No. 90-250 IN THE SUPREME COURT OF THE STATE OF MONTANA

JAMES S. BUCK, Plaintiff and Appellant,-vsBILLINGS MONTANA CHEVROLET, INC., a Delaware corp.; FRONTIER CHEVROLET CO., a Montana corp.; FS ENTERPRISES, INC., a South Dakota Corp.; FRANK STINSON; and DENNIS MENHOLT

### , Defendants and Respondents.

APPEAL FROM: District Court of theThirteenth Judicial District, In and for the County of Yellowstone, The Honorable Robert Holmstrom, Judge presiding.

COUNSEL OF RECORD: For Appellant: Kenneth D. Tolliver (argued); Wright, Tolliver & Guthals, Billings,Montana

For Respondent: Sidney R. Thomas, Martha Sheehy (argued);Moulton, Bellingham, Longo & Mather, Billings, Montana Peter T. Stanley, Bill McNamer (argued);McNamer & Thompson, Billings, Montana Rockwood Brown (argued);Anderson, Brown, Gerbase, Cebull, Fulton, Harman & Ross, Billings, Montana

Filed: Submitted: March 21, 1991 Decided; May 16, 1991

-2

ClerkJustice R. C. McDonough delivered the Opinion of the Court.

I plaintiff, James S. Buck, appeals from an order granting summary judgmentin favorofdefendantsBillingsMontana Chevrolet, Frontier Chevrolet, F.S. Enterprises, Inc., Frank Stinson and Dennis Menholt. The District Court of the Thirteenth Judicial District, Yellowstone County, held that the reasons asserted by defendants for Buck's discharge constituted a legitimatebusiness

reason under the Wrongful Discharge from Employment Act, Sections 39-2-701 et seq., MCA. It therefore granted summary judgment and dismissed Buck's lawsuit. We affirm in part and reverse in part. The issuespresented for our review are: 1. Whether a new owner (controlling shareholder and new officers) of abusinessmay properly terminatea long term employee who was general manager of the business before the control of the new business was sold to the new owner; 2. Whether the District Court properly granted summary judgment on the issue of fraud; 3. Whether an issue of fact exists as to the employee's dischargeviolating written personnel policies of Billings Montana Chevrolet; 4. Whether The District Court properly dismissed Frontier Chevrolet, F.S. Enterprises,Frank Stinson and DennisMenholt from the lawsuit. James Buck (Buck) was an employee, since 1973, of a corporation which was named Frontier Chevrolet Company (Frontier Chevrolet) and is now named Billings Montana Chevrolet, Inc., inBillings, Montana. The controlling shareholder of Frontier Chevrolet was Andy Anderson, who was Buck's father-in-law and president of the company. By all accounts, Buck was a competent, faithfulemployeewhohad risenthrough therankstobecomedeneral 

# I manager of the business. His expertise was recognized thro,ughout the automobile industry. Mr. Buck was elected President of the Billings Automobile Dealers Association, the only non-dealer to 

# ~ everhold theposition and was preapproved by General Motors to be a dealer. Apparently, Mr. Buck had dreams of purchasing the dealership,but he did not have sufficient resources. Frank Stinson is a controlling shareholderof FS Enterprises, Inc., which owns and controls a number of automobiledealerships. In 1986 he began looking for another automobile dealership on behalf of F.S. Enterprises, and, as a result became interested in purchasingtheFrontierChevroletCompany. Apparently,Mr. Stinson through F.S. Enterpriseshad a traditionof buying dealershipsand having his long term loyal employees placed in a position of management at thenewlypurchased business. These employeeswould eventually purchase the dealership from F.S. Enterprises. This arrangement was a method utilized by Stinson, through his companies, to reward his faithful employees. After several months of negotiations, a contract for the purchase of the stock of Frontier Chevroletwas agreed to. During these negotiationsAndy Anderson died. However,Mr. Buck and his wife continued to negotiate the purchase. The final contract required the officers and directors of Frontier Chevrolet toresign. The contract did not, however, require any employee to resign. Although Mr. Buck was the general manager of the dealership,he was not an officer or director. Sale of the stock of Frontier Chevrolet was completed on August 7, 1987. Consistent with Frank Stinson's and F.S. Enterprise's policy of management, Frontier Chevrolet, acting through its new officers, filled theposition of executivemanager ofthedealership with oneof Stinson's long-termemployees,Dennis Menholt. The next day, Mr. Buck showed up for work and was told that he was no longer general manager because Menholt would be running the business, and it would not work out with both of them there. After some negotiations, he was offered the position of Fleet and Lease Manager, which he refused. Mr. Buck's employment with his father-in-law's company was without a contract or specified term. I FollowingF.S. Enterprises'purchase of the stock of Frontier Chevrolet, and the change of officers, Jim Buck was terminated. Thedefendants maintain thatBuckwas terminated in compliancewith

