Kellogg Co v. Sabhlok ( 2006 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 06a0466p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
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Plaintiff-Appellee/Cross-Appellant, -
THE KELLOGG COMPANY,
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Nos. 05-2626/2627
v.
,
>
JATINDER P. SABHLOK, -
Defendant-Appellant/Cross-Appellee. -
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Appeal from the United States District Court
for the Western District of Michigan at Grand Rapids.
No. 04-00598—Robert Holmes Bell, Chief District Judge.
Argued: November 29, 2006
Decided and Filed: December 22, 2006
Before: MARTIN and GUY, Circuit Judges; CARR, Chief District Judge.*
_________________
COUNSEL
ARGUED: Mary Ann Hart, SAFFORD & BAKER, Bloomfield Hills, Michigan, for Appellant.
Charles S. Mishkind, MILLER, CANFIELD, PADDOCK & STONE, Grand Rapids, Michigan, for
Appellee. ON BRIEF: Mary Ann Hart, Ralph R. Safford, SAFFORD & BAKER, Bloomfield
Hills, Michigan, for Appellant. Charles S. Mishkind, MILLER, CANFIELD, PADDOCK &
STONE, Grand Rapids, Michigan, for Appellee.
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OPINION
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RALPH B. GUY, JR., Circuit Judge. Jatinder P. Sabhlok, defendant and counter-plaintiff,
appeals from the entry of a declaratory judgment in favor of his former employer, plaintiff and
counter-defendant The Kellogg Company. The district court found, on cross-motions for summary
judgment, that the Separation Agreement and Release of Claims Form and the subsequent
Amendment thereto unambiguously released and barred the breach of contract and age
discrimination claims that Sabhlok threatened to bring against Kellogg. Kellogg cross-appeals from
the district court’s further finding that Sabhlok was not liable under the terms of the agreements for
attorney fees and costs that Kellogg incurred in this litigation. After review of the record and the
arguments presented on appeal, we affirm the district court in all respects.
*
The Honorable James G. Carr, Chief United States District Judge for the Northern District of Ohio, sitting by
designation.
1
Nos. 05-2626/2627 The Kellogg Co. v. Sabhlok Page 2
I.1
When Jatinder Sabhlok was hired by Kellogg in 1997, he had 22 years of experience with
major food and beverage manufacturers and retailers (ten years in international markets). Over the
next four years, Sabhlok received favorable performance reviews and was promoted three times by
three different supervisors. Sabhlok was Vice-President of the International Research and
Development Group and the business partner for the Asia/Australia territory when he learned in July
2001 that Kellogg planned to restructure his group at the end of September 2001. The group was
disbanded, more than 20 employees were moved to other positions, and several positions—including
Sabhlok’s—were eliminated. Sabhlok turned 55 years old in September 2001.
Sometime between July and September 2001, Kellogg asked Sabhlok to extend his
employment for a one-year period to assist in decentralizing research and development and
establishing laboratories in Asia and Australia. According to Sabhlok, he was induced to stay by
oral assurances from his supervisor, Donna Banks—made both before and after the reduction in
force was finalized on September 30, 2001—that a permanent position would be found for him at
Kellogg.
Kellogg offered the affected employees a “standard” or an “enhanced” severance package,
but the latter required that the employee accept the terms of the “Separation Agreement and Release
of Claims Form.” Sabhlok executed the Separation Agreement on November 13, 2001, and
continued to work through September 30, 2002.2
During the one-year retention period, Sabhlok spent nearly 70% of his working time
traveling to Asia and Australia. Several permanent positions became available during that year, and
Sabhlok asked to be considered for each of them. Despite repeated assurances that a permanent
position would be found, Sabhlok was not selected for any of the openings. In fact, Sabhlok alleged
that Kellogg selected a younger, less qualified employee over him in each case. On one occasion,
Sabhlok was even told that he did not get the position because “as you can see we are bringing up
the younger people.”
