d at 167.

¶29 Prout and Stark addressed terminations which were purportedly “with cause,” in

contrast to the “without cause” termination at issue here. Nonetheless, “[i]n Prout we gave

effect to the written agreements and said the employer could fire without cause under the

agreements, but that if it asserted the termination was for cause, the employee must have an

opportunity to prove that the cause stated was false.” Farris, 254 Mont. at 339, 838 P.2d at

377. Likewise, in Stark, we allowed the jury to decide, given the employer’s termination

11
based upon cause, “whether or not the employer had cause and had followed its own

policies.” Farris, 254 Mont. at 339, 838 P.2d at 377. However, “[t]he eventual

determination of these factual issues in Stark and Prout did not and would not contradict the

express wording of the respective agreements,” which would have allowed termination

without cause, and we limited the application of the implied covenant to “the interpretation

of the words ‘with cause’ and the discretion of the employer thereunder.” Farris, 254 Mont.

at 339, 838 P.2d at 377. Thus, in both cases, the implied covenant addressed the

interpretation of the words “with cause” only, and not a factual situation where, as here, the

employer gave no stated cause for the termination pursuant to an express contractual

provision.

¶30 Like the employers in Farris, Prout, and Stark, Farmers not only had included an

express “at will” termination clause in both Agreements, but also had further stated in the

Standards that “[t]his program in no way modifies the Companies’ right to terminate on 30

days’ notice, with or without cause, anytime during the measurement cycle.” Tvedt, like the

employees in each of these cases, was aware that the potential existed for termination upon

thirty days’ notice.

¶31 As we have stated, “[a]n agreement made in writing cannot be altered except in

writing or by an executed oral agreement, and not otherwise.” Farris, 254 Mont. at 338, 838

P.2d at 376. In Farris, we quoted with approval the Supreme Court of the State of California

in its determination of how the implied covenant of good faith and fair dealing should be

applied:

12
 We are aware of no reported case in which a court has held the covenant of
good faith may be read to prohibit a party from doing that which is expressly
permitted by an agreement. On the contrary, as a general matter, implied
terms should never be read to vary express terms. “The general rule
[regarding the covenant of good faith] is plainly subject to the exception that
the parties may, by express provisions of the contract, grant the right to engage
in the very acts and conduct which would otherwise have been forbidden by
an implied covenant of good faith and fair dealing. . . . [¶] This is in accord
with the general principle that, in interpreting a contract ‘an implication . . .
should not be made when the contrary is indicated in clear and express words.’
Corbin, Contracts, § 564, p. 298 (1960) . . . . [¶] As to acts and conduct
authorized by the express provisions of the contract, no covenant of good faith
and fair dealing can be implied which forbids such acts and conduct. And if
defendants were given the right to do what they did by the express provisions
of the contract there can be no breach.”

Farris, 254 Mont. at 338-39, 838 P.2d at 376-77 (citing Carma Developers Inc. v. Marathon

Development California, Inc. (1992), 6 Cal. Rptr.2d 467, 485, 826 P.2d 710, 728 (internal

citations omitted). Thus, under Montana law, implied contractual provisions will not be

applied where, as here, express provisions govern. We therefore conclude that the District

Court did not err in granting Farmers’ motion for summary judgment on the basis Farmers

did not breach the covenant of good faith and fair dealing.

Waiver of “At Will” Termination Clause

¶32 Tvedt’s next breach of contract claim asserts that Farmers’ conduct waived any “at

will” provisions in the Agreements. Specifically, Tvedt argues that, despite the “at will”

termination language in the appointment agreements and a reference to the “at will”

termination in the Standards, Farmers’ express declarations and conduct reasonably induced

a belief that it was waiving its discretion to terminate at will. In support of his argument,

Tvedt cites the following language from the Standards:

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 [I]ndividual District Managers must have a clear understanding of what is
expected of them . . . . To determine whether the District Manager’s contract
is to be maintained or not, current year’s . . . results will be evaluated using the
following General Component Criteria . . . [and] These are the standards
which all District Managers are expected to meet as a condition of continuing
their District Managers’ Appointment Agreement.

Tvedt also states that language contained in correspondence from Bruce Gordon, Division

Marketing Manager, also induced the belief that Farmers had waived its discretion to

terminate “at will”:

In 2001, you must achieve your net gain requirement of 19 full time agents by
yearend. Failure to achieve this performance standard may result in the
termination of your District Manager Appointment Agreement.

