United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
August 2, 2007
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
No. 06-20493
Scott Nichols
Plaintiff-Appellant
v.
Enterasys Networks, Inc.
Defendant-Appellee
Appeal from the United States District Court for the Southern District of
Texas
Before DAVIS, DENNIS, and PRADO, Circuit Judges.
DENNIS, Circuit Judge:
Scott Nichols sued Enterasys claiming that the company breached an
alleged contractual agreement to pay him additional sales commissions for fiscal
year (“FY”) 2001, based on the terms of a sales plan governing FY2000, on the
grounds that the terms of the FY2000 plan were impliedly renewed to cover
FY2001. Enterasys removed the case to federal court. The district court granted
the company's motion for summary judgment on the grounds that even assuming
the FY2000 terms applied, Nichols could not show that Enterasys had breached
the contract. After review of the record and the parties' arguments, we agree.
The judgment of the district court is therefore AFFIRMED.
No. 06-20493
I.
Nichols worked as a regional sales manager for Cabletron Systems, Inc.;
that company merged with defendant Enterasys in August 2001. The present
appeal arises out of events occurring while Nichols worked for Cabletron.
During fiscal years (FY) 2000 and 2001, Cabletron paid its regional sales
managers according to a Regional Sales Manager Plan (“the Plan”). Under the
Plan, employees received a base salary plus a "commission incentive." The
commission incentive operated as a reward component and was based on a
commission rate “tied to sales performance relative to annual sales objectives.”
For all sales above a salesperson's yearly quota, the Plan allowed for an
“accelerator,” which paid double commission. The Plan also, however, contains
the following language allocating management substantial control over
compensation:
Territory/Quota/Account Alignment
Territories will be established and quotas determined
based on company objectives, sales history, territory
potential, competitiveness, and other relevant factors.
Sales management reserves the right to establish or
adjust quotas and geographic/account assignments at
any time to provide equitable opportunities for all
participants.
Windfalls
. . . . To insure fair and equitable treatment of both the
Company and the Participant, sales management will
review any sales substantially in excess of annual quota
or objective. For substantial sales adjustments
(positive/negative) management reserves the right to
review the impact on the Plan.
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Management reserves the right to make final and
binding decisions regarding the amount of
compensation earned and paid to any Plan Participant.
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No. 06-20493
Unusual Arrangements
.... Any undocumented agreement of any kind
concerning compensation will not be honored. Any
arrangement different from those provided for in this
Plan must be in writing, signed by the Participant, and
approved [by] Sales Management and Human
Resources. No agreements will be effective until all
approvals have been secured.
Each regional sales manager also received an individual goal sheet that
reflected that individual's commission rate, quota, and assignments. In FY2000,
Nichol's goal sheet set his commission rate at 1.8%, set his quota at $4.5 million,
and assigned him, among other customers, Compaq Computer Corp. Although
Nichols's total target compensation was $180,000; he actually earned $897,415
in FY2000.
Two months into FY2001, Enterasys presented Mr. Nichols with his
proposed goal sheet under the Plan; the goal sheet called for a lower sales
commission rate (1.54%), a higher quota, and a different set of assignments that
did not include Compaq, UT Brownsville, or Metricom. The new plan, by its
terms, applied retroactively to the beginning of FY2001. Nichols refused to sign
the new plan. He consulted with his supervisor, who told him to continue
operating under the FY2000 terms while negotiating with management. In the
end, Enterasys paid - and Nichols accepted - partial commissions on his FY2001
Compaq sales; Mr. Nichols's total compensation for FY2001 came to $278,900.55.
In 2002, Nichols left Enterasys.
In March 2005, Nichols filed suit in Texas state court, claiming that
Enterasys breached an alleged contractual agreement to pay him additional
sales commissions for FY2001, based on the terms of the FY2000 Plan. He
sought economic damages equal to the difference between what Enterasys paid
him and what he would have earned under the FY2000 plan, as well as
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No. 06-20493
“reasonable attorney's fees.“ Enterasys removed the case to district court on
diversity grounds.
Enterasys moved for summary judgment on Nichols's breach of contract
claim. The district court granted the motion on May 2, 2006, determining that
although sufficient evidence existed to “support the case being submitted to a
jury for a determination of whether the parties extended the [FY]2000 plan” to
cover Nichols's sales in FY2001, the case should not be submitted to the jury
because the plan “unambiguously [gave] management the right” and discretion
to adjust Nichols's compensation. Because “[t]he decision to lower Nichols's
commission rate, raise his quota, and reassign some of his clients” fell under the
provisions of the Plan quoted above, the district court reasoned, “Enterasys [was]
entitled to judgment as a matter of law on Nichols's claim of breach of contract.”
