Gates v. Life of Montana Insurance

No. 82-468

I N THE SUPREME COURT O THE STATE O M N A A

F F O T N

1983

MARLENE S. GATES,

P l a i n t i f f and A p p e l l a n t ,

-vs-

LIFE O MONTANA INSURANCE COMPANY,

F

Defendant and Respondent.

Appeal from: District Court of t h e Eighteenth J u d i c i a l District,

I n and f o r t h e County o f G a l l a t i n ,

The H o n o r a b l e J a c k D. S h a n s t r o m , J u d g e p r e s i d i n g .

C o u n s e l o f Record:

For Appellant:

Wellcome & F r o s t ; Page Wellcome a r g u e d , Rozeman,

Montana

For Respondent:

Landoe, Brown, P l a n a l p , Komrners & L i n e b e r g e r ;

Gene I . Brown a r g u e d , Bozeman, Montana

Submitted: J u n e 6 , 1983

Decided: August 5 , 1983

Abr"G 5 1983

Filed:

-

Clerk

Mr. Justice Frank B. Morrison, Jr. delivered the Opinion

of the Court.

Plaintiff brought this action to recover damages for

breach of the covenant of good faith and fair dealing

implicit in an at-will, employment contract. Summary

judgment for defendant was reversed in Gates v. Life of

Montana (1982), Mont . , 638 P.2d 1063, 39 St.Rep.

16. The case was remanded for trial and resulted in a jury

verdict in favor of plaintiff for $1,891 in compensatory

damages and $50,000 in punitive damages. The trial court

entered judgment for plaintiff on compensatory damages but

entered judgment notwithstanding the verdict in favor of

defendant on punitive damages. Plaintiff appeals from the

granting of the judgment n.0.v.

Appellant commenced employment as a cashier with

respondent on July 29, 1976, under an oral contract of

indefinite duration. On October 19, 1979, she was called to

meet with her supervisor, Roger Syverson, and without prior

warning she was given the option of resigning or being fired.

She testified that while in a distraught condition and under

duress she signed a letter of resignation which was handed to

her by Syverson. Appellant stated that she signed the letter

of resignation because she thought it would be better for her

record and because Syverson told her he would give her a

letter of recommendation so that she could be reemployed.

Appellant went home and discussed the situation with her

husband who advised her to retrieve the letter of resignation

and inform her supervisor that she was not resigning.

Appellant stated that she immediately called Syverson and

demanded the letter be returned and that he promised to do

so. Syverson testified that she only requested a photocopy

of the letter.

Respondent's witnesses testified appellant was

discharged for carelessness, incompetency and

insubordination. In the first appeal we held there was a

submissible jury issue on breach of the implied covenant of

fair dealing in that appellant was discharged without warning

and an opportunity for hearing. The jury here found that

this covenant was indeed breached and awarded damages.

On appeal, we are concerned with two issues. First, can

punitive damages be awarded for breach of the covenant to

deal fairly? Secondly, does the evidence here create a jury

issue on punitive damages?

In ~ipinski v. Title Insurance Co. (19821, Mont .

, 655 P.2d 970, 39 St.Rep. 2283, this Court held that

punitive damages could be assessed for bad faith insurance

practices in absence of a statutory violation. We said in

Lipinski:

"Should there be any doubt, we now expressly hold

that insurance companies have a duty to act in good

faith with their insureds, and that this duty

exists independent of the insurance contract and

independent of statute. Any statements in our

cases, to the extent they may be or appear to be in

conflict with this holding, are expressly

overruled."

Likewise, punitive damages may be assessed for breach of

the obligation owed to deal fairly with an employee, if the

provisions of section 27-1-221, MCA, are satisfied. That

section provides:

"In anv action for a breach of an obliaation - not

arisini from contract where the defendant has been

guilty of oppression, fraud, or malice, actual or

presumed, the jury, in addition to the actual

damages, may give damages for the sake of example

and by way of punishing the defendant." (emphasis

added)

An action for breach of an implied covenant of fair

dealing, at first blush, may sound both in contract and tort.

The duty arises out of the employment relationship yet the

duty exists apart from, and in addition to, any terms agreed

to by the parties. In this respect, the duty is much like

the duty to act in good faith in discharging insurance

contractual obligations. See Lipinski v. Title Ins. Co.,

supra. The duty is imposed by operation of law and therefore

its breach should find a remedy in tort. Flint and Walling

Mfg. C0.v. Beckette (1906), 167 Ind. 491, 498, 79 N.E. 503,

505. Also see W. Prosser, Law of Torts (4th ed. 1971), 592

at 617-618.

We hold that section 27-1-221, MCA, 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.

We must examine the record in this case to determine

whether there is evidence which would permit a jury to find

malice, oppression or fraud attributable to the defendant.