a long standingpolicy of F.S. Enterprisesand Frank Stinson,which placed long term employees in charge of the new dealership. The defendants also maintain that this arrangement would save money, because the two positions formerly held by Buck and his fatherin-law,were consolidated intoone position heldby DennisMenholt. Buck has not brought forth any facts to contest these reasons. He does, however, maintain that the first reason, which was theprimary justification for his discharge, is not adequate under Montana's Wrongful Discharge from Employment Act. See 88 39-2- 701, MCA,et seq. According to pertinent parts of the Wrongful Discharge Act, a discharge is only wrongful if the discharge was not for good cause and the employee had completed the employer's probationary period of employment. See § 39-2-904(2), MCA. Buck was not a probationary employee. Therefore, in order to establish a claim forwrongful dischargeunder 8 39-2-904(2), MCA, he must prove that his termination was not for good cause. Good cause is defined as:



# ..

# . reasonable job related grounds fordismissal based on a failure to satisfactorily perform job duties, disruption of the employer's operation or other legitimate business reason. Section 39-2-903(5). All parties agree that therewas no failureon Buck's part to satisfactorilyperformhis jobduties. Nor is thereany allegation thathedisrupted the employer's operation. Insteadthedefendants maintain that his dismissal was justified by "reasonable job related grounds 

# . . . based upon [a] legitimate business reason.'' We must therefore determine whether under these uncontested facts F.S. Enterprise's policy (which became FrontierChevrolet'spolicy) to replace Buck with its own man constituted a legitimatebusiness reason under theAct. A review of the legislative history of theWrongful Discharge from Employment Act is of little assistance. Initiallygood cause

was defined as a legitimate business reason. However, further changes eliminated this term and defined good cause as: reasonable job related grounds for dismissal based upon 5a failure to satisfactorily perform job duties or disruption of employment operations. This wording appears to have been set forth to include some specificity to misconduct charges for the protection of the employee. However, this limited language had a major omission because therewas no allowance for dischargebased upon legitimate economic reasons such as lack of work or elimination of the job. To remedythis situation,theterm legitimate business reasonwas added to the definition. Itwas thought that this term was broad enough to cover all of the various kinds of termination of employment. The termwould advance the employee's interest in job securityby requiring the employer in facthavea legitimatereason for discharge. At the same time, the employer's interest in management discretionwould beprotectedby allowing businesses to make employment decisions forbusiness reasons. Perhaps because this term was added in an effort to broaden thedefinition of good cause, the legislaturehas notprovided any concrete guidancetoaid the judiciary in interpreting its meaning. We have, therefore, thoroughly reviewed prior case law from this jurisdiction, our sister jurisdictions, arbitration cases from the National Labor RelationsBoard, and law from foreign jurisdictions in an effort toarrive at a precise meaning of the term Illegitimate business reason." This review has been of little assistance. All attempts to more specifically define this term or like terms have resulted in definitions that are as general as the term itself. We are therefore forced to fill in the gap leftby the legislature and to define and apply the term in an equitable fashion thatmost 6nearly effectuates the intent of the legislature. A legitimate business reason is a reason that is neither false, whimsical, arbitrary or capricious, and it must have some logical relationship to the needs of the business. In applying this definition, one must take into account the right of an employer to exercise discretion over who it will employ and keep in employment. Of equal importanceto this right, however, is the legitimate interests of the employee to secure employment. We apply thisdefinition to the issue presented by this case. As stated earlier, Jim Buck was an exemplary employee who worked in his father-in-law's business for almost fifteen years. During that period of time he rose through the ranks to become general manager of the dealership. While holding this position, Buck was responsible for managing the business in his father-in-law's absence. In 1987, the business was sold to F.S. Enterprises. Frank Stinson, controlling shareholder,had a long term policy which was executed by F.S. Enterprises, of buying dealerships and placing long term faithful employees in the position of manager. The employee would then be given the chance to buy the business. According to deposition testimony, Stinson preferred this arrangement because he found the dealerships were run most efficiently and competently when themanagerhad avested financial interest. In accordance with this system, Dennis Menholt was placed in charge of Billings Montana Chevrolet. Inthepast,wehavenoted that it is inappropriate for courtsto become involved in the day-to-day employment decisions of business. Seee.g. Hobbsv. PacificHide and Fur (1989)

