# Sidney Diggs, IV v. Pepsi-Cola Metropolitan Bottling Co., Inc. > Court of Appeals for the Sixth Circuit · January 26, 1989 · 861 F.2d 914 URL: https://www.frixlaw.com/law-library/cases/9478382 ## Case - **Full name:** Sidney DIGGS, IV, Plaintiff-Appellee, v. PEPSI-COLA METROPOLITAN BOTTLING CO., INC., Defendant-Appellant - **Court:** Court of Appeals for the Sixth Circuit - **Decided:** January 26, 1989 - **Citations:** 861 F.2d 914; 1988 WL 120804 - **Precedential status:** Published - **Opinion:** Concurring in part by Krupansky - **Judges:** Engel, Merritt, Krupansky - **Cited by:** 46 later opinions in the Frix Law Library ## Citator (automated) - No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases. - Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9478382 ## How later opinions describe it (automated extraction) - explaining that, in diversity cases, “questions of prejudgment interest ... are to be determined under state law.” while “federal law governs the rate of postjudgment interest” ## Opinion text KRUPANSKY, Circuit Judge, concurring in part, dissenting in part. Because the majority’s disposition of the diversity case at bar extends the wrongful discharge doctrine of Toussaint v. Blue Cross & Blue Shield of Michigan, 408 Mich. 579 , 292 N.W.2d 880 (1980) in a manner inconsistent with Michigan court precedent, I am constrained to respectfully dissent from the majority’s opinion. This appellate review must determine if the defendant, in terminating its employee *930 plaintiff Sydney Diggs (Diggs), breached a contract with the plaintiff to discharge him only for “just causes.” Diggs anchored his complaint solely upon a statement of Keith Haslam (Haslam), Pepsi’s regional sales manager. The contract relied upon by the majority in affirming the trial court’s disposition is inferred from the following controversial colloquy between Haslam and Diggs during 1978: I [Diggs] said: well, what do we as district managers — you know, what assurances do we have that at some point in time the company could come in and arbitrarily dismiss us for no apparent reason. He [Haslam] said: well, you don’t have anything to worry about. He said: as long as your performance is satisfactory, you won’t have to worry about anything like that. He said: besides, every manager I’ve got here has been rated commendable, you know, on all the appraisals they received, so you don’t have anything to worry about. I took that to mean that I didn’t have anything to worry about, because this was my regional manager, he was the highest ranking individual representative from Pepsi at that time. So I took that to mean my job was secure, as long as I performed my job satisfactorily. Diggs interpreted this conversation to mean that he would be terminated for “just cause” only as evidenced by a performance evaluation that fell below a rating of “commendable.” However, Ken Yoder (Yoder), Division Vice President of Pepsi-Cola Metropolitan Bottling Co. (Pepsi), testified the company did not have a “just cause” employee termination policy. In September 1982, Pepsi Regional Sales Manager Brian Beattie rated the plaintiff as “C-” or “commendable minus.” The appraisal identified poor performance in several areas, including sales (Diggs had fallen 7.3% below his assigned sales quota), merchandising, and supervision of his route salesmen. During succeeding months, Diggs’ performance deteriorated and Beattie repeatedly counseled Diggs about the poor quality of service that he was providing to Pepsi’s key accounts. During 1982-83, representatives of the three largest grocery chain accounts in Diggs’ region complained to the plaintiffs superiors about his inefficient servicing of their stores. Subsequent to these complaints, Beattie recommended to his superiors that Diggs be terminated. Yoder approved the termination in June or July of 1983 and directed Beattie to complete a written annual performance appraisal for Diggs. The August, 1983 appraisal for the period between September, 1982 through September, 1983 scored Diggs as “fair,” a rating that was below commendable. After his discharge, Diggs filed the instant lawsuit and at the conclusion of a bench trial the district court ruled in his favor applying its interpretation of Michigan law as enunciated in Tous-saint. From this ruling, Pepsi appealed. Initially, this court must determine the level of deference due to the district court’s finding that Haslam had promised Diggs that he would not be discharged except for “just cause.” According the trial court’s findings of fact the