COATS v. GENERAL MOTORS CORPORATION (1936)

Plaintiff sued for the value of bonus stock claimed under a contract of employment as Pacific Coast sales manager with the defendant corporation. The cause was tried with a jury, and plaintiff had a verdict for approximately $150,000. The defendant's appeal presents four separate grounds for a reversal of the judgment, but we will confine our discussion to the first mentioned––the absence of competent evidence to prove that plaintiff was not dismissed because of unsatisfactory service and the absence of competent evidence to prove affirmatively that plaintiff was dismissed “with an entirely satisfactory record.”

There is very little conflict as to the facts involved. All the competent evidence demanded a verdict and judgment for the defendant. The only conflict is assumed rather than real––a conflict between direct competent evidence and conjectures and suspicions. The verdict rests entirely upon the latter. The plaintiff was employed in April 1922, to take charge of Chevrolet sales on the Pacific Coast under the direction of R. H. Grant, the general sales manager for Chevrolet located in the city of Detroit, who in turn was under the direction of W. S. Knudsen, the president and general manager, also located, in the city of Detroit. In January, 1927, the plaintiff was discharged from his employment by Mr. Grant acting under the direction and order of Mr. Knudsen. In February of that year the executive committee of the defendant corporation sitting in New York, eight of the nine members being present, adopted a resolution expressly approving the action of Mr. Knudsen and Mr. Grant in removing the plaintiff and reciting that this action had been taken because of his unsatisfactory service. The plaintiff made no protest to this action of the executive committee, but about four years and nine months thereafter commenced this proceeding. On a former trial before a jury, the court directed a verdict for the plaintiff in respect to a portion of the bonus stock said to have been earned prior to the dismissal and directed a verdict in favor of the defendant as to the remainder of the stock. Both parties appealed, and both orders were reversed. Coats v. General Motors Corporation, 3 Cal.App.(2d) 340, 39 P.(2d) 838. Upon the second trial, the burden was put on the defendant to prove that the plaintiff had been removed because of his unsatisfactory service and that the act of removal had been taken in good faith. To this purpose a mass of evidence was produced which was not before the court on the previous trial. The plaintiff rested upon the doctrine of the law of the case and left the issue with the jury upon the suspicions which were referred to in the former opinion.

The terms of the bonus plan are plain and unambiguous. Paragraph 5 reads in part: “If a beneficiary leaves the service of the Corporation of his own volition, or is dismissed because of unsatisfactory service (of which the Executive Committee shall be the sole judge), that portion of his bonus represented at the time by the debit balance of his account shall revert to the Bonus Fund.” Paragraph 6 reads: “Should a beneficiary be dismissed from the service of the Corporation for no fault of his own with an entirely satisfactory record (of which the Executive Committee shall be the sole judge) he may continue a beneficiary under the Bonus Plan to such an extent as the Executive Committee may determine.” This is the contract of the parties. There can be no quarrel with the language, and no call for “interpretation.” Plaintiff is suing to enforce this contract, and to recover he must either prove that he was not dismissed because of unsatisfactory service or he must prove that he was dismissed for no fault of his own “with an entirely satisfactory record.”

The respondent was dismissed by Mr. Grant acting under instructions from his superior on or about January 1, 1927. On February 11th of that year the executive committee, eight of the nine members being present, after a full discussion and after having been fully informed that the respondent had been dismissed because of unsatisfactory service, unanimously adopted the following resolution: “Resolved that in view of the fact that the services of Mr. F. N. Coats were terminated January 1st, 1927, because his work had not been satisfactory to the Corporation all bonuses due him be canceled as of that date.” After the minutes of this meeting, including the quoted resolution, had been written up, all nine members of the committee signed and approved them. At the next meeting of the executive committee, all nine members being present, these minutes were read and unanimously approved by the committee. The authenticity of the resolution and the fact of the termination of respondent's unsatisfactory service therein was established by undisputed proof coming from the secretary, from the testimony of five of the nine members of the committee, and by the formal approval evidenced by the signatures of all nine members. There is not a word of evidence casting any doubt on the authenticity of the resolution or the fact of its adoption. In this respect respondent relies entirely upon a suspicion of some kind which he seeks to raise because of the fact that no member of the executive committee phrased the resolution in the exact words in which it appears in the minutes; the secretary having testified that after the discussion and vote of the committee he phrased the resolution in the light of the determination reached by the committee.