After the retention period expired and Sabhlok’s employment ended, Sabhlok and Kellogg
executed the “Amendment of Separation Agreement and Release of Claims Form.” Sabhlok
contends that by this time, Kellogg had reconstituted the R&D Group, returned all but three
employees from other positions, and selected a younger, less qualified employee to be its director.
The Amendment, signed by Sabhlok on October 31, 2002, included an agreement that Sabhlok
would abide by a broad noncompete clause and that Kellogg would provide Sabhlok with an
additional six weeks of severance pay and a pro-rata bonus for the year 2002.
Beginning in early 2004, Sabhlok, through counsel, wrote to Kellogg threatening to sue.
Kellogg chose to preempt the suit and filed this declaratory judgment action on September 8, 2004.
Sabhlok filed an answer and a counterclaim seeking declaration that the Separation Agreement and
Amendment did not release, waive, or discharge claims for breach of contract or age discrimination
that arose after September 30, 2001. No discovery was conducted, and the parties filed cross-
motions for summary judgment in reliance on the pleadings and written agreements. For the reasons
set forth in its opinion of September 21, 2005, the district court granted Kellogg’s and denied
Sabhlok’s motions for summary judgment; denied Kellogg’s request for attorney fees and costs; and
entered judgment in favor of Kellogg declaring that Sabhlok’s proposed claims were barred by the
1
The facts are drawn from the pleadings, to which the written agreements, correspondence, and proposed
complaint were attached.
2
Kellogg executed the Separation Agreement on November 15, 2001.
Nos. 05-2626/2627 The Kellogg Co. v. Sabhlok Page 3
Separation Agreement and Amendment. Judgment was entered accordingly, and these appeals
followed.
II.
Summary judgment is appropriate when there are no issues of material fact in dispute and
the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c). In deciding a
motion for summary judgment, the court must view the factual evidence and draw all reasonable
inferences in favor of the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475
U.S. 574, 587 (1986). Our review of the district court’s decision in this case is de novo. Johnson
v. Karnes, 398 F.3d 868, 873 (6th Cir. 2005); see also McMullen v. Meijer, Inc., 355 F.3d 485, 489
(6th Cir. 2004) (when denial of summary judgment is based on legal grounds, review is de novo).
There is no dispute that Michigan law governs the interpretation of the Settlement Agreement
and Amendment. The district court succinctly summarized the applicable law as follows:
The scope of a release is controlled by the language of the release. Adair v.
State, 470 Mich. 105, 127, 680 N.W.2d 386, 399 (2004) (citing Batshon v. Mar-Que
Gen. Contractors, Inc., 463 Mich. 646, 650, 624 N.W.2d 903 (2001)). If the
language of the release is unambiguous, it must be construed as written. Id. “A
contract is ambiguous only if its language is reasonably susceptible to more than one
interpretation.” Cole v. Ladbroke Racing Michigan, Inc., 241 Mich. App. 1, 13, 614
N.W.2d 169, 176 (2000) (citing Rinke v. Automotive Moulding Co., 226 Mich. App.
432, 435, 573 N.W.2d 344 (1997)). “The fact that the parties dispute the meaning
of a release does not, in itself, establish an ambiguity.” Id. at 14 (citing Gortney v.
Norfolk & Western R. Co., 216 Mich. App. 535, 540, 549 N.W.2d 612 (1996)).
“When a release is challenged, the party seeking to avoid the release must prove by
a preponderance of the evidence that the release should be set aside.” Binard v.
Carrington, 163 Mich. App. 599, 603, 414 N.W.2d 900, 902 (1987).
Kellogg v. Sabhlok, No. 5:04-CV-598, 2005 WL 2297446, at *2 (W.D. Mich. Sept. 21, 2005)
(unpublished decision).
