Dormanv.Petrol Aspen

Supreme Court of Colorado. EN BANC JUSTICE ERICKSON dissents, and CHIEF JUSTICE VOLLACK and JUSTICE KOURLIS join in the dissentApr 15, 1996
914 P.2d 909 (Colo. 1996)

No. 95SC96

Decided April 15, 1996

Certiorari to the Colorado Court of Appeals

JUDGMENT REVERSED AND CASE REMANDED

Sander N. Karp, Thomas A. Feldman, Denver, Colorado, Attorneys for Petitioner.

Jean E. Dubofsky, P.C., Jean E. Dubofsky, Boulder, Colorado, Lance R. Cot, Snowmass Village, Colorado, Attorneys for Respondent.

Barry D. Roseman, Denver, Colorado, Jeffrey Menter, Englewood, Colorado, Attorneys for Amicus Curiae Plaintiff Employment Lawyers Association.


This case presents the issue of whether a contract of employment between the plaintiff employee, Ben M. Dorman, and the defendant employer, Petrol Aspen, Inc., provided for employment at will or for a definite term. The district court granted Petrol Aspen's motion to dismiss Dorman's complaint, which alleged breach of contract, promissory estoppel, and breach of an alleged duty of good faith and fair dealing, all arising from the termination of Dorman's employment by Petrol Aspen. Petrol Aspen's motion was brought under C.R.C.P. 12(b)(5) for failure to state a claim upon which relief can be granted and was predicated on the contention that Dorman's employment was at will and therefore could be terminated by Petrol Aspen at any time without incurring liability to Dorman. The Colorado Court of Appeals affirmed the dismissal, holding that under applicable legal principles, the contract provided for employment at will. Dorman v. Petrol Aspen, Inc., No. 93CA1714 (Colo.App. Dec. 15, 1994). We hold that the contract is ambiguous as to the term of employment, that Dorman must be permitted to offer extrinsic evidence to resolve the ambiguity, and that the trial court therefore erred in dismissing the complaint. Accordingly, we reverse the judgment of the court of appeals and return the case to that court with directions to reverse the district court's judgment and remand the case to the district court for further proceedings.

I.

On September 14, 1992, Ben M. Dorman filed a complaint against Petrol Aspen, Inc. (Petrol Aspen) in Garfield County District Court, alleging breach of contract, promissory estoppel, and breach of an alleged duty of good faith and fair dealing. In his complaint, Dorman contended (1) that Petrol Aspen operates an Amoco gasoline and service station in Aspen, Colorado, (2) that Petrol Aspen extended an employment offer to Dorman after negotiations, (3) that Dorman left gainful employment elsewhere and began work for Petrol Aspen as a result of the negotiations and in reliance upon the employment offer letter that he received from Petrol Aspen, and (4) that Petrol Aspen terminated Dorman's employment after approximately four months, in breach of his employment contract. Dorman attached the employment offer letter as an exhibit to the complaint, and we reproduce the letter in its entirety as Appendix A to this opinion.

At the time the letter was written, Petrol Aspen did not exist. Christopher Smith, who later became president of Petrol Aspen, signed the letter on behalf of "Aspen Petro, Inc.," a corporation which was never formed. Aspen Petro, Inc. is not a party to this action, and, for purposes of this opinion, we will refer, as do the parties, only to Petrol Aspen and assume that Smith's letter bound Petrol Aspen to the offer stated therein.

Petrol Aspen filed a motion to dismiss for failure to state a claim upon which relief can be granted, pursuant to C.R.C.P. 12(b)(5), asserting in part that the exhibit attached to Dorman's complaint "does not constitute a contract for employment other than at-will." Dorman responded by asserting in a brief in opposition to the motion to dismiss that the contract offered employment for a definite period of time and thus was not terminable during the agreed employment period without just cause. Alternatively, Dorman contended that at minimum the contract was ambiguous as to the employment term and that he therefore "must be entitled to engage in discovery in order to determine the parties' intent with regard to the intended length of his employment." The district court granted Petrol Aspen's motion to dismiss in a brief written order, noting only that its decision was based on "the reasons stated in [Petrol Aspen's] Motion to Dismiss and in [Petrol Aspen's] Memoranda in support thereof."

