No. 88-428 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1989 

JANICE A. NILES, 

Plaintiff and Appellant, 

-vsBIG SKY EYEWEAR, a/k/a PROFESSIONAL 

EYECARE, LEONARD E. VAINIO, an individual, 

and DAVID G. VAINIO, an individual, 

Defendants and Respondents. 

APPEAL FROM: District Court of the Second Judicial District, 

In and for the County of Silver BOW, 

The Honorable Mark Sullivan, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Monte D. Beck argued, Bozeman, Montana 

Joe Bottomly argued; Rottomly Law Offices, Great Falls, 

Montana 

For Respondent: 

Moore, OIConnell, Refling & Moon; Christopher JJ. 

Manos argued, Bozeman, Montana 

- 

Submitted: March 7, 1989 
Mr. Chief Justice J. A. Turnage delivered the Opinion of the Court. 

Defendants appeal a $470,000 jury verdict for their former 

employee Janice A. Niles on her claims of defamation, negligent 

infliction of emotional distress, wrongful termination, and breach 

of the covenant of good faith. Plaintiff cross-appeals the 

District Court's denial of punitive damages and its dismissal of 

defendant David G. Vainio in his individual capacity. We affirm 

the judgment in all respects. 

The issues are: 

1. Did the District Court err in dismissing David Vainio, a 

partner of Professional Eyecare, from the suit in his individual 

capacity? 

2. Did the court err in striking the plaintiff's claim for 

punitive damages? 

3. Did the court err in denying defendants1 motions for a 

directed verdict and a new trial on defamation? 

4. Did the court err in denying defendants' motions for a 

directed verdict and a new trial on wrongful termination? 

5. Did the court err in allowing expert testimony on good 

faith and fair dealing and in not giving jury instructions on 

defendants' actions in good faith? 

6. Did the court err in denying a new trial after refusing 

to allow defendants to present evidence of comparable employment? 

7. Did the court err in giving a jury instruction on legal 

cause rather than proximate cause? 

8. Did the court err in denying a new trial after refusing 

to allow certain cross-examination of plaintiff's expert on 

emotional distress? 

9. Did the court err in denying defendants' motions for 

directed verdict and a new trial on negligent infliction of 

emotional distress? 

Defendants own a chain of optical stores. Dr. Leonard Vainio 

was responsible for the Bozeman store where, beginning in November 

1984, plaintiff Janice A. Niles worked. By April 1986, Niles had 
received several wage increases and was acting as manager of the 

store. 

In April 1986, Leonard Vainio told his accountant Gerry Baker 

that another employee had seen Niles taking money from the till at 

the Bozeman store. Vainio and Baker went to the police. On May 

1, 1986, two police officers made an attempted wsting,ll purchasing 

a pair of sunglasses from Niles with marked bills. They saw her 

put the money into the till, but noted that she did not record the 

sale on the "day sheet," an omission which Leonard Vainio had led 

them to believe was important. Based on what they had seen and 

what they had been told, the officers felt they had probable cause 

to make an arrest. 

At 4:30 that afternoon, Niles was arrested as she was leaving 

work. She was questioned at the police station for about two 

hours. The police did not find the marked bills in her possession, 

but Niles did have a large amount of cash. She explained that most 

of it was from cashing her husband's paycheck that day and that $60 

of it was from the optical store because she was on her way to UPS 

to pick up a C.O. D. package for the store. Niles was charged with 

misdemeanor theft of the $12 from the sunglasses. This charge 

depended upon Leonard Vainiols statements that his records would 

show $12 missing. 

Niles did not return to work at the optical store. Leonard 

Vainio promoted his girlfriend to manager of the store. The 

criminal proceedings were eventually dropped when defendants failed 

to supply the records necessary to support prosecution. Niles was 

forced to go through the Department of Labor and then judiciallyordered "till-tapsw of the defendants1 business to get her final 

paycheck. 

At trial, Niles presented testimony by several former 

employees of Professional Eyecare that she was a good and respected 

employee and that defendants1 money-handling and record-keeping 

practices were shoddy and haphazard. The optical shop employee who 

Leonard Vainio claimed had reported seeing Niles take money from 
the till testified by deposition. She emphatically denied that she 

ever made such a report to Leonard Vainio. Niles presented 

evidence of her emotional and economic suffering as a result of 

this ordeal. In a general verdict, the jury awarded Niles $470,000 

in damages. 

