Roy R. Ferguson v. State of Tennessee

IN THE COURT OF APPEALS OF TENNESSEE

AT KNOXVILLE

April 17, 2002 Session

ROY R. FERGUSON v. STATE OF TENNESSEE

Appeal from the Claims Commission of the State of Tennessee

No. 96001513 W.R. Baker, Commissioner

FILED MAY 21, 2002

No. E-2001-02158-COA-R3-CV

Roy R. Ferguson (“Plaintiff”) filed suit in the Claims Commission against the State of Tennessee

(“Defendant”) after he was denied tenure at Roane State Community College (“Roane State”).

Plaintiff claimed Defendant, by and through its agents, failed to follow its policies and procedures,

thereby violating the implied covenant of good faith and fair dealing in his employment contract.

Defendant filed a motion to dismiss alleging, inter alia, the covenant of good faith and fair dealing

could not form the basis of a breach of contract claim against the State because it was not in writing.

Defendant also argued the Claims Commission (“Commission”) lacked subject matter jurisdiction

over the claim. The Commission concluded it did not have jurisdiction over Plaintiff’s claim

because the implied covenant of good faith and fair dealing was not written. The Commission

further concluded Plaintiff’s claim should have been brought pursuant to the provisions of the

Uniform Administrative Procedures Act and not in the Claims Commission, and dismissed the

complaint for lack of subject matter jurisdiction. We affirm, as modified.

Tenn. R. App. P. Appeal as of Right; Judgment of the Claims

Commission Affirmed, as Modified; Case Remanded.

D. MICHAEL SWINEY , J., delivered the opinion of the court, in which HOUSTON M. GODDARD, P.J.,

and HERSCHEL P. FRANKS, J., joined.

Samuel W. Brown, Knoxville, Tennessee, for the Appellant Roy R. Ferguson.

Eugenie B. Whitsell, Senior Counsel, and Elizabeth Martin, Senior Counsel, Nashville, Tennessee,

for the Appellee State of Tennessee.

OPINION

Background

Plaintiff filed a complaint against Defendant in the Claims Commission for the State

of Tennessee alleging breach of contract. Plaintiff began working at Roane State in 1989 as an

Assistant Professor/Program Director. According to the complaint, this position was a tenure-track

position subject to annual renewal for a maximum probationary period of seven years. Plaintiff

remained employed as an Assistant Professor until 1994. Plaintiff claims he was rejected for tenure

in 1994, despite his professional accomplishments and advancements. The denial of tenure

purportedly was based on poor evaluations which Plaintiff claims were “inaccurate, erroneous,

undocumented, and not supported by substantial evidence.” Plaintiff asserted Roane State’s agents

consistently violated Roane State’s own policies and procedures as well as those of the Board of

Regents during the process of denying him tenure. Plaintiff’s request for tenure was denied by the

Tenure and Promotion Committee, and Plaintiff apparently utilized the internal appeal process.

Plaintiff alleges proper procedures were not followed during that internal appeal process either.

Plaintiff claims that by violating its own policies and procedures and those of the Board of Regents,

Roane State breached the implied covenant of good faith and fair dealing contained within Plaintiff’s

employment contract.

Plaintiff’s employment contract with Roane State set forth Plaintiff’s title and annual

salary. As relevant to this appeal, the contract also provided as follows:

1. This appointment is made subject to the laws of the State of

Tennessee, the requirements and policies of the State Board

of Regents, and the requirements and policies of this

institution. Any renewal of this appointment will be subject

to all laws, requirements and policies in effect at the time of

renewal.

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5. This appointment is a tenure-track appointment, which is for

faculty employed in a probationary period of employment. A

tenure-track appointment does not include any right to

permanent or continuous employment or any interest in or

expectancy of renewal of the appointment. This appointment

is on an annual basis only, subject to renewal by this

institution, and annual approval by the State Board of

Regents, for a maximum probationary period of seven years.