deference of the “clearly erroneous” standard dictated by existing precedent, this appellate review must thereafter independently decide the legal effect of those factual findings. See Taylor and Gaskin v. Chris-Craft Industries, 732 F.2d 1273 (6th Cir.1984). Cf. Connaughton v. Harte Hanks Communications, Inc., 842 F.2d 825, 844-46 (6th Cir.1988) (after deciding that factfinder's findings as to the operative facts are not clearly erroneous, the appellate court must independently decide the legal effect of those facts); Blackburn v. Foltz, 828 F.2d 1177, 1181 (6th Cir.1987) (mixed questions of fact and law are not subject to clearly erroneous standard); United States v. Weingarden, 473 F.2d 454, 460 (6th Cir.1973) (mixed findings of fact and law are subject to appellate review without application of the clearly erroneous rule). In reviewing de novo the legal effect of Pepsi’s promise to Diggs, an examination of the scope of Toussaint is in order. This court is Erie -bound to abide by the stan *931 dards set forth in Toussaint and cannot “push the Toussaint rationale far beyond the limits to which it has thus far been confined by the Michigan courts.” Dabrowski v. Warner-Lambert Co., 815 F.2d 1076, 1081 (6th Cir.1987). As the majority has readily conceded, “as a matter of direct precedent, the only case that Diggs can cite is Toussaint itself.” However, a review of Toussaint belies the majority disposition. The promise at bar, construed most liberally in favor of Diggs, conveyed only the promise that he would be retained in his employment so long as his performance was “satisfactory” to Pepsi. In Toussaint , the Michigan Supreme Court was careful to reaffirm the proposition that an employer’s promise to retain an employee for so long as his performance was “satisfactory” does not give rise to a “just cause” contract. The Michigan high court specifically distinguished “just cause” contracts from “satisfaction” contracts. Toussaint, 292 N.W.2d at 895-96 . Moreover, the court noted that an employer could discharge under a “satisfaction” contract at any time the employer was in “good faith” dissatisfied with the employee’s performance or behavior. Id. at 896. In the instant case, there can be little doubt that Pepsi’s promises made out, at most, only a “satisfaction” contract. According to plaintiff’s own testimony, Ha-slam told Diggs that his (Diggs’) employment would continue “as long as your performance is satisfactory.” Moreover, Diggs interpreted the contract as a “satisfaction” contract. He testified that, “I took that to mean my job was secure, as long as I performed my job satisfactorily.” The district court itself found that “they [Pepsi] did establish a contract with this man and that he would not be discharged in violation as long as his performance was satisfactory.” In cases involving similar promises, the Michigan courts have held that such promises constitute only a “satisfaction” contract. In Schmand v. Jandorf 175 Mich. 88 , 140 N.W. 996 (1913), the Michigan high court concluded that a promise to employ “for the period of one year ... subject ... to the satisfaction” of the employer was merely a “satisfaction” contract. Moreover, in Sax v. Detroit G.H. & M. Ry. Co., 125 Mich. 252 , 84 N.W. 314, 315 (1900), the court decided that an agreement to give an employee “a permanent position” during his lifetime, as long as he should perform his duties to the satisfaction of the company constituted only a “satisfaction” contract. 1 See also Koehler v. Buhl, 94 Mich. 496 , 54 N.W. 157, 158-59 (1893) (contract that employee’s work “shall be done to the satisfaction of said firm” was not just cause contract); Carpenter v. American Excelsior Co., 650 F.Supp. 933 , 936 n. 6 (E.D.Mich.1987) (statement that employee would be employed “as long as your work is satisfactory” does not establish just cause contract). Since the instant promise constituted only a “satisfaction” contract, judicial review of the employer’s termination decision was, in the instant case, extremely limited. See e.g., Lynas v. Maxwell Farms, 279 Mich. 684 , 273 N.W. 315, 317 (1937) (in “satisfaction” contract, “whether or not the services were satisfactorily performed was a question to be determined by defendant and not by the jury”); Brown v. Chris Nelsen & Son, Inc., 10 Mich.App. 95 , 158 N.W.2d 818, 819-20 (1968) (reaffirming rule set forth in Lynas); Schroeder v. Dayton Hudson Corp., 448 F.Supp. 910 , 916 n. 3 (E.D.Mich.) modified on other grounds, 456 F.Supp. 650 (E.D.Mich.1978) (same). In Toussaint , the Michigan court has