Statute of Frauds Bars Fen-Phen Bonus

April 4, 2007

The Court of Appeals just published Sawyer v. Mills, an appeal from an action by Sawyer to recover a bonus, which she alleges that Mills promised to pay. Sawyer established that Mills had promised to reward her for her assistance in instituting a Fen-Phen class action lawsuit. However, the parties never specified the bonus amount or when the bonus would be paid. After the Fen-Phen settlement, Sawyer, her husband Steve Sawyer and Mills all met together on June 25, 2001, to discuss the bonus. Sawyer and Steve secretly recorded the conversation.

Mills did agree to pay Sawyer One Million Dollars ($1,000,000.00) plus the cost of a new luxury car, which all agreed would be another Sixty-Five Thousand Dollars ($65,000.00). The full amount was to be paid in monthly installments, on the first of each month, until paid in full. Mills also agreed to sign a writing to that effect, but refuse to once it was presented to him.

At trial, the jury found that Mills had entered into an oral contract for a bonus, and returned a verdict in favor of Sawyer in the amount of Nine Hundred Thousand Dollars ($900,000.00). Thereafter, Mills filed a motion for JNOV, arguing that any agreement between him and Sawyer was barred by the statute of frauds. The trial court agreed and granted the motion in a well written opinion.

The real issue was not whether a contract was reached between Sawyer and Mills. But whether the agreement (which was tape recorded) as to the amount to be paid Sawyer violated the statute of frauds, because it wasn’t evidenced in writing and could not be performed within a year. The court concluded:

After considering the evidence in a light most favorable to Sawyer pursuant to the JNOV standard, we are persuaded that the evidence supports the finding of the trial court that the JNOV was appropriate in this case. Undisputed testimony from Sawyer, Steve and attorney Moseley and his draft agreement of the parties’ June 25 conversation, coupled with the tape recording of that conversation, all confirm that the parties agreed the bonus would be paid in monthly installments over one hundred and seven (107) months. The tape recording clearly shows that Mills never intended to pay Sawyer the bonus as a lump sum and Sawyer is recorded agreeing to the monthly payments. The parties never contemplated that the bonus would be paid within one year. Furthermore, there are no facts showing that Sawyer fully performed her obligations pursuant to the contract, or that Mills should be estopped from relying on the statute of frauds. As such, the statute of frauds bars Sawyer’s claim against Mills as she produced no writing signed by Mills agreeing to the oral promise to pay her the bonus.

OUCH, Sawyer recognized the need for such a writing and even had her attorney draw one up that Mills refused to sign. Despite the tape recording evidencing his agreement, the court found this did not meet the statutes requirements that it, “be in writing and signed by the party to be charged therewith, or by his authorized agent.” KRS 371.010. A promise is a promise is a promise and nothing more. This case is made even more painful because of the tape recording, showing Mills agreement to pay the sums, which he later refused. Typically, the statute of frauds is designed to prevent exactly what it means, fraud in the claim that oral promises were made. Here there was evidence beyond self serving testimony that the promise was actually made. However, the statute makes no exception for this type of evidence.

While technically a victory for Mr. Mills, I wonder what has actually been accomplished in having a published decision in his favor. How much is your reputation worth? A million dollars?

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