The minimum requirements and conditions for the award of

tenure by the State Board of Regents upon completion of that

probationary period are set forth in the policy on academic

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freedom, responsibility and tenure adopted June 25, 1976, by

the Board, which policy is incorporated by reference as if

fully set forth herein. Requirements and conditions for the

recommendation of tenure by this institution are set forth in

the policies of the institution. Tenure may only be awarded

by positive action by the State Board of Regents.

Defendant filed a motion to dismiss claiming: (1) the State cannot be sued for breach

of an implied covenant because a claim for breach of contract against the State must be based on a

written contract; (2) Plaintiff essentially was asking the Commission to review the decision not to

award him tenure, a review outside the jurisdiction of the Commission; and (3) Plaintiff suffered no

damages because his last contract was for a period of one year and that contract was honored.

Plaintiff obviously opposed this motion.

A hearing was held on Defendant’s motion to dismiss. In ruling on the motion, the

Commissioner quoted a portion of the argument of Plaintiff’s counsel during the hearing, which is

as follows:

What we believe we can show, however, is that there was such an

overwhelming one-sided departure from even the minimum standards

for tenure and such a blatant disregard of these tenure standards and

the policies and procedures that are set forth in the Roane State

material itself, that the [Plaintiff was] denied a meaningful

consideration for tenure … a violation of the covenant of good faith

and fair dealings …. Roane State, by and through its agents, parted

so far from the tenure guidelines and the policies and procedures

incorporated in the contract that they did not, in fact, give …

meaningful consideration for tenure.…

The Commissioner observed that prior to 1987, the Commission had jurisdiction to

hear claims based upon breach of a written or implied contract, but a 1987 amendment narrowed the

jurisdiction to claims founded on an “express contract.” A 1989 amendment narrowed the

jurisdiction to claims based on a “written contract.” The legislature, therefore, “took away” the

Commission’s jurisdiction to hear claims based upon an implied contract. Since the covenant of

good faith and fair dealing was implied and not written, the Commissioner concluded the

Commission did not have jurisdiction. The Commissioner also concluded it was:

the intention of the legislature that this Commission not hear claims

for breach of contract when formal consideration of [Plaintiff’s]

rights admittedly has been given and the issue is whether meaningful

consideration has been given in terms of Board of Regents’ policies;

this kind of issue in Tennessee is to be heard in a different forum, in

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“contested case” hearings under the Uniform Administrative

Procedures Act.

The Commissioner granted Defendant’s motion to dismiss. Plaintiff appeals, arguing

the implied covenant of good faith and fair dealing is part of his written contract, and the

Commission does have jurisdiction over Plaintiff’s breach of contract claim.

Discussion

A motion to dismiss for failure to state a claim upon which relief can be granted tests

only the legal sufficiency of the complaint, not the strength of the petitioner's proof. Cook v.

Spinnaker's of Rivergate, Inc., 878 S.W.2d 934, 938 (Tenn. 1994). The basis of such a motion is that

the allegations contained within the complaint, considered alone and taken as true, are insufficient

to constitute a cause of action. Id. On appeal, we are required to construe the complaint liberally

in Plaintiff's favor and take the allegations of the complaint as true. Bell v. Icard, Merrill, Cullis,

Timm, Furen and Ginsburg, P.A., 986 S.W.2d 550, 554 (Tenn. 1999). Our standard of review on

appeal from a ruling on a motion to dismiss is de novo, with no presumption of correctness as to the

Commission’s legal conclusions. See, e.g., Stein v. Davidson Hotel Co., 945 S.W.2d 714, 716

(Tenn. 1997).

We believe the Commission erred when it concluded an implied covenant of good

faith and fair dealing cannot be enforced against the State because it is not in writing. In Tennessee,

each party to a contract bears a duty of good faith and fair dealing in its performance and

enforcement of the contract. See Davidson & Jones Development Co. v. Elmore Development Co.,

921 F.3d 1343, 1350 (6th Cir. 1991)(citing TSC Industries, Inc. v. Tomlin, 743 S.W.2d 169, 173

(Tenn. Ct. App. 1987); Covington v. Robinson, 723 S.W.2d 643 (Tenn. Ct. App. 1986)). While a

breach of contract claim against the State must be based on a written contract, we hold the implied

covenant of good faith and fair dealing, while not itself in writing, is a part of the written contract.

