|07/10/89 BILL LEWELLING v. FARMERS INSURANCE
||UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
||1989.C06.1487, 879 F.2d 212
||July 10, 1989
||BILL LEWELLING, ET AL., PLAINTIFFS-APPELLANTS
FARMERS INSURANCE OF COLUMBUS, INC., ET AL.,
||On Appeal from the United States District Court for the Southern District of Ohio, No.
83-1956, James L. Graham, Judge.
||Melvin D. Weinstein argued, Emens, Hurd, Kegler & Ritter, Columbus, Ohio for
||Louis G. Fazzi argued, Fazzi & Fazzi, Rancho Cucamonga, and California, Donald J.
Parrish, Ventura, California for Plaintiffs-Appellants.
||Martin and Milburn, Circuit Judges; and Peck, Senior Circuit Judge.
||The opinion of the court was delivered by: Milburn
||MILBURN, Circuit Judge
||Plaintiffs-appellants Bill Lewelling, Steve Petrillo, Don Huddleston, and Roy White
(collectively, "plaintiffs") appeal the summary judgment of the district court
in favor of defendants-appellees Farmers Insurance of Columbus, Inc., Ohio State Life
Insurance Company, Farmers Insurance Exchange, and Mid-Century
Insurance Company (collectively, "Farmers") on plaintiffs' claims against
Farmers for breach of contract and fraud. For the reasons that follow, we affirm.
||The present action was commenced on August 23, 1983, when Farmers filed a complaint
against Lewelling in the Common Pleas Court in Franklin County, Ohio. Farmers sought
repayment from Lewelling for monies Farmers had paid him while he was a district manager
for Farmers in Ohio. Lewelling removed this action to the United States District Court for
the Southern District of Ohio on October 14, 1983, based on diversity of citizenship.
Lewelling alleged that he is a resident of Oklahoma and that Farmers is incorporated and
has its principal place of business in both California and Ohio.
||Meanwhile, on October 6, 1983, Lewelling, along with plaintiffs Petrillo, Huddleston,
and White (and two other plaintiffs who have since dismissed their claims) filed an action
against Farmers in the United States District Court for the Central District of
California. Plaintiff's complaint contained two counts. Count I alleged that plaintiffs
had been agents and district managers for Farmers in states other than Ohio and that
around October 1, 1979, Farmers made oral promises to plaintiffs to induce them to become
district managers for Farmers in Ohio. Count I further alleged that all four plaintiffs
decided to move to Ohio and become district managers in reliance upon these promises, and
that plaintiffs all began serving as district managers in Ohio following Farmers'
commencement of operations in that state. Plaintiffs alleged that these promises made to
them were not true and that Farmers failed to perform the matters that it had promised in
breach of its oral promises.
||Count II alleged a cause of action for promissory fraud based upon the same facts
relied upon in Count I. Plaintiffs alleged in Count II that they were induced, encouraged,
and coerced by Farmers into moving to Ohio to establish district managerial areas as a
result of a scheme between the individual companies comprising Farmers. Plaintiffs further
alleged that Farmers intended to defraud them and to induce them falsely and fraudulently
to terminate their previous employment with Farmers in other states and to move to Ohio
and become district managers for Farmers in a new state where Farmers had not previously
||On November 28, 1983, Farmers answered plaintiffs' complaint denying that any oral
promises had been made to induce plaintiffs to move to Ohio. Additionally, Farmers
asserted counterclaims against all plaintiffs seeking repayment of monies Farmers paid to
plaintiffs, pursuant to written contracts, while plaintiffs served Farmers as district
managers in Ohio.
||On February 14, 1984, the United States District Court for the Central District of
California entered an order to show cause why plaintiffs' action should not be transferred
to the United States District Court for the Southern District of Ohio since Farmers' claim
against Lewelling (which was essentially identical to its counterclaim in the California
action) was already pending before the district court in the Southern District of Ohio.
Although plaintiffs opposed the transfer, on June 20, 1984, for "the convenience of
the parties and the interest of justice," the District Court for the Central District
of California transferred the action to the District Court for the Southern District of
Ohio pursuant to 28 U.S.C. § 1404(a). *fn1 On
October 22, 1984, plaintiffs' claims against Farmers were consolidated with Farmers' claim
||On July 16, 1986, defendants filed a motion, which was granted, for leave to assert a
statute of limitations defense. See J.A. at 319. Then, with discovery completed, on July
18, 1986, Farmers moved for summary judgment as to plaintiffs' claims. On December 7,
1987, Farmers moved for summary judgment as to its counterclaims against plaintiffs.