The Colorado Court of Appeals affirmed the judgment of the district court in an unpublished opinion. Dorman, slip op. at 4. The court relied on its prior decision in Justice v. Stanley Aviation Corp., 35 Colo. App. 1, 4, 530 P.2d 984, 985 (1974), in rejecting Dorman's contention that the employment agreement was ambiguous as to duration of employment and holding that it created employment terminable at the will of either party. In view of its conclusion that Dorman's contract with Petrol Aspen was one of employment at will, the court declined to address Dorman's other claims.

We granted certiorari to review the decision of the court of appeals. We now reverse based on our determination that the court of appeals misapplied Justice, 35 Colo. App. 1, 530 P.2d 984, in that the employment contract between Petrol Aspen and Dorman was sufficiently ambiguous to preclude the trial court from granting Petrol Aspen's motion to dismiss pursuant to C.R.C.P. 12(b)(5).

We granted certiorari on the following questions, as reframed by this court:


Whether the court of appeals misapplied the holding of Justice v. Stanley Aviation Corp., 35 Colo. App. 1, 530 P.2d 984 (1974), to the facts of this case in determining the contract between the parties was for at-will employment.

Whether the court of appeals erred in determining that the employment agreement was not ambiguous with respect to the issue of duration of employment.

Whether the court of appeals erred in affirming dismissal of the action where the complaint sufficiently alleged an employment agreement and breach thereof.

Whether the court of appeals erred in not determining that Mr. Dorman had sufficiently alleged a claim of good faith and fair dealing as part of his employment agreement with respondent.

II.

The purpose of a motion under C.R.C.P. 12(b)(5) to dismiss a complaint for failure to state a claim upon which relief can be granted is to test the formal sufficiency of the complaint. Dunlap v. Colorado Springs Cablevision, 829 P.2d 1286, 1290 (Colo. 1992). Under our rules for notice pleading, all that is required is "a short and plain statement of the claim showing that the pleader is entitled to relief." C.R.C.P. 8(a)(2); Shapiro Meinhold v. Zartman, 823 P.2d 120, 122 (Colo. 1992). In evaluating a motion to dismiss under C.R.C.P. 12(b)(5), all averments of material fact must be accepted as true, Shapiro, 823 P.2d at 122, and the allegations of the complaint must be viewed in the light most favorable to the plaintiff, Dunlap, 829 P.2d at 1291. C.R.C.P. 12(b)(5) motions to dismiss a complaint are viewed with disfavor, and a complaint is not to be dismissed unless it appears beyond doubt that the plaintiff cannot prove facts in support of the claim that would entitle the plaintiff to relief. Id. In evaluating such motions, trial courts and appellate courts apply the same standards. Shapiro, 823 P.2d at 123. With these principles in mind, we first set forth the relevant standards for contract interpretation and then assess the sufficiency of Dorman's complaint.

III.

When a document is unambiguous, it cannot be varied by extrinsic evidence. E.g., Buckley Bros. Motors v. Gran Prix Imports, 633 P.2d 1081, 1083 (Colo. 1981). On the other hand, "written documents containing ambiguities or unclear language must be construed in accordance with the intent of the parties, and relevant extraneous evidence may be considered to resolve the factual question of the parties' intent." Chambliss/Jenkins Assocs. v. Forster, 650 P.2d 1315, 1318 (Colo.App. 1982); accord, e.g., Kuta v. Joint Dist. No. 50(J), 799 P.2d 379, 382 (Colo. 1990); Hammond v. Caton, 121 Colo. 7, 12-13, 212 P.2d 845, 847 (1949). Therefore, the only issue before us is whether Dorman's complaint and the attached employment contract between Dorman and Petrol Aspen could support a claim that Dorman's employment relationship with Petrol Aspen either was for a definite term extending beyond the date his employment was terminated or was ambiguous as to the employment term. In evaluating these possibilities, we must view the complaint and the employment contract in the light most favorable to Dorman and must accept all of the material allegations in Dorman's complaint as true regarding alleged negotiations surrounding the formation of the contract. We express no opinion as to the substantive merits of Dorman's case.

Furthermore, any uncertainty in a contract prepared exclusively by the employer must be construed against the employer. E.g., Kuta v. Joint Dist. No. 50(J), 799 P.2d 379, 382 (Colo. 1990).