The contract sued upon, therefore, is a written contract and not an implied contract. We hold the

Commission erred when it concluded the covenant of good faith and fair dealing cannot be enforced

against the State because it is not part of a written contract.

Next, we discuss the Commission’s conclusion that Plaintiff’s claim should have been

brought pursuant to the provisions of the Uniform Administrative Procedures Act (“UAPA”), as

opposed to being filed in the Claims Commission. We agree with the Commission that Plaintiff

should have proceeded according to the terms of the UAPA and the Claims Commission lacked

jurisdiction over the claim for that reason.

In the State University and Community College System, the Board of Regents is

granted authority to promulgate policies addressing the granting of tenure. Specifically, Tenn. Code

Ann. § 49-8-301 provides:

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49-8-301. Authority of board. – (a) The board of regents

shall promulgate a tenure policy or policies for faculty at institutions

within the state university and community college system, which

policy or policies shall ensure academic freedom and provide

sufficient professional security to attract the best qualified faculty

available for the institutions.

(b) Pursuant to this part, the board shall:

(1) Define the nature of tenure at institutions, and the rights

and responsibilities of faculty with tenure;

(2) Determine the minimum qualifications and requirements

for eligibility of faculty for tenure, and the conditions precedent to the

award of tenure by the board;

(3) Provide for the termination of faculty with tenure by

institutions for adequate cause, for retirement or disability, and for

financial reasons or curricular reasons in an institution in the

discretion of the board or its designee; and

(4) Provide for all other matters relating to tenure deemed

necessary by the board.

(c)(1) Tenure shall only be acquired by a faculty member in

an institution upon positive approval by the board, and no other type

of tenure or right similar thereto shall be acquired by a faculty

member.

(2) Faculty with tenure shall be subject to all reasonable

changes in the tenure policy adopted by the board; provided, that

faculty who have previously been awarded tenure shall retain their

tenured status under any new policy. Present faculty in probationary

employment shall be given credit for service in an institution toward

completion of any new probationary period.

The Uniform Administrative Procedures Act is codified at Tenn. Code Ann. § 4-5-

101, et seq., and defines an “agency” as “each state board, commission, committee, department,

officer, or any other unit of state government authorized or required by any statute or constitutional

provision to make rules or to determine contested cases.” Tenn. Code Ann § 4-5-102(2). A

“contested case” is defined to include a “proceeding, including a declaratory proceeding, in which

the legal rights, duties, or privileges of a party are required by any statute or constitutional provision

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to be determined by an agency after an opportunity for a hearing.… ” Tenn. Code Ann. § 4-5-

102(3).

In State Board of Regents v. Gray, 561 S.W.2d 140, 142-43 (Tenn. 1978), our

Supreme Court held the Board of Regents was an “agency” as defined in the UAPA. The question

then becomes whether Plaintiff’s claim for denial of tenure is a “contested case” within the meaning

of the UAPA. In Dishmon v. Shelby State Community College, 15 S.W.3d 477 (Tenn. Ct. App.

1999), the plaintiff, Mr. Dishmon, sued seeking back pay after he was terminated and then

subsequently reinstated three years later. The trial court awarded back pay, and the defendant

appealed. On appeal, this Court stated:

Mr. Dishmon's petition sought judicial review under the

Tennessee Uniform Administrative Procedures Act. The Act,

however, is inapplicable to proceedings that do not fit within its

adjudicatory definitions. See National Health Corp. v. Snodgrass,

555 S.W.2d 403, 405-06 (Tenn. 1977); Mid-South Indoor Horse

Racing, Inc. v. Tennessee State Racing Comm'n, 798 S.W.2d 531, 536

(Tenn. Ct. App. 1990). Judicial review under the Act is limited to

final decisions in contested cases. See Tenn. Code Ann. §

4-5-322(a)(1) (1998); Ben H. Cantrell, Judicial Review under the

Tennessee Uniform Administrative Procedures Act--An Update, 13

Mem. St. U. L. Rev. 589, 595 (1983). Thus, judicial review under

Tenn. Code Ann. § 4-5-322 is not available if the proceeding to be

reviewed is not a contested case. See Mid-South Indoor Horse

Racing, Inc. v. Tennessee State Racing Comm'n, 798 S.W.2d at 536.