A. Sabhlok’s Claims
We begin with the language from Paragraph D of the Separation Agreement setting forth the
broad release of claims:
D. (1) . . . I irrevocably and unconditionally release, waive, and forever
discharge [Kellogg] . . . from any and all claims, demands and causes of
action I have or may claim to have arising from or relating in any way to my
employment or separation of employment. This includes, but is not limited
to, all claims under . . . the Michigan Elliott-Larsen Civil Rights Act, . . . ;
and any and all of Employees claims arising out of or related to any contract,
. . . or under any common law right of any kind whatsoever, . . . .
Nos. 05-2626/2627 The Kellogg Co. v. Sabhlok Page 4
....
(3) Employee agrees and understands that execution of this Separation
Agreement and Release of Claims Form by Employee operates as a complete
bar and defense against any and all of Employee’s Claims against Kellogg
....
(4) I agree and acknowledge that the above-described consideration
(additional severance pay and benefits) is in full and complete settlement of
any and all claims, demands, and causes of action I have or may have.
The parties clarified in Paragraph H of the Separation Agreement that:
H. This Separation Agreement and Release of Claims Form does not waive any
claims that I may have that arise after the effective date of the Separation
Agreement and Release of Claims Form.
Two other paragraphs of the Separation Agreement, Paragraphs N and S, are specifically
relevant to the claims that Kellogg failed to “rehire” Sabhlok into a permanent position. They
provide as follows:
N. I understand that I may apply for employment as a new employee, but
acknowledge that the Company is not obligated to offer employment to me
now or in the future.
....
S. I acknowledge and agree that this is the entire agreement and the only
promises made to me to sign the Separation Agreement and Release of
Claims Form are those contained within this document.
At the end of October 2002, after Sabhlok’s last day of work, Sabhlok executed the
“Amendment of Separation Agreement and Release of Claims Form.” The Amendment did not
include separate release language, but did contain the following merger and integration clause:
4. Entire Agreement: Employee agrees that this Amendment and original
Separation Agreement dated November 15, 2001 constitute the entire
agreement between Employee and Kellogg and that this Amendment and the
original Separation Agreement supersede any and all prior and/or
contemporaneous written and/or oral agreements relating to Employee’s
employment with the Company and termination therefrom. All other terms
of the original Separation Agreement and Release of Claims Form remain
unchanged and in full force and effect. Further, Employee acknowledges that
this Amendment may not be modified except by written document, signed by
Employee and an authorized officer of the Company.
As Sabhlok concedes on appeal, the district court did not err in finding that the Separation
Agreement’s release provisions plainly bar any claim for breach of contract or age discrimination
that arose on or before the effective date of the Separation Agreement. Rather, Sabhlok contends
that he may pursue claims based on the failure to “rehire” him during the retention period because
such claims arose after the Separation Agreement’s effective date (whether that was at the time of
Nos. 05-2626/2627 The Kellogg Co. v. Sabhlok Page 5
the finalization of the separations on September 30, 2001, or when he signed it on November 13,
2001).3
Sabhlok argues specifically that although he expressed interest in several open positions
between October 1, 2001, and September 30, 2002, Kellogg selected younger and less qualified
individuals while continuing to promise that a permanent position would be found for him. It is this
failure to “rehire” during the one-year retention period that Sabhlok asserts as the basis for his
proposed claims for breach of an oral contract and age discrimination in violation of Michigan’s
Elliott-Larsen Civil Rights Act (ELCRA), Mich. Comp. Laws Ann. § 37.2202. We address each
claim in turn.
1. Breach of Contract
The district court found that Sabhlok’s proposed claims based on oral promises of future
employment were barred by the Separation Agreement and Amendment. Aside from the releases,
the Separation Agreement also explicitly provided in Paragraphs N and S that Kellogg was “not
obligated to offer employment to [Sabhlok] now or in the future” and that the Separation Agreement
constituted the parties’ “entire agreement.” Sabhlok argues on appeal that this reasoning ignores
the parties’ freedom to modify their agreement, as well as his claim that Kellogg made oral promises
of future employment after the effective date of the Separation Agreement. On the contrary, the
district court recognized that the parties had formally amended their agreement and that it precluded
reliance on any such oral promises.