ISSUE I 

Did the court err in dismissing David Vainio, a partner 

of Professional Eyecare, from the suit in his individual 

capacity? 

At the close of Niles1 case-in-chief, the trial court granted 

directed verdicts for defendant David Vainio on the issue of his 

individual liability. Niles argues on appeal that this is error 

under partnership liability law in Montana. 

Under Montana law, a partnership is liable for any wrongful 

acts of its partners performed in the course of business activity. 

Section 35-10-305, MCA. Partners are jointly and severally liable 

for everything chargeable to the partnership under section 35-10- 

305, MCA. Section 35-10-307, MCA. It was undisputed at trial that 

David and Leonard Vainio were doing business as a partnership. 

There was no evidence that David Vainio was personally 

involved with any of the wrongful acts claimed by plaintiff. This 

does not affect his liability as a partner. We hold that the court 

did not err. 

ISSUE I1 

Did the court err in striking the plaintiff's claim for 

punitive damages? 

Niles argues that the evidence presented at trial would 

support submitting the issue of punitive damages to the jury based 

on the misrepresentations and false information Leonard Vainio gave 

to the police. She also contends that various other testimony 

could support a finding of the malice, oppression, and fraud necessary to support punitive damages. 

Section 27-1-221, MCA (1985), governs the award of punitive 

damages in this case. It provides at subsection (1) that punitive 
damages may be awarded in a noncontract action where the defendant 

has been guilty of oppression, fraud, or malice, actual or 

presumed. At subsection (2) it provides that "[tlhe jury may not 

award exemplary or punitive damages unless the plaintiff has proved 

all elements of the claim for exemplary or punitive damages by 

clear and convincing evidence. At subsection (4) , the statute 

provides that the plaintiff may not present to the jury evidence 

of defendant's financial affairs or net worth unless the judge 

rules that the plaintiff has presented a prima facie claim for 

punitive damages. 

The court made its ruling striking Niles's claim for punitive 

damages at the close of trial, just before jury instructions were 

settled. The court stated: 

Our major problem is punitive damages. I 

don't see a punitive damage case here. You've 

got a real question of fact to show that there 

has been actual damages. You have to convince 

the jury there is a discharge. She hadn't say 

[sic] she was fired. We didn't hear anybody 

else say that. See my point? The evidence I 

have heard here indicates there is some serious question of fact for the jury has to resolve as to what happened. Certainly, you are 

restricted to what happened up until the time 

of the firing. The evidence after that time 

has nothing to do with it. Do you agree with 

that? 

That is a point you can argue. I don't think 

it's a punitive damage case and I am granting 

the motion, punitive damages are out. 

In ruling on a motion for directed verdict, the trial court must 

view the evidence in the light most favorable to the nonmoving 

party. Mydlarz v. Palmer/Duncan Const. Co. (1984), 209 Mont. 325, 

345, 682 P.2d 695, 705. After reviewing the evidence, we cannot 

say that the District Court erred in ruling that Niles had not 

presented a prima facie case including clear and convincing 

evidence of all elements of her claim, as required under the 
statute. We therefore hold that the court did not err in striking 

the claim for punitive damages. 

ISSUE I11 

Did the court err in denying defendants1 motions for a 

directed verdict and a new trial on defamation? 

Defendants contend that Leonard Vainiols statements to the 

police which are claimed to be defamatory are qualifiedly privileged because they were made in good faith. They argue that the 

District Court erred in denying their motions for a directed 

verdict and a new trial on this issue. 

Citing the Restatement of Torts and case law from Alaska and 

Kansas, defendants assert that a qualified privilege exists for a 

statement made by an employer about an employee for the protection 

of a lawful business. However, the qualified privilege is waived 

if it is abused. Restatement (Second) of Torts, Section 599 

(1977). Abuse of a qualified privilege is an issue of fact to be 

decided by the jury. Restatement (Second) of Torts, Section 619 

(1977). Defendants did not offer a jury instruction on qualified 

privilege, instead using the defense that the statements made were 

true. 