As evidence tending to prove that the action of the committee was taken in good faith and that the respondent was dismissed because of unsatisfactory service, the appellant offered evidence in addition to what was heard at the former trial showing that, before the dismissal was made, Mr. Knudsen had consulted Mr. Grant and told him that respondent's services were unsatisfactory and that he should arrange for respondent's dismissal. On November 26, 1926, John J. Raskob, a member of the executive committee, wrote Mr. Sloan in part as follows, “Why is it that Grant insists on keeping F. N. Coats in his employ when it is the judgment of some of our best executives that this man is thoroughly incompetent for such an important. General Motors position?” In 1926 an investigation of respondent's service on the Pacific Coast was made at the instance of Alfred P. Sloan, president and chairman of the executive committee. As a result of this investigation, Mr. Sloan agreed with Mr. Grant that the respondent should be dismissed. Mr. Grant's testimony is that he dismissed respondent because his services were not satisfactory to him and that he reached this determination after his own investigation and after the investigation made at the instance of Mr. Sloan. Mr. Knudsen testified that for two years immediately prior to respondent's dismissal the sales in the Pacific Coast region were below standard, and that he made a personal investigation of the conditions in that region, from which he reached the conclusion that it was necessary to discharge respondent. He made this recommendation to Mr. Grant and to Mr. Sloan. Both of these witnesses testified that they had never been approached by Mr. Fisher or by any other member of the executive committee urging the dismissal of respondent because of any personal animosity on the part of Mr. Fisher or of any other member of the executive committee or because of any interest exhibited by Mr. Fisher or by any other member of the executive committee in the control of Chevrolet dealers in the Los Angeles territory. Mr. Sloan testified that before the meeting of February 27, 1927, he had investigated the work of respondent and learned that his services were generally unsatisfactory; that he voted for the resolution finding that such services were unsatisfactory because of the information that he had thus obtained; that he had not at that meeting or at any other time been approached by Mr. Fisher in reference to the Los Angeles territory; and that at no time had he any information that Mr. Fisher desired the dismissal of respondent because of that situation. Mr. Fisher testified that he had not at any time suggested to any superior of the respondent that the respondent be dismissed from service, that such dismissal had not been suggested by him because of the Los Angeles situation, and that the resolution of the executive committee was not dictated or suggested by any consideration of the Los Angeles situation, L. P. Fisher, P. S. Du Pont, and Donaldson Brown, other members of the executive committee, testified that they had had no information of this purported feeling against the respondent because of the Los Angeles situation, but that they voted for a cancellation of the bonus contract because of their information that respondent had been dismissed because of unsatisfactory service.

The foregoing testimony was made necessary because of the suspicion cast upon the action of the appellant by respondent's charge that several months before his dismissal he had had a conversation with a Mr. Baldwin, who was a Chevrolet dealer in the Los Angeles territory; that Mr. Baldwin had asked for more exclusive territorial sales privileges and had intimated to the respondent that Mr. Fisher, a member of the executive committee, was a friend of his. From this fact the respondent suspected that Mr. Baldwin might have said something to Mr. Fisher, and that Mr. Fisher might have said something to Mr. Knudsen, who in turn might have said something to Mr. Grant which had caused the latter to dismiss the respondent from his service. The whole situation is filled with such absurdity that no further comment would be necessary if it had not been given some recognition in the opinion on the former appeal. It seems incredible that any court or judge could give any weight to testimony of this character which is offered for the purpose of proving the one essential and vital fact, to wit, that, when the executive committee effected the dismissal of the respondent, it did so fraudulently and in bad faith. From time immemorial the rule has been that fraud will not be presumed; this is equal to the presumption against crime itself. Truett v. Onderdonk, 120 Cal. 581, 53 P. 26. But it is argued that a fraud here may be “inferred” from the evidence that respondent's discharge was a result of the Los Angeles situation. We have always understood that an inference is just what the statute declares it to be––“a deduction which the reason of the jury makes from the facts proved.” Code Civ.Proc. § 1958. There can be no quarrel with this language. A deduction is a conclusion based upon reason and sound judgment, and is not a mere suspicion or conjecture without any foundation. An inference is a deduction which the reason of the jury may make; it is not a mere guess or an arbitrary dixit without reason and without factual support. Here there is not in any portion of the record any evidence, direct or indirect, of any fact or circumstance which would support an honest and reasonable inference that the action of Mr. Grant in giving respondent notice of dismissal and the action of the executive committee in approving and affirming that act was predicated on any knowledge of or interest in the Los Angeles situation. There is no competent evidence that any member of the executive committee knew that any difficulty existed in relation to the Los Angeles territory and no competent evidence that Mr. Fisher had any knowledge of any purported controversy between respondent and the Los Angeles dealers, but, on the other hand, the only competent evidence touching this situation from any aspect completely disproves and dissipates all the suspicions which respondent has raised in respect to the entire situation. Hence, since there are no facts proved upon which the inference could be based, there is no reason supporting the inference, and what is therefore called an inference becomes nothing more than a suspicion.

