Appeal from the United States District Court for the Northern District of California. D.C. No. C-89-0077 SAW, Northern District of California. Stanley Weigel, District Judge, Presiding
Before: Choy, Hug, and Rymer, Circuit Judges
This case involves a dispute between Exide Electronics Corporation ("Exide"), a manufacturer of electrical equipment including uninterruptible power supply ("UPS") systems and James Hendry, its former sales representative doing business as Synergy Sales Engineering ("Hendry" or "Synergy"). Exide appeals from a $14.9 million judgment entered on a general verdict for Hendry.*fn1 Hendry cross-appeals from the district court's denial of his request for attorney's fees on the basis of Exide's alleged bad faith conduct before and during the litigation and requests review of the district court's jury instruction concerning punitive damages. Because we find that the district court erred as a matter of law in instructing the jury that North Carolina law implies a duty of good faith in the termination of an at-will employee and that Exide could not terminate Hendry in bad faith in order to avoid paying him commissions, we reverse.
Hendry's claims are based on Exide's alleged breach of two contracts, the Power Systems Agreement for Fiscal Year 1987 (the "Rep Agreement") and an oral agreement that Hendry contends he and Exide entered into sometime in late December 1986 or early January 1987.*fn2
The written Rep Agreement executed by Exide and Hendry expressly superseded all prior contracts between the parties regarding UPS sales, and authorized Synergy to sell Exide UPS products in Northern California and most of Nevada. Synergy's performance under the contract was to be measured according to the volume and mix of products it sold. The Rep Agreement provided that it would expire automatically and without notice after one year, but also provided that either party could terminate the agreement without cause on 120 days notice.*fn3 The agreement specifically contemplated payment of post-termination commissions. It set out a procedure for calculating those commissions whereby, after Hendry received a termination notice, the parties would negotiate a list of the pending UPS projects that Hendry was soliciting at the time he was terminated ("protect list"). If during the 120-day notification period any of those projects on the protect list resulted in "an acceptable purchase order delivered to Exide," Synergy was entitled to payment of the appropriate commission for that project. Id. at P I(9) (the "post-termination compensation provision").
On March 2, 1987 Exide invoked the without cause termination clause and terminated Synergy. The parties subsequently exchanged and negotiated lists of Synergy's pending UPS projects.
In addition, and while the Rep Agreement was still in effect, Hendry claims that he entered into an oral agreement with Philip Tompkins, Exide's Vice President for Domestic Sales. Exide disputes that any oral agreement ever was made. According to Hendry, sometime in late December 1986 Tompkins phoned him. During that call he claims that they agreed that Exide would pay him a reduced 30% commission on the $1 million UPS contract that Exide was awarded in October 1986 for Warner-Robbins Air Force Base ("Warner-Robbins contract") in exchange for a 100% commission (less destination credit if the shipment was outside Synergy's assigned territory), on all future UPS projects out of McClellan Air Force Base ("McClellan"). They also agreed that Exide would cooperate fully with and support Synergy's representatives at McClellan and that Exide would coordinate a meeting among Exide, Synergy, and McClellan.
On January 13, 1987 and February 12, 1987 Hendry wrote and sent two identical letters to Tompkins. Both letters reiterated the terms discussed during the alleged telephone call and contained no additional terms. Exide maintains that no one at Exide wrote back to Hendry or confirmed his understanding as set forth in these letters.
The heart of Hendry's case is that Exide acted in bad faith when it terminated him as its sales representative in order to avoid paying commissions he was entitled to in connection with three UPS contracts: a $621 million five-year Air Force UPS requirements contract that was solicited out of the Air Logistics Center at McClellan (the "ALC contract");*fn4 the sale of UPS equipment to GTE Government Systems;*fn5 and OEM sales made in Hendry's territory.*fn6 Exide disputes that it terminated Hendry to deny him commissions and contends that he was terminated because of his poor sales performance in the western region.
The question presented in this appeal involves interpretation of North Carolina law. We review the district court's state law determinations de novo and its determinations of the applicable state law are not entitled to any deference. Salve Regina College v. Russell, 111 S. Ct. 1217, 1221-25 (1991); see In re McLinn, 739 F.2d 1395, 1403 (9th Cir. 1984) (en banc).