¶33 “[W]aiver is a voluntary and intentional relinquishment of a known right, claim or

privilege which may be proved by express declarations or by a course of acts and conduct so

as to induce the belief that the intention and purpose was to waive.” Idaho Asphalt Supply

v. DOT, 1999 MT 291, ¶ 19, 297 Mont. 66, ¶ 19, 991 P.2d 434, ¶ 19 (citing Kelly v. Lovejoy

(1977), 172 Mont. 516, 520, 565 P.2d 321, 324). Waiver must be “manifested in some

unequivocal manner.” Idaho Asphalt Supply, ¶ 23. “Whether there has been such

acquiescence as to defeat the enforcement of a valid restriction depends upon the

circumstances of each case and the character and materiality of the permitted breach.” Idaho

Asphalt Supply, ¶ 23 (citing Kelly, 172 Mont. at 520, 565 P.2d at 324).

¶34 The District Court found that, while the Standards stated they would be used “to

determine whether the District Manager’s contract is to be maintained or not” and

correspondence from Farmers to Tvedt urged him to meet them, the Standards also contained

14
a clause stating: “This program in no way modifies the Companies’ right to terminate on 30-

days notice, with or without cause, anytime during the measurement cycle.”

¶35 Thus, in moving for summary judgment, Farmers established that it had reaffirmed its

right to exercise the “at will” termination provision by reiterating the provision in the

Standards. At that point, the burden shifted to Tvedt to demonstrate that Farmers

unequivocally, intentionally, and voluntarily relinquished the right to enforce the “at will”

provisions in the Agreements. However, Tvedt did not rebut Farmers’ evidence, and thus

failed to meet his burden. Farmers’ effort to underscore its right, rather than relinquish it, is

“antithetical to a waiver.” Idaho Asphalt Supply, ¶ 28. Thus, summary judgment in favor of

Farmers on the issue of waiver is appropriate as a matter of law.

Issue 2

¶36 Did the District Court err in granting summary judgment to Farmers on Tvedt’s
wrongful termination claim?

¶37 Tvedt asserts the District Court erred in granting summary judgment against his

wrongful discharge claim because genuine issues of material fact exist regarding his

employment status and his right to seek damages pursuant to the WDEA. The Manager’s

Agreement contained the following clause indicating Farmers’ intention that district managers

hold “independent contractor” status:

The time to be expended by the District Manager is solely within his/her
discretion, and the persons to be solicited and the area within the district
involved wherein solicitation shall be conducted is at the election of the District
Manager. No control is to be exercised by the Companies over the time when,
the place where, or the manner in which the District Manager shall operate in
carrying out the objectives of this Agreement . . . .

15
The Corporate Agreement contained essentially the same clause, the only difference being

substitution of the words “District Manager Agency” for “District Manager.” The existence

of this “independent contractor” clause notwithstanding, Tvedt asserts that at the time of his

termination he was nonetheless an “employee”1 of Farmers, thus entitling him to seek relief

for wrongful termination under the WDEA.

¶38 Tvedt offers two arguments in support of his assertion that he qualifies as an

“employee”: (1) he did not meet the statutory criteria for an “independent contractor,” and

(2) he was governed by, and Farmers recognized, both the Manager’s Agreement and the

Corporate Agreement at the time of his termination.

¶39 Tvedt bases his first argument on § 39-51-201(15), MCA, which sets forth the

statutory definition of “independent contractor”:

39-51-201. General definitions.
...
(15) “Independent contractor” means an individual who renders service
in the course of an occupation and:
(a) has been and will continue to be free from control or direction over
the performance of the services, both under a contract and in fact; and
(b) is engaged in an independently established trade, occupation,
profession, or business.

(Emphasis added.) Tvedt asserts that from 1986 to 2001, the time period during which he

served as District Manager, he was neither “free from control and direction over the

performance of [his] services” either under the contracts, or in fact, nor was he “engaged in

an independently established . . . business.” Instead, he asserts he continued the activities

1
An “employee” is “a person who works for another for hire [excluding indepen-
dent contractors].” Section 39-2-903(3), MCA.

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and business of his predecessor district manager and was compelled to follow the mandates

of the company. Tvedt argues he meets neither part (a) nor part (b) of the statutory

requirements, thus precluding designation as an “independent contractor,” despite the

inclusion of the “independent contractor” clause in the Agreements. A review of the record

reveals that the District Court did not make specific findings addressing the question as to

whether Tvedt properly fell under the definition of “employee” or “independent contractor.”

