### NO. 91-020 

### IN THE SUPREME COURT OF THE STATE OF MONTANA 1991

BRUCE SCOTT, Plaintiff and Appellant, .,-.

, ..,,-vsEAGLE WATCH INVESTMENTS, INC., i, r. a Montana Corporation, and PETER BOUMA, !-LC .;c,j (?.{ '"j Defendants and Respondents.

APPEAL FROM: District Court of the Fourth Judicial District, In and for the County of Missoula, The Honorable John S. Henson, Judge presiding.

COUNSEL OF RECORD: For Appellant: P. Mars Scott: Mulroney, Delaney & Scott, Missoula, Montana. For Respondents: Edward 

### A. Murphy; Datsopoulos, MacDonald & Lind, Missoula, Montana.

Submitted on Briefs: October 31, 1991 Decided: December 19, 1991 Filed:Justice John Conway Harrison delivered the Opinion of the Court. 

### Appellant 

### Bruce Scott (Scott) appeals from 

### the judgment of the District Court of 

### the Fourth Judicial ~istrict 

### for Missoula County, Montana. The 

### court held that Scott breached his oral employment contractand wasproperly terminated 

### fromhis job as

### an athletic club manager,requiringhirntopayrespondent/employerPeterBourna (Bouma) $755.81 

### with interest. We 

### affirm. The appellant takes issue with the District Court's Findings of Fact, Conclusions of Law, and Judgment almost in their entirety. We address only the following dispositive issues: I. Whether the District Court erred in concluding that 

### an at will employment relationship existed between the parties. 11, Whether the District 

### Court erred in concluding that the employer did not breach the implied covenant of good 

### faith and fair dealing when he terminated the employee. The history of this action spans nearly ten years and began sometimein1980whenBoumabeganresearchinginvestmentswhichwould 

### provide 

### him 

### with tax advantages. Bauma 

### became 

### aware of a 

### defunct athletic club located east ofMissoula and considered it apotential investment. Through conversationswith Scott,Boumabecame acquainted with Scott's previous involvementwith a Missoula tennis club known

as Garden City Racket Club which failed after only three months of operation in early 1980. The twomen began informal talks about the possibility of opening a full service athletic club (The Club) at the site 

### of the defunct athletic club east 

### of Missoula. 

### They made inquires with financing entities and researched the existing liens 2on the property. Bouma and Scott toured other athletic clubs in the State of Montana. Bouma also traveled to Spokane, Washington to observe another athletic club operation. Bouma contributedapproximately$787,000in capital topurchase The Club. He pledged the necessary collateral to obtain financing. Although Scott contributedhis past experience in the area of tennis andwiththe failedGardenCityRacket Club,hecontributednocapital to the venture. As the venture began to materialize, Bouma and Scott discussed the idea that Scott become the general manager of The Club. The parties met at various times and drafted an employment agreement. Both parties acknowledged that various parts of the agreement were not acceptable and consequently they did not sign the agreement. Although the agreement remained unsigned, the parties made compensation arrangements which involved splittingthemonthly net profits ofthe operationaftersome adjustmentssuchasdepreciation. Additionally, the parties agreed that Scott would act as the general manager in charge of operations on a day-to-day basis, monitoring all aspects of The Club. In preparation of the venture, both parties worked in various capacities to accomplish everything necessary to open The Club. Construction plans were made, approved and implemented; mechanics lienswere removed; zoningproblemswere addressed;a staffwas hired;

a promotional campaign was initiated; and equipment was purchased. On December 15, 1981, The Club membership roster immediately filledto

### capacitywithapproximately1,200 members,and the facilityopened on January 15, 1982. With such a large turnout the parties employed the Dobbins accounting firm to compile monthly financial statements and help in the billing process. The record indicates that due to the volume of financial transactions various problems

were encountered with the financial records especially since all transactions were initially handled manually at The Club. Bouma and Scott met on a regular basis to discuss the progress of The Club and work out problems. Bouma, who was financially at risk fortheventure, was understandably interested in the financial elements of The Club. Bouma requested basic financial information from Scott such as the amount of accounts payable and receivable. Although Scott was the on site general manager in charge of the employees who handled the income and expenses of The Club, Scott continually referred Bouma to the Dobbins firm and simply presented Theclub's financialpictureaspositive. ScottdidnotprovideBouma with even the most basic list of accounts payable and receivable as requested. Bouma later became aware of other problems at The Club such as lack of cleanliness,anunauthorizedgiftofa free lifetimemembership (whichwasnot discovered until after Scott's termination), and lack of policy development. He also learned of an unpaid invoice when a supplier contacted him at home indicating that delivery would be suspended unless the account was brought current. Bouma became increasingly frustrated with Scott's performance, particularly in the financial area. In view of Bouma's investment and Scott's 