According to Tenn. Code Ann. § 4-5-102(3) (1998), a

"contested case" is a proceeding in which the legal rights, duties or

privileges of a party are required by any statute or constitutional

provision to be determined by an agency after an opportunity for a

hearing. To determine whether any particular dispute is a contested

case under the Uniform Administrative Procedures Act, we must

examine the applicable statutes and constitutional provisions to see

if any of them provide that a complainant's rights must only be

determined after an opportunity for a hearing. See William P.

Kratzke, A Review of Contested Case Provisions of the Tennessee

Uniform Administrative Procedures Act, 13 Mem. St. U. L. Rev. 551,

554 (1983). We have found no provision in the United States

Constitution, the Constitution of Tennessee, or the applicable statutes

that requires Shelby State to provide its deans with a hearing in

employment disputes.

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Dishmon, 15 S.W.3d at 480, 481. Because the plaintiff’s claim in Dishmon was not a “contested

case” within the meaning of the UAPA, this Court concluded the plaintiff should have pursued his

lawsuit as a breach of contract claim with the Tennessee Claims Commission. Since the plaintiff

was seeking judicial review of his claim for back pay pursuant to the UAPA, the courts lacked

subject matter jurisdiction and his claim was dismissed.

Based on Dishmon, we must determine if “the legal rights, duties or privileges of

[Plaintiff … were] required by any statute or constitutional provision to be determined by an agency

after an opportunity for a hearing.” Dishmon, 15 S.W.3d at 481. If so, Plaintiff’s claim is a

“contested case.” See Tenn. Code Ann. § 4-5-102(3). The answer to this question can be found in

Purisch v. Tennessee Technological University, 76 F.3d 1414 (6th Cir. 1996). In Purisch, the

plaintiff sued after being denied tenure. One of the various claims asserted by the plaintiff in that

case was brought pursuant to 42 U.S.C. §1983, and was based on alleged lack of due process under

the Fourteenth Amendment to the United States Constitution. The university’s policies provided a

tenure-track faculty member must be considered for tenure during the fifth year of residency, and a

recommendation shall be based on the faculty member’s performance. In affirming the grant of

summary judgment to the defendant on this claim, the United States Court of Appeal for the Sixth

Circuit held that Tennessee Technological University had developed “rules and fostered mutual

understandings regarding entitlement to a merit-based tenure review.… Consequently, the university

may not deny a candidate tenure without some degree of impartial inquiry into his or her

qualifications.” 76 F.3d at 1423. The Sixth Circuit went on to observe as follows:

Violation of a state's formal procedure, however, does not in and of

itself implicate constitutional due process concerns. See Levine v.

Torvik, 986 F.2d 1506, 1515 (6th Cir.) ("A state cannot be said to

have a federal due process obligation to follow all of its procedures;

such a system would result in the constitutionalizing of every state

rule, and would not be administrable."), cert. denied, – U.S. –, 113 S.

Ct. 3001, 125 L. Ed. 2d 694 (1993). In other words, the issue before

us is not whether Volpe and Quattlebaum conformed to Tennessee

Tech's official grievance procedure in reviewing the tenure decision.

Rather, the issue is whether Purisch was afforded the process due to

protect his property right to a fair tenure review process.

Purisch, 75 F.3d at 1423. The Sixth Circuit then noted the “root requirement” of due process is an

opportunity for a hearing, and the plaintiff in that case had received due process. Id. at 1423-24.

