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, 1989Mr. Chief JusticeJ. 

### A. Turnagedelivered theOpinion of theCourt. 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 defendants1motions 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? Defendantsown a chain of optical stores. Dr. Leonard Vainio was responsible for the Bozeman store where,beginning inNovember 1984,plaintiff JaniceA. Niles worked. By April 1986,Niles hadreceived several wage increases and was acting as manager of the store. InApril 1986,Leonard Vainio told his accountant Gerry Baker that another employeehad seenNiles takingmoney from the till at the Bozeman store. Vainio and Baker went to the police. On May 1, 1986,twopolice officers made an attempted wsting,ll purchasing

a pair of sunglasses from Niles with marked bills. They saw her put themoney 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 theyhad been told, the officers felt theyhad 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. Thepolice did not find themarked bills inher possession, but Niles did have a large amount of cash. She explained thatmost of itwas from cashingherhusband's paycheck thatday and that $60 of itwas from the optical storebecause shewas on her way to UPS to pick up a C.O.D. package for the store. Niles was chargedwith misdemeanor theft of the $12 from the sunglasses. This charge depended upon Leonard Vainiolsstatements 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 proceedingswere eventually droppedwhen defendantsfailed to supply the recordsnecessary to supportprosecution. Niles was forced to go through the Department of Labor and then judiciallyordered "till-tapswof the defendants1business to get her final paycheck. At trial, Niles presented testimony by several former employees of ProfessionalEyecarethat she was agood and respected employee and that defendants1money-handling and record-keeping practiceswere shoddyandhaphazard. Theoptical shop employeewho Leonard Vainio claimed had reported seeing Niles take money fromthe till testifiedby deposition. Sheemphaticallydenied 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. Ina general verdict, the jury awardedNiles $470,000 in damages. ISSUE I Did the court err in dismissing David Vainio, a partner of Professional Eyecare, from the suit inhis individual capacity?

At the close of Niles1case-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 itspartners 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 wasundisputed at trial that David and Leonard Vainio were doing business as a partnership. There was no evidence that David Vainio was personally involvedwith any of thewrongful acts claimed by plaintiff. This does not affecthis liability as apartner. 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 jurybased

onthemisrepresentationsand false informationLeonardVainio gave to the police. She also contends that various other testimony could support a finding of themalice, oppression,and fraudnecessary to support punitive damages. Section 27-1-221, MCA (1985), governs the award of punitive damages in this case. Itprovides at subsection (1) that punitive

### damagesmay be awarded in a noncontract action where thedefendant has been guilty of oppression, fraud, or malice, actual or presumed. At subsection (2) it provides that "[tlhe jurymay not award exemplaryorpunitive damagesunlesstheplaintiffhasproved 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 

### courtmade 

### its ruling strikingNiles's claim for

### punitive damages at the close of trial, just before jury instructionswere settled. The court stated: Our major problem is punitive damages. I 

### don't see apunitive damage casehere. You've got a real question of factto show that there hasbeen actual damages. Youhave to convince the jurythere is a discharge. Shehadn't say [sic] she was fired. We didn't hear anybody else say that. Seemy point? The evidence I 

### have heard here indicates there is some serious question of fact for the jury has to resolveastowhat 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. 

### Idon't think it's a punitive damage case and I 

### am granting themotion, 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 thestatute. We therefore hold that the court did not err in striking the claim for punitive damages. ISSUE I11 Did the court err in denying defendants1motions 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 fromAlaska and Kansas, defendants assert that a qualified privilege exists for a statementmade by an employer about an employee for theprotection 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). Defendantsdid not offer a jury instruction on qualified privilege, insteadusing 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 bymaking his statements without good faith. Wehold that there was no error on the issue of defamation. ISSUE IV Did the court err in denying defendants1motion for a directed verdict and a newtrial on wrongful termination? Defendants argue that there was no issueof fact regardingany 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 ofconstructive 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 employeehas been constructively fired. Itdefies human experiencetobelieve thatNileswould 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 defendants1actions in good faith?
Defendants maintain that it was error to allow expert testimony ongood faithand fairdealing. Theirposition is that this invaded the province of the jury. However, this Court has explicitly approved of expert testimony onbreach of the covenant of good faith and fairdealing. Crenshawv. Bozeman DeaconessHosp.

(1984), 213Mont. 488, 502, 693 P.2d 487,494. "Faultarising 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. Thedefendants alsoargue that, when read incombination, the instructions given on good faith and fair dealing effectively rendereda directedverdict 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

### existedbetween Niles anddefendants,and instructionno. 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: [alnyemploymentmay 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 dutiesof the employment. However,an employer has a duty to act in good faith and deal fairly in discharging an employee.
We find no error. ISSUEVI 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 courtlsexclusion 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 offerwas made prior to the filing of the lawsuit, it was not part of compromisenegotiations. 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 doesnot clarify whether litigation mustbe inprogressbefore it takes effect. Inthis case,at the time the job offer wasmade, both parties had hired attorneys and a draft of the complaint had

### been sent to defendants1attorney. Itwas certainly clear at that time thatNiles 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 thanproximate cause? Instructionno. 11 to the jury stated that "[a] legal cause of the injury is a causewhich is a substantial factor inbringing it about.It Defendants argue that the jury should have been instructed on the "but fort1test instead of the Ilsubstantial factort1 testbecause onlyonedefendant remained afterDavidVainio

was dismissed as a defendant. It was defendantstposition 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,I1or legal cause,test isappropriate where the acts of each of several persons acting separately might have been sufficienttoproduce the result. Youngv. Flathead County (Mont. 1988), 757P.2d 772, 777, 45 St.Rep. 1047, 1053. We concludethat giving the instruction on legal causewas not error. ISSUEVIII Did the court err in denying a new trial after refusing to allow certaincross-examination ofplaintiff's expert on emotional distress?

Dr. Seitz, a clinical psychologist, examined Niles onemonth 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 subjectof Baker's daughter go to thebases forhis 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), 210Mont. 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 statementregardingBaker's daughter. Neither Baker's daughternor Bakerweredefendants. The statements aboutattempted entrieswere 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 shehad been reemployed by them. That matter is disposed of in the discussion under issueVI 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

causeof action in this caseand that the conduct of LeonardVainio 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 theirunderstanding of the lawofnegligent 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 theplaintiff, emotional distress is cornpensablewithout showing of physical or mental injury. Johnson v. Supersave Markets, Inc. (1984), 211Mont. 465, 473, 686P.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