Court Opinion

ID: 9676814
Source: CourtListenerOpinion
Date Created: 2023-08-24 05:34:49.014676+00
Date Added: 2024-06-11T18:16:51.480854
License: Public Domain

THOMAS, Chief Justice,
concurring and dissenting.
The evidence is legally sufficient, I agree, to support the finding that Dutsch-mann was discharged by Federal Express in retaliation for filing sexual-harassment complaints. This entitles her to recover not more than two years’ back pay and discretionary reasonable attorney’s fees. See Tex.Rev.Civ.Stat.Ann. art. 5221k, § 7.01(d)(1), (e) (Vernon Supp.1992). Thus, I have no problem with affirming the portion of the judgment awarding $20,000 in back wages and $19,000 in attorney’s fees.
I disagree, however, with the affirmance of the award of $50,000 exemplary damages. Article 5221k does not authorize the recovery of punitive damages. Id. § 7.01 (Vernon 1987 & Supp.1992). Unless their recovery can be justified under either a contract or tort theory, or under what is called a “contort” theory, then the recovery of exemplary damages is clearly unwarranted. I can find no basis for an award of exemplary damages under any of these theories.
In my view, the evidence conclusively establishes that Federal Express is entitled to a take-nothing judgment on all theories that would possibly support exemplary damages. Accordingly, I would sustain its second and fourth points, in which the company alleges that the court should have granted it an instructed verdict, and reform the judgment to remove the exemplary damages. I would then affirm the judgment as reformed.
MAJORITY HOLDING
These quotes from the majority opinion fairly illustrate, I believe, the basis for their affirmance of the award of exemplary damages:
• “We hold that, under the particular facts of this case arising from the express language [in the handbook] that Federal Express used to grant Dutsch-mann the GFTP, the court properly submitted question two. Thus, she established a contract whereby Federal Express gave up the right to terminate her at will.”
• “Although no question was included in the charge expressly addressing a breach of contract by Federal Express, the question of the existence of a contract was submitted and no sufficient objection or tender was made to the omission of a question of breach; thus the element of breach is deemed found in support of the judgment.”
• “Although we agree with the general proposition that such a covenant [of good faith and fair dealing] has never been recognized in Texas [in the employment context], we believe that Federal Express has, by granting the GFTP, imposed such a duty on itself. ... By implementing the GFTP after her employment was terminated, including the detailed ‘guidelines’ and the Board of Review, Federal Express acknowledged its duty to administer the grievance procedure fairly and equitably.”
• “Having determined that Federal Express imposed upon itself a duty of good faith and fair dealing by the express language of its Policy and Procedure Manual, we conclude that the court was justified in submitting question three to the jury. Based on the jury’s finding that Federal Express failed to exercise good faith and fair dealing in the conduct of the GFTP, we turn to the propriety of the award of punitive damages.”
• “[T]he rule is that breach of the duty of good faith and fair dealing alone will not support an award of punitive damages.... Punitive damages are recoverable for such a breach under the same principles allowing recovery of those damages in other tort actions — that is, the injured party must show the other party acted with conscious indifference to his rights.... Because there is factually-sufficient evidence to support a finding that Federal Express was consciously indifferent to [Dutschmann’s] rights, it is *814deemed [found] in support of the judgment.”
The holdings can be distilled even further by paraphrasing:
• The handbook created a contract right to the grievance procedure that altered Dutschmann’s at-will status.
• Federal Express breached the contract.
• The contract created by the handbook contractually imposed the covenant of good faith and fair dealing on Federal Express.
• Federal Express breached the covenant.
• Federal Express acted with conscious indifference to Dutschmann’s rights.
• The breach of the contractually imposed covenant of good faith and fair dealing by consciously indifferent acts entitled Dutschmann to exemplary damages.
Make no mistake about it — the majority is upholding an award of punitive damages based on a pure breach of contract, i.e., the breach of what they see as a contractually imposed duty of good faith and fair dealing. They justify the award by considering the nature of the conduct surrounding the breach. They make no pretense of basing the recovery on a breach of an independently and distinctly imposed tort duty.
The majority’s analysis is flawed for three reasons. First, it ignores the legal question raised in Federal Express’ second point — Did the disclaimers and Dutsch-mann’s acknowledgment that the handbook created no contract between her and the company preclude a contract from ever arising as a matter of law? The majority avoids the legal question by simply saying the jury found that a contract existed.