¶40 Tvedt bases his second argument, i.e. that the Manager’s Agreement was still in effect

concurrently with the Corporate Agreement at the time of his termination, on evidence

presented to the District Court indicating that Farmers was still dealing with him as an

individual under the Manager’s Agreement. Tvedt presented evidence that the Manager’s

Agreement appointed him individually as “District Manager,” and the subsequent Corporate

Agreement, while appointing Tvedt’s corporation as “District Manager Agency,” still

specifically appointed Tvedt as “Supervising District Manager.” Additionally, the record

substantiates that Tvedt presented evidence that Farmers was still interacting with him

individually, in addition to his corporation, in the form of correspondence, notices of

termination, and checks from Farmers addressed specifically to “L. Lee Tvedt,” “L. LeRoy

Tvedt,” or “Lee Tvedt.” These documents, according to Tvedt, constitute evidence sufficient

to raise the inference for summary judgment purposes that he, not L. L. Tvedt Insurance, Inc.,

was Farmers’ “employee.” We agree.

¶41 Further, Tvedt asserts his individual capacity with Farmers continued after the

formation of the Corporate Agreement because the Manager’s Agreement was never formally

17
terminated. He first notes that the Corporate Agreement contains no language specifically

terminating the Manager’s Agreement. Second, the Manager’s Agreement, although it

contains a provision specifying termination events, does not reference formation of the

Corporate Agreement. Third, although the procedure specified in the Manager’s Agreement

provides for notice of termination of that agreement, no notice was given at the time of the

formation of the Corporate Agreement that the prior agreement was being terminated or

superseded.

¶42 Farmers simply responds that “[t]he new Agreement is presumed to be the only

Agreement” on the basis of novation. Section 28-1-1502, MCA, defines three ways in which

a novation can occur:

28-1-1502. Kinds of Novation. Novation is made by the substitution of:
(1) a new obligation between the same parties with intent to extinguish
the old obligation;
(2) a new debtor in place of the old one with intent to release the latter;
or
(3) a new creditor in place of the old one with intent to transfer the
rights of the latter to the former.

Farmers states that Tvedt and Farmers, at the time L. L. Tvedt Insurance, Inc., and Farmers

signed the Corporate Agreement, entered into a new contract through operation of novation.

In support of its argument, Farmers cites Kenison v. Anderson (1928), 83 Mont. 430, 272 P.2d

679, in which one debtor in a land purchase transaction was substituted for another, with the

former being released. However, as Tvedt correctly notes, Kenison represents a novation

under subpart (2) of the statute, involving a “new debtor in place of the old one with intent

to release the latter.” Tvedt states that the facts in the case sub judice do not involve a debtor,

18
as in Kenison, but rather fall under subpart (1) which requires substitution of “a new

obligation between the same parties with intent to extinguish the old obligation.” (Emphasis

added.) According to Tvedt, the two Agreements were not between the same parties since the

Manager’s Agreement was between Tvedt and Farmers, and the Corporate Agreement was

between L. L. Tvedt Insurance, Inc., and Farmers.

¶43 This Court has stated that novation can never be presumed:

In order to effect a novation there must be a clear and definite intention on the
part of all concerned that such is the purpose of the agreement, for it is a well-
settled principle that novation is never to be presumed . . .; the point in every
case, then, is, did the parties intend by their arrangement to extinguish the old
debt or obligation and rely entirely on the new, or did they intend to keep the
old alive and merely accept the new as further security, and this question of
intention must be decided from all of the circumstances.

Waite v. Andreassi (1991), 249 Mont. 149, 149, 813 P.2d 987, 988 (emphasis added) (citing

Harrison v. Fregger (1930), 88 Mont. 448, 454, 294 P. 372, 373). Thus, Farmers’ assertion

that a novation may be presumed from this record must be rejected. As noted above, because

Tvedt has presented evidence indicating that at certain times Farmers interacted with Tvedt

as an individual and other times as a corporation, this comprises facts in conflict which must

be resolved at trial. Upon remand, both Farmers and Tvedt would have the opportunity to

offer evidence of the presence or absence of novation.

¶44 Despite these and other indicia that Farmers recognized the continuation of Tvedt’s

individual capacity following the appointment of his corporation as a district manager agency,

the District Court concluded only that the two agreements revealed a “clear intention” by the

parties to substitute the corporation for the plaintiff personally. The court’s rationale in

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support of this conclusion was: (1) the only way Tvedt could be compensated under the

Corporate Agreement, aside from medical insurance, was to be paid by L. L. Tvedt Insurance,

Inc., and (2) in their second amended complaint, Tvedt and his corporation chose to refer to

themselves collectively as “Tvedt,” therefore, “Plaintiff see themselves as one entity.”