affirmed the vitality of cases such as Ly-nas. It has decided that in a “just cause” contract “there must be some review of the employer’s decision if the cause contract is to be distinguished from the satisfaction contract.” The dictate of Michigan decisions clearly mandates that judicial review *932 of the substance of an employer’s decision was not available in interpreting a “satisfaction” contract. Instead, judicial review was limited to determining whether the employer acted with subjective good faith or reasonableness when it discharged the employee. Cf. Toussaint, 292 N.W.2d at 896 (distinguishing “satisfaction” contract in which only good faith review is possible from “just cause” contract). See also Schmand, 140 N.W. at 999 (satisfaction of employer refers to subjective satisfaction of defendant); Isbell v. Anderson Carnage Co., 170 Mich. 304 , 136 N.W. 457, 460-61 (1912) (in “satisfaction” contract, dissatisfaction of employer is “purely a personal matter”); Sax, 84 N.W. at 316 (“the reasons for, or justice of, the defendant’s satisfaction cannot be inquired into”); Schroeder, 448 F.Supp. at 916 n. 3 (same). The district court and the majority have disregarded this entire line of the Michigan judicial precedent applied to “satisfaction” cases and have elected to sua sponte interpose an issue that has not been raised by Diggs and has imposed the “implicit duty on the part of Pepsi-Cola to make the [performance] rating determinations objectively and fairly.” Appellee’s only charge against Pepsi has been that it entered into and breached a contract to retain him so long as his performance rating was “commendable” or better. Absent a “just cause” termination policy, the record failed to disclose any standard for reviewing the performance of employees that appellant was required to implement preliminary to the discharge of an employee. Plaintiff’s sole self-serving testimony concerning the evaluation system was as follows: He [Haslam] said: besides, every manager I’ve got here has been rated commendable, you know, on all the appraisals they received so you don’t have anything to worry about. The statement merely attested to a historical fact — that every manager before Diggs had been rated as “commendable.” Ha-slam’s description of past practice did not create a “just cause” contract. Cf. Henry v. Hosp. and Health Serv. Credit U, 164 Mich.App. 90 , 416 N.W.Sd 338, 340 (Mich.App.1987) (past practice of employer in firing employees only for reasons that might imply “just cause” did not create “just cause” contract). Nor was there evidence in the record from which it could be inferred that Diggs’ performance evaluations were predicated upon standards or procedures that were not objective and fair. All available evidence was to the contrary and supported the conclusion that his performance ratings were “fairly and objectively” assigned. Nor can a promise of fair and objective evaluation be derived from the mere existence of an evaluation system. It is well-established that Toussaint guarantees do not arise from an employer’s mere use of formal performance appraisal systems. See, e.g., Kay v. United Technologies Corp., 757 F.2d 100 (6th Cir.1985) (formal performance evaluation system did not constitute a Toussaint just cause contract); Rouse v. Pepsi-Cola Metropolitan Bottling Co., 642 F.Supp. 34 (E.D.Mich.1985 ) (holding that Pepsi’s evaluation plan identical to the one at issue in this case did not create a just cause contract); Copeland v. Pepsi-Cola Metropolitan Bottling Co., No. 84-CV-l 180-DT, slip op. (E.D.Mich. April 17, 1985) (Pepsi evaluation plan, combined with oral promise that plaintiff had a future with the company, insufficient to create just cause contract). Cf. Dabrowski, 815 F.2d at 1080-81 (company’s written policy of making “objective” selection decisions did not constitute an implied employment contract). Accordingly, appellee’s attempts to distinguish Pepsi’s promise from a “satisfaction” contract are unpersuasive. Even if plaintiff had proved a “just cause” contract, a review of the record is convincing that Pepsi possessed “just cause” for its discharge of Diggs and had not breached the purported contract. Because the district court’s conclusions concerning the issue of “just cause” are inconclusive and because the trial court had erroneously shifted the burden of proving a “just cause” termination to the defendant contrary to this circuit’s pronouncements in Taylor v. General Motors Corp., 826 F.2d *933 452, 456 (6th Cir.1987), I take issue with the district court’s