     Case: 12-51249       Document: 00512282179         Page: 1     Date Filed: 06/20/2013




           IN THE UNITED STATES COURT OF APPEALS
                   FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                   Fifth Circuit

                                                                            FILED
                                                                           June 20, 2013

                                     No. 12-51249                          Lyle W. Cayce
                                   Summary Calendar                             Clerk



DOUG KELLERMANN,

                                                  Plaintiff-Appellant
v.

AVAYA, INC.,

                                                  Defendant-Appellee



                   Appeal from the United States District Court
                        for the Western District of Texas
                             USDC No. 1:11-CV-359


Before KING, CLEMENT, and HIGGINSON, Circuit Judges.
PER CURIAM:*
       Doug Kellermann filed suit against Avaya, Inc., alleging that Avaya
breached the terms of its commission policy by manipulating its revenue
recognition procedure, increasing Kellermann’s target quota, and reducing his
commission payment. Avaya moved for summary judgment on the basis that
Kellermann could not prevail on his breach of contract claim because the policy
at issue expressly authorized Avaya to adjust sales quotas and incentive


       *
         Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
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payments at its discretion. The district court granted Avaya’s motion, and
Kellermann now appeals. For the reasons that follow, we AFFIRM the district
court’s judgment.
              I. FACTUAL AND PROCEDURAL BACKGROUND
      Doug Kellermann worked for Avaya, Inc., as a global account manager.
His compensation was governed by Avaya’s “Global Sales Compensation
Policies” (“Policies”) and included a base salary and certain incentive payments.
Incentive payments were based on the attainment of certain quotas, or monetary
sales goals, that were established by the company for each salesperson during
each plan period. Plan periods were either twelve months (from October 1
through September 30) or six months in length (October 1 through March 31,
and April 1 through September 30).1 A given sale was credited toward a
salesperson’s quota after revenue from that sale was recognized by Avaya, and
incentive payments based on quota attainment were calculated and paid on a
monthly or quarterly basis.
      To receive incentive payments, a salesperson was required to have a
signed, up-to-date condition sheet on file. Effective October 1, 2009, Avaya
developed its condition sheet for the first half of fiscal year 2010 (the “October
condition sheet”), which Kellermann accepted on December 3, 2009. The October
condition sheet included a section stating that the undersigned employee
acknowledged the applicability of the Policies to the employee’s compensation
plan. At all times relevant to this action, the Policies included the following
notice, in bold lettering, on the cover page:
      AVAYA INC. (“AVAYA”) HAS THE RIGHT TO AMEND, CHANGE,
      OR CANCEL THE SALES COMPENSATION POLICIES SOLELY
      AT ITS DISCRETION AND WITHOUT PRIOR NOTICE, EXCEPT
      IN COUNTRIES WHERE IT IS A VIOLATION OF APPLICABLE
      LAW.

      1
          Kellermann alleges that six-month periods were atypical.

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Elsewhere, the Policies included the following provision:
      Quota adjustments may be necessary after the start of the plan year
      (e.g., error correction, redefinition of quota, assignments, crediting
      changes, etc.). Sales management (with the appropriate approvals)
      has the discretion to change quota, should there be an error in quota
      setting, assignments, crediting, or to ensure credit to those
      associates involved in a sale.
Finally, the Policies contained a similar provision near the end of the document,
which stated:
      Avaya reserves the right to: (1) amend, change, or cancel the Sales
      Compensation Plan or Policies or any elements of the Plan solely at
      its discretion; and (2) revise assigned territories, revenue quotas,
      reduce, modify, or withhold compensation based on individual/team
      performance or Avaya determination of special circumstances, with
      or without prior notice, and either retroactively or prospectively,
      except in countries where it is a violation of applicable law.
      The dispute currently at issue arose in connection with Kellermann’s
involvement in Avaya’s successful effort to obtain a client’s Internet
Protocol/Automated Call Distributor (“IP/ACD”) business. Kellermann was
instrumental in securing the IP/ACD project, which was scheduled to be
implemented in four phases. According to Kellermann, everyone within Avaya
expected revenue for the first phase of the project (“IP/ACD I”) to be recognized
during the last quarter of fiscal year 2009. Nevertheless, although IP/ACD I
revenue allegedly was received during fiscal year 2009, and although IP/ACD I
was fully installed and operational prior to October 1, 2009, Avaya did not
recognize the related revenue until the first quarter of fiscal year 2010.2 As a
result, Kellermann did not meet his sales quota for fiscal year 2009, and he did
not receive a commission for IP/ACD I in fiscal year 2009.



      2
         Avaya maintains that it recognized revenue as soon as reasonably practicable,
consistent with accepted accounting practices, and notwithstanding any potential
compensation ramifications of doing so.