Motions for judgment notwithstanding the verdict are only to

be granted when there is a complete absence of any credible

evidence to support the verdict. All evidence and all

inferences drawn therefrom must be considered in the light

most favorable to this appellant. Barmeyer v. Montana Power

Company (1983), Mont . , 657 P.2d 594, 40 St-Rep.

23. "The courts will exercise the greatest self-restraint in

interfering with the constitutionally mandated processes of

jury decision." Barmeyer at 40 St.Rep. 25; Jacques vs.

Montana National Guard (1982), Mont . , 649 P.2d

1319, 1325-26, 39 St.Rep. 1565, 1573-74.

With these rules in mind we review the testimony upon

which appellant must necessarily rely in her contention that

a jury issue was created on the matter of punitive damages.

We have divided the testimony which was offered to show that

a letter of resignation was coerced by misrepresentation.

Secondly, we refer to that testimony bearing upon the issue

of whether appellant's supervisor agreed to return the

resignation letter and then subsequently failed to do so.

With resepect to the conversation surrounding

appellant's tendering a resignation letter, appellant

testified as follows:

"Q. And did he point out to you that he would give

you this letter of recommendation?

"A. Yes, he did, and he even stated that I was a

good worker, he had nothing against me and that he

would give me a letter of recommendation.

"Q. And did you understand by that that he would

give you a positive letter of recommendation?

"A. Yes.

"Q. Not merely as he has said a statement that you

had worked for two or three years?

"A. That's right."

Syverson, appellant's supervisor, testified that he

offered to give appellant a letter of recommendation if she

resigned. However, he testified that he only planned to give

her a letter which would state that appellant was employed by

Life of Montana Insurance Company; he never intended to

provide appellant with a favorable letter of recommendation.

There was evidence from which the jury might infer that

appellant understood she was to receive a favorable letter of

recommendation and that Syverson allowed her to resign on

this basis. By way of deposition, Syverson testified:

"Q. And then I asked you finally, "Question:

Don't you think she understood when you said, 'We

will give you a letter of recommendation,' that you

would give her a favorable letter or recommendation

to a subsequent employer?

And your answer to that was what?

"A. At line 15, Answer: I believe so."

From the foregoing the jury could have found that (1)

Syverson acting for defendant told appellant if she resigned

she would receive a favorable letter of recommendation in

order to obtain subsequent employment; (2) appellant

reasonably expected to receive a favorable letter of

recommendation to assist her in gaining reemployment; (3)

appellant relied upon this representation and tendered her

resignation; (4) Syverson never intended to give a favorable

letter of recommendation to appellant. This evidence was

sufficient for the jury to find fraud, oppression or malice.

Additional evidence supports appellant's position.

After appellant returned home her husband advised her to

demand return of the resignation letter. Appellant testified

she immediately called Syverson and discussed the resignation

letter. Her testimony follows:

"Q. And what did you say?

"A. I told him that I had discussed this with my

husband and that it was my prerogative that I could

ask for my letter of resignation back because I had

no intentions of resigning.

"Q. And what did Mr. Syverson say to you?

"A. He indicated to me that he wanted to keep the

letter over the weekend and that on Monday he would

mail it to me.

"Q. He would mail you the letter of resignation?

"A. He would mail me the original copy of the

letter of resignation.

"Q. Now, when we are talking here, are the

original and copy two different things?

"A. On the original letter?

"Q. The original letter that you had signed?

"A. Yes.

"Q. Did you make clear to%him that that's what you

wanted back?

"A. Yes, I did.

"Q. Because you said you didn't intend to resign?

That's right."

Appellant testified that Syverson promised to send her

the letter of resignation. Appellant's testimony was

corroborated by her husband who testified that he heard

appellant, in a telephone conversation with Syverson, demand

return of the resignation letter. The letter was never

returned. Syverson's position at trial was that he only

agreed to give appellant a copy of the letter.

From this evidence the jury could infer that (1)

appellant demanded return of the resignation letter; (2)

Syverson acting on behalf of respondent said that the letter

would be returned; (3) Syverson never intended to return the

resignation letter to appellant. This evidence, when

considered with the testimony surrounding the giving of the

resignation letter, supports an award of punitive damages.

Respondent argues that it should not be liable for

punitive damages for terminating appellant without warning

because at the time of appellant's termination there was an

absolute right to fire without any type of process.

Respondent asserts that new legal rights were given to

appellant in the first appeal of this case and that

respondent could not have known of the duty it owed appellant

at the time of her termination.

Respondent is not being assessed punitive damages for

failing to provide a warning prior to the firing. Rather

respondent's conduct in obtaining the letter of resignation

and refusing appellant's demand for return forms the basis

for a jury finding of fraud, oppression or malice.

An employer stands to gain by an employee's resignation

and such gain may be at the employee's expense. Resignation,

rather than discharge, may protect an employer from

immediately becoming liable for unemployment compensation

benefits. Furthermore, the employer may, by obtaining a

letter of resignation, be insulating itself from a claim of

wrongful discharge.

