Court Opinion

ID: 9624832
Source: CourtListenerOpinion
Date Created: 2023-08-22 07:19:10.264992+00
Date Added: 2024-06-11T12:08:32.355848
License: Public Domain

MR. JUSTICE WEBER,
dissenting:
I
The majority has not addressed the key legal issue presented in this case. Where the Sears-Prout written contract is clear and unambiguous, can the covenant of good faith and fair dealing be implied in such a manner as to negate the express contractual terms and allow recovery of tort damages?
The District Court concluded that the plaintiffs claims were precluded as a matter of law because of the clear and unambiguous language of the employment application and personal record card. On appeal, the majority reverses the District Court, concluding that there are issues of fact which preclude the granting of summary judgment. To reach that conclusion, it is necessary to ignore the terms of the written contract because those terms would preclude a factual inquiry into Sears’ termination of Tammy Prout. The majority opinion implies that the terms of Sears’ employment contract can be disregarded by a court of law. The majority has also implied that the employment at-will statute has no significance here. I do not agree with such a result. For that reason, I believe that it is necessary to critically examine the Montana cases and to compare our analysis of the law with that of other jurisdictions.
II
In the 1500’s, the English common law presumed that an employment contract with an annual salary computation was for a one year term. In the early 19th century, American courts borrowed the English rule, concluding that the rule was consistent with the predominant master-servant employment relationships of that time.
*160Then, in apparent response to economic changes sweeping the country, American courts abandoned the English rule and adopted the employment-at-will doctrine. This became the common law doctrine generally followed in the United States. Under that doctrine an employer was free to fire an employee hired for an indefinite term for good cause, no cause, or even for cause morally wrong, without being guilty of legal wrong. See generally, Wagonseller v. Scottsdale Memorial Hospital (1985), 147 Ariz. 370, 710 P.2d 1025.
In 1895 Montana enacted its termination of at-will statute providing:
“An employment having no specified term may be terminated at the will of either party on notice to the other . . . [with exceptions not here applicable]”
That section was adopted from the Field Civil Code, and has remained essentially unchanged until the 1987 enactment of the Wrongful Discharge from Employment Act, codified as §§ 39-2-901 to 914, MCA. The facts here preceded the enactment of that Act, which therefore does not apply in this case.
As pointed out in Wagonseller, the trend in the United States has been to create exceptions to the at-will employment doctrine with the result that the employer’s unlimited discretion to discharge at will has been limited. As pointed out in the majority opinion, most jurisdictions including Montana recognize an exception based on the employer’s violation of public policy. Several jurisdictions have recognized an exception based on an implied-in-fact promise of employment for a specified term. Other jurisdictions have recognized an exception where there is an implied-in-law contract term known as the implied covenant of good faith and fair dealing.
California has been one of the leading jurisdictions recognizing both an implied-in-fact contract to discharge only for good cause (See, Pugh v. See’s Candies, Inc. (1981), 116 Cal.App.3d 311, 171 Cal.Rptr. 917), and the implied covenant of good faith and fair dealing in employment contracts (See, Cleary v. American Airlines, Inc. (1980), 111 Cal.App.3d 443, 168 Cal.Rptr. 722). The court in Cleary held that an employer’s breach of the covenant would support an employee’s action in either tort or contract. That theory was adopted in a number of other appellate court decisions of the state of California. California reversed that position by its Supreme Court decision dated December 19, 1988, Foley v. Interactive Data Corp., (1988), 47 Cal.3d 654, 254 Cal.Rptr. 211, 765 P.2d 373.
In Foley the majority made a detailed review of cases in California *161and elsewhere. In a similar way the dissents carefully reviewed the contrary positions in detail. Foley is an excellent case through which to study the development of law in this entire area. The California Supreme Court concluded that an action based upon the implied covenant of good faith and fair dealing was an action upon contract and that tort damages were not recoverable. The Court considered the application of bad faith insurance cases to the employment context and stated:
“In our view, the underlying problem in the line of cases relied on by plaintiff lies in the decisions’ uncritical incorporation of the insurance model into the employment context, without careful consideration of the fundamental policies underlying the development of tort and contract law in general or of significant differences between the insurer/insured and employer/employee relationships. When a court enforces the implied covenant it is in essence acting to protect ‘the interest in having promises performed’ (Prosser, Law of Torts (4th ed. 1971) p. 613) — the traditional realm of a contract action — rather than to protect some general duty to society which the law places on an employer without regard to the substance of its contractual obligations to its employee . . . The covenant of good faith is read into contracts in order to protect the express covenants or promise of the contract, not to protect some general public policy interest not directly tied to the contract’s purposes. The insurance cases thus were a major departure from traditional principles of contract law.”