This Court has held that an unsolicited complaint to the 

police is not privileged under section 27-1-804, MCA. Shors v. 

Branch (Mont. 1986)) 720 P.2d 239, 245, 43 St.Rep. 919, 925. 

Moreover, the record contains substantial evidence that Leonard 

Vainio waived any conditional privilege to which defendants were 

entitled by making his statements without good faith. We hold that 

there was no error on the issue of defamation. 

ISSUE IV 

Did the court err in denying defendants1 motion for a 

directed verdict and a new trial on wrongful termination? 

Defendants argue that there was no issue of fact regarding any 

actual termination of Niles and that reliance on a theory of 

constructive discharge is misplaced because the totality of the 

circumstances do not support such a claim. However, a doctrine of 
constructive discharge has been recognized in Montana. Snell v. 

Montana-Dakota Utilities Co. (1982), 198 Mont. 56, 643 P.2d 841. 

It is a question of fact whether by action or inaction an employer 

has rendered working conditions so oppressive that resignation is 

the only reasonable alternative. Snell, 643 P.2d at 846. 

The jury heard the testimony that Leonard Vainio and his 

accountant were the instigators of the criminal charge filed 

against Niles which led to her arrest at her place of work. No 

speculation is required for the jury to conclude that when an 

employer causes the arrest of his employee on a charge of theft 

from the employer that the employee has been constructively fired. 

It defies human experience to believe that Niles would reappear for 

work the next workday following her arrest. We hold that the 

record supports submitting to the jury the question of whether 

Niles was effectively discharged from employment. 

ISSUE V 

Did the court err in allowing expert testimony on good 

faith and fair dealing and in not giving jury instructions on defendants1 actions in good faith? 

Defendants maintain that it was error to allow expert testimony on good faith and fair dealing. Their position is that this 

invaded the province of the jury. However, this Court has explicitly approved of expert testimony on breach of the covenant of 

good faith and fair dealing. Crenshaw v. Bozeman Deaconess Hosp. 

(1984), 213 Mont. 488, 502, 693 P.2d 487, 494. "Fault arising from 

breach of implied covenant of good faith and fair dealing is not 

easily comprehensible to the average person." Crenshaw, 693 P.2d 

at 494. 

The defendants also argue that, when read in combination, the 

instructions given on good faith and fair dealing effectively 

rendered a directed verdict on the issue. They mention instruction 

no. 14, which sets forth the elements of proof of breach of the 

implied covenant of good faith and fair dealing, instruction no. 

16, which states that a covenant of good faith and fair dealing 
existed between Niles and defendants, and instruction no. 26, which 

describes unjustifiably withholding wages from an employee as 

against public policy. We find no error. The court properly 

instructed the jury on the reciprocal duty of good faith and fair 

dealing between employer and employee. 

Finally, defendants argue that the court should have given 

instructions on whether they acted in good faith in discharging 

Niles. In instruction no. 21, the jury was properly instructed 

that: 

[alny employment may be terminated at anytime 

by an employer in the event of any willful 

breach of duty by the employee in the course 

of employment or if the employee habitually 

neglects or is incapable of performing the 

duties of the employment. However, an employer has a duty to act in good faith and deal 

fairly in discharging an employee. 

We find no error. 

ISSUE VI 

Did the court err in denying a new trial after refusing 

to allow defendants to present evidence of comparable 

employment? 

This issue refers to the courtls exclusion of evidence about 

defendants1 offer to re-employ Niles. The offer was made in 

February or March of 1987, before litigation had commenced but 

while the complaint was being drafted. The evidence was excluded 

pursuant to Niles's motion in limine. Defendants argue that 

because the offer was made prior to the filing of the lawsuit, it 

was not part of compromise negotiations. They claim that the trial 

court abused its discretion in prohibiting testimony on the offer 

of re-employment. 