The courts must vigilantly assure that employers, as

well as employees, are treated fairly. The sting of punitive

damages will only be sanctioned where there is evidence that

the tort feasor's conduct rose to a level of oppression,

fraud or malice. Here we have a close case. However, when

the evidence is viewed in a light most favorable to the

employee, there is sufficient evidence for a jury to find

that employer's conduct rose to the requisite level of

culpability.

We reverse the granting of judgment notwithstanding the

verdict and remand to the trial court with directions to

reinstate the award of punitive damages.

We concur: !

2*&$#(&/q,&gq

Chief Jus ice

Justices

Mr. J u s t i c e L . C. G u l b r a n d s o n d i s s e n t i n g :

I respectfully dissent.

I would a f f i r m t h e D i s t r i c t C o u r t s e t t i n g a s i d e t h e award of

p u n i t i v e damages.

I n t h e f i r s t a p p e a l of t h i s c a s e , G a t e s v. L i f e of Montana,

( 1 9 8 2 ) , 638 P.2d 1 0 6 3 , 39 S t . R e p . 16, t h i s Court s t a t e d :

"The c i r c u m s t a n c e s of t h i s c a s e a r e t h a t t h e

e m p l o y e e e n t e r e d i n t o a n employment c o n t r a c t

t e r m i n a b l e a t t h e w i l l of e i t h e r p a r t y a t any

time. The e m p l o y e r l a t e r p r o m u l g a t e d a hand-

book of p e r s o n n e l p o l i c i e s e s t a b l i s h i n g cer-

t a i n procedures with regard t o terminations.

The e m p l o y e r need n o t h a v e d o n e s o , b u t p r e -

sumably sought t o s e c u r e an o r d e r l y , coopera-

t i v e and l o y a l work f o r c e by e s t a b l i s h i n g

uniform p o l i c i e s . The employee h a v i n g f a i t h

t h a t s h e would be t r e a t e d f a i r l y , t h e n deve-

l o p e d t h e p e a c e of mind a s s o c i a t e d w i t h j o b

security. I f t h e employer h a s f a i l e d t o

f o l l o w i t s own p o l i c i e s , t h e p e a c e of mind of

i t s e m p l o y e e s i s s h a t t e r e d and a n i n j u s t i c e i s

done.

"We h o l d t h a t a c o v e n a n t of good f a i t h and

f a i r d e a l i n g was i m p l i e d i n t h e employment

c o n t r a c t of t h e a p p e l l a n t . There remains a

g e n u i n e i s s u e of m a t e r i a l f a c t which p r e c l u d e s

a summary j u d g m e n t , i . e . w h e t h e r t h e r e s p o n -

dent failed t o afford appellant the process

r e q u i r e d and i f s o , w h e t h e r t h e r e s p o n d e n t

t h e r e b y b r e a c h e d t h e c o v e n a n t of good f a i t h

and f a i r d e a l i n g .

"As t o a l l o t h e r c l a i m s a g a i n s t t h e r e s p o n -

d e n t , h o w e v e r , summary judgment was p r o p e r l y

entered. The District Court correctly

concluded t h a t a p p e l l a n t ' s claim i n t o r t f o r

wrongful discharge i s u n s u p p o r t e d by any

s h o w i n g of a v i o l a t i o n of p u b l i c p o l i c y a s

r e q u i r e d u n d e r K e n e a l l y v. O r g a i n , s u p r a .

" G a t e s ' c l a i m f o r i n t e n t i o n a l i n £ l i c t i o n of

emotional d i s t r e s s must a l s o f a i l . The

u n c o n t r a d i c t e d f a c t s show t h a t s h e was ' r a t h e r

d i s t u r b e d ' and ' k i n d of i n s h o c k . ' Under any

known s t a n d a r d t h e s e a l l e g a t i o n s a r e i n s u f -

f i c i e n t t o e n t i t l e her t o recover. K e l l y v.

Lowney & W i l l i a m s , I n c . ( 1 9 4 2 ) , 1 1 3 Mont. 3 8 5 ,

1 2 6 P.2d 486; H e l t o n v. R e s e r v e L i f e I n s u r a n c e

Co. (D.Mont., 1 9 7 5 ) , 399 F.Supp. 1 3 2 2 . " 638

P.2d a t 1 0 6 7 , 39 S t . R e p . a t 20-21.

The majority, in its valiant and successful effort to

c l a s s i f y t h e c o n d u c t of t h e d e f e n d a n t a s t o r t u o u s , states:

"Respondent is n o t b e i n g a s s e s s e d p u n i t i v e

damages f o r f a i l i n g t o p r o v i d e a w a r n i n g p r i o r

t o the firing. R a t h e r , r e s p o n d e n t ' s conduct

i n o b t a i n i n g t h e l e t t e r of r e s i g n a t i o n and

r e f u s i n g a p p e l l a n t ' s demand f o r r e t u r n , f o r m s

the basis for a jury finding of fraud,

oppression, or malice."