||On December 7, 1987, the district court granted Farmers' motion for summary judgment
as to plaintiffs' claims, holding that: (1) plaintiffs Petrillo, White, and Huddleston
were aware of the facts constituting the alleged fraud more than three years before filing
their claims and such claims were thus barred by the three-year statute of limitations
provided in Cal.Civ.Proc. Code § 338(4); *fn2
(2) all four plaintiffs' breach of contract claims were based upon oral promises allegedly
made by Farmers before plaintiffs entered into integrated, written contracts that did not
reflect the alleged promises, and that those claims were thus barred by the Ohio parol
evidence rule; and (3) that all four of the plaintiffs' fraud claims were based upon the
same alleged oral promises of future performance, not reflected in the subsequent,
integrated contract, and were thus barred by the parol evidence rule under this court's
holding in Coal Resources, Inc. v. Gulf & Western Indus., Inc., 756 F.2d 443 (6th Cir.
1985) (applying Ohio law). The district court, however, denied Farmers' summary judgment
motion on its counterclaims against plaintiffs. J.A. at 1378-94.
||Plaintiffs timely appealed. Although the counterclaims are still pending, on February
19, 1988, the district court in an amended order nunc pro tunc entered a proper
certification pursuant to Fed.R.Civ.P. 54(b), determining that there was no just reason
for delay and directed the clerk to enter final judgment in favor of Farmers on
||All four plaintiffs in this case raise common allegations. They each maintain that
they were Farmers' agents in other states (White and Petrillo in California, Huddleston in
New Mexico, and Lewelling in Oklahoma) and were induced to move to Ohio to become district
managers for Farmers in reliance upon certain oral representations regarding Farmers'
activities in Ohio. Essentially, they all claim that they were told that Farmers would:
(1) conduct extensive advertising in Ohio, (2) sell insurance at rates below Farmers'
competitors' rates in Ohio, (3) provide the district managers with authority to hire
experienced agents from other insurance companies in Ohio, and (4) provide the district
managers with the files of "orphan policyholders" from which they could expect
to derive business.
||All plaintiffs in the present case signed Farmers' form "District Managers'
Appointment Agreement" which contained, among other things, an integration clause
stating that the agreement "supersedes and takes the place of any and all prior
agreements, written or otherwise . . . ." The appointment agreement contains no
mention of the prior oral representations allegedly made to plaintiffs. All plaintiffs
testified when deposed that they read the agreement, understood its terms, yet failed to
suggest alterations or additions.
||Upon moving to Ohio, all plaintiffs discovered that the alleged oral representations
made to them around October 1, 1979, were false. Specifically, it soon became apparent to
all plaintiffs that Farmers would not conduct any "media blitz," and that
Farmers' rates were higher than their competitors' rates. Moreover, in time, the
plaintiffs all concluded that they would not be able to employ experienced agents from
other insurance companies, nor be provided the files of "orphan policyholders."
As earlier stated, plaintiffs filed their complaint on October 6, 1983.
||The plaintiffs' claims were dismissed pursuant to Fed.R.Civ.P. 56(c) on Farmers'
motion for summary judgment. "On summary judgment the inferences to be drawn from the
underlying facts . . . must be viewed in the light most favorable to the party opposing
the motion." Matsushita Electric Industry Co. v. Zenith Radio, 475 U.S. 574, 106 S.
Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986) (quoting United States v. Diebold, Inc., 369 U.S.
654, 655, 8 L. Ed. 2d 176, 82 S. Ct. 993 (1962)). Thus, "summary judgment will not
lie . . . if the evidence is such that a reasonable jury could return a verdict for the
nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S. Ct. 2505,
2510, 91 L. Ed. 2d 202 (1986). However, the moving party has carried its burden of showing
that the pleadings, depositions, answers to interrogatories, admissions and affidavits in
the record, construed favorably to the nonmoving party, do not raise a genuine issue of
material fact for trial, entry of summary judgment is appropriate." Gutierrez v.
Lynch, 826 F.2d 1534 (6th Cir. 1987).
||As indicated, the present case was commenced by plaintiffs in the United States
District Court for the Central District of California. The California district court,
however, transferred this action to the Southern District of Ohio under 28 U.S.C. §
1404(a). Accordingly, under Van Dusen v. Barrack, 376 U.S. 612, 639, 11 L. Ed. 2d 945, 84
S. Ct. 805 (1964), the Ohio district court was required to act as though California were
the forum state. The court thus looked to California's choice of law rules in determining
which state's substantive law should apply. See Klaxon Co. v. Stentor Elec. Mfg., 313 U.S.
487, 496, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941).
||California follows a "governmental interests" analysis in resolving choice
of law disputes. See, e.g., Reich v. Purcell, 67 Cal. 2d 551, 432 P.2d 727, 63 Cal. Rptr.