Second, it confuses the tort duty of good faith and fair dealing imposed by law, the breach of which can support the recovery of tort-type damages, with the duty of good faith and fair dealing inherent in each contract, whose breach will not support tort damages.
Third, it ignores directly-on-point Supreme Court case law unequivocally holding that punitive damages do not flow from the breach of a contractually imposed duty. The Supreme Court has clearly spoken on the recovery of punitive damages from a breach of contract and prescribed the test, and this area of the law is not, in my opinion, still open for debate or interpretation.
DISCLAIMERS
Could any contract ever arise between Federal Express and Dutschmann in the face of the disclaimers in the handbook and Dutschmann’s express agreement that the handbook created no contract rights? This is the pivotal question. If the disclaimers and acknowledgment precluded any contract from arising, then there was nothing to breach and, even under the majority’s view, nothing on which to base an award of exemplary damages.
The majority says:
Federal Express should not be allowed to unilaterally disclaim post-termination rights that it has granted to its employees nor be allowed to require the employees, as a condition of employment, to negate the legal effect of the language in its own handbook. On the one hand, Federal Express wants to recruit and retain employees by offering them specific rights, including the GFTP. On the other hand, it wants to say that it is not bound by the grant of those rights. An employer simply cannot have it both ways.
(Emphasis added).
This approach presumes, without answering the threshold question relating to the legal effect of the disclaimers, that the handbook granted Dutschmann contract rights to the grievance procedure. Although declaring that Federal Express “cannot have it both ways,” the majority is nevertheless willing to let Dutschmann have it both ways. Apparently, she can acknowledge the disclaimers, expressly agree that the handbook creates no contractual rights, and then sue and recover on the theory that the handbook indeed created a contract. The provisions in a handbook relating to post-termination procedures become “meaningless,” according to the majority, if the parties disclaim any *815contractual intent. No more meaningless, perhaps, than the explicit disclaimers and Dutschmann’s express agreement that, in my opinion, precluded any contract from arising.
Basic rules of contract law require a legal conclusion that the express disclaimers in the handbook and Dutschmann’s acknowledgment prevented any contract from arising. The most elementary rule, of course, is that the parties’ mutual agreement is essential to the creation of a contract. Haws & Garrett G. Con., Inc. v. Gorbett Bros. Weld. Co., 480 S.W.2d 607, 609 (Tex.1972). They must communicate their mutual assent to each other. Garcia v. Villarreal, 478 S.W.2d 830, 832 (Tex.Civ.App.—Corpus Christi 1971, no writ). Whether there has been the necessary meeting of minds is determined objectively from what the parties said and did, not from their subjective states of mind. Schawe v. Giles, 55 S.W.2d 588, 589 (Tex.Civ.App.—San Antonio 1932, writ ref’d); Adams v. Petrade Intern., Inc., 754 S.W.2d 696, 717 (Tex.App.—Houston [1st Dist.] 1988, writ denied). Finally, a contract cannot be implied in fact contrary to the expressed intent or understanding of the parties or contrary to the expressed declaration of the party sought to be charged with a contract duty. Houston Gen. Ins. Co. v. Lane Wood Indus., 571 S.W.2d 384, 392 (Tex.Civ.App.—Fort Worth 1978, no writ).
Thus, for there to be a contract right to the grievance procedure, Federal Express and Dutschmann must have mutually assented to its creation and communicated their assent to each other. Not only did the company expressly negate its assent to the creation of any contract from the handbook, Dutschmann expressly acknowledged Federal Express’ disclaimer and expressed her mutual agreement and understanding that the handbook created no contract rights. The only meeting of their minds was on a mutual disclaimer that the handbook created no express or implied contract. Moreover, a contract cannot arise by implication from the handbook because it would be contrary to the parties’ express mutual understanding and contrary to the express declaration of Federal Express, the party sought to be charged.
Disclaimers have the legal effect of preventing the creation of contract rights. E.g., Hicks v. Baylor University Medical Center, 789 S.W.2d 299, 302-03 (Tex.App.—Dallas 1990, writ denied) (disclaimer in employee handbook); Berry v. Doctor’s Health Facilities, 715 S.W.2d 60, 61-62 (Tex.App.—Dallas 1986, no writ) (disclaimer in employee handbook). Generally, any promissory obligation that can be voluntarily assumed can be voluntarily disclaimed. Yudof,1 Contorts and the Muddled Quest for Bright Lines, State Bar of Texas Advanced Civil Trial Course Book, § MM at 8, September 1991 [hereinafter Muddled Quest ].