I n o t e t h a t jury i n s t r u c t i o n twenty-three reads:

"You are instructed that the letter of

r e s i g n a t i o n d a t e d O c t o b e r 1 9 , 1 9 7 9 , became t h e

p r o p e r t y of d e f e n d a n t L i f e of Montana, and

d e f e n d a n t L i f e of Montana was u n d e r no l e g a l

o b l i g a t i o n t o r e t u r n t h e l e t t e r of r e s i g n a t i o n

t o the plaintiff. "

T h a t was t h e o n l y i n s t r u c t i o n g i v e n t h e j u r y where t h e l e t t e r of

r e s i g n a t i o n was m e n t i o n e d .

The c a s e was o b v i o u s l y s u b m i t t e d and a r g u e d by p l a i n t i f f t o

the jury on the basis that liability also resulted from ter-

mination without notice. ( S e e i n s t r u c t i o n s no. 1 7 , 1 9 , and 2 1 ,

w h i c h g e n e r a l l y s t a t e t h a t l i a b i l i t y c a n a r i s e from f a i l u r e t o

f o l l o w e s t a b l i s h e d company p o l i c y . )

I f t h e j u r y f o l l o w e d i n s t r u c t i o n no. 2 3 ( n o d u t y of d e f e n d a n t

t o r e t u r n t h e l e t t e r of r e s i g n a t i o n ) and i f , a s t h e m a j o r i t y s t a -

tes, t h e respondent is n o t b e i n g a s s e s s e d p u n i t i v e damages f o r

f a i l i n g t o p r o v i d e a w a r n i n g p r i o r t o t h e f i r i n g , t h e n t h e award

m u s t be b a s e d on t h e d e f e n d a n t ' s c o n d u c t i n o b t a i n i n g t h e l e t t e r

of r e s i g n a t i o n .

In that regard the plaintiff Marlene Gates testified as

follows:

"Q. Have you e v e r c o n s i d e r e d why you would be

g i v e n t h a t o p t i o n , t h e r e s i g n i n g o r being

fired?

A. No.

"Q. Well, i f he wanted t o g e t r i d of you, i t

would have b e e n s i m p l e enough t o s a y , ' Y o u ' r e

f i r e d , ' wouldn't i t ?

A. Yes.

"Q. B u t he a l l o w e d you t o r e s i g n .

A. Yes.

"Q. And d i d you t h i n k t h a t o v e r ? Did you

t h i n k o v e r t h a t d e c i s i o n of w h e t h e r you s h o u l d

r e s i g n o r be f i r e d ?

A. Yes.

"Q. How l o n g d i d you t h i n k i t o v e r ?

A. Well, I s a t t h e r e I s u p p o s e i t was minu-

t e s , you know. I t was a f t e r f i v e o ' c l o c k . I

was w a n t i n g t o g e t home and I ' m s u r e he was

w a n t i n g t o g e t o u t of t h e o f f i c e , and s e v e r a l

t h i n g s went t h r o u g h my mind, and I had t o make

a d e c i s i o n one way o r t h e o t h e r .

"n. You d e c i d e d t o r e s i g n .

A. That's right.

"Q. Why was t h a t ?

A. B e c a u s e I t h o u g h t it would l o o k b e t t e r f o r

my r e c o r d , and I ' m s u r e i t w o u l d n ' t be v e r y

good f o r t h e i r r e c o r d t o be known t o be f i r i n g

people.

"Q. You were concerned about how it would

l o o k f o r you?

A. Yes.

"Q. I f you s i g n e d t h e l e t t e r of r e s i g n a t i o n ,

you c o u l d t e l l p e o p l e , ' I r e s i g n e d ,' and you

w o u l d n ' t h a v e t o s a y , ' I was f i r e d , ' r i g h t ?

A. Right.

"Q. And a l s o , when you went o u t t o seek

a n o t h e r j o b , you w o u l d n ' t have t o s a y you w e r e

f i r e d from y o u r l a s t o n e . You c o u l d s a y you

resigned .

A. That's right.

"Q. So t h a t was done a s a b e n e f i t t o you, is

that right?

A. Right.

"Q. Now, when you went i n t o t h i s m e e t i n g w i t h

Roger S y v e r s o n when you w e r e t e r m i n a t e d , was

t h e r e any l o u d t a l k o r l o u d l a n g u a g e ?

A. No, t h e r e was n o t .

"Q. Was the conversation calm a nd

businesslike?

A. Yes.

"Q. Were you n e r v o u s ?

A. Yes.

"Q. Was Roger n e r v o u s ?

A. H a p p e a r e d t o be v e r y n e r v o u s , y e s .

e

"Q. Would you t e l l u s which of you w e r e t h e

most nervous?