### performancedeficiencies,

### Boumaconsideredterminationbutpostponedsuch action pending a financial report from the Dobbins firm. On June 13, 1982, Bouma made an appointmentwith Scott for the following day to assurehis availability. That same day, Scott went to see Bouma and stated that The Club's bills were paid and there wasmoney inTheClub's checking account. Thenext day Bouma acquired the financial report from the Dobbins firm which confirmed that The Club's bank account was overdrawn, numerous outstanding accounts payable existed, and that Scott had taken two cash withdrawals totalling approximately $13,000. In view of Scott's performance deficiencies,Bouma terminated him that day. Due to the financial state of The Club, Bouma borrowed an additional $25,000 to meet existing operating expenses. Scottinitiatedsuit on avariety of theories requestingmonetary relief including punitive damages,but primarily seeking damages of $720,000 in lost profits due to his termination. The District Court found that Scottwas an at will employee and that Scott breached the oral employment agreement. The court also found that Bouma was justified in terminatingScottand ordered Scotttopay Bouma $755.81 plus interestto compensateBouma fordrawsScotttookas over-payment. STANDARD OF REVIEW: The trier of fact is in thebest position to hear the testimony and observe the witnesses and their demeanor, therefore, on appeal,

we will not overturn the findings of fact unless they are clearly erroneous. Morin v. Mapston (1985), 217 Mont. 403, 407, 705 P.2d 118, 120; Rule 52(a), M.R.Civ.P. "Particularly where credibility of witnesses is involved, we give great weight to fact-findings of

### a district court." Morin, 217 Mont. at 407, 705 

### P.2d at 120. We will not overturn the conclusions of law 

### unless they are incorrect. Steer, Inc. v. Dept. of Revenue (1990), 245Mont. 470, 474, 803 P.2d 601. 603.



### ISSUE I. 

### Did the District Court err when it found that an at will employment relationship existed between the parties. Today, the concept of at will employment or the "employment at will rule" is deceptively simple. The employment at will rule has been defined as follows: when "an employer may dismiss an at-will employee for a good reason, bad reason, or for no reason at all." Henry 

### H. Perritt, Jr.

### , Emplovee Dismissal Law and Practice,p. 1 (2d ed. 1987). Montana has implemented protective devices through both the legislature and case law that operate to curb the harsh effects of the rule. Prout v. Sears (1989), 236 Mont. 152, 157, 772 P.2d 288, 291 (decidedon pre-Wrongful DischargeAct law and provides for four exceptions to the termination atwill rule; also seeMontana's Wrongful Discharge Act 55 

### 39-2-901 et seq., MCA, enacted in 1987). These devices however do not obliterate the at will rule. Medicine Horse v. Trustees, Big Horn County School Dist. 

### (No. 91-090, decided December 10, 1991), 

### P.2d -I 

### -St.Rep. 

# -. In the case at bar, the record indicates that while the parties met and contemplated a written employment agreement with a term of fiveyears, a contract to that effectwas never finalized. Theparties each indicated that they wished to make various revisions to the agreement and therefore did not sign the agreement. Section 28-2-903 (1)(a), MCA (198l), states: The following agreements are invalid unless the same or somenote ormemorandum thereof is inwriting and subscribed by the party to be charged or his agent: (a) an agreement that by its terms isnot tobe performed within a year from the making thereof; 

# . . 

# . We have previously stated that "[tlhe word 'invalid,'as employed in these statutes, means void; of no force or effect. Therefore the contract cannotbe relied upon or furnish evidence for any purpose." Mahoney v. Lester (1946), 118 Mont. 551, 560, 168 P.2d 339, 343;citing Dreidlein v. Manger (1923), 69 Mont. 155, 163, 220 P. 1107, 1109. Here neitherparty signed the agreement committing them to a specified employment term. Therefore,under the facts of this case theagreement of employment is an at will employment relationship.

ISSUE 11. Did the District Court err in concluding that Bouma did not breech the implied covenant of good faith and fair dealing when he terminated Scott. In Montana, termination of an at will employment relationship is governed by 3 39-2-503,MCA, which provides that "an employment havingno 

### specifiedtermmaybeterminatedatthewillof eitherparty

on notice to the other. 

# . . 

# . 'I Supplementing this statute is our opinion of Crenshawv. BozemanDeaconessHosp. (1984), 213 Mont. 488, 693 P.2d 487, in which we said that an employer owes even a probationary employee a duty of good faith and fair dealing. In Crenshaw,we stated that "[e]mployers can still terminate untenured employees at-will and without notice. They simply may not do so in bad faith or unfairly without becoming liable 

### fordamages." Crenshaw,

### 213 Mont. at 498, 693 

### P.2d at 492. With this 

### inmind we look tothe factsof the case atbar. First, Scott insists that the termination notification requirements set forth in the draft ofthe employment contract should be followed. However since the contract was never signed the provisions of the contract 

### governingnoticearenotcontrolling. Instead, thenotice requirements of g 

### 39-2-503, MCA, are determinative; no prior notice is required. Gates v. Life of Montana Ins. Co. (1982), 196 Mont. 178, 185, 638 P.2d 1063, 1067. In the case at bar, Bouma properly followed the notice requirement when he informed Scott that their employment relationship was terminated. Secondly,much is also made of whether The Club was profitable from itsdate of openinguntil Scott's termination,aperiod of about sixmonths. 