Specifically, Paragraph 4 of the Amendment expressly stated that the terms of the original
Separation Agreement remained unchanged. It also provided the Separation Agreement and
Amendment together not only constituted the entire agreement between the parties but also
superceded any oral agreements “relating to [Sabhlok’s] employment with the Company and
termination therefrom.” As the district court noted, “[a] merger clause such as this ‘serves to
integrate the agreement and makes the agreement a final written expression of the parties.’ General
Aviation, Inc. v. Cessna Aircraft Co., 915 F.2d 1038, 1041 (6th Cir. 1990).” Kellogg, 2005 WL
2297446, at *3. Accordingly, Sabhlok’s breach of contract claims are barred by the Separation
Agreement and Amendment.
2. Age Discrimination
Sabhlok concedes, as he must, that claims based on the termination of his employment at the
time of the Separation Agreement and at the conclusion of the one-year period were barred by the
waiver and release provisions of the Separation Agreement. Focusing instead on the claims of
discriminatory failure to “rehire,” Sabhlok argues that neither the Separation Agreement nor the
Amendment may effectively waive or release claims that arose after the effective date of the
Separation Agreement.
Sabhlok urges us to find that the Michigan courts would follow federal law and hold that
prospective waivers of civil rights claims are unenforceable. See, e.g., Adams v. Philip Morris, Inc.,
67 F.3d 580, 585 (6th Cir. 1995) (employee may not prospectively waive rights under ADEA or
Title VII). We need not resolve this open question, however, because the district court found
Sabhlok’s failure-to-rehire claims did not arise after the effective date of the Separation Agreement
and therefore did not implicate a prospective waiver of civil rights claims. Rather, the district court
3
Sabhlok suggests at one point that the Separation Agreement was ambiguous concerning which date should
be considered the “effective date.” Because we find that the proposed failure-to-rehire claims are barred by the parties’
agreements, it is not material whether the Separation Agreement was effective on September 30, 2001, or November 13,
2001.
Nos. 05-2626/2627 The Kellogg Co. v. Sabhlok Page 6
concluded that the claims of discriminatory failure to “rehire” were barred by the Separation
Agreement itself because the claims “did not arise independently after his termination but [were]
instead inextricably linked to the claims of wrongful discharge that he expressly waived at the time
of his termination.” Kellogg, 2005 WL 2297446, at *5. The district court reasoned as follows:
Kellogg cites Blakeney v. Lomas Info. Sys., Inc., 65 F.3d 482 (5th Cir. 1995). In
Blakeney former employees who had signed a release when they were discharged
during a reduction in force sued the company alleging that they were victims of age
discrimination when the company failed to rehire them. The Fifth Circuit rejected
their rehire argument.
According to the employees, because they cannot prospectively
waive age discrimination claims, summary judgment was improper
on the rehiring claim. This argument, however, is unpersuasive
because the rehiring claim is not a future claim. In the release, the
employees waived all rights to suit arising out of their termination.
The employees’ cause of action for failure to rehire is simply an
attempt to revive claims they were paid to release. Any claim
concerning failure to rehire certainly arises out of their termination
and was extant when the release was ratified.
Id. at 485.
On the other hand, the Eleventh Circuit held that a release waiving an
employee’s right to sue on any then-existing claims did not waive his right to sue for
the employer’s “subsequent post-termination conduct.” Smith v. BellSouth
Telecommunications, Inc., 273 F.3d 1303, 1311 n.7 (11th Cir. 2001). In Smith the
employee signed a general release when he resigned from his employment. He later
reapplied for employment and was not rehired. Although he had signed a release,
he was allowed to pursue a claim that the company’s failure to rehire was in
retaliation for his previous exercise of rights under the Family Medical Leave Act.