A. I d i d n ' t weigh i t o u t , no.

"Q. A t l e a s t you could t e l l obviously t h a t

Mr. S y v e r s o n was n e r v o u s a b o u t t h i s whole

situation?

A. Yes.

"Q. Did he i n t i m i d a t e you?

A. No.

"Q. Did you i n t i m i d a t e him?

A. I don't believe I did.

"Q. Now, when you were a s k e d t o make a d e c i -

s i o n w h e t h e r you wanted t o r e s i g n o r be f i r e d ,

you t h o u g h t t h a t o v e r p r e t t y c l o s e l y ?

A. Yes, I d i d .

"Q. And y o u r d e c i s i o n was t h a t you p r e f e r r e d

t o resign?

A. Yes.

"Q. And you h a v e , a t t h a t t i m e you f e l t t h a t

was a good d e c i s i o n ?

A. W e l l , it was t h e b e t t e r d e c i s i o n , y e s .

"Q. And i t was b a s e d on y o u r d e t e r m i n a t i o n

t h a t w i t h t h e l e t t e r of r e s i g n a t i o n , you would

b e b e t t e r a b l e t o g e t a j o b , p l u s i t would be

e a s i e r t o h a n d l e q u e s t i o n s of f e l l o w e m p l o y e e s

and f r i e n d s ?

A. Yes.

"Q. T h o s e w e r e y o u r r e a s o n s for signing the

l e t t e r of r e s i g n a t i o n ?

A. Yes.

"Q. And when you l e f t t h e o f f i c e t h a t a f t e r -

n o o n , O c t o b e r 1 9 , 1 9 7 9 , you had c o n c l u d e d t h a t

t h a t was t h e b e s t t h i n g t o do.

A. Yes. "

The m a j o r i t y o p i n i o n s t a t e s : " t h e s t i n g of p u n i t i v e damages

w i l l o n l y be s a n c t i o n e d w h e r e t h e r e is e v i d e n c e t h a t t h e t o r t -

feasor's conduct rose to a level of oppression, fraud, or

malice."

I do not f i n d t h a t o p p r e s s i v e l e v e l of c o n d u c t and n e i t h e r

did the trial judge when setting aside t h e award for punitive

damage. H i s memorandum of S e p t e m b e r 2 8 , 1 9 8 2 , s t a t e d : "in this

case, I find no e v i d e n c e t h a t t h e d e f e n d a n t k n o w i n g l y v i o l a t e d

any duty t o the p l a i n t i f f . T h e r e is no e v i d e n c e t h a t t h e d e f e n -

d a n t acted maliciously, intentionally, or willfully, and t h e r e -

f o r e t h e c l a i m f o r p u n i t i v e damages m u s t f a i l . "

This Court, i n the f i r s t Gates opinion, c o r r e c t l y identified

t h e t h r e s h o l d q u e s t i o n of w h e t h e r t h e e m p l o y e e ' s r e s i g n a t i o n was

voluntary. Unfortunately, t h e j u r y was n o t i n s t r u c t e d on t h i s

p o i n t and no s p e c i a l v e r d i c t was r e q u e s t e d .

In the f i r s t Gates decision, the Court cited Molinar v.

Western E l e c t r i c Company (1st C i r . 1 9 7 5 ) , 5 2 5 F.2d 521, cert.

den., ( 1 9 7 6 ) , 424 U.S. 9 7 8 , 96 S . C t . 1 4 8 5 , 47 L.Ed.2d 748, where

the court decided the applicable rule that "an employee who

v o l u n t a r i l y r e s i g n s c a n n o t m a i n t a i n a c a u s e of a c t i o n f o r wrong-

f u l discharge." The c o u r t t h e r e s t a t e d :

"A more d i f f i c u l t i s s u e is whether M o l i n a r ' s

l e t t e r of r e s i g n a t i o n r a i s e d a j u r y i s s u e of

voluntariness. M o l i n a r a r g u e s t h a t he was

i n d u c e d t o r e s i g n by t h e f r a u d u l e n t p r o m i s e

t h a t i f he d i d s o he would r e c e i v e good

recommendations.

" [where] . . . [a] voluntary r e s i g n a t i o n bars

a s u i t f o r wrongful discharge, t h e following

s t a n d a r d h a s b e e n l a i d down:

" ' E v e n where t h e employee is t o l d t h a t he m u s t

c h o o s e b e t w e e n r e s i g n a t i o n and s e p a r a t i o n , t h e

subsequent choice of resignation is not

c o e r c e d u n l e s s t h e employee c a n show t h a t h i s

s u p e r i o r knew o r b e l i e v e d t h a t t h e r e a s o n s f o r

the proposed separation could not be

substantiated. ... 1 11

"Cosby v. U n i t e d S t a t e s , [ ( I 9 6 9 C t . C l . ) , 417

F.2d 13451 a t 1 3 5 5 . T h i s s t a n d a r d , which w e

t h i n k New York would a d o p t , l i m i t s a c l a i m of

d u r e s s t o r e s i g n a t i o n s e x t o r t e d a s a cover f o r

w r o n g d o i n g , and r e c o g n i z e s t h a t r e s i g n a t i o n s

i n l i e u of d i s c h a r g e may i n many o t h e r i n s t a n -

c e s r e f l e c t a m u t u a l l y b e n e f i c i a l , good f a i t h

c o m p o s i t i o n b e t w e e n a n employer and employee

h a v i n g d i f f e r e n t v i e w s a s t o what e a c h owes t o

t h e o t h e r . Thus, h e r e , f o r M o l i n a r ' s r e s i g n a -

t i o n t o be t r e a t e d a s c o e r c e d and l e g a l l y

i n e f f e c t i v e , i t m u s t be shown n o t o n l y t h a t

t h e p r o j e c t e d d i s c h a r g e would amount t o a

l e g a l b r e a c h of c o n t r a c t b u t t h a t t h e r e was

bad f a i t h , i n t h a t W e s t e r n E l e c t r i c knew o r

b e l i e v e d t h a t t h e d i s c h a r g e c o u l d n o t be

substantiated."

I n my v i e w , the majority, by e x t e n d i n g the original Gates

decision, has s e t t h e s t a g e f o r a " j u s t cause standard f o r at-

w i l l e m p l o y e e s , " which I b e l i e v e i s a l e g i s l a t i v e r a t h e r t h a n a

judicial function.

S e c t i o n 39-2-503, MCA, provides t h a t employment, having no

s p e c i f i e d t e r m , may be t e r m i n a t e d a t t h e w i l l of e i t h e r p a r t y on

notice to each other. This section codifies the long-

established, but recently questioned, "at-will" rule. Although

t h i s C o u r t h a s r e c o g n i z e d t h a t t h i s r u l e may be o u t d a t e d , w e have

a l s o r e c o g n i z e d t h a t " i t is u n i q u e l y a p r o v i n c e of the legisla-

t u r e t o change i t . " Reiter v. Y e l l o w s t o n e County (1981),

Mont. , 627 P.2d 8 4 5 , 8 4 9 , 38 S t . R e p . 6 8 6 , 690.

I n R e i t e r , w e n o t e d t h a t b e c a u s e of t h e o p e r a t i o n of s e c t i o n

39-2-503, MCA, the at-will employee was not employed on a

" d i s c h a r g e f o r cause only" b a s i s . W s t a t e d , "assuming arguendo

e

t h a t a p p e l l a n t had a n i m p l i e d c o n t r a c t w i t h a n i m p l i e d c o v e n a n t

o f good f a i t h , t h e e m p l o y e r d i d n o t a c t i n bad f a i t h b e c a u s e i t s

c o n d u c t was s t a t u t o r i l y p e r m i s s i b l e . " 627 P.2d a t 849-850, 38

St.Rep. a t 690.

I n o t h e r words, u n d e r s e c t i o n 39-2-503, MCA, an employer o r

e m p l o y e e c o u l d t e r m i n a t e employment f o r any o r a l l r e a s o n s , pro-

v i d e d t h e r e a s o n s o r manner of t e r m i n a t i o n d i d n o t v i o l a t e p u b l i c

policy. See K e n e a l l y v. Orgain ( 1 9 8 0 ) , Mont. , 6 0 6 P.2d

1 2 7 , 37 S t . R e p . 154.

I n t h e p r i o r d i s c u s s i o n of t h i s c a s e , t h i s Court determined

t h a t a c o v e n a n t of good f a i t h and f a i r d e a l i n g was i m p l i e d i n t h e

parties' oral, at-will, employment c o n t r a c t . The b a s i s f o r t h i s

h o l d i n g was t h e e m p l o y e r ' s p r o m u l g a t i o n of an employees' hand-

book, two y e a r s a f t e r G a t e s b e g a n employment. The handbook p r o -

v i d e d c e r t a i n g u i d e l i n e s f o r t e r m i n a t i o n of e m p l o y e e s . W stated

e

t h a t G a t e s had a c a u s e of a c t i o n b e c a u s e " i f t h e e m p l o y e r f a i l e d

t o f o l l o w i t s own p o l i c i e s , t h e p e a c e of mind of i t s e m p l o y e e s is

shattered and an injustice is done." 638 P.2d a t 1067, 39

St.Rep. a t 20. We t h e n found two g e n u i n e i s s u e s of material

fact: (1) w h e t h e r respondent f a i l e d t o afford appellant Gates

the process required; and ( 2 ) whether the respondent thereby

b r e a c h e d t h e c o v e n a n t of good f a i t h and f a i r d e a l i n g .