254 Cal.Rptr. at 231, 765 P.2d at 393. I agree with the foregoing analysis and with the conclusion reached by the Court:
“We therefore conclude that the employment relationship is not sufficiently similar to that of insurer and insured to warrant judicial extension of the proposed additional tort remedies in view of the countervailing concerns about economic policy and stability, the traditional separation of tort and contract law, and finally, the numerous protections against improper terminations already afforded employees.”
254 Cal.Rptr. at 234, 765 P.2d at 396. After its careful review of the numerous California appellate decisions holding to the contrary, the California Supreme Court then reached the following holding:
“. . . as to his cause of action for tortuous breach of the implied covenant of good faith and fair dealing, we hold that tort remedies are not available for breach of the implied covenant in an employ*162ment contract to employees who allege they have been discharged in violation of the covenant. (Emphasis supplied.)”
254 Cal.Rptr. at 239, 765 P.2d at 401. As will more fully appear in this dissent, I agree with the holding of the California Court. California joined the majority of jurisdictions in the United States which have either expressly rejected the notion of tort damages in such cases or impliedly done so by rejecting the covenant in employment at-will contracts. Under the majority opinion in this case, Montana remains one of the few, if not the only jurisdiction, which would allow recovery of tort damages for breach of implied covenant. I conclude that such a result is inconsistent with the general principles of contract law.
Ill
As I review the cases of other states and compare them to Montana’s cases, I believe it is essential to reanalyze our position in previous cases with regard to the covenant of good faith and fair dealing and the right of recovery in tort.
In Gates v. Life of Montana Ins. Co. (1982), 196 Mont. 178, 638 P.2d 1063, (Gates I) the majority concluded that the employee entered into an employment contract terminable at will; the employer later promulgated a handbook of personnel policies with termination procedures; the employer presumably sought to secure an orderly, cooperative and loyal work force by these uniform policies; the employee then developed the peace of mind associated with job security; and if the employer failed to follow its own policies, the peace of mind of its employees was shattered. We therefore said:
“We hold that a covenant of good faith and fair dealing was implied in the employment contract of the appellant. There remains a genuine issue of material fact which precludes summary judgment, i.e. whether the respondent failed to afford appellant the process required and if so, whether the respondent thereby breached the covenant of good faith and fair dealing.”
638 P.2d at 1067. The summary judgment was reversed and the case was remanded to the lower court.
As I review this case, I find some contradictions in the opinion. We stated that the employee handbook was not a part of the plaintiffs employment contract when she was hired and could not have been a modification of her contract because there was no new and independent consideration. We also stated that an employee handbook dis*163tributed after the employee is hired does not become a part of the employee’s contract. These statements seem inconsistent with the holding that “a covenant of good faith and fair dealing was implied in the employment contract.” We will further discuss the question of whether or not a covenant implied in the contract is in some manner contractual in nature.
In Gates v. Life of Montana Ins. Co. (1983), 205 Mont. 304, 668 P.2d 213, (Gates II), the majority again considered the same case and concluded that the jury verdict in favor of the plaintiff for $1,891 in compensatory damages and $50,000 in punitive damages should be affirmed. The majority referred to Lipinski v. Title Insurance Co. (1982), 202 Mont. 1, 655 P.2d 970, in which this Court held that punitive damages could be assessed for a bad faith insurance practice in the absence of a statutory provision. The Gates II majority further explained that an action for breach of an implied covenant of fair dealing at first blush may sound both in contract and in tort, but that the duty arises out of the employment relationship and yet exists apart from and in addition to any terms agreed to by the parties. The majority stated that the duty is much like the duty to act in good faith in discharging insurance contractual obligations and that such a duty is imposed by operation of law and its breach should find a remedy in tort. The majority referred to a 1906 Indiana case as authority. Without other significant authority the majority concluded:
“We hold that § 27-1-221, MCA, [the section which provides that in any action ‘not arising from contract’ where the defendant has been guilty of oppression, fraud, or malice, the jury may give exemplary or punitive damages] only exempts breach of contract actions from its provisions. Breach of the duty owed to deal fairly and in good faith in the employment relationship is a tort for which punitive damages can be recovered if defendant’s conduct is sufficiently culpable.”