Id.
This Court does not believe that Blakeney and Smith are necessarily
contradictory. Neither case should be understood as articulating a broad rule as to
whether a general release of claims will or will not bar a subsequent failure to rehire
claim. Instead, the cases are best understood as being limited to their facts. See
Gustafson, Inc. v. Bunch, 1999 WL 304560, *3 (N.D. Tex. 1999) (“Blakeney
involved a reduction in force, and the facts do not indicate whether plaintiffs
reapplied for the same or different positions. The court is confident, however, that
Blakeney should not be read broadly and indiscriminately to make every subsequent
employment application a ‘rehire.’”) [aff’d without opinion, 244 F.3d 134 (5th Cir.
2000)]. Under some facts a general release will bar a subsequent failure to rehire
claim and under other facts it will not. It depends on how closely related the rehire
is to the original termination in terms of time and subject matter. Where, as here, the
employee gave up his right to sue for age discrimination in his termination and
acknowledged that the employer had no obligation to rehire him, his claim of age
discrimination in the failure to rehire arose out of his termination and cannot be the
basis for a separate claim. After releasing an age discrimination claim, the employee
cannot resurrect the age discrimination claim by reapplying for employment. See
Burnham v. Amoco Container Co., 755 F.2d 893, 894-95 (11th Cir. 1985) (per
curiam) (holding that a failure to rehire subsequent to an allegedly discriminatory
firing, absent a new and discrete act of discrimination in the refusal to rehire itself,
Nos. 05-2626/2627 The Kellogg Co. v. Sabhlok Page 7
cannot resurrect the old discriminatory act because otherwise a potential plaintiff
could always circumvent the limitations by reapplying for employment).
Id. at *4.
Sabhlok argues that this interpretation ignores the agreement in Paragraph H that the
Separation Agreement did not waive any claims that might arise after the effective date of the
Separation Agreement. Sabhlok relies on Blakeney, pointing out that there the court found the
released failure-to-rehire claim “was extant when the release was ratified.” 65 F.3d at 485. In fact,
in this case, the essence of the district court’s decision was its finding that the failure to “rehire”
claims were not new claims that arose after the effective date of the Separation Agreement.
We agree with the district court that the issue turns on whether the failure to “rehire” Sabhlok
during the retention period provided him with a new and discrete claim of discrimination or was
merely an attempt to resurrect age discrimination claims for which he was paid to release. Most
tellingly, Sabhlok’s proposed complaint alleged that his “age was at least one factor that made a
difference in Kellogg’s decision to terminate [him] from his position of Vice President of the
International Research and Development Group, and not transfer [him] to any of the other positions
given to younger, less experienced and lower paid Kellogg employees.” Also, it was alleged with
respect to two of those positions that the younger employee was given virtually all of his duties and
responsibilities “and essentially replaced [him].” Here, the failure to “rehire” Sahblok into a
permanent position during the period between the notice of his termination and his last day of work
did not arise separately from the decision to terminate his employment rather than offering him a
different permanent position.
Finally, the district court added that this conclusion was also supported by the Amendment’s
stipulation in Paragraph 4 that: “All other terms of the original Separation Agreement and Release
of Claims Form remain unchanged and in full force and effect.” In particular, this language
reaffirmed that Kellogg was not obligated to offer Sabhlok employment “now or in the future.”
Also, emphasizing that contracts must be construed consistent with common sense and in a manner
that avoids absurd results, see Parrish v. Paul Revere Life Ins. Co., 302 N.W.2d 332, 333 (Mich.
App. 1981), the district court observed that “common sense dictates that Kellogg would not have
offered additional benefits to Sabhlok at the conclusion of the retention period if it was not satisfied
that Sabhlok had waived his right to sue Kellogg for age discrimination claims arising out of
Kellogg’s failure to rehire Sabhlok during the retention period.” Kellogg, 2005 WL 2297446, at *5.