## , 236Mont. 503, 771 P.2d 125. In cases such as this one, it is particularly importantthat thisphilosophy is followed. F.S. Enterprisesmade a large investment when it purchased the dealership from Buck's father-in-law. Because he lived in Louisiana, Stinson, through F.S. Enterprises and ultimately through the Frontier Chevrolet Company, desired to place a long term employee, in whom he held great trust,tomanage that investment. As amatter of his policy, and the corporate policy of the company he controlled, such an arrangement was preferred because it allowed the placement of a person who conceivably held the same business values and philosophies ashimself, in charge of the newly acquired business. It also gave him an opportunity to reward long term employees. It would be against common sense and rationality for this Court to hold that such reasons or grounds do not constitute a legitimatebusiness reasonand arenotrelated tothe job involved. The net result of such a holding would be to force a new owner of a business to retain someonewho it did not know or perhaps even trust to manage a large dollar investment. In this case, Buck has not argued these reasons for replacing him were false. Instead, he has steadfastly maintained that these motivations were not justified by the Wrongful Discharge from Employment Act. Because Buck has not come forward with any evidence showingbad faith or falsehood,we hold summary judgment

was properly awarded.We caution, however, that this holding is confined only to those employees who occupy sensitive managerial or confidential positions. An owner under these circumstances may not hold the right to terminate employees who hold duties which do not require the exercise of broad discretion. A company's interest in protecting its investment and in running its business as it sees fit isnot as strongwhen applied to lower echelon employees,and may thereforebe outweighedby their interest in continued,secure employment. See e.g. Pugh 

### v. See's Candies Inc. (1981), 171 Cal.Rptr. 917, 928. Under the uncontested material facts of this case, the company's decision to replace Jim Buck with Dennis Menholt as executive manager of ~rontier Chevrolet Companywas for legitimate business reasons. The decision was not false, whimsical, arbitrary nor capricious and it had a logical relationship to the needs of the business. I1 Buck maintains in a conclusory fashion that the defendants engaged in actual fraud at the time of his dischargeby justifying itwith false reasons. He argues thathewas initially told he was terminated for economic reasons,because his former job of general manager was eliminated. He further argues that later another

reasonwas given when thedefendants stated Buck was discharged in order to make room for Dennis Menholt. He argues the original

reasonswere false and therefore constituted fraud. According to hisargument,this "fraud1' entitleshim torecover punitivedamages under 5 39-2-905(2), MCA.This section states: The employee may recover punitive damages otherwise allowed by law if it is established by clear and convincing evidence that the employer engaged in actual fraud or actual malice in the discharge of the employee inviolation of 39-2-904(1). Section 39-2-904(1) states: A discharge iswrongful only if 

# . .. itwas inviolation for the employee's refusal to violate public policy or for reporting a violation of public policy. Througha constrained interpretationofthese provisions,Buck argues that they should be read together to allow him to proceed to the jury on the issue of punitive damages. Buck maintains that the alleged false reasons given for his discharge constituted a violation ofpublic policy and are thereforeactionableunder 5 39- 2-905(2), MCA. We disagree. Even if everything he says is true, this section does not provide Buck with a legitimate claim. The clear language of these provisions states that punitive damages are only allowed if an employer engages in actual fraud or actual malice in discharging

an employee who reports or refuses to engage in violations of public policy. There is no evidence Buck reported or refused violate public policy and he is thereforeprecluded from obtaining punitive damages under theAct. Summary judgment on this issue is affirmed.