analysis. The trial court concluded that: The evidence with respect to the issue of performance is conflicting. The plaintiff has not proven that a fair objective evaluation of his actual performance would have been better than substandard. Neither has the defendant proven that it would have been substandard. The complaints from the defendant’s customers were a legitimate concern to the defendant. It is by no means clear, however, that the plaintiff’s performance justified the complaints. His satisfactory or better performance for several years taken together with the fact that his performance had earned him an offer of promotion to regional sales manager in Coldwater weighs in his favor. The defendant has the burden of proof on this issue. See Rasch v. City of East Jordan, 141 Mich.App. 336, 340 [ 367 N.W.2d 856 ] (1985). It has failed to meet this burden. I agree with the majority that Michigan legal precedent in this area may not be “entirely clear;” however, the weight of recent Michigan judicial pronouncements directs that the burden of proof ultimately remains with the plaintiff employee to prove wrongful discharge. In Duke v. Pfizer, Inc., Div. of Pfizer Hosp., 668 F.Supp. 1031, 1040 (E.D.Mich.1987), the court specifically decided that the defendant bears the burden to come forth with only “some evidence” of “just cause.” Following the rule of Texas Dept. of Community Affairs v. Burdine, 450 U.S. 248 , 101 S.Ct. 1089 , 67 L.Ed.2d 207 (1981), the Duke court decided that after the employer introduces some evidence of “just cause,” the burden shifts back to the employee who must prove a lack of “just cause.” 668 F.Supp. at 1040 . As the Duke court noted, the Burdine shifting burden of proof analysis is used a variety of employment discrimination contexts. The rule the majority urges would have the anomalous effect of placing “a lighter burden on employers accused of racial discrimination than employers faced with wrongful discharge claims.” Id. at 1040. The Duke court also correctly observed that “such a rule is counterintuitive and makes little sense in light of the relatively greater protections the law has tried to provide alleged victims of race discrimination.” Id. The rule in Duke is consistent with the rule set forth in Johnson v. Jessop, 332 Mich. 501, 51 N.W.2d 915, 917 (1952). The Michigan Supreme Court specifically decided that the plaintiff had the ultimate burden of proof to prove an employment contract and the plaintiff’s performance of that contract. Only after plaintiff had introduced such proof would the burden shift to the defendant. Id. See also Saari v. George C. Dates & Assoc., 311 Mich. 624 , 19 N.W.2d 121, 123 (1945) (same); Rasch v. City of East Jordan, 141 Mich.App. 336 , 367 N.W.2d 856, 858 (1985) (same). In the instant case Diggs failed to prove his performance of the contract; accordingly, the burden of going forward never shifted to Pepsi. Application of the Burdine analysis to Toussaint cases comports with the decision in Obey v. McFadden Corp., 138 Mich.App. 767, 776-79 , 360 N.W.2d 292, 296-97 (1984), lv. denied, 422 Mich. 911 (1985) (approving instruction that plaintiff had ultimate burden of proof at every step and holding that defendant was entitled to judgment notwithstanding the verdict because plaintiff failed to prove lack of just cause for termination). Cf. Ross v. State Farm Ins. Co., 676 F.Supp. 781, 785-86 (E.D.Mich.1987) (refusing to shift ultimate burden of persuasion from plaintiff to the employer). Finally, it should be noted that the Sixth Circuit in Taylor v. General Motors Corp., 826 F.2d at 456 , has decided that the Michigan courts would apply the Burdine shifting analysis to retaliatory discharge cases. 2 *934 This court has also recently decided that the burden of persuasion in a race discrimination action under Michigan’s Elliott-Larsen Act, Mich.Comp.Laws Ann. § 37.2202(1), “rests at all times with the plaintiff.” Lewis v. Sears Roebuck & Co., 845 F.2d 624, 634 (6th Cir.1988). While the instant appeal does not involve a claim of retaliation or discrimination, the majority presents no reason why the Michigan courts would accord an employer more protection in retaliation cases involving important statutory rights than in implied contract cases such as the one at bar. In short, the weight of Michigan and Sixth Circuit authority supports the application of the Burdine shifting burden analysis. After Pepsi introduced “some evidence” of just cause, the burden shifted back to Diggs to prove by a preponderance of the evidence the elements of his case which he failed to do. As the district court and the majority have conceded, plaintiff has not proven the absence of “just cause.” Accordingly, his action should have been dismissed. My decision would be no different even if the burden of proof were placed on Pepsi. Regardless of Pepsi’s burden, it is clear that Pepsi proved just cause for the discharge of Diggs. 