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      On October 1, 2009, Avaya’s salespersons began working under the sales
quotas set forth in the October condition sheet. According to Kellermann, his
quota was raised to include recognition of IP/ACD I revenue that he previously
had anticipated would be recognized in fiscal year 2009. However, because
Avaya’s sales team initially did not anticipate that phase two of the project
(“IP/ACD II”) would begin until after March 31, 2010, Kellermann’s quota in the
October condition sheet did not include any IP/ACD II revenue.
      Kellermann was paid his commission on IP/ACD I in January 2010. That
same month, Avaya’s client indicated that it wished to accelerate by several
months completion of IP/ACD II. As that phase of the project was moving
forward, on March 1, 2010, Avaya approved for Kellermann a new condition
sheet for the period October 1, 2009 through March 31, 2010. Included therein
was an increased sales quota. According to Avaya’s sales operations manager,
the company decided to issue new condition sheets to its sales personnel as a
result of its December 2009 acquisition of Nortel Network’s enterprise solutions
business.   As part of that acquisition, Avaya’s salespersons, including
Kellermann, were expected to sell legacy Nortel products as well as Avaya’s
products and services. The new condition sheets reflected those additional sales
responsibilities, and in Kellermann’s case, also increased his quota to account
for the earlier-than-anticipated revenue from the IP/ACD project.
      Kellermann rejected the new condition sheet on March 7, 2010, and
submitted a letter of resignation the same day. IP/ACD II became operational
in late March 2010, though Avaya allegedly already had recognized the revenue
from that phase of the project earlier that month.         Thus, according to
Kellermann, in contrast to the company’s approach with respect to IP/ACD I,
Avaya recognized IP/ACD II revenue prior to the phase’s operational date.
      Because Kellermann had rejected the new condition sheet, Avaya’s
position was that the October condition sheet remained in effect. Under its

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terms, Kellermann had acknowledged—by the condition sheet’s incorporation of
the Policies—the potential that Avaya could apply a “Large Sale Adjustment” to
his quota. As set forth in the Policies, a Large Sale Adjustment permitted Avaya
to (1) increase a salesperson’s quota by 85% of a large sale’s revenue and give
credit to the salesperson for 100% of the large sale, or (2) leave the quota
unchanged, but give the salesperson credit for only 15% of the large sale.3 Avaya
contends that, because acceleration of the IP/ACD project caused estimates
regarding the timing of the project’s revenue stream to be inaccurate,
Kellermann achieved a disproportionately high quota achievement, resulting
from an artificially low quota. To compensate for the inaccurate estimates,
Avaya applied the Large Sale Adjustment to Kellermann’s sales, but did so only
in connection with revenue received from the second phase of the IP/ACD
project. Consequently, Kellermann was credited with only 15% of the IP/ACD
II sales.
       In August 2010, Kellermann filed suit, claiming that Avaya breached its
contract with him by manipulating its recognition of IP/ACD revenue and by
applying the Large Sale Adjustment to IP/ACD II revenue. Following discovery,
Avaya moved for summary judgment, which the district court granted after
holding that Kellermann could not establish a breach of contract because Avaya
simply had exercised its discretionary contractual right to amend, change, or
cancel its sales compensation policies. Kellermann now appeals, contending that
the court erred in granting summary judgment in Avaya’s favor.



       3
         According to the Policies, a quota could be reviewed in anticipation of a potential
Large Sale Adjustment for the following, non-exclusive, reasons: “deal margin, profitability,
structure, and validation/correction against original quota.” Sales were permitted to be
reviewed when a particular sale exceeded a salesperson’s annual quota by 25% and was not
included in the original quota allocation, or when the quota otherwise was inaccurate. Avaya
expressly “reserve[d] the right to apply the Large Sale Adjustment Policy to any sales
associates tied to the sale.”

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                         II. STANDARD OF REVIEW
      We review a lower court’s grant of summary judgment de novo. First Am.
Bank v. First Am. Transp. Title Ins. Co., 585 F.3d 833, 836–37 (5th Cir. 2009).
Although we view the evidence and any inferences therefrom in the light most
favorable to the nonmoving party, Eason v. Thaler, 73 F.3d 1322, 1325 (5th Cir.
1996), summary judgment is appropriate where the record demonstrates that
“there is no genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law,” FED. R. CIV. P. 56(a), (c)(1). “A factual dispute
is ‘genuine’ if a reasonable trier of fact could return a verdict for the nonmoving
party.” James v. Tex. Collin Cnty., 535 F.3d 365, 373 (5th Cir. 2008). “Where the
non-moving party fails to establish ‘the existence of an element essential to that
party’s case, and on which that party will bear the burden of proof at trial,’ no
genuine issue of material fact can exist.” Nichols v. Enterasys Networks, Inc.,
495 F.3d 185, 188 (5th Cir. 2007) (quoting Celotex Corp. v. Catrett, 477 U.S. 317,
322–23 (1986)).
                               III. DISCUSSION
      Kellermann argues that summary judgment was improper because various
factual issues remain open. In particular, he maintains that the following fact
questions precluded summary judgment: (1) whether Avaya intentionally
delayed revenue recognition in fiscal year 2009; (2) whether Avaya intentionally
accelerated revenue recognition in fiscal year 2010; (3) whether Avaya made this
acceleration to implicate the Large Deal Adjustment (which otherwise would
have been inapplicable); (4) whether Avaya refused to pay a commission it knew
had been earned by Kellermann; and (5) what damages were sustained by
Kellermann.     Avaya responds that its actions merely were the result of
adjustments necessitated by unanticipated changes in revenue timing related
to the IP/ACD project. In any event, Avaya contends that its rationale is
immaterial because, by incorporating the Policies, the October condition sheet