II.
We review the district court's summary judgment ruling de novo. Hanks
v. Transcon. Gas Pipe Line Corp., 953 F.2d 996, 997 (5th Cir. 1992). Summary
judgment is appropriate where the record shows “that there is no genuine issue
as to any material fact and that the moving party is entitled to a judgment as a
matter of law.” Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986). Facts and inferences reasonably drawn from those facts should be taken
in the light most favorable to the non-moving party. Eastman Kodak Co. v.
Image Technical Servs., Inc., 504 U.S. 451, 456 (1992); Huckabay v. Moore, 142
F.3d 233, 238 (5th Cir.1998). Where the non-moving party fails to establish “the
existence of an element essential to that party's case, and on which that party
will bear the burden of proof at trial,” no genuine issue of material fact can exist.
Celotex, 477 U.S. at 322-3.
A.
Mr. Nichols's primary argument is that the terms of the FY2000 regional
sales plan and his personal goal sheet created an enforceable, implied contract
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No. 06-20493
in FY2001, which Enterasys breached by failing to pay him according to the
FY2000 terms. According to Mr. Nichols, the contract was impliedly renewed
because 1) he refused to execute the proposed FY2001 plan and 2) his immediate
supervisor instructed him to operate under that plan while he negotiated new
terms with management. The district court determined that although “a jury
could conclude that the fiscal year 2000 plan applied to the work Nichols
performed during 2001[;] . . . the terms of the 2000 plan allowed Enterasys to
adjust Nichols's compensation.” We need not decide the question today because
even assuming, arguendo, that the FY2000 Plan applies, Mr. Nichols cannot
show that Enterasys breached the terms of the FY2000 plan.
B.
As the district court observed, and as the language above reflects, the
FY2000 regional sales plan clearly and unambiguously permits Enterasys “to
establish or adjust quotas and . . . account assignments, as well as make final
and binding decisions regarding the amount of compensation earned and paid.”
Furthermore, the plan clearly states that “[a]ny undocumented agreement of any
kind concerning compensation” - such as that purportedly established by Mr.
Nichols's conversation with his supervisor - “will not be honored.” Finally, in
FY2001, Enterasys paid Mr. Nichols a 1.54% commission on his sales. As a
result, applying the presumption that Mr. Nichols's employment “is continued
on the terms of the original contract, and provisions and restrictions forming
essential parts of the contract . . . continue in force,” the principle hurdle Mr.
Nichols faces is that the provisions and restrictions in his FY2000 contract
include the very terms giving Enterasys discretion to adjust his commission,
assignments, and final compensation.
To avoid this problem, Mr. Nichols argues that 1) taking all evidence in
the light most favorable to him, the trial court should have found that Enterasys
waived the clauses assigning it discretion over quotas, assignments, and
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No. 06-20493
compensation and 2) that those clauses “are so inconsistent with and
contradictory to the plan's operative terms that they create ambiguities that
cannot be enforced . . . as a matter of law.” We address each argument in turn.
1.
Mr. Nichols attempts to cast his argument that Enterasys waived the
clauses as a question of “whether the District Court made all reasonable
inferences in the light most favorable to [the] non-movant.” He notes that the
District Court inferred that Enterasys decided to adjust Mr. Nichols'
compensation due to his extraordinarily high earnings in FY2000, which the
district court termed a “windfall”, as per the portion of the plan so labeled. He
argues that “windfall” is not defined in the plan, and applies the Webster's
dictionary definition to argue that because he earned all of his commission, he
did not enjoy an “unexpected, unearned, or sudden gain or advantage” in
FY2000. Furthermore, he argues, despite his high earnings, Enterasys at no
point “invoked” its right to adjust his compensation for the purposes of FY2000,
thus lending credit to the assumption that Enterasys waived those provisions of
the plan. Finally, he argues, at no point in FY2001 did Enterasys make a “formal
invocation” of its right to adjust compensation.
These arguments fail for a number of reasons; chief among them the fact
that Mr. Nichols never raised this waiver issue before the district court. He did
not raise the issue in his pleadings; his arguments in his motion for summary
judgment centered around 1) whether an implied contract was created at all and
2) whether the terms of the contract were so ambiguous as to be unconscionable.
As the issue has not been clearly raised in front of the district court, it cannot be
considered on appeal. New York Life Ins. Co. v. Brown, 84 F.3d 137, 141 n.4 (5th
Cir. 1996).