The C o u r t had a l s o decided in the prior decision t h a t the

guidelines in the employer handbook regarding notice prior to

t e r m i n a t i o n , were n o t e n f o r c e a b l e a s c o n t r a c t r i g h t s . W further

e

determined t h a t a p p e l l a n t ' s claim i n t o r t f o r wrongful d i s c h a r g e

was p r o p e r l y d i s m i s s e d b e c a u s e i t was n o t s u p p o r t e d by any show-

i n g of a v i o l a t i o n of p u b l i c p o l i c y .

The m a j o r i t y c i t e s Lipinski v. T i t l e I n s u r a n c e Co. (1982),

---- Monte ---- , 655 P.2d 970, 39 St.Rep. 2283, for the

a s s e s s m e n t of p u n i t i v e damages i n bad f a i t h c a s e s .

I n s u r a n c e c a s e s u p h o l d i n g a b r e a c h of t h e i m p l i e d c o v e n a n t of

good f a i t h and f a i r d e a l i n g d i d n o t e v o l v e u n d e r t h e same con-

s i d e r a t i o n s a s c a s e s d i s c u s s i n g a b r e a c h of t h e i m p l i e d c o v e n a n t

i n employment c o n t r a c t s . I n t h e i n s u r a n c e c a s e s , t h e c o u r t s look

to whether the insurance company, with malice, fraud or

oppression, abused its duty to act i n good faith. The "bad

f a i t h " employment c a s e s m a i n t a i n a h i g h e r standard in that the

c o u r t s g e n e r a l l y look for a v i o l a t i o n of p u b l i c p o l i c y on t h e

part of the employer. See discussion in Pierce v. Orth

P h a r m a c e u t i c a l Corp. ( 1 9 8 0 ) , 84 N . J . 5 8 , 417 A.2d 5 0 5 , 1 2 ALR4th

5 2 0 , and A n n o t . 1 2 ALR4th 5 4 4 , ( 1 9 8 2 ) .

Most courts recognizing a cause of action based on a

d i s c h a r g e t h a t o f f e n d s p u b l i c p o l i c y have grounded t h a t a c t i o n i n

t o r t , w h i l e o n l y a few have r e l i e d on a n i m p l i e d c o n t r a c t t h e o r y

of recovery. Compare Tameny v . A t l a n t i c R i c h f i e l d Co. ( 1 9 8 0 ) , 27

C a l . 3 d 1 6 7 , 610 P.2d 1 3 3 0 , 1 6 4 C a l . R p t r . 839, ( r e c o g n i z i n g a t o r t

action for wrongful discharge when employee was terminated

because he refused to commit a criminal act); Nees v. Hooks

( 1 9 7 5 ) , 272 Or. 210, 536 P.2d 512 (recognizing a tort action

because a n employee was d i s m i s s e d for serving jury d u t y ) ; and

Kelsay v. Motorola (1978), 74 111.2d 172, 364 N.E.2d 353

( r e c o g n i z i n g a t o r t a c t i o n when employee was d i s m i s s e d f o r f i l i n g

a workers' compensation claim); with Fortune v. National Cash

R e g i s t e r Co. ( 1 9 7 7 ) , 3 7 3 Mass. 96, 3 6 4 N.E.2d 1251 ( r e c o g n i z i n g

a contract action when employee terminated in order not to

r e c e i v e e a r n e d b o n u s e s o r c o m m i s s i o n s ) ; and Monge v. Beebe Rubber

Co. (1974), 114 N.H. 130, 316 A.2d 549 (recognizing contract

a c t i o n and l i m i t i n g damages t o t h o s e f o r b r e a c h of c o n t r a c t when

employee t e r m i n a t e d for refusal to d a t e foreman). For a more

complete list, see S m i t h v. A t l a s Off-Shore Boat S e r v i c e (5th

C i r . 1 9 8 1 ) , 6 5 3 F.2d 1 0 5 7 , 1 0 6 1 N.9.

I n t h e p r i o r d e c i s i o n , t h i s C o u r t r e l i e d on F o r t u n e and Monge

in recognizing that appellant has a cause of action under an

i m p l i e d c o v e n a n t of good f a i t h and f a i r d e a l i n g . Both Fortune

a n d Monqe grounded their decisions i n contract, not tort law.

Damages were limited to those allowed only for breach of

contract. Moreover, -

t h e d e c i s i o n i n Monqe was l a t e r l i m i t e d by

t h e New H a m p s h i r e Supreme Court to situations where the ter-

mination violated public policy. S e e Howard v. D o r r Woolen Co.

( 1 9 8 0 ) , 1 2 0 N.H. 2 9 5 , 414 A.2d 1 2 7 3 .

By a l l o w i n g p u n i t i v e damages i n t h i s c a s e , t h e m a j o r i t y h a s

i d e n t i f i e d , and a p p r o v e d , an i n d e p e n d e n t t o r t of bad f a i t h i n a t -

w i l l employment c o n t r a c t s . All other jurisdictions do so o n l y

when t h e t e r m i n a t i o n v i o l a t e s p u b l i c p o l i c y .