Rule 408, M.R.Evid., provides that offers or acceptances in 

compromise of a disputed claim are not' admissible into evidence to 

prove liability for or invalidity of the claim or its amount. The 

rule does not clarify whether litigation must be in progress before 

it takes effect. In this case, at the time the job offer was made, 

both parties had hired attorneys and a draft of the complaint had 
been sent to defendants1 attorney. It was certainly clear at that 

time that Niles had a claim against defendants. We conclude that 

this offer in compromise was within the purview of Rule 408, 

M.R.Evid. Therefore, the court did not err in excluding evidence 

about it. 

ISSUE VII 

Did the court err in giving a jury instruction on legal 

cause rather than proximate cause? 

Instruction no. 11 to the jury stated that "[a] legal cause 

of the injury is a cause which is a substantial factor in bringing 

it about.It Defendants argue that the jury should have been 

instructed on the "but fort1 test instead of the Ilsubstantial 

factort1 test because only one defendant remained after David Vainio 

was dismissed as a defendant. 

It was defendantst position at trial that this was a joint 

tortfeasor situation involving both defendants and the police. 

They argued that Niles's damages were caused by her arrest. The 

ttsubstantial factor,I1 or legal cause, test is appropriate where the 

acts of each of several persons acting separately might have been 

sufficient to produce the result. Young v. Flathead County (Mont. 

1988), 757 P.2d 772, 777, 45 St.Rep. 1047, 1053. We conclude that 

giving the instruction on legal cause was not error. 

ISSUE VIII 

Did the court err in denying a new trial after refusing 

to allow certain cross-examination of plaintiff's expert 

on emotional distress? 

Dr. Seitz, a clinical psychologist, examined Niles one month 

prior to trial. He testified on the issue of her emotional and 

mental distress resulting from defendantst actions. The court 

prohibited defendants from cross-examining Dr. Seitz on a portion 

of his notes which indicated that Niles had told him that the 

daughter of Baker, the accountant, had tried to get into Niles's 

house twice. Defendants argue that Dr. Seitz's notes on the 

subject of Baker's daughter go to the bases for his conclusion and 

to Niles's credibility. 
Determination of relevance of testimony, including expert 

testimony, is subject to the trial court's discretion. Cash v. 

Otis Elevator Co. (1984), 210 Mont. 319, 332, 684 P.2d 1041, 1048. 

In examining the record, we do not find that the District Court 

abused its discretion in prohibiting the question about the 

statement regarding Baker's daughter. Neither Baker's daughter nor 

Baker were defendants. The statements about attempted entries were 

not brought up in direct examination nor did defendants' counsel 

make an offer of proof of what the evidence would show. 

Defendants also argue that they should have been allowed to 

cross-examine Dr. Seitz on the effect on Niles if she had been reemployed by them. That matter is disposed of in the discussion 

under issue VI above. We hold that the lower court did not err in 

refusing to allow the desired cross-examination of Dr. Seitz. 

ISSUE IX 

Did the court err in denying defendants' motions for 

directed verdict and a new trial on negligent infliction 

of emotional distress? 

Defendants argue that emotional distress is not a distinct 

cause of action in this case and that the conduct of Leonard Vainio 

does not form an adequate basis for compensation for emotional 

distress. They maintain that the court should have allowed a 

directed verdict on this issue. They also argue that the tort of 

negligent infliction of emotional distress can only be claimed by 

a plaintiff other than the victim. Defendants are mistaken in 

their understanding of the law of negligent infliction of emotional 

distress. 

Where there is evidence of substantial invasion of a legally 

protected interest which causes a significant impact upon the 

person of the plaintiff, emotional distress is cornpensable without 

showing of physical or mental injury. Johnson v. Supersave 

Markets, Inc. (1984), 211 Mont. 465, 473, 686 P.2d 209, 213. Niles 

presented evidence that she was depressed and withdrawn after this 

incident. Dr. Seitz testified that he diagnosed her as suffering 

from post-traumatic stress disorder. Niles's husband testified 
that her personality had changed and that their marriage had 

suffered as a result of defendants' actions. We conclude that the 

District Court did not err in denying defendants' motions on the 

cause of action for negligent infliction of emotional distress. 

We affirm the judgment on the verdict against Leonard E. 

Vainio as an individual and the partnership of Leonard E. Vainio 

and David G. Vainio under the name of Big Sky Eyewear, a/k/a 

We concur: 

,/ - 

/ Justices