Sabhlok maintains that the Amendment’s affirmation of the terms in the Separation
Agreement could not constitute a knowing expansion of its releases to encompass claims arising
during the one-year period. See Wyrembelski v. City of St. Clair Shores, 553 N.W.2d 651 (Mich.
App. 1996) (release is valid if fairly and knowingly made). Also, pointing to the “common sense”
comment, Sabhlok accuses the district court of improperly rewriting the parties’ agreement under
the guise of interpretation. See Upjohn Co. v. N.H. Ins. Co., 476 N.W.2d 392 (Mich. 1991).
However, the district court did not find that the Amendment served to expand the releases to
encompass new claims, but concluded that the failure-to-rehire discrimination claims fell within the
scope of the claims released in the Separation Agreement.
The district court did not err in finding that the proposed age discrimination claims were
barred by the waiver and release of claims in the Separation Agreement, and Kellogg was entitled
to declaratory judgment to that effect.
B. Kellogg’s Claim for Attorney Fees and Costs
Under the American Rule, followed in Michigan, attorney fees are generally not recoverable
by the prevailing party. Haliw v. City of Sterling Heights, 691 N.W.2d 753 (Mich. 2005). Kellogg
Nos. 05-2626/2627 The Kellogg Co. v. Sabhlok Page 8
sought an award of fees and costs incurred in this litigation in reliance on Paragraphs D(2) and (7) of
the Separation Agreement. Paragraph D(2) provided in pertinent part that, “[t]o the fullest extent
permitted by law,” Sabhlok agreed he “shall not lodge, assist nor participate in any formal or
informal charge or complaint in any court, [or] with any . . . agency or any other forum, . . . arising
out of or related to Employee’s Claims or Employee’s employment . . . or the termination of that
employment[.]” Also, Paragraph D(7) provided:
(7) I have not filed any charges, claims, or lawsuits against the Company involving
any aspect of my employment which have not been terminated as of the date of this
Separation Agreement and Release of Claims Form. If I have filed any charges,
claims or lawsuits against the Company, I agree to seek immediate dismissal with
prejudice . . . . If I breach any portion of this Separation Agreement and Release of
Claims Form, I acknowledge that I will to the fullest extent permitted by law, be
liable for all expenses, including costs and reasonable attorney’s fees incurred by
[Kellogg] in defending the lawsuit or claim, regardless of the outcome.
Kellogg asserts in its cross-appeal that it was entitled to recover attorney fees and costs under
Paragraph D(7) both because Sahblok sent letters that threatened suit and because Sabhlok filed a
counterclaim in this action.4
First, although Kellogg argues that the term “claim” encompasses any demand for money,
Paragraph D(7) prohibits the “filing” of any claim, charge, or action in any court, agency, or other
forum. Correspondence from counsel, demanding or not, does not constitute such a “filing,” and
cannot be the basis for an award under Paragraph D(7). Second, Kellogg argues that the filing of
the counterclaim constituted “participation” in a complaint arising out of his employment or the
termination thereof in breach of Paragraph D(2). However, the plain meaning of these provisions
is to prevent Sabhlok from filing or joining in any charges, claims, or complaints against Kellogg
and they do not plainly or unambiguously preclude the employee from filing pleadings in defense
of an action instituted against him by Kellogg. We agree with the district court that: “Because
Sabhlok did not file his proposed complaint in any court or agency and because this action for
declaratory relief was initiated by Kellogg rather than by Sabhlok, this Court does not find any
breach of the agreement that would give rise to attorney fees under ¶ D(7).” Kellogg, 2005 WL
2297446, at *5.
AFFIRMED.
4
This court recently indicated that a waiver in a separation agreement of the right to file a charge with the EEOC
or participate in EEOC proceedings may not be enforceable. EEOC v. SunDance Rehab. Corp., 466 F.3d 490, 501 (6th
Cir. 2006).