Submitted: June 8, 2017
from United States District Court for the Western District of
Missouri - Kansas City
LOKEN, MURPHY, and MELLOY, Circuit Judges.
and 2005, Thomas Kmak exercised options to purchase
restricted shares of American Century Companies, Inc.
(American Century), common stock. At the time of purchase, he
signed Stock Restriction Agreements (SRAs) providing, as
relevant here, that American Century "will have the
right to call any of the Shares for repurchase . . . at any
time following the Purchaser's disability, death, or
termination of, or retirement from, the Company's
employment." Kmak terminated his employ in September
2007. American Century called his shares for repurchase in
December 2011, timing that denied him regular and special
year-end dividends. Kmak filed this diversity action,
alleging that American Century violated its implied covenant
of good faith and fair dealing for two reasons: (i) because
Kmak reasonably expected he would retain the stock as long as
he did not work for a competitor, and (ii) because American
Century "arbitrarily and vindictively exercis[ed] its
discretion . . . for the purpose of retaliating for his . . .
testimony" on behalf of JP Morgan Chase & Co. in
arbitration proceedings to resolve a dispute between the two
the district court dismissed Kmak's Second Amended
Complaint for failure to state a claim. The court concluded
(i) the SRAs allowed American Century to repurchase at any
time, and "there can be no breach of the implied
[covenant] where the contract expressly permits the actions
being challenged, " quoting Bishop v. Shelter Mut.
Ins. Co., 129 S.W.3d 500, 505 (Mo. App. 2004); (ii)
under Missouri law, if the second party receives his expected
contractual benefits, "the implied covenant does not bar
the first party from exercising its discretionary rights out
of ill will, spite, or the like"; and (iii) repurchase
did not deprive Kmak of benefits he reasonably expected at
the time the SRAs were signed because "they do not
concern testimony in an arbitration arising years later"
and indefinite annual dividends were not promised. Kmak
v. Amer. Century Cos., Inc., 2013 WL 12075740, at *2-4
(W.D. Mo. Feb. 6, 2013). On appeal, we reversed in part and
remanded. Kmak v. Amer. Century Cos., Inc, 754 F.3d
513, 518 (8th Cir. 2014) ("Kmak I").
Unlike the district court, we interpreted the Missouri Court
of Appeals decision in Bishop as deciding that
conduct that violates public policy breaches the implied
covenant of good faith and fair dealing. Therefore:
To the extent the district court dismissed Kmak's
Complaint for merely alleging American Century acted
arbitrarily, vindictively, or contrary to Kmak's
reasonable expectations about matters other than public
policy, such dismissal was proper. Cf. Bishop, 129
S.W.3d at 506-07 (stating the implied covenant does not apply
to allegations in the at-will employment context when an
employer allegedly terminates a contract in bad faith or
because of ill will). But, to the extent Kmak has alleged
retaliation in violation of public policy, he has
sufficiently alleged a breach of the implied covenant at this
stage, and, thus, the district court erred in dismissing
remand, extensive discovery proceeded under a Scheduling and
Trial Order setting deadlines of December 1, 2014, for
motions to amend pleadings and July 20, 2015, for pretrial
discovery. On July 3, 2015, seven months after the former
deadline, Kmak moved for leave to file a Third Amended
Complaint asserting new claims for breach of contract, fraud,
and negligent misrepresentation. In lengthy separate Opinions
and Orders issued in November 2015, the district
court denied the motion for leave to amend and
granted summary judgment dismissing Kmak's sole claim
remaining on remand -- that American Century breached the
implied covenant of good faith and fair dealing by taking
discretionary action to retaliate in violation of public
policy. Kmak appeals both orders. We affirm.
The Grant of Summary Judgment.
our decision turns on an intervening decision of the Supreme
Court of Missouri and does not require detailed review of the
factual record, we refer the reader to our prior opinion for
a brief summary of the events that led to this litigation.
Kmak I, 754 F.3d at 515-16. On remand, after the
parties developed the facts in extensive detail, American
Century moved for summary judgment on Kmak's public
policy retaliation claim. In analyzing the summary judgment
record, the district court continued our "useful"
analogy to employment discrimination cases. See id.
at 518. First, the court assumed that Kmak established a
prima facie case of public policy retaliation "based on
the temporal proximity between the call of his stock and the
arbitration award and payment." Second, the court
concluded that American Century established non-retaliatory
reasons for delaying its call to repurchase until after JP
Morgan paid the substantial arbitration award -- first
because of unusual economic conditions, and then because
American Century "did not want calling [Kmak's]
stock to become an issue in the dispute with JP Morgan."
Third, the court concluded that Kmak failed to present
evidence suggesting that American Century's explanation
was a pretext for public policy retaliation.
appeal, Kmak argues that he set forth "substantial
evidence from which a reasonable jury could infer that
[American Century] called Kmak's shares in retaliation
for his testimony." However, following oral argument,
the Supreme Court of Missouri issued its decision in
Bishop & Assocs., LLC, v. Ameren Corp., 520
S.W.3d 463 (Mo. banc. 2017). In Kmak I, we cited the
Missouri Court of Appeals decision in an earlier
Bishop case for the proposition that "a
plaintiff properly pleads a breach of the implied covenant of
good faith and fair dealing when he alleges the
defendant's action violated public policy or a
statute." 754 F.3d at 517.
Ameren, the Supreme Court of Missouri ruled that we
"rel[ied] on an erroneous interpretation of the
[Missouri] court of appeals' holding in
Bishop." 520 S.W.3d at 472 n.3. Reaffirming
that there can be no breach of the implied covenant
"where the contract expressly permits the actions being
challenged, " the Court rejected the contention
"that a cause of action for breach of the implied
covenant . . . exists when the defendant alleges a violation
of public policy." Id. at 471 (quotation
omitted). Returning the breach-of-covenant cause of action to
well-established Missouri precedents, the Court explained
that "a plaintiff must establish that the defendant
'exercised a judgment conferred by the express terms of
the agreement in such a manner as to evade the spirit of the
transaction or so as to deny [the plaintiff] the expected
benefit of the contract.' Mo. Consol. Health Care
Plan v. Cmty. Health Plan, 81 S.W.3d 34, 46 (Mo. App.
2002)." Id. at 472 n.3.
Supreme Court of Missouri's decision in Ameren
limits Kmak's claim for breach of American Century's
implied covenant of good faith and fair dealing to the
"reasonable expectation" ground that was dismissed
with prejudice in Kmak I. Accordingly, the district
court's grant of summary judgment dismissing the only
claim asserted in the Second Amended Complaint must be
Denial of the ...