Dorman contends that the employment relationship was for a definite term, and alternatively that at minimum the employment contract was ambiguous regarding the term of employment. Petrol Aspen responds that the employment contract established an at will employment relationship. Of course, "[t]he mere fact that the parties differ on their interpretations of an instrument does not of itself create an ambiguity." Fibreglas Fabricators, Inc. v. Kylberg, 799 P.2d 371, 374 (Colo. 1990). "Interpretation of a written contract and the determination of whether a provision in the contract is ambiguous are questions of law," and this court need not defer to the trial court's interpretation. Id. In determining whether a contractual provision is ambiguous, "the instrument's language must be examined and construed in harmony with the plain and generally accepted meaning of the words used," with reference to all of the agreement's provisions, and a provision is ambiguous "if it is fairly susceptible to more than one interpretation." Id.; accord, e.g., Cheyenne Mountain Sch. Dist. v. Thompson, 861 P.2d 711, 715 (Colo. 1993). Lastly, "[o]nce a contract is determined to be ambiguous, the meaning of its terms is generally an issue of fact to be determined in the same manner as other disputed factual issues." Union Rural Elec. Ass'n v. Public Utils. Comm'n, 661 P.2d 247, 251 n. 5 (Colo. 1983); accord, e.g., Cheyenne Mountain, 861 P.2d at 715.

IV.

The language of the employment contract between Dorman and Petrol Aspen is fairly susceptible to more than one interpretation regarding Dorman's term of employment. Although the contract between Dorman and Petrol Aspen does not expressly identify a term of employment, the contractual provisions relating to the term of Dorman's employment are at minimum ambiguous. Specifically, the employment agreement's (1) stock option provisions, (2) listed series of salaries applicable to specific years, and (3) other references to Dorman's long-term status as a Petrol Aspen employee create ambiguities regarding the intended term of Dorman's employment. Consequently, Dorman must be afforded the opportunity to present to a fact-finder extrinsic evidence of the parties' intentions concerning the term of the employment contract, see, e.g., Kuta, 799 P.2d at 382; Hammond, 121 Colo. at 12-13, 212 P.2d at 847; Chambliss/Jenkins, 650 P.2d at 1318, including any evidence supporting Dorman's assertion that oral negotiations supplemented or expanded upon the written contractual terms.

A.

First, the contract guaranteed Dorman the right to purchase stock in Petrol Aspen in 1994, indicating either that the employment relationship would last at least through January 1, 1994, or that Dorman's 1994 stock option was not subject to his continued status as an employee. The contract guaranteed that "[Dorman] will have the right to purchase 5% of the stock at $15,000.00," even though "[t]he only time that stock may be purchased will be between January 1, 1994, and January 1, 1995, unless we renegotiate the situation." (Emphasis added.) Assuming for our purposes today, but without deciding, that the stock options were a perquisite contingent upon Dorman's status as a Petrol Aspen employee, this provision references Dorman's continued employment at least through January 1, 1994, and creates an ambiguity as to the term of his employment contract.

The contract contained a clause requiring renegotiation regarding Dorman's salary "[b]eyond 1991," after specifying a yearly salary for 1992 and 1993.

B.

Second, there are compensation provisions in the employment contract between Dorman and Petrol Aspen that create ambiguities regarding Dorman's employment term. Dorman's contract contained a specific outline of his compensation terms through 1993:

1. Hourly basis during August, 1991, at $12.00 per hour.

2. $1,500.00 for September, 1991. One half month school in Chicago.

3. $3,600.00 per month for October, November, December, 1991.

4. $42,000.00 per year for the years 1992 and 1993.

5. Beyond 1991, we will negotiate at the time for salary.

The court of appeals, relying on Justice, 35 Colo. App. at 4, 530 P.2d at 985, concluded that "a commitment on the duration of employment cannot be inferred from a contract provision fixing the rate of compensation during a given year . . . . [T]he same rule applies when an employment contract provides that the rate of compensation will be fixed during a series of years and then subject to modification." Dorman, slip op. at 3.