3 “Just cause” must be defined with reference to the contract in question. See Kay, 757 F.2d at 102 , (citing Valentine v. General American Credit, Inc., 420 Mich. 256 , 362 N.W.2d 628 (1984) (extent of just cause obligation is based on agreement of the parties)). In the case at bar, the purported contract was merely to employ Diggs so long as his performance was “satisfactory” or as long as he achieved “commendable” ratings or better. Diggs failed to achieve the required performance ratings as evidenced by the escalating number of Pepsi customer complaints registered against him by Pepsi’s biggest volume accounts. Assuming arguendo that Pepsi had the duty of “fairly and objectively” rating ap-pellee’s performance that has been erroneously imposed by the district court, the record clearly disclosed that Pepsi discharged its duty. As early as September, 1982, Pepsi rated the plaintiff as “commendable minus.” He was counseled by Beattie, his immediate supervisor, to improve his performance to no avail. Plaintiff was also rated below “commendable” in August 1983 just before he was terminated. The evidence also reflected that Diggs’ inability to meet his assigned sales quotas was cascading. The lower court did not find that these evaluations were unjustified. Instead, the court conceded that numerous major customers had complained about Diggs and that those complaints were “a legitimate concern to the defendant.” 4 The court remarkably elected to disregard those complaints and instead based its ruling on the fact that Diggs’ past performance was satisfactory or better. However, the purported contract was to retain Diggs only so long as he continued in the present and into the future to maintain a commendable performance rating. The uncontroverted testimony disclosed that Pepsi's highly competitive business is anchored in customer service and satisfaction and that one of the district manager’s primary duties was to promote and maintain the company’s goodwill and reputation with its customers. Given the lower court’s conclusions that Diggs failed to promote and maintain goodwill with Pepsi’s largest customers, it was clear that the *935 September, 1982 and August, 1983 performance ratings were “fair” and based on “objective” facts (the customer complaints and failure to meet assigned sales quotas). It was of no consequence that the customer complaints may not have related to the performance of plaintiffs job duties. Regardless of plaintiffs performance, the mere existence of customer complaints made the continued employment of Diggs economically impossible. In such cases an employer is not required to retain an employee. Cf. Friske v. Jasinski Builders, Inc., 156 Mich.App. 468 , 402 N.W2d 42, 44 (1986), lv. denied, 428 Mich. 880 (1987) (discharge for economic reasons constitutes termination for “sufficient cause;” to hold otherwise would impose an unworkable economic burden upon employers); Parker v. Diamond Crystal Salt Co., 683 F.Supp. 168 (W.D.Mich.1988) (same). “The jury is not to probe the business judgment of the employer.” Lewis, 845 F.2d at 633 . The fact that an employer’s termination decision is based on sound business judgment tends to indicate that the employer’s termination decision was reasonable. Id. at 18. Although the Michigan courts have not decided the specific question of whether customer complaints constitute just cause as a matter of law, courts in other jurisdictions have decided that an employer’s business judgment must be accorded substantial deference when it attempts to preserve the company’s goodwill and business reputation, See Cox v. Resilient Flooring Div. of Congoleum Corp., 638 F.Supp. 726, 732 (C.D.Cal.1986) (good cause was shown where employee did not deny that complaints were lodged against him by the company’s distributors; “[o]ne could not fairly evaluate his performance if these complaints were ignored”). Cf. Kinoshita v. Canadian-Pacific Airlines, Inc., 803 F.2d 471, 475 (9th Cir.1986) (harm to reputation of employer was legitimate ground for termination); Fountain v. Safeway Stores, Inc., 555 F.2d 753, 756 (9th Cir.1977) (“an employer may enforce those regulations ... which serve to extend an image to its