One is left to speculate about the basis for the majority’s declaring that an employer and employee cannot legally disclaim the existence of a contract arising from a handbook. Is it based on public policy? If so, other courts have failed to see that basis.
I would not so lightly interfere with the right of the employer and employee to contractually agree that a company handbook does not create legal rights, especially on the ephemeral ground that an employer “just shouldn’t be allowed to do that.” Accordingly, I would follow those cases that recognize the legal effect of disclaimers and rule as a matter of law that the handbook created no express or implied contract. See id.
This case law also includes White v. Federal Exp. Corp., 729 F.Supp. 1536, 1547-49 (E.D.Va.1990), aff'd, 939 F.2d 157 (4th Cir.1991). There the court held that the identical disclaimers and employee acknowledgment involved here precluded any contract to the grievance procedure from ever arising. Id. 729 F.Supp. at 1549. The majority admits that the “holding in White is more difficult to reconcile, because it involves virtually the same Federal Express handbook as was furnished to Dutschmann.” Their difficulty is self-evident. How do *816you distinguish a case (1) involving the same handbook, (2) containing identical disclaimers and acknowledgments, (3) deciding the same legal questions presented in this case, but (4) expressly rejecting the contract analysis used by the majority to reach a contrary result? Nevertheless, they attempt to distinguish White on the ground that the federal court held as a matter of law that no fact issue existed about a modification of the at-will relationship. What they overlook, of course, is that no fact issue existed in White precisely because the disclaimers, the employee’s acknowledgment, and the company’s unilateral right to modify or withdraw the grievance procedure precluded any contract right from arising as a matter of law. See id.
The majority opinion places great emphasis on the trial court’s submitting to the jury the fact question whether the handbook created a contract between Federal Express and Dutschmann and the jury’s affirmative answer that it did. The jury cannot answer the legal question raised by Federal Express’s second point — Did the disclaimers and Dutschmann’s acknowledgment preclude a contract from arising as a matter of law? Logically, there could be no fact issue for the jury to answer if the disclaimers legally precluded any contract from arising.
PUNITIVE DAMAGES
CONTRACT THEORY
Assuming that there was a contract and a breach, the Supreme Court has unequivocally prescribed the test for determining whether Federal Express’ conduct creates a contract or tort action or both — i.e., a “contort”:
If the defendant’s conduct ... would give rise to liability independent of the fact that a contract exists between the parties, the plaintiff’s claim may also sound in tort. Conversely, if the defendant’s conduct ... would give rise to liability only because it breaches the parties’ agreement, the plaintiff’s claim ordinarily sounds only in contract.
See Southwestern Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494 (Tex.1991). Stated another way, “[Wjhen a party must prove the contents of its contract and must rely on the duties created therein, the action is ‘in substance an action on the contract, even though it is denominated an action for negligent performance.’ ” Id. at 496 (Gonzalez, J., concurring); also, International Printing Pressmen and Ass’ts Un. v. Smith, 145 Tex. 399, 198 S.W.2d 729, 735 (1946).
Dutschmann necessarily had to plead and rely on a contract right to the grievance procedure. Certainly, Federal Express had no liability apart from such a contract for failing to provide her with one. Under the circumstances, Dutschmann’s action rests solely in contract because the company’s conduct would only create liability based on a breach of the contract. See DeLanney, 809 S.W.2d at 494.
Assuming that the handbook created a contract and that it was breached, Dutsch-mann was not entitled to recover exemplary damages regardless of how capricious, intentional, flagrant, or malicious the conduct surrounding the breach. See Manges v. Guerra, 673 S.W.2d 180, 184 (Tex.1984); Amoco Production Co. v. Alexander, 622 S.W.2d 563, 571 (Tex.1981). The nature of the breaching party’s conduct is irrelevant and is to be disregarded. Frank J. Cavico, Jr., Punitive Damages For Breach of Contract — A Principled Approach, 22 St. Mary’s L.J. 357, 370 (1990). (This law review article contains an excellent discussion of the theory behind exemplary damages and their general inapplicability to a breach of contract under Texas case law.) None of the traditional exceptions to this general rule are applicable here: breach of a contract to marry, breach of contract by a public utility, breach of contract by a fiduciary, breach of contract accompanied by independent fraudulent-type conduct, or breach of contract resulting in a concomitant tort. See id. at 376.