To all the foregoing the respondent replies that the decision must be controlled by the principle of the “law of the case.” The application of that doctrine is urged by respondent upon the basis of the statement in the former opinion that “The record contains no direct evidence that in making their finding that plaintiff's discharge was due to dissatisfaction with his services the committee was not acting in good faith. However, plaintiff contends that this might reasonably be inferred, from Sloan's statements and the previously expressed satisfaction with his services by Knudsen and Grant, that there was no dissatisfaction with his work, and that his discharge was the result of his refusal to grant the privileges mentioned to Baldwin.” 3 Cal.App.(2d) 340, 349, 39 P.(2d) 838, 842. The respondent then relies on the conclusion of the former opinion that because of this “conflict” the question of the good faith of appellant, “other things being equal,” would be for the jury.

It is the settled rule that the doctrine of the law of the case does not apply in a case where the weight or sufficiency of the evidence is involved if there is a substantial difference in the evidence. Allen v. Bryant, 155 Cal. 256, 100 P. 704; In re Estate of Baird, 193 Cal. 225, 223 P. 974; Hoffman v. Southern Pac. Co., 215 Cal. 454, 457, 11 P.(2d) 387; Smellie v. Southern Pac. Co., 128 Cal.App. 567, 572, 18 P.(2d) 97, 19 P.(2d) 982. The last case is closely in point. A nonsuit had been granted mainly on the ground of the contributory negligence of the deceased. At the second trial, additional evidence had been received on this issue, and it was held on the second appeal that this additional evidence required the court to hold that the issue was not settled as the law of the case. The issue arises here in about the same way. On the former trial, respondent had no direct evidence of lack of good faith and offered no direct evidence on the second trial. On the former trial evidence was offered tending to show satisfaction prior to the meeting of the executive committee and evidence tending to show some ill feeling on the part of one of the directors arising out of the Los Angeles situation. From this it was held on the former appeal that an inference of bad faith might arise, and hence the question was one for the jury. On the second trial new evidence was offered by appellant showing that what respondent relied on as an expression of satisfaction was merely a form letter written to all employees under the bonus plan, that prior to the dismissal dissatisfaction had been voiced by two of the directors and by Grant's superior, Mr. Knudsen, and that the “pressure” brought upon Grant to make the dismissal was the result of general dissatisfaction with the respondent's conduct of the business on the coast. It was further shown by undisputed evidence that the Los Angeles situation was not known to any of the directors when the dismissal was made or until some four years thereafter, when respondent “discovered” it and commenced this action.

With the burden of proof on respondent to show that the executive committee acted fraudulently and in bad faith, he rests his case on the showing that no one had told him that his work was unsatisfactory, on the form letters which were sent to all recipients of the bonus, on the claim that his immediate superior was satisfied and that he dismissed respondent because of “pressure” from above, and on the suspicions growing out of the Los Angeles situation. From the testimony covering these matters, respondent has drawn the inference that there must have been fraud and that because Mr. Fisher was a friend of Mr. Baldwin, and, because Mr. Baldwin did not like respondent, Mr. Baldwin must have complained to Mr. Fisher, and Mr. Fisher must have brought pressure upon Mr. Grant to dismiss respondent. In all this the respondent has overlooked the important fact that the question of good faith does not depend on the attitude of Mr. Fisher or Mr. Grant. The bonus contract expressly provides that the executive committee shall be the sole judge of the service of the employee. There is not a word of testimony which tends to show, or which gives any possible foundation for an inference, that the executive committee acted fraudulently when it unanimously determined that respondent's services had been unsatisfactory. All the testimony offered by the respondent is without any evidentiary value upon the issue of the good faith of the executive committee. If Mr. Fisher had done all that respondent suspects he might have done, it would have had no bearing on the question of the good faith of the committee. He may have been dissatisfied with respondent's services and may have honestly believed that his dismissal was for the best interest of the corporation, but, if he had persuaded all the other members to vote his way (the undisputed evidence is to the contrary), there is still nothing left even for an inference of bad faith of the committee. Throughout the briefs the parties have fallen into the same error that prevailed in the former trial. Where the employer is made the sole judge of his satisfaction with the services of the employee, the reasonableness of his decision is not a question for the jury. In such a case the question is whether the employer acted fraudulently and in bad faith. The burden of proof on this issue rests on the employee, and this burden is not met by proof that at some prior time some superior officer was satisfied with respondent's services, that at some prior time his services were in fact satisfactory, or that some executive became dissatisfied because of personal reasons. All the respondent's testimony on these matters proves nothing more than that the action of the executive committee might have been unreasonable; it does not prove either fraud or bad faith. The respondent has failed, therefore, to meet the burden of proof on this issue, and has likewise failed to prove the equally essential element for a recovery on the contract––an element not decided on the former appeal––that his dismissal was “for no fault of his own with an entirely satisfactory record.”

The judgment is reversed.

NOURSE, Presiding Justice.

We concur: STURTEVANT, J.; SPENCE, J.