### Theparties hotly contestedtheprofitability issue and numerous calculations with various inclusions and exclusions were presented at trial. The lack of profitability was again one of the written contract provisions under which Bouma could terminate the employment relationship. We have already stated that the contract provisions cannot control since they were not the final expression of theparties as evidenced by its lack of signatures. We take time to point out that the profitability of The Club was only one factor in Scott's termination. If theprofitability issuewas the sole reason for termination,we must look to the belief of the employer at the time of termination. If the termination was rooted in 

### a mistaken belief, "[elven anhonest,though mistaken, belief that the employer for legitimate business reasonshad good cause for the dischargewouldnegate 

### bad faith." Heltborg 

### v. Modern Machinery (1990), 244 Mont. 24, 37-38, 795 P.2d954, 962;citing~ughv. See's Candies,Inc. (Cal.

Important 

### to the issue of bad faith in the case at bar, is that the record indicates that Bouma chose to terminate the at will employment relationship due to various deficiencies in Scott's performance. Accordingly, the District Court stated in Findings of Fact #33 that: [B] ouma began 

### to questfon Scottmore closelyabout payables, policies and money. Scott was nonresponsive and nonproductive. Often when Bouma went into the facility he would see Scott on the courts playing tennis. Bouma began to showhisdissatisfaction with theway hewasbeing put off, but Scott was either unconcerned about that or didnotrecognize it. 

### The formerisprobablythecase since a reasonable managerwould know why

### his employer

### kept asking the questions and that his employer expected informed responses. Scott should have been prepared to give the information that Bouma wanted. Boumals requests were reasonable and confined to the things that a person with overall responsibility for a business ought to know. Further,the ~istrict Court's~onclusions of 

### Law #7 followsthe same train of thought: [Bouma]

### had fairandhonest reasons to discharge

### Bruce Scott 

### from employment. He wasnon-responsive 

### when the 

### employer made reasonable demands for information relating 

### to the financial condition of the business. He failed to write and implement policies for the conduct of the business as requested by the employer. He made unauthorized draws of money. He jeopardized the business by withdrawing large sums ofmoney forhis own usewhen the fundswere intended to act as working capital. He failed to fulfill his 

### responsibilitiestosetupanaccountingsystem. He failed to maintain the level of cleanliness expected by the customers of 

### the business. He allowed payables to go unpaid. Underhismanagement,membership levelsdeclined. Under his management, the business ran out of cash. 

### All of the foregoing happened in a five month period. Such events would give any employer 

### a fair and honest reason to terminate a manager.Scott'sown testimony supportsthe court's statementsparticularly with regard tothecash balances of The Club and thelargedrawstaken by Scott. Scottacknowledgedtheprogressively declining cash balance ofTheClubtscheckingaccountandstatedthathemaintainedpossession of thecheckingregister inhisdeskwhich he consulted "on a regular basis." Despite thisknowledge, when The Club was only a few months oldand cashflowstreamswere unproven and unpredictable, Scotttook drawstotallingover $13,000 incash. Additionally, Scotttestified that he was directly responsible for the information that went to the Dobbins firm, but declined to take responsibility for the information. Scottneglectedtomonitor The Club's basic income and expenses and failed to obtain such information when requested. Further, Scott did not correct this performance problem which was critical especially for assessing the viability of a new business, and referred Bouma to the Dobbins firm. Section 39-2-404, MCA provides : [A]n employee must substantially comply with all the directionsof hisemployer concerningtheserviceonwhich he is engaged, except where such obedience is impossible orunlawful orwould impose new and unreasonable burdens upon the employee. We conclude that obtaining a list of accounts payable and receivable frominvoicesand checksreceivedatThe Club and reviewed by themanager was possible and within thecapability of thegeneral manager. Overall, Scott did not fulfill the basic functions of a generalmanager and Bouma honestly believed hisinterestswere being mishandled. Boumatookstepstocorrecttheproblemandwasjustified interminating Scott. Under the circumstances, the 

### District Courtdid 

### not err 

### in concluding that Bouma did not violate the covenant of good faith and fair dealing when terminating Scott from the at will employment relationship. In the case at bar, we find that the court's Findings of Facts were supported by the record and were not clearly erroneous. The court also made correct Conclusions of Law. Therefore, we will not disturb the court's ruling. Affirmed.

We concur:

### December 19. 1991 CERTIFICATEOFSERVICE 

### I hereby certify that the following orderwas sent by United States mail, prepaid, to the followingnamed:

P.

### MarsScott Mulroney,Delaney &

### Scott P.O. 

### Box 8228 Missoula,

### MT 59807 Edward A. Murphy Datsopoulos,MacDonald 21: 

### Lind 201W. 

### Main, 

### Ste. 201 Missoula,MT 59802

EDSMITH CLERK OF

### THESUPREME COURT STAT ONTANA