668 P.2d at 215.
This is a key holding which I believe should be reexamined. As pointed out by Justice Gulbrandson in his dissent to Gates II, by allowing punitive damages the majority approved an independent tort of bad faith in at-will employment contracts whereas all other jurisdictions do so only when the determination violates public policy. In my own dissent I pointed out that Gates II was an action for the breach of the covenant of good faith and fair dealing, arising from the contract from which that covenant is implied. I pointed *164out that § 27-1-221, MCA, allowed punitive damages in any action not arising from contract. I suggested that it seemed clear that the breach of the contractual obligation did not justify an award of punitive damages under the express terms of the statute.
It is not appropriate in dissent to review all of the cases which have considered these theories. However, I do refer to Stark v. Circle K Corp. (Mont. 1988), [230 Mont. 468,] 751 P.2d 162, 45 St.Rep. 371. While I joined in that opinion, as I again review the matter, I question the following conclusions reached in Stark: that the covenant is implied as a matter of law based on the public policy of this state; that it does not depend on contractual terms for its existence; that the covenant of good faith and fair dealing is not subject to contractual waiver, express or implied; and that the duty exists apart from and in addition to any terms agreed to by the parties. It is important to consider the evidence which was before the Court in Stark as compared to the present case. It is true that in Stark there was a provision by which the employee agreed that he could be dismissed with or without cause. However, there were extensive provisions adopted by the employer including a policy guide with regard to termination, which Stark’s supervisor admitted was the policy guide which applied to the termination of Stark. That guide, of course, contained many provisions with regard to the manner of termination and the just cause requirement. That should be distinguished from the present case where there is no evidence that Sears issued any similar employer provisions with regard to either just cause or termination.
As I review the cases from other states, and consider both Stark and the present case, I conclude that the type of action in both Montana cases more properly should be described as one for the breach of “an implied-in-fact contract” as described in detail in Foley. I approve of the California analysis in Foley which pointed out that such implied-in-fact contract terms ordinarily stand on equal footing with express terms; and concluded there is no analytical reason why an employee’s promises to render services or his actual rendition of services may not support an employer’s promise to refrain from arbitrary dismissal. The California court noted that permitting proof of and reliance on implied-in-fact contract terms does not nullify the at-will rule, it merely treats such contracts in a manner in keeping with general contract law. I agree with the conclusion of the California court which found no sound reason to exempt the employment relationship from the ordinary rules of contract interpre*165tations which permit proof of implied terms. As a result, I conclude in both Stark and the present case that a more detailed analysis leads to a conclusion that the covenant of good faith is a part of the implied-in-fact contract and should be treated as are other contract cases. It then logically follows that tort damages are not recoverable.
In our analysis of the law, we should also consider the law previously adopted in Montana as it may apply to the present case. In Keith v. Kottas (1946), 119 Mont. 98, 172 P.2d 306, we quoted from 12 Am.Jur., p. 505, which stated that there cannot be an express and an implied contract for the same thing existing at the same time so that no agreement can be implied where there is an express one existing. The Keith case has been subsequently cited in Weston v. Montana State Highway Commission (1981), 186 Mont. 46, 606 P.2d 150 and McNulty v. Bewley Corporation (1979), 182 Mont. 260, 596 P.2d 474. This same theory is more clearly restated in 17 Am.Jur.2d 649 as follows:
“Intention or meaning in a contract may be manifested or conveyed either expressly or impliedly, and it is fundamental that that which is plainly or necessarily implied in the language of a contract is as much a part of it as that which is expressed .... Therefore, whatever may fairly be implied from the terms or nature of an instrument is, in the eyes of the law, contained in it.”
In addition, this authority states at 17 Am.Jur.2d 652:
“No meaning, terms, or conditions can be implied which are inconsistent with the expressed provisions. Expressed stipulations cannot, in general, be set aside or varied by implied promises. In other words, a promise or covenant is not implied where there is an express written contract provision covering it.”