In the present case, Plaintiff alleges Defendant acted arbitrarily, capriciously, and

unlawfully “by failing to entertain [Plaintiff’s] tenure and promotion bid fairly and in good faith, and

in a manner consistent with the policies and procedures of the State Board of Regents and/or Roane

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State.”1 Unfortunately, we have not been provided a copy of the policies and procedures of Roane

State or the Board of Regents which Plaintiff claims were not followed. Likewise, we have not been

provided a copy of the transcript of the hearing on Defendant’s motion to dismiss. The

Commissioner held this was a contested case and, by implication, that Plaintiff was entitled to an

opportunity for a hearing during the tenure process. Plaintiff had the responsibility to provide this

Court with a record sufficient to enable us to determine if the policies and procedures which he

claims were violated entitled him to a due process hearing consistent with Purisch. Plaintiff had the

duty "to prepare a record which conveys a fair, accurate and complete account of what transpired in

the trial court with respect to the issues which form the basis of the appeal." Nickas v. Capadalis,

954 S.W.2d 735, 742 (Tenn. Ct. App. 1997). In the absence of an adequate record on appeal, this

Court will presume the Commission’s rulings were supported by sufficient evidence. See, e.g., State

v. Oody, 823 S.W.2d 554, 559 (Tenn. Crim. App. 1991). In light of the foregoing, we affirm the

Commissioner’s conclusion that Plaintiff’s claim was a “contested case” for purposes of the UAPA,

Tenn. Code Ann. § 4-5-102(3).2

Plaintiff challenges the alleged failure of Roane State to follow the proper policies

and procedures during the course of his denial of tenure. We acknowledge the Claims Commission

is the proper forum for a claim against the State based upon breach of a written contract executed

by one or more State officers with authority to execute the contract. Tenn. Code Ann. § 9-8-

307(a)(1)(L). We do not believe Plaintiff’s characterization of his claim as a breach of contract

somehow alters the true nature of this case thereby negating the UAPA and vesting the Claims

Commission with subject matter jurisdiction. See, e.g., Baptist Hospital v. Tennessee Department

of Health, 982 S.W.2d 339, 340-41 (Tenn. 1998) (“The hospitals argue that this Medicaid

reimbursement challenge is merely a breach of contract action. The claims commission generally

has exclusive subject matter jurisdiction over all monetary claims against the State. Tenn. Code

Ann. § 9-8-307. Accordingly, the hospitals argue that the claims commission had subject matter

jurisdiction in the case now before us. We disagree.… We have reviewed the hospitals' complaint

and the entire record on appeal. The hospitals' case is premised upon the contention that Tenn.

Comp. R. & Regs. ch. 1200-13-5-.08 is invalid because the rule violates OBRA '90. Accordingly,

the hospitals' claim is properly classified as a challenge to the validity of Rule 1200-13-5-.08.

Claims challenging the validity of or applicability of a statute, rule, or order must be brought

pursuant to the UAPA.”). Since Plaintiff’s claim is a “contested case”, Plaintiff should have pursued

his claim pursuant to the provisions of the UAPA despite Plaintiff’s characterization of his claim as

a breach of contract.

1

Plaintiff does not assert a claim th at his due process rights were vio lated.

2

There are due process and statutory procedural requirements found in Tenn. Code Ann. § 49 -8-3 03, b ut this

statute only applies to certain actions against tenured employees. Because Plaintiff was not tenured, the procedural

requirements found in this statute do not apply.

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We hold the proper avenue of relief for Plaintiff to pursue his “contested case” was

through the provisions of the UAPA. We, therefore, affirm the judgment of the Claims Commission

dismissing the complaint on the basis the Commission was without subject matter jurisdiction.

Conclusion

The judgment of the Claims Commission is affirmed, as modified, and this cause is

remanded to the Commission for such further proceedings as may be required, if any, consistent with

this Opinion, and for collection of the costs below. The costs on appeal are assessed against the

Appellant, Roy R. Ferguson, and his surety.

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D. MICHAEL SWINEY, JUDGE

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