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reserved for Avaya unfettered discretion to alter or cancel its compensation
policies.
A. Applicable Law
      Under Texas law, “[t]he elements of a breach of contract claim are: (1) the
existence of a valid contract between plaintiff and defendant; (2) the plaintiff’s
performance or tender of performance; (3) the defendant’s breach of the contract;
and (4) the plaintiff’s damage as a result of the breach.” In re Staley, 320 S.W.3d
490, 499 (Tex. App.—Dallas 2010, no pet.). “Whether a party has breached a
contract is a question of law for the court, not a question of fact for the jury.”
Meek v. Bishop Peterson & Sharp, P.C., 919 S.W.2d 805, 808 (Tex.
App.—Houston [14th Dist.] 1996, writ denied). “The court determines what
conduct is required by the parties, and, insofar as a dispute exists concerning the
failure of a party to perform the contract, the court submits the disputed fact
questions to the jury.” Id. In other words, “[w]hile the factual determination of
what actions were taken is for the fact finder, whether those actions constitute
a breach of contract is a question of law for the court.” In re Cano Petrol., Inc.,
277 S.W.3d 470, 473 (Tex. App.—Amarillo 2009, orig. proceeding).
B. Analysis
      In applying these principles to the case sub judice, we find controlling our
holding in Nichols, 495 F.3d 185. As here, the plaintiff in Nichols filed suit
against his former employer for failing to pay certain outstanding commissions
allegedly due under a compensation plan that provided for a base salary plus a
commission incentive. Id. at 186–87. The dispute arose after the employer
presented the employee with a new goal sheet and sales plan for fiscal year 2001
that reflected a lower commission rate, a higher quota, and different customer
assignments than had been provided for in the employee’s fiscal year 2000 plan.
Id. at 187. The employee refused to sign the new goal sheet and, for various
reasons, claimed that the terms of the fiscal year 2000 goal sheet and sales plan

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still applied into fiscal year 2001. Id. The employer moved in district court for
summary judgment, which the court granted after concluding that, regardless
of which year’s goal sheet and sales plan applied, the employer’s compensation
plan unambiguously gave management the right and discretion to adjust the
employee’s compensation. Id. at 188.
      On appeal, we likewise observed that, even assuming the fiscal year 2000
goal sheet and sales plan applied, the employer’s compensation plan allowed the
employer “to establish or adjust quotas and geographic/account assignments at
any time,” to “review any sales substantially in excess of annual quota or
objective,” and “to make final and binding decisions regarding the amount of
compensation earned and paid to any [p]lan [p]articipant.” Id. at 187. Thus, the
employee’s contract “include[d] the very terms giving [the employer] discretion
to adjust [the employee’s] commission, assignments, and final compensation.”
Id. at 189. We therefore affirmed the district court’s judgment, concluding that
the employee could not show that the employer breached the terms of the fiscal
year 2000 compensation plan, because the employer merely had “exercis[ed]
rights clearly reserved to it by the [p]lan’s language.” Id. at 191.
      In subsequently applying Nichols, we explained that the case stands for
the proposition “that where an employer exercises rights reserved in the
contract[,] there can be no breach of contract.” Hennings, Jr. v. CDI Corp., 451
F. App’x 359, 367 (5th Cir. 2011) (unpublished) (per curiam) (citing Nichols, 495
F.3d at 188 (“plaintiff cannot prove employer breached contract when employer
exercising rights reserved in contract’s plain language”)). Accordingly, the
holding in Nichols clearly governs the outcome here. Under the Policies, Avaya
reserved—at its sole discretion, and without having to provide prior notice—the
right to amend, change, or even cancel its sales compensation policies or any
elements thereof; to revise revenue quotas; and to reduce, modify, or withhold
incentive compensation. In other words, regardless of when it recognized

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revenue for any particular sale, Avaya reserved for itself sole discretion to adjust
Kellermann’s incentive pay.      Kellermann agreed to these terms when he
accepted the October condition sheet. As a result, Kellermann was unable to
establish a breach of contract, as Avaya simply exercised rights reserved to it in
the plain language of the Policies. See Nichols, 495 F.3d at 191. Because
Kellermann failed to establish the existence of this element of his breach of
contract claim, no genuine issue of material fact existed, and summary judgment
in Avaya’s favor therefore was proper. See Celotex Corp., 477 U.S. at 322–23.
                              IV. CONCLUSION
      Accordingly, we AFFIRM the district court’s judgment.




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