Section 39-2-904(3)

## ,MCA, states that a discharge iswrongful if 'Itheemployerviolated the express provisions of its ownwritten personnelpolicy." Buckmaintains that his employmentwasgovernedby provisions of a written company employment manual which assured his continued employment if his job performance and economic circumstances remained satisfactory. Because neither of these conditions were present at the time of his discharge, Buck maintains the employment policies were violated and that he has a valid cause of action under § 39-2-904(3), MCA. Defendants Billings Montana Chevrolet, Frank Stinson and Dennis Menholt, argue this issuewas notpresented at the District Court level and therefore should not be heard on appeal. Wyman 

### v. DuBray Land Realty (1988), 231 Mont. 294, 752 P.2d 196. However, after reviewing the record, we note the issue was raised in prejudgment motions and orders. We therefore hold there is sufficient reference to this argument at the District Court level to allow this Court to review its merits. The employee handbook contained numerous references to a policy on thepart of the dealership to provide job security. In particular, one section stated: Our dealership is still growing. You are thus assured of steady employment as long as you are producing for us. We expect each of our employees to be maximum producers, always doing their part in accomplishing our business objectives. Buck maintains thatbecause there is no evidence he failed to produce for the dealership and because it was not in financial trouble,hewasdismissed in violation of the terms of the employee handbook. We note, however, that Dennis Menholt offered Buck a position of fleetmanager after the dealership changed hands. Buck maintains that he did not accept this position becausehe did not think it was a genuine offer and would actually result in a later dismissal. He felt Menholt offered him this position in an effort to appease him so that a lawsuit could be avoided. If these facts are true, it is possible Buck may have a cause of action under !j 39-2-904(3), MCA. The issue was not specifically addressed in the ordergranting summary judgment

# . However, because the case was completely dismissed,we reverse the grant of summary judgment as it applied to this issue and remand for further proceedings to determine the effect of language of the handbook and then whether the offer was made in good faith. IV In order to fully understand the final issue of this appeal, it is necessary to fully comprehend the relationshipsbetween the differentdefendants. The original corporationwhich was owned by Buck's father-in-law was named Frontier Chevrolet Company

(Frontier-Delaware). Itwas a Delaware corporation and its stock

was sold to F.S. Enterprises, which is controlled and operated by Frank Stinson, on August 7, 1987. On August 8, 1987, FrontierDelaware terminated James Buck. In December of 1987, Frontier-Delaware changed its name to BillingsMontana Chevrolet, Inc., a Delaware corporation. Later in this same month, the duties and assets of Billings Montana Chevrolet were split between itself and a new corporation

(Frontier-Montana). Frontier-Montana performed the operating functions of the dealership. Billings Montana Chevrolet, on theother hand, retained the majority of all inventory, property and assets. It isalso theprincipal shareholderof Frontier-Montana. This corporate scheme developed so that Dennis Menholt could become an approved dealer under GM guidelines. Apparently,before

one can become a dealer, onemust retain a certain percentage of ownership in the dealership. By splitting the assets of Billings Montana Chevrolet, DennisMenholt was able to afford the costs of purchasing the required interest in the operating dealership. The District Court dismissed Frontier-Montana, Frank Stinson and Dennis Menholt from the lawsuit by order of summary judgment

on February 6, 1990. F.S. Enterprises had previously been dismissed through stipulation of the parties. On March 1, 1990, BillingsMontana Chevrolet (formerlyFrontier-Delaware)wasgranted summary judgmenton thegrounds thatBuck's dismissalwas justified by a legitimatebusiness reason. Buck has contested the dismissal of Frank Stinson, Dennis Menholt, Frontier-Montana and F.S. Enterprises, Inc. on appeal. In this portion of the opinion we address the propriety of the dismissal by the District Court of these four defendants. Buck maintains that the District Court improperly dismissed Frontier-Montana. He argues that Frontier-Montana is a mere successor corporation to Billings Montana Chevrolet, and as such is liable for any obligations owed by Billings Montana Chevrolet, which arose before the split of assets. A successor corporation

can be liable for the debts of its predecessor, if it is merely a continuation or reincarnation of the first corporation. 19Am.Jur.2d Corporations 