Only two exceptions could possibly be applicable under the facts: breach by a fiduciary and breach resulting in an independent tort. The fraud exception is not *817available here because the tort of fraud must be separately pleaded and proved. See C & C Partners v. Sun Exploration & Prod., 783 S.W.2d 707, 719-20 (Tex.App.—Dallas 1989, writ denied). Moreover, the jury never found any element of fraud, and no such findings can be deemed in favor of the judgment. See Tex.R.Civ.P. 279. Therefore, assuming that the majority is correct on its contract theory, the breach itself must have amounted to an independent tort resulting in a distinct tortious injury with actual tort-type damages before Dutschmann could recover exemplary damages. See Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex.1986). There could be no award of exemplary damages here because the jury did not award any actual tort-type damages. See id.
GOOD FAITH AND FAIR DEALING
In Question 3 the jury found that Federal Express failed to exercise good faith and fair dealing in administering the grievance procedure. The company’s fourth point is that an implied covenant of good faith and fair dealing does not arise from an employment relationship as a matter of law.
Texas has recognized that the law implies a tort duty of good faith and fair dealing on certain contract-based relationships:
The common thread among the cases in which courts have done so is a special relationship between the parties to the contract. That special relationship either arises from the element of trust necessary to accomplish the goals of the undertaking, or has been imposed by the courts because of an imbalance of bargaining power. [The court then lists the areas in which Texas recognizes such a special relationship to exist.] ... In all the cases cited above, the duty of good faith and fair dealing springs from the relationship, not from the contract.... In situations where the duty of good faith and fair dealing does exist, public policy would dictate that it cannot be disclaimed.
English v. Fischer, 660 S.W.2d 521, 524-25 (Tex.1983) (emphasis added). Breach of the imposed-by-law duty constitutes a tort and will indeed support an award of exemplary damages if the conduct of the breaching party is in conscious disregard of a party’s rights. Arnold v. Nat. County Mut. Fire Ins. Co., 725 S.W.2d 165, 168 (Tex.1987) (holding that “exemplary damages and mental anguish damages are recoverable for a breach of the duty of good faith and fair dealing under the same principles allowing recovery of those damages in other tort actions ”) (emphasis added in the quote from the opinion).
However, the Restatement (Second) of Contracts recognizes a common-law duty: “Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.” Restatement (Second) of Conteacts § 205 (1979). A breach of this duty is nothing more than a simple breach of contract that does not entitle the wronged party to recover exemplary damages. Muddled Quest, State Bar of Texas Advanced Civil Trial Course Book, § MM at 5. Thus, when this duty is breached, the general rule in Texas would apply — i.e., the conduct of the breaching party is irrelevant and is to be disregarded. See Manges, 673 S.W.2d at 184.
The majority acknowledges at the outset that no Texas court has ever recognized that the relationship of employer-employee is so special that the law imposes a tort duty of good faith and fair dealing upon the employer. Even the California courts, which have been at the forefront in implying a tort duty of good faith and fair dealing in virtually all contract-based relationships, have expressly refused to do so in the usual employment relationship. Foley v. Interactive Data Corp., 47 Cal.3d 654, 254 Cal.Rptr. 211, 765 P.2d 373 (1988). In fact, the Texas Supreme Court has rejected the California implied-tort-duty approach in the strongest possible language: “The novel concept ... would abolish our system of government according to settled rules of law and let each case be decided upon what might seem ‘fair and in good faith,’ by each fact finder.” English, 660 S.W.2d at 522. Logically, the duty of good *818faith and fair dealing does not arise from the ordinary employer-employee relationship because, otherwise, the at-will doctrine would be completely abrogated. Day & Zimmermann, Inc. v. Hatridge, 831 S.W.2d 65, 71-72 (Tex.App.—Texarkana, 1992, n.w.h.); Casas v. Wornick Co., 818 S.W.2d 466, 468-69 (Tex.App.—Corpus Christi 1991, writ denied).
Seizing upon the language in the so-called contract, that Federal Express would administer the grievance procedure fairly and equitably, the majority first declares that the company contractually imposed upon itself the duty of good faith and fair dealing. Then, holding that the evidence will support a finding that the company acted in conscious disregard of Dutsch-mann’s rights in breaching the contractually imposed duty, the majority deems that finding in support of the judgment and affirms the award of exemplary damages. Thus, as already noted, they clearly base the award of exemplary damages upon the breach of a contractually imposed duty.
This ingenious approach confuses (1) the tort duty of good faith and fair dealing implied by law on a contract-based relationship so special that one party must act as a fiduciary toward the other and (2) the common-law duty of good faith and fair dealing that the Restatement (Second) of Contracts says is inherent in each contract.