customers which [the employer] believes is beneficial to its business”); Fagan v. National Cash Register Co., 481 F.2d 1115, 1124-25 (D.C.Cir.1973) (“Perhaps no facet of business life is more important than a company’s place in public estimation ... we may take judicial notice of an employer’s proper desire to achieve favorable acceptance_ Reasonable requirements in furtherance of that policy are an aspect of managerial responsibility.”) In short, the employer’s decision to terminate Diggs was a legitimate business decision designed to preserve Pepsi’s reputation and goodwill and to curtail customer complaints. Accordingly, I would find that Pepsi proved “just cause” for the discharge even if Diggs had proved the existence of a “just cause” contract. “[T]he employer’s prerogative to make independent, good faith judgments about employees is important in our free enterprise system.” Blades, Employment at Will v. Individual Freedom: On Limiting The Abusive Exercise of Employment Power, 67 Colum.L.Rev. 1404, 1428 (1967). The Michigan courts have recognized this fundamental principle and have carefully refrained from extending the Toussaint decision to cover situations such as the one at bar. Because I believe the majority’s disposition does not comport with applicable Michigan law and for the reasons articulated herein, I must respectfully dissent. Although I do not find Pepsi liable for any damages and would reverse the judgment of the trial court and dismiss the appellee’s complaint, I would concur in Judge Engel’s disposition of the prejudgment interest issue. Judge Merritt’s opinion argues that American Anodco v. Reynolds Metals Co., 572 F.Supp. 895 (W.D.Mich.1983), aff'd, 743 F.2d 417 (6th Cir.1984) is inapposite — a conclusion that I, however, disagree with and cannot accept in light of Anodco, which requires future damages to be treated as a lump sum. As Judge Engel indicates, the Anodco decision clearly states that prejudgment “interest shall be calculated based on the entire damage award, which should not be apportioned.” 572 F.Supp. at 896 (emphasis added). This analysis comports with established precedent in this circuit, which di *936 rects that prejudgment interest should be calculated on the total amount of Diggs’ wages, rather than on the present value. The Anodco opinion clearly addressed not only the rate change issue, but also the issue of whether a damage award should be apportioned over the time period between the filing of the complaint and the entry of judgment. The court rejected “apportionment” in both contexts. 572 F.Supp. at 896 , aff'd, 743 F.2d 417 (6th Cir.1983). Accordingly, I concur with Judge Engel’s disposition of this issue. Accordingly, I dissent from Parts I, II and III of the majority’s opinion, but concur in Parts IV and V of the opinion, including Judge Engel’s disposition of the prejudgment interest issue. . The instant case is even more explicit than Schmand and Sax because the employee in those cases was promised employment for a specified period of time — one year in Schmand and lifetime employment in Sax . In the case at bar, Diggs was promised employment for no specific duration and, therefore, his contract was a "pure satisfaction” contract. . The Taylor court relied on the Michigan Court of Appeals decisions in Bogue v. Teledyne Continental Motors, 136 Mich.App. 374 , 356 N.W.2d 25 (1984) (sanctioning use of jury instructions based on Burdine in an employment discrimination case) and Clarke v. Uniroyal Corp., 119 Mich.App. 820 , 327 N.W.2d 372 (1982) (Burdine *934 analysis applied to claim brought under Michigan Fair Employment Practices Act). . Although the majority anchors its decision solely on the proposition that the trier of fact must decide the existence of "just cause," Michigan courts have not hesitated to reverse jury verdicts under circumstances where the plaintiff failed to produce evidence of sufficient weight to justify submission of the issue of “just cause” to the jury for consideration. E.g., Obey, 360 N.W.2d at 297 (holding that the trial court erred in refusing to direct a verdict finding there was good cause for plaintiffs discharge). . It is uncontroverted that Pepsi's three largest customers in Diggs’ territory each complained about Diggs’ poor service. The district court declined to make a finding as to whether those complaints were justified but said the complaints were “probably in part justified and probably not totally justified.” --- Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9478382. Public record. Not legal advice.