However, the court of appeals misconstrued Justice. See Dorman, slip op. at 2-3. Justice involved a contract describing "`a starting annual salary of $12,000 per year,'" without any reference to specific years of employment. 35 Colo. App. at 3, 530 P.2d at 985. Furthermore, Justice concerned an employment contract that required the employee to reimburse the employer for payments made by the employer for the employee's travel and moving expenses if the employee resigned for any reason within a year, evidencing the parties' mutual intention that the employment relationship was terminable at will and was not subject to a definite term of one year. Id. Finally, Justice does not establish a bright line rule that "'a contract which sets forth an annual salary rate but states no definite term of employment is considered to be indefinite employment, terminable at the will of either party without incurring liability for breach of contract.'" Dorman, slip op. at 2-3 (quoting Justice, 35 Colo. App. at 4, 530 P.2d at 985). The sentence containing that quoted language begins with the phrase "Unless the circumstances indicate otherwise . . . ." Justice, 35 Colo. App. at 4, 530 P.2d at 985; accord Dorman, slip op. at 2. The court of appeals determined that nothing in the written employment contract "commit[ed] either party to a fixed term of employment" but then went on to inquire "whether the evidence or circumstances established that both parties understood the contract to be for a term of one year." Id. at 4, 530 P.2d at 986. The court referred to the "uncontradicted testimony by both parties that a one year term was never considered or intended" to arrive at its conclusion that "the contract was for an indefinite term and therefore terminable at will at any time by either party." Id. Justice therefore is supportive of the admissibility of extrinsic evidence to determine whether a contract of employment is for a definite term when an annual rate of compensation is specified but the term remains undefined. See also Bauer v. Goldman, 45 Colo. 163, 164, 166-67, 100 P. 435, 435-36 (1909) (in reviewing a contract for ambiguity after trial, this court references "a conversation with defendant in Denver in which the terms of the contract were discussed" and "plaintiff's own testimony" in supporting our conclusion of absence of ambiguity); Kansas Pac. Ry. v. Roberson, 3 Colo. 142, 143-44, 146 (1876) (this court reviews contract for ambiguity after trial, but finds no indication of ambiguity "[i]n all that took place between the parties and the circumstances under which they acted").

The letter agreement, drafted by Petrol Aspen, is fairly susceptible to the interpretation that Petrol Aspen was offering Dorman employment at least through January 1, 1994, based upon the compensation terms outlined in the employment contract and the stock option terms as previously discussed, supra part IV(A). However, Dorman has no obligation to prove a definite term of employment in order to survive this C.R.C.P. 12(b)(5) motion to dismiss, and must show only that the contractual terms are ambiguous. Again, even assuming that these contractual terms may be subject to differing interpretations, the provisions are at minimum ambiguous.

Cases decided by other courts support our conclusion that the contractual provisions concerning compensation, coupled with the stock option, make the agreement ambiguous. For example, in Lloyd v. Grynberg, the United States Court of Appeals for the Tenth Circuit applied Colorado law to a dispute concerning an employment contract that provided for a monthly compensation rate and a future share of corporate ownership, and that expressed an understanding that "we should be able to get the company going within a two-year period." 464 F.2d 622, 623 n. 1 (10th Cir. 1972). The trial court had received "oral evidence of the surrounding facts and circumstances of the execution of the contract . . . to give the jury a basis from which to determine the intention of the parties as to the period of time plaintiff would be employed by the defendant." Id. at 625. The jury returned an award based upon a two year employment term. Id. at 624. On appeal, the Tenth Circuit stated that "[i]t may be conceded that the term of the employment is not set out as clearly as it might have been. From a legal standpoint, it lacks only a clarification as to this ambiguity in order to make it a plain, complete and binding contract. The jury, with appropriate instructions from the court, resolved any question as to the term of employment intended by the parties." Id.

Similarly, in Garrett v. American Treaty Brokers, Inc., No. 91C3643, 1993 U.S. Dist. LEXIS 14653 (N.D. Ill. Oct. 15, 1993), the plaintiff employee alleged a breach of a fixed term employment contract based on premature discharge while the defendant employer contended that the contract was terminable at will. The contract was based in part on the employee's request for an annual salary of $87,500, followed by the employer's acceptance with the qualification that the salary would be paid in biweekly installments. Id. at *1-*2. Both parties moved for summary judgment. Id. at *2. The court found the contract ambiguous as to whether it was terminable at will and denied both motions. Id. at *14. In discussing the effect of the compensation terms, the court stated that "[o]ne could interpret [the employer's] reference to the first twelve months of employment as calculating the compensation based on a given salary rather than as specifying a particular yearly salary or guaranteed compensation. Therefore, the Court finds that the language [the employee] refers to creates a genuine issue of material fact which a trier of fact could construe as creating either an employment contract for a fixed term or one that is terminable at will." Id. at *9.