### 3 2711. Generally, however, before a corporation can be deemed a successor, certain showings must be made. For example, it is generally required that the plaintiff establish that insufficient consideration ran from thenew company to the old and that only one corporation existed at the completion of the transfer. 19 Am.Jur.2d Corporations 3 2711. The facts here do not support the conclusion that Frontier Montana is a successor corporation to Billings Montana Chevrolet. According to therecord Billings Montana Chevrolet sold someassets to Frontier-Montana. However, Billings Montana Chevrolet has actively remained in business andholdsequipment and realproperty received from the sale of Frontier-Delaware. There is no evidence that there was fraud in the sale of the corporate assets from Billings Montana Chevrolet to Frontier Montana or lack of consideration thatwould justify a findingthat itwas a successor corporation. The District Court properly dismissed Frontier Montana from the lawsuit. Buck next argues that itwas inconsistent for the lower court to dismiss Stinson and Menholt from the lawsuit and at the same time take their interests into consideration in determining that he was dismissed for a legitimate business reason. This argument suffers from several inherent weaknesses. First, a corporation, in and of itself, being an inanimate object, is incapable of formulating its own interests and policies. Rather its interests

are formulated by the officers, directors and employees who carry out corporatebusiness. With limited exceptions,thesepersons aregenerally immune from lawsuits arising out of corporate affairs. Second, the Wrongful Discharge from Employment Act provides the exclusiveremedy forwrongful termination. Meech v. Hillhaven West, Inc. (1989), 238 Mont 21, 776 P.2d 488. All remedies provided by the Act run against the employer. The Act does not envision lawsuits against corporate employees, officers or shareholders. In this case there is no question that Buck's employerwas Billings Montana Chevrolet. Itwas not the employees

or shareholders of that corporation. Therefore, as mere shareholdersorofficersof Billings Montana Chevrolet,Stinsonand Menholt were properly dismissed from the lawsuit. Despite the fact thathe agreed to dismissal in the record at the District Court level, Buck now attempts to argue that F.S. Enterpriseswas improperly dismissed. His argument on this issue closely parallels that set forth above relative to Stinson and Menholt

# . However, we need not consider the merits of this contention because Buck's appeal of this issue is barred by his acquiescence to the dismissal of F.S. Enterprises in the District Court. Counsel for F.S. Enterprises, however, has moved this Court to award sanctions against Buck to reimburse it for costs and attorney fees associated with the appeal. Given the fact that in the record Buck previously conceded thepropriety of the dismissal which was then granted by the District Court, we hold that the motion is well taken. Upon remand the District Court shall determine the costs and attorney fees associated with this appealand award F.S. Enterprises appropriate reimbursement. See e.g. Rookhuizen v. Blains Mobile Home Court (1989)

### , 236 Mont. 7, 767 P.2d 1331. 

### Conclusion This case is reversed and remanded for furtherproceedings 

### in accordance with this opinion concerning the issue of Buck's dismissal in contravention of the written personnel manual of Billings Montana Chevrolet. Summary judgment dismissing Frontier ChevroletCompany, aMontana Corporation, Frank Stinson and Dennis Menholt is affirmed. The appeal of F.S. Enterprises' dismissal is dismissed andupon remand appropriate attorney feesand costs shall be assessed against Buck and his attorneys. /

Justices

Honorable Diane G. Barz did not participate in this decision.Justice Terry 

### N. Trieweiler concurs in part and dissents in part.

### Iconcurwith thoseparts of themajority opinionwhich affirm summary judgment for the defendants on the issue of fraud; affirm thedismissalof defendants,other than BillingsMontana Chevrolet, Inc.; and remand this case to the District Court for further consideration of plaintiff's claim that he was discharged in violation of the employer's written personnel policies. I dissent from that part of the majority opinion which holds that as a matter of law plaintiff's employer has Itreasonablejob related grounds fordismissal based upon 