Clearly this contradiction between the theory of an implied covenant and the existing written contract provision should be considered. Here we have a clear and unambiguous express contract which negatives the idea of an implied covenant. Both Foley and Wagon-seller point out that many jurisdictions in consideration of the Sears form of contract have refused to allow any form of implied covenant.
I would therefore conclude that the covenant of good faith and fair dealing in Montana is an implied-in-fact portion of the contract itself which is subject to general contract analysis under the law of Montana. I would also conclude that any violation of such an implied-in-fact covenant allows recovery only of contract damages and that punitive damages are not recoverable.
*166IV
In the present case, the District Court concluded that the plaintiffs claims were precluded as a matter of law by the language of the contract because that language in clear and unequivocal terms notified the plaintiff that her employment could be terminated at any time and for any reason, and therefore defeated the claims asserted by the plaintiff. The majority has chosen not to address this fundamental legal issue, instead returning the case to the lower court because of the claimed presence of material issues of fact precluding summary judgment. I disagree with that procedure.
Here we have facts which are significantly different from Gates I or Stark. In both of those cases there had been extensive conduct by the employer from which the covenant of good faith properly could be implied. Here, there is no evidence of conduct of that nature on the part of the employer. In addition, we have the specific contractual limitation which provides that no representative of Sears other than the president or vice president has any authority to modify the written contract which allows termination with or without notice, at any time. Neither Gates I nor Stark had a similar contract provision. Here Prout agrees that there was no modification of the written contract by the authorized officers of Sears. Under the facts presented for consideration at summary judgment, I do not conclude there is a material issue of ultimate fact which has been presented by the plaintiff.
In accordance with the Foley analysis, I would add that there has been no violation of public policy which justifies a tort theory of recovery. I would therefore conclude that the District Court should be affirmed because Prout’s claims are precluded as a matter of law by the language of the contract between the employer and the employee, and because of the absence of any violation of public policy.
MR. CHIEF JUSTICE TURNAGE and MR. JUSTICE GULBRANDSON concur in the foregoing dissent.
AMENDMENT TO DISSENT WHICH IS PART OF OPINION IN ENTITLED CAUSE DATED AND FILED APRIL 27, 1989
MR. JUSTICE WEBER,
amending the dissent:
Subsequent to this opinion, Sears filed a petition for rehearing. In that petition, Sears argues that the majority’s emphasis on factual *167issues contained in the pretrial order is erroneous. This is because the interpretation of the pretrial order had not been suggested by either party, was not considered by the District Court in granting summary judgment, and is a matter which first appears in the majority opinion as the basis for reversal.
The basic issue presented to the District Court and to this Court on appeal was whether the language of the employment contract and the employee record card, without evidence of modification, precluded the plaintiffs claims as a matter of law so that summary judgment was proper? Based on the evidence before it, the District Court concluded that the plaintiff’s claims were precluded as a matter of law and that no material issues of fact existed which would render a granting of summary judgment improper. A review of the materials before the court reveals no facts alleged by the plaintiff that she had developed any sense of job security or that her at-will employment contract had been modified in any way, either expressly or impliedly. The contested facts regarding Tammy Prout’s conduct, her treatment, or Sears’ timekeeping policies were contained in the pretrial order and were expressly reserved pending the motion for summary judgment. I conclude that it was improper for this Court to have ignored the basic inquiry as to whether plaintiff’s claims were precluded as a matter of law, and to focus instead on factual issues in the pretrial order which were secondary to the pending motion. Whether Sears is entitled to a rehearing on the matter is governed by Rule 34, M.R.App.P.
Rule 34(2), M.R.App.P., provides that a party is entitled to a rehearing if it can show that the Court has overlooked any questions decisive of this case. By deciding the propriety of summary judgment based upon factual issues presented in the pretrial order which were understood to be reserved pending the motion, the majority has indeed overlooked the basic inquiry in this case: whether the plaintiff’s claims were precluded by the at-will employment contract which she signed, which remained unmodified, and to which there had been no factual allegations of job security. Had the majority squarely addressed this issue, I do not see how it could have reached the result in this opinion.
I would grant Sears’ petition for rehearing and allow consideration of this case without interpreting the pretrial order. The basic inquiry as to whether plaintiff’s claims are precluded as a matter of *168law should be addressed in deciding whether summary judgment was proper.
MR. CHIEF JUSTICE TURNAGE and MR. JUSTICE GULBRANDSON join in the foregoing amendment to the dissent.