31 (1967). Under this approach, the appropriate law to be applied is determined by
comparing the law of the competing jurisdictions and examining the competing interests of
each jurisdiction in the application of its law to the issue at hand. Id. An interests
analysis should be conducted with respect to each issue in the case. Camp v. Forwarders
Transport, Inc., 37 F. Supp. 636, 638 (C.D.Cal. 1982).
||Plaintiffs concede that under California's choice of law rules, California would apply
its own statute of limitations to plaintiffs' fraud claims as California's limitations
period is shorter than Ohio's. The district court applied Cal.Civ.Proc. § 338(4), which
provides a three-year limitations period for actions on fraud, commencing upon "the
discovery, by the aggrieved party, of the facts constituting the fraud. . . ." Id.
||In undertaking a governmental interest analysis, a court must first determine whether
the competing jurisdictions' laws actually conflict. If not, a "false conflict"
is presented. See Reich, supra; Hurtado v. Superior Court, 11 Cal. 3d 574, 522 P.2d 666,
114 Cal. Rptr. 106 (1974). In the present case, however, it appears that Ohio law and
California law regarding parol evidence differ substantially. California follows the
general approach that in cases of fraud in the inducement and promissory fraud, extrinsic
evidence is admissible to prove the fraud despite a written contract containing an
integration clause. See Bank of America National Trust & Savings Assoc. v. Lamb
Finance Co., 179 Cal. App. 2d 498, 3 Cal. Rptr. 877 (1960). This court, however, has
determined that Ohio's parol evidence rule bars the introduction of extrinsic evidence of
promissory fraud where a subsequent written, integrated contract was entered into by the
parties. See Coal Resources, Inc. v. Gulf & Western Indus., 756 F.2d 443, 446 (6th
||California's interest is thus in the protection of innocent individuals from
fraudulent promises. On the other hand, Ohio has chosen to protect the force and
effectiveness of integration clauses by completely barring extrinsic evidence introduced
to contradict the terms of an integrated contract. In the present case, since the contract
itself was entered into in Ohio, was to be performed in Ohio, and would be interpreted
under Ohio law (see Cal.Civ.Code § 1646), Ohio's interest in protecting the force of the
contract is directly implicated. However, at least with respect to plaintiffs Hudleston
and Lewelling (non-California residents), California's interest in protecting its
residents from fraud is not forwarded by the application of its law. However, as to White
and Petrillo, California does have an interest to be forwarded in the application of its
law. In balance, however, as the fraudulent promises were in large part made in Ohio, the
contract was executed in Ohio, and the contract would be performed in Ohio, we hold that
Ohio's interests predominate. The district court correctly concluded that Ohio's
substantive law controls.
||As indicated, the district court found California's three-year limitations period
applicable. Plaintiffs White, Huddleston, and Petrillo all moved to Ohio around October
1979 and testified that by at least mid-1980, they were aware that the oral
representations made to them would not be fulfilled. These plaintiffs, however, did not
file their complaint until October 6, 1983, more than three years after the discovery by
them of the alleged fraud. Thus, the district court's conclusion that these claims were
time-barred is proper.
||Plaintiffs, however, assert that Farmers should be estopped from raising a statute of
limitations defense because, by their actions, Farmers induced plaintiffs to move to Ohio.
However, plaintiffs have failed to produce any evidence that would entitle them to an
estoppel argument under California law. California bars reliance upon the statute of
limitations where a party has "lulled an adversary into a false sense of
security." See Carruth v. Fritch, 36 Cal. 2d 426, 224 P.2d 702 (1950). Moreover,
California requires estoppel to be pleaded specifically, and as plaintiffs have failed to
allege any facts which would support estoppel, the district court justifiably rejected
||Plaintiffs also argue that the statute of limitations should be tolled until the time
that they terminated their employment with Farmers. Plaintiffs rely upon Wyatt v. Union
Mortgage Co., 24 Cal. 3d 773, 157 Cal. Rptr. 392, 598 P.2d 45 (1979), wherein the Supreme
Court of California held that in the context of a civil conspiracy action, the statute of
limitations does not begin to run until the "last overt act." In Wyatt, the
court stated that the statute should "be tolled even after the fraud is discovered,
for so long as the sheer economic duress or undue influence embedded in the fraud
continues to hold the victim in place." Id. at 788, 157 Cal.Rptr. at , 598 P.2d at
(emphasis in original). Wyatt does not support plaintiffs.
||Here the evidence is clear that plaintiffs, by their own accounts, were aware of the
alleged fraud more than three years before filing their action. Yet no evidence was
presented that sheer economic duress or overpowering influence rendered plaintiffs
incapable of acting to protect their legal rights. As a general rule in California the
statute begins to run when an individual becomes aware of fraudulent harm. Davies v.