Mr. Nichols attempts to avoid this problem by arguing that the district
court failed to make all reasonable inferences in his favor in determining
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No. 06-20493
whether the FY2000 contract had been impliedly renewed. Waiver, however, is
the “intentional relinquishment of a known right or intentional conduct
inconsistent with claiming that right.” Sun Exploration & Prod. Co. v. Benton,
728 S.W.2d 35, 37 (Tex. 1987). The question of whether Nichols was operating
under an implied renewal of the FY2000 contract, by contrast, deals with
whether those rights can even be said to exist. Nichols's arguments improperly
conflate the two issues.
In addition, even assuming that Nichols is operating under an “implied
renewal” of the FY2000 plan, he fails to cite to any language in the contract
requiring the kind of “formal invocation” he desires, beyond the very fact that
Enterasys presented him with a copy of the new plan with the adjusted
commission rate and account assignments. Furthermore, Nichols's statement
that there is no evidence of any “windfall” because he earned his commissions
is an extremely narrow reading of a document entitled “Regional Sales Plan”
that specifically states, in reserving management's right to adjust compensation,
that it reserves that right so as “to provide equitable opportunities for all
participants” and that it will have the power to make such adjustment where
sales are “substantially in excess of annual quota or objective” in order “[t]o
ensure fair and equitable treatment of both the Company and the Participant.”
Moreover, as the appellee notes, the record evidence to which Nichols cites shows
that Enterasys consistently compensated Nichols under its proposed FY2001
terms, and at no point adopted the FY2000 rates and assignments, regardless
of what Nichols's supervisor told him. In other words, Enterasys continually
operated under its proposed adjusted terms in compensating Nichols for FY2001
sales - its behavior in no way suggests it meant to waive its right to make such
an adjustment.
2.
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No. 06-20493
Nichols also argues that the Plan's terms are ambiguous because 1)
various terms are not defined and 2) the Plan does not explain the particular
impact of factors like “sales history”, “company objectives”, “competitiveness”,
and so forth on his compensation rates. Particularly, he cites the Plan's language
emphasizing the desire to “provide equitable opportunities for all participants”
and to “ensure fair and equitable treatment,” arguing that to allow Enterasys to
make such an adjustment in effect allows the company an unconscionable
windfall and subjects the company's employees to “every single [corporate]
whim[.]” He argues that the language allowing Enterasys discretion to adjust
compensation, which he calls “boilerplate”, renders the terms of his
compensation “completely devoid of meaning.”
Again, his arguments hold no water for several reasons, not the least of
which is that under Texas state law, a person who wishes to argue contract
ambiguity must affirmatively plead it, or else the argument is waived. O'Kehie
v. Harris Leasing Co., 80 S.W.3d 316 (Tex.App.-Texarkana 2002, no pet.)
(“Generally, one seeking to establish ambiguity in a written contract must plead
it.”) (citing Crozier v. Horne Children Maint. & Educ. Trust, 597 S.W.2d 418
(Tex.Civ.App.-San Antonio 1980, writ ref'd n.r.e.)). Mr. Nichols raised this
argument for the first time in response to Enterasys's motion for summary
judgment; it does not appear in his initial pleading.
Furthermore, Mr. Nichols presents nothing more than conclusory
assertions of ambiguity. Under Texas law, undefined contract terms are
generally given their plain, ordinary, and generally accepted meanings - in this
case, the language is clear as to what rights Enterasys means to reserve. Mr.
Nichols offers little more than the bare assertion that such language must surely
be meaningless “boilerplate”, and provides no alternative interpretation other
than to read them out entirely. As Enterasys notes, this court has affirmed
summary judgment before in cases where an appellant has “failed to produce
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No. 06-20493
any evidence of a patent or latent ambiguity.” See Constitution State Ins. Co. v.
Iso-Tex. Inc.,61 F.3d 405, 409-10 (5th Cir. 1995).
Similarly, Mr. Nichols has failed to provide any evidence - or any legal
argument beyond bare assertions - as to how the terms are unconscionable under
Texas law. Where analysis is so deficient, this court has considered the issue
waived for inadequate briefing. See Burnley v. City of San Antonio, 470 F.3d 189,
n.10 (5th Cir. 2006).
III.
Even assuming that the FY2000 Plan applies, Nichols cannot show that
Enterasys breached the terms of the FY2000 Plan in exercising rights clearly
reserved to it by the Plan's language. The judgment of the district court is
therefore AFFIRMED.
AFFIRMED.
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