# . . . legitimatebusiness

reasons. The constitutionality of the Wrongful Discharge From EmploymentAct was challenged in this Court in Meech v. Hillhaven West, Inc., 238 Mont. 21, 776 P.2d 488 (1989). In that case, an employee contended that the Act violated the Equal Protection Clauses of theMontana and Federal Constitutionsby discriminating against a classof claimantswithout a rationalbasis,and that the Act violated prior case lawby abrogating causes of action without providing a reasonable substitute. Inupholding the constitutionality of the Act, and in finding that adequate substitutes were provided for those rights thatwere lost, this Court concluded that even though damages were limited by the Act, greater job securitywas provided to employees by the ltgoodcause1' requirement that now exists under the Act for 17termination of an employee. Inbalancing the rights of employers and employees to determine whether there was a rational basis for the Act, this Court concluded that the "good cause" protection of the Act was a significant factor. We stated: Under theAct, employers benefit because theirpotential liability is made more certain. Meanwhile, employees1 control over the manner in which they are discharged remains, in part, as a result of the Act's I1good employees' causeI1requirement. The Act, in making this trade, is in no sense irrational. Therefore, classifications in the Act satisfy the requirements of the rational basis test. Meech, 776 P.2d at 505. With its decision in this case, the majority now begins the erosion of that same I1goodcausef1 requirement which was previously found to be the quid pro quo for rightswhich have been taken away from employees under the Act. Good cause, as it pertains to this case, is defined in 5 39- 2-903(5), MCA, as ll. 

# . . reasonable job-related grounds for dismissal based on 

# . 

# . . legitimate business reason.l1 It is not sufficient that a termination of employment be for a "legitimate business reasont1 unless that reason is reasonably related to the job that the employee performs. If Illegitimatebusiness reasonf1 by and of itself is sufficient to establish good cause, then the good cause requirement in the Wrongful Termination Act has been rendered meaningless and employees in the Stateof Montana receivenothing in return for therights they gave up under the Wrongful Discharge From Employment Act, 5 39-2-901, & seq., MCA. Themajoritydiscussesthebusiness interests of Frank Stinson at length, but failsto establish that theplaintiff's replacement

as general manager of Billings Montana Chevrolet, Inc.,was in any way job related. The plaintiff was hired by the Billings auto dealership in 1973 as a salesman. He advanced through the ranks of employment and eventually served as the new truck manager, the new car sales manager, and general manager. He was general manager for nine years prior to his discharge. During that time the dealership operated successfully and profitably. As pointed outby themajority,he was the only nondealer ever elected president of the Billings Automobile DealersAssociation. He frequently ran the dealership during the absence of its owner. There was no evidence in this record to indicate that plaintiff's replacement 

### as general manager of the auto dealership

was in any way related to his performance of that job. Furthermore, there was no indication in this record that it

was the employer's "legitimate business reasonn for which the plaintiff was terminated. Plaintiff's employer was Billings Montana Chevrolet, Inc. Itapparently operated successfully under plaintiff'smanagement. James Buck was terminated because of the business interests of Frank Stinson. 19Mr. Stinsonandhiscorporation,F.S. Enterprises,Inc.,owned and operated a number of auto dealershipsaround the country. The person with whom he replaced the plaintiff was a successful sales manager of one of his other dealerships in South Dakota, and consistent with his business practice in those other dealerships, he promised that person an opportunity to take over operation and eventually acquire ownership of the next dealership he purchased. The decision by Stinson tomake Dennis Menholt the general manager of his next dealershipwas made before he ever looked at Frontier Chevrolet,andbeforehe evermet James S. Buck. Itwas made prior to the time thathe and the corporation thathe owned purchased the shares of the Billings dealership. Therefore, it had nothing to do with legitimatebusiness reasons of the company which employed the plaintiff. It is logically inconsistent todismiss Frank Stinson and the corporation which purchased the shares of Billings Montana Chevrolet, Inc., because theywere not technically the plaintiff's employer, but then to consider Frank Stinson'sbusiness interests as justification for termination of the plaintiff. Under the undisputed facts, and based on the laws set forth in the Act, a strong argument could be made that plaintiff was entitled to summary judgment because the undisputed facts established that plaintiff was not terminated by Stinson for any job related reason, or for any legitimate business reason of the company for which he worked. However, the plaintiff was at least 20entitled to a jury trial to determine whether under these facts, and according to the statutory definitionof "good cause1Iplaintiff

was properly terminated. The majority opinionproceeds from the premise that the role of courts is to protect people from juries. I believe, on the contrary, that juries exist, and are provided for in both the federal and state constitutions,to protect people from arbitrary decisions of courts. For that reason, I would remand this case to the District Court for a jury trial to determine whether plaintiff was terminated fromhis employment for "good causeI1and Idissent from themajority opinion whichgrants summary judgmentto thedefendant

on that issue.

I concur 

### in the foregoing concurrence and dissent of Justice Trieweiler.