A breach of the first duty meets the DeLanney test for the recovery of tort-type damages: “If the defendant’s conduct ... would give rise to liability independent of the fact that a contract exists between the parties, the plaintiffs claim may also sound in tort.” DeLanney, 809 S.W.2d at 494. The tort liability springs from the parties’ relationship, not the contract. English, 660 S.W.2d at 524. Under the majority’s analysis, however, Federal Express’ liability arose solely from the breach of a contractually imposed duty, not from a duty independently imposed by law and extraneous to the contract.
Likewise, a breach of the duty of good faith and fair dealing recognized by the Restatement (Second) of Contracts meets the DeLanney test for an action based exclusively on contract: “[I]f the defendant’s conduct ... would give rise to liability only because it breaches the parties’ agreement, the plaintiff’s claim ordinarily sounds only in contract.” DeLanney, 809 S.W.2d at 494. As already noted, the majority confuses this contractually imposed duty with the tort duty of good faith and fair dealing imposed by law. Thus, because Federal Express breached the duty of good faith and fair dealing contractually imposed upon itself, and its liability would depend solely upon the contract, Dutsch-mann’s suit rests exclusively on the contract. See id.
Application of the DeLanney test to the majority’s contract analysis forces a conclusion that Federal Express’ breach of a contractually imposed duty of good faith and fair dealing would not support the recovery of tort-type damages. See id. Consequently, the nature of Federal Express’ conduct, if there was a contract to breach, is irrelevant. See Manges, 673 S.W.2d at 184.
TORT OR “CONTORT” THEORY
At the conclusion of its discussion of punitive damages and of the reason why their award is justified by Federal Express’ breach of contract, the majority makes passing mention of the common-law duty discussed in Montgomery Ward & Co. v. Scharrenbeck, 146 Tex. 153, 204 S.W.2d 508, 510 (1947), referring to this quote: “Accompanying every contract is a common-law duty to perform with care, skill, reasonable expedience and faithfulness the thing agreed to be done, and a negligent failure to observe any of these conditions is a tort, as well as a breach of the contract.”
If the majority relies on the common-law duty in Scharrenbeck to hold that breach of the Federal Express contract also resulted in a tort — i.e., a “contort” — then they misinterpret the quote. As Justice Gonzalez notes in his concurring opinion in De-Lanney, the overly broad language in Scharrenbeck does not mean that every breach of contract results in a tort. De-Lanney, 809 S.W.2d at 496 (Gonzalez, J., concurring). This same caveat about misinterpreting Scharrenbeck is echoed elsewhere. Muddled Quest, State Bar of Tex*819as Advanced Civil Trial Course Book, § MM at 11. In fact, Dean Yudof puts the Scharrenbeck common-law duty in its proper perspective:
The Scharrenbeck duty [to perform with care, skill, reasonable expedience and faithfulness the thing agreed to be done] is important in a contract case only where a party has allegedly engaged in misfeasance or some allegedly substandard performance, and the contract specifies either no standard of care or a quite minimal standard.... Scharrenbeck then tells us, for purposes of determining whether a breach has occurred, that the minimum contractual standard, implied as a matter of law, is one of performance “with care, skill, reasonable expedience and faithfulness the thing agreed to be done.”
Id. § MM at 13-14. Thus, the common-law duty of care recognized in Scharrenbeck, which is implied by law in all contracts, is the legally mandated minimum standard of contract performance. Id. § MM at 14. It is not a common-law tort duty. Therefore, violation of this common-law duty of minimum performance results in a breach of contract but not the breach of a distinctly imposed tort duty. Id.
Accordingly, I believe Federal Express’ second point should be sustained on the ground that the court erred when it denied the company an instructed verdict based on conclusive evidence that the company was not liable to Dutschmann for exemplary damages on a contract theory. See DeLanney, 809 S.W.2d at 494; Neuhaus v. Kain, 557 S.W.2d 125, 136 (Tex.Civ.App.-Corpus Christi 1977, writ ref'd n.r.e.).
Although the majority avoided the issue by using a contract analysis, I would also sustain the fourth point, which asserts that the court should have granted Federal Express an instructed verdict on the tort theory of good faith and fair dealing. See Neuhaus, 557 S.W.2d at 136. I would reform the judgment by deleting exemplary damages and then affirm it.

. Dean Mark G. Yudof, University of Texas School of Law.