Again, in Lee v. Great Empire Broadcasting, Inc., 794 P.2d 1032 (Colo.App. 1989), the Colorado Court of Appeals reversed a judgment awarded to a plaintiff employee based on breach of an employment agreement by the defendant employer. The oral contract, memorialized by written notes, reflected a March 27, 1986, starting date and provided that there was to be a guarantee of $4500 per month through September 1986. Id. at 1033. Among other grounds for reversal, the court of appeals held that the trial court erred in refusing to let a jury determine whether employment was for a definite term or at will. Id. at 1035-36. The court held that the contract could be interpreted as providing a guarantee of employment through September, 1986, therefore specifying employment for a definite term, or on the other hand, as merely establishing the employee's rate of compensation as long as the relationship continued. Id. Because the contract was ambiguous, the duration of employment should have been determined as a question of fact by a properly instructed jury. Id. at 1036.

Finally, in Rosen v. Gulf Shores, Inc., 610 So.2d 366 (Miss. 1992), an employee appealed from a summary judgment in favor of the employer on claims including wrongful discharge. The employment contract provided for an annual salary, allowed the employee to live in a company house of the employer until a date approximately one year from the beginning of employment, and expressed the employer's dependence on the employee to generate a specified amount of new business in a year's time. Id. at 367. The employee was required to move from California to Mississippi to undertake the employment. Id. He was discharged about three months after commencing work. Id. In reversing summary judgment for the employer, the court noted that Mississippi follows "the common law rule that a contract of employment for an indefinite amount of time may be terminated at the will of either contracting party." Id. at 368. It also observed that "many jurisdictions recognize the principle that a hiring at a specific sum per week, month or year is no more than an indefinite hiring," but stated that the employee was relying upon the annual salary provision in addition to other references to a definite term. Id. at 368-69.

See also Grisham v. Lee, 60 P. 312, 313 (Kan. 1900) ("[T]he court left it to the jury to determine whether it was a continuous and entire contract, or whether it was a hiring from year to year . . . . [T]hese were doubtful and disputed facts, and were therefore properly left for the determination of the jury."); Short v. Columbus Rubber Gasket Co., 535 So.2d 61, 65 (Miss. 1988) ("[Employee] has made out a genuine issue of material fact on the matter of the existence vel non of a one year oral contract of employment. This being the case, the Circuit Court erred when it held, as a matter of law, that [employee's] employment contract was not for a fixed term." Resener v. Watts, Ritter Co., 80 S.E. 839, 839-40 (W.Va. 1913) ("In the latter part of 1907, [employee] entered the employment of [employer] . . . upon an agreement for a monthly salary and expenses, and the further compensation of 5 per cent. [sic] commissions . . . to be ascertained and paid on settlements made at the end of each year. No definite duration was fixed for the employment . . . . [I]t was a question for the jury to say, by its verdict, under the instructions clearly presenting the theories of the parties, whether the contract required a year's service . . . .").

C.

Lastly, the contract implied that the employment relationship was not terminable at will because Petrol Aspen expected Dorman's long-term participation as an employee. Petrol Aspen dated the contract August 2, 1991. In that contract, Petrol Aspen represented (1) that Dorman would have "input" into "long range planning," (2) that Petrol Aspen "hope[d] [Dorman] might attend an August 5, 1991, seminar in Glenwood Springs and a two week school during December, 1991, in Chicago," (3) that Dorman should expect that "reading, thinking and an awareness of full service gas stations is the most we will accomplish before October 1, 1991," (4) that the "first few months" would require a large effort by Dorman, and (5) that a vehicle would be available for Dorman's transportation "[s]ometime shortly after October 1, 1991." These contractual provisions, together with the stock purchase and compensation provisions previously discussed, supra parts IV(A), (B), are fairly susceptible to an interpretation that the parties intended long-term employment, at least through January 1, 1994, and that the employment relationship between Dorman and Petrol Aspen therefore was not terminable at the will of Petrol Aspen. At minimum, these contractual provisions create an ambiguity as to Dorman's status as an at will employee.