Krasna, 14 Cal. 3d 502, 535 P.2d 1161, 121 Cal. Rptr. 705 (1975). We see no reason to
deviate from the general rule in this case.
||As earlier indicated, this court interpreted Ohio's parol evidence rule in Coal
Resources, Inc. v. Gulf & Western Indus., 756 F.2d 443 (6th Cir. 1985). In Coal
Resources, we held that a plaintiff could not introduce extrinsic evidence of future
promises not contained in a written, integrated agreement:
||Although it is clear that making a contractual promise with no present intention of
performing it constitutes promissory fraud in Ohio, . . . and that extrinsic evidence
always is admissible to show promissory fraud, Gulf & Western argues that a promissory
fraud theory may not be used to impose additional obligations upon a party to a written
contract containing an integration clause. According to the defendant, Coal Resources was
entitled to show through extrinsic evidence that Gulf & Western had no intention, at
the time the contract was entered into, of performing the promises it had made in the
written . . . agreement. The defendant earnestly contends, however, that Coal Resources
was not entitled to show that Gulf & Western had no intention of performing promises
which were not reflected in the written agreement.
||We agree with the defendant. . . .
||756 F.2d at 446 (citations omitted).
||We went on to explain that under Ohio law an integration clause must be given effect
despite alleged earlier oral representations. We noted that the purpose of such a clause
is to prevent either party from relying upon representations made prior to execution of
the agreement that were not included in the agreement. To allow evidence of promissory
fraud in the face of a written integrated contract "would completely defeat the
purpose of an integration clause." Id. at 447.
||Under Coal Resources, plaintiffs may not rely on the alleged oral representations in
the face of their district manager's appointment agreement. That agreement is fully
integrated and contains no mention of the promises upon which plaintiffs rely. Thus, the
district court properly granted summary judgment on these claims.
||Plaintiffs moved to amend their complaint to add Farmers Group, Inc., a subsidiary of
Farmers, as a defendant. Had the district court granted this amendment, complete diversity
would have been destroyed, and the court would have lost jurisdiction over the case. The
district court found that nondiverse parties should not be later joined as defendants in
order to defeat the court's jurisdiction. Thus, the district court acted properly in
denying plaintiffs' motion to amend. Cf. Owen Equipment Co. v. Kroger, 437 U.S. 365, 374,
57 L. Ed. 2d 274, 98 S. Ct. 2396 (1978).
||Plaintiffs filed a notice to take the deposition of R. G. Lindsley, then-Chairman of
the Board of Directors and Chief Executive Officer of Farmers Group, Inc. Farmers sought a
protective order, and plaintiffs responded that they would cancel the deposition requests
if Mr. Lindsley would agree to meet with plaintiffs regarding possible settlement of their
action. Based on this fact and Farmers' representation that Lindsley had no knowledge as
to facts pertinent to plaintiffs' action, the district court granted defendants' request
for a protective order. Further, the district court found that plaintiffs' repeated
filings regarding this deposition were undertaken in bad faith and thus granted sanctions
in the amount of $1,702.50 against plaintiffs' counsel.
||The district court's decisions to award sanctions and issue a protective order are
within the broad discretion of the district court in managing the case. See Century
Products, Inc. v. Sutter, 837 F.2d 247, 250 (6th Cir. 1988); Chemical & Indus. Corp.
v. Druffel, 301 F.2d 126, 129 (6th Cir. 1962) ("Under the rules, the extent of
discovery and the use of protective orders is clearly within the discretion of the trial
judge."). Upon review of the record, we find the district Court did not abuse its
||Although plaintiffs argue that this case should not have been transferred, the
California district court's order transferring this case to the Southern District of Ohio
is not reviewable by this court. See 15 C. Wright & A. Miller, Federal Practice and
Procedure § 3855 (2d ed. 1986) (" a transfer was made from a district court in one
circuit to a district court in another, the court of appeals in the latter circuit cannot
directly review the action of the first district court in ordering transfer.").
Moreover, the Ohio district court's decision not to transfer this action back to
California is a matter within its discretion reversible only for abuse. See id. at 475.
Given all the factors upon which the California district court relied in transferring this
case to Ohio, the district court below did not err in refusing to transfer the case back.
||Accordingly, for the reasons stated, the judgment of the district court is AFFIRMED.
||*fn1 28 U.S.C. § 1404(a) provides as
||For the convenience of the parties and witnesses, in the interest of justice, a
district court may transfer any civil action to any other district or division where it
might have been brought.
||*fn2 While the district court did not
conclude that plaintiff Lewelling's fraud claim was barred by the California statute of
limitations, it nevertheless held that his breach of oral contract claim was barred under
the Ohio parol evidence rule.