However, we conclude that, despite these observations, unresolved genuine issues of material

fact existed on the questions of whether Tvedt was an “employee” or an “independent

contractor,” and whether the Manager’s Agreement, which recognized Tvedt individually,

was still in effect at the time of termination, thus precluding summary judgment.

¶45 Because it concluded that summary judgment was appropriate based upon Farmers’

novation theory, the District Court concluded that Tvedt was not an employee, and,

consequently, did not consider the issue of whether Tvedt was otherwise entitled, as a matter

of law, to seek relief under the WDEA. Further, the parties’ briefing on appeal did not focus

on this issue. Therefore, we decline to address the issue, which may be considered upon

remand.

Issue 3

¶46 Did the District Court err in dismissing Tvedt’s claims for business expense
indemnification?

¶47 Finally, Tvedt asserts the District Court erred in dismissing his claims for

reimbursement of business expenses which he lost, together with prejudgment interest, as a

direct consequence of his duties to comply with Farmers’ directives. The District Court

summarily dismissed this claim noting: “The [district court] has already found that the parties

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were operating as two contracting businesses, thus, there was no employer-employee

relationship.”

¶48 Tvedt’s argument that his right to recover is not limited to Tvedt’s individual

employment status on the basis of § 39-2-101, MCA, is without merit. This section provides

“[t]he contract of employment is a contract by which one, who is called the employer,

engages another, who is called the employee, to do something for the benefit of the employer

. . . .” Although Tvedt attempts to define the word another as “a corporation,” we find

neither legal precedent nor legislative intent for doing so. We agree with the District Court

that “[i]t is simply axiomatic that one corporation cannot be an employee of another.”

Consequently, this issue is contingent upon the District Court’s finding, upon remand,

regarding Tvedt’s employment status. If Tvedt would be found to be an “employee,” this

would also revive his claim for reimbursement of business expenses paid by an “employee.”

¶49 We reverse and remand for further proceedings on Issue 2 and Issue 3.

/S/ JIM RICE

We concur:

/S/ KARLA M. GRAY
/S/ PATRICIA O. COTTER
/S/ JAMES C. NELSON
/S/ JIM REGNIER

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Justice W. William Leaphart dissenting.
¶50 I dissent to Issue 1. Farmers clearly waived the benefit of the “at will” provisions in
the Agreements when it adopted and distributed the following Standards:
[I]ndividual District Managers must have a clear understanding of what is
expected of them. . . . To determine whether the District Manager’s contract
is to be maintained or not, current year’s . . . results will be evaluated using the
following General Component Criteria . . . [and] These are the standards
which all District Managers are expected to meet as a condition of continuing
their District Managers’ Appointment Agreement.
¶51 The Standards are clear: A district manager’s contract renewal is not “at will”– i.e.,
not subject to the whim of the employer–but rather is measured by adherence to the General
Component Criteria. If there was any doubt as to the import of this language, Farmers’
Division Marketing Manager, Bruce Gordon, clarified that tenure as a manager with Farmers
hinged not upon the caprice of the employer but rather on “achievement” and “performance,”
when he wrote: “[Y]ou must achieve your net gain requirement of 19 full time agents by
yearend. Failure to achieve this performance standard may result in the termination of your
District Manager Appointment Agreement.” The Court finds significance in the fact that
Farmers’ Standards covered all the bases and preserved its “at will” option by stating: “This
program in no way modifies the Companies’ right to terminate on 30-days notice, with or
without cause, anytime during the measurement cycle.” I do not buy into this Orwellian
double speak. If Farmers maintained that it had “at will” discretion to terminate a manager,
there would be no need for Farmers to set standards stating that if the manager does not meet
certain performance standards, he or she may be terminated. Under the Court’s
interpretation, the Standards are nothing more than surplusage. In effect Farmers has stated,
“if you do not meet the performance standards you may be terminated and if you do meet the
standards you may still be terminated.” I disagree. Standards are the antithesis of “at will”
discretion. Farmers cannot have it both ways. In adopting the Standards, Farmers clearly
promised its managers that if they meet certain standards their contracts will continue. This

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constitutes a voluntary and intentional relinquishment of a known right to terminate “at will.”
Idaho Asphalt Supply v. DOT, 1999 MT 291, 297 Mont. 66, 991 P.2d 434.

/S/ W. WILLIAM LEAPHART

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