V.

The contract between Dorman and Petrol Aspen contains ambiguities regarding Dorman's term of employment. In view of these ambiguities, Dorman should be permitted to introduce extrinsic evidence of the parties' intent concerning that term of employment. Kuta, 799 P.2d at 382; Hammond, 121 Colo. at 12-13, 212 P.2d at 847; Chambliss/Jenkins, 650 P.2d at 1318. Although a purpose of a C.R.C.P. 12(b)(5) motion is to permit early dismissal of meritless claims, claims that may have merit if ambiguities are resolved in favor of the claimant should be presented to a fact-finder for resolution. The motion to dismiss should have been denied and Dorman should have been permitted to present his case on the merits. In view of our resolution of the ambiguity question, supra part IV, we do not address and express no opinion concerning Dorman's claims regarding promissory estoppel and Petrol Aspen's breach of an alleged duty of good faith and fair dealing. The judgment of the court of appeals is reversed, and this case is returned to that court with directions to remand to the trial court for proceedings consistent with this opinion.

JUSTICE ERICKSON dissents, and CHIEF JUSTICE VOLLACK and JUSTICE KOURLIS join in the dissent.

APPENDIX A ASPEN PETRO, INC. C/O CHRISTOPHER H. SMITH P.O. BOX 130 SNOWMASS, COLORADO 81654 303-927-4744

August 2, 1991

Mr. Ben Dorman 5353 County Road 100 Carbondale, Colorado 81623

Dear Ben:

I have to tell you that I have had the flu all day. I wanted to have this letter to you before the weekend, but ended up a little short on time.

We are offering you the job of General Manager for the Airport Amoco. This will entail responsibility for all aspects of the operation common to a General Manager, i.e., staffing, bookkeeping, customer relations, supplier relations, product acquisition, and facility maintenance. The partners in the business will b [sic] involved in establishment of assistance, long range planning, design, and all lease arrangements with John McBride and Amoco. Naturally, you will have input into these areas.

Our corporation, Aspen Petro, Inc., has stated objectives that include modernization and upgrade of the facility, systems and marketing plans. It will be our intention to use profits to reduce debt and to capitalize improvements. It is our view, excepting unforeseen conditions, that the operation is a long-term proposition being held to generate profit from our efforts and skill. There is no intention to "slip it." All this shall be so stated in our Shareholders' Agreement.

In regards to timing, October 1, 1991, is the anticipated closing date. We will take over actual operations at that time. The facility and books are open to us at this time. I would hope you might attend an August 5, 1991, seminar in Glenwood Springs and a two week school during December, 1991, in Chicago. Other than that, I imagine reading, thinking and an awareness of full service gas stations is the most we will accomplish before October 1, 1991. I realize that you have commitments. Once you have discussed this with Andy, we will be better able to schedule.

As for compensation for your efforts, we are willing to pay you money and give you a future right to purchase stock at today's basis. I am suggesting the following:

1. Hourly basis during August, 1991, at $12.00 per hour.

2. $1,500.00 for September, 1991. One half month school in Chicago.

3. $3,600.00 per month for October, November, December, 1991.

4. $42,000.00 per year for the years 1992 and 1993.

5. Beyond 1991, we will negotiate at the time for salary.

6. The only time that stock may be purchased will be between January 1, 1994, and January 1, 1995, unless we renegotiate the situation. You will have the right to purchase 5% of the stock at $15,000.00.

7. Sometime shortly after October 1, 1991, we will acquire a wrecker and another vehicle. The additional vehicle will be for your transportation and will be available for station use.

Your time commitment will have more to do with how you manage the facility than anything I can say. Obviously, however, the first few months will require a large effort from both of us. As we mentioned the other evening I will be the "Title Managing Partner" initially. I am committed to this being very successful.

We have included no other benefits because I am suspicious of the value of group or individual benefits. We have also done this for the sake of simplicity.

I think this will be a challenging profitable opportunity for yourself and our group. Please consider this offer over the weekend. I will call you from my travels on Monday or Tuesday. I am sorry for the brevity, but I have not been downstairs today.

Yours truly,

ASPEN PETRO, INC.

[Personalized signature]

Christopher H. Smith

CHS/bl