I note further that the termination in question occurred

October 1 9 , 1979. The R e i t e r d e c i s i o n , s u p r a , a c k n o w l e d g i n g t h a t

" t h e e m p l o y e r d i d n o t a c t i n bad f a i t h b e c a u s e i t s c o n d u c t was

s t a t u t o r i l y permissible," was d a t e d May 4 , 1981. The K e n e a l l y

decision, supra, was dated January 30, 1980, and t h i s Court,

citing Percival v. General Motors Corp. (E.D. Mo. 1975), 400

F.Supp. 1322, s t a t e d :

"Thus, t h a t c o u r t n o t e d , c o r r e c t l y , t h a t a

d i s c h a r g e by an e m p l o y e r i n a c o n t r a c t t e r -

minable a t w i l l does not give rise t o a claim

f o r wrongful discharge i n t h e o r d i n a r y sense,

t h o u g h t h e f i r i n g o r t h e t e r m i n a t i o n may h a v e

been u n j u s t i f i e d . I t i s o n l y when a p u b l i c

p o l i c y has been v i o l a t e d i n c o n n e c t i o n w i t h

t h e w r o n g f u l d i s c h a r g e t h a t t h e c a u s e of

action arises." 6 0 6 P.2d a t 1 2 9 , 37 S t . R e p .

a t 157.

I n v i e w of t h e f a c t t h a t t h e t e r m i n a t i o n i n q u e s t i o n o c c u r r e d

l o n g b e f o r e t h e a b o v e two d e c i s i o n s of t h i s C o u r t , I would e x p e c t

t h i s C o u r t t o a p p l y t h e law a s s t a t e d i n t h o s e d e c i s i o n s t o t h i s

case. The G a t e s d e c i s i o n , s u p r a , w h e r e i n t h e d o c t r i n e of i m p l i e d

c o v e n a n t of good f a i t h was f i r s t a p p r o v e d , was d a t e d J a n u a r y 5 ,

1982. I do not object to the application of this doctrine

r e t r o a c t i v e l y f o r t h e d e t e r m i n a t i o n of c o m p e n s a t o r y damages, b u t

I d o n o t a g r e e t h a t it s h o u l d be t h e b a s i s of p u n i t i v e damages.

I note, with approval, t h e c i t a t i o n by t h e t r i a l judge in his

memorandum of September 28, 1 9 8 2 , of Nees v. Hooks, supra. In

t h a t c a s e a n employee was d i s c h a r g e d f o r m i s s i n g work t o a t t e n d

j u r y d u t y , a c l e a r v i o l a t i o n of p u b l i c p o l i c y . The O r e g o n c o u r t

a l l o w e d c o m p e n s a t o r y damages, b u t would n o t a l l o w t h e a w a r d i n g of

p u n i t i v e damages. The O r e g o n c o u r t s t a t e d a s f o l l o w s :

"There is one f a c t o r , however, which is

p r e s e n t i n t h i s c a s e which h a s n o t b e e n

p r e s e n t i n p a s t c a s e s approving t h e submission

o f t h e p u n i t i v e damage i s s u e t o t h e j u r y . In

o u r p a s t c a s e s , t h e d e f e n d a n t knew h i s c o n d u c t

was r e g a r d e d a s c u l p a b l e and would g i v e r i s e

t o a c a u s e of a c t i o n b e c a u s e of p a s t j u d i c i a l

decisions or legislation. For example: An

a u t o m o b i l e d e a l e r t u r n i n g back t h e odometer t o

d e c e i v e t h e p u r c h a s e r , L e w i s v . Worldwide

I m p o r t s , 238 O r . 5 8 0 , 395 P.2d 9 2 2 ( 1 9 6 4 ) ; a

f i n a n c e company c o n v e r t i n g a n a u t o m o b i l e by

w r o n g f u l r e p o s s e s s i o n , P e l t o n v. Gen. Motors

A c c e p t . C o r p . , 1 3 9 O r . 1 9 8 , 7 P.2d 2 6 3 , 9 P.2d

1 2 8 ( 1 9 3 2 ) ; and a d r u n k e n d r i v e r c o l l i d i n g

w i t h a n o t h e r c a r , H a r r e l l v . A m e s , 265 O r .

1 8 3 , 508 P.2d 2 1 1 ( 1 9 7 3 ) .

"Until the t r i a l c o u r t ' s ruling i n t h i s case

a n d o u r a f f i r m a n c e t h e r e was no j u d i c i a l d e c i -

s i o n t h a t a n e m p l o y e r was l i a b l e i f h e

d i s c h a r g e d a n employee because s h e s e r v e d j u r y

duty. A s we e a r l i e r s t a t e d , t h e g e n e r a l r u l e

known t o e m p l o y e r s and l a w y e r s a l i k e i s t h a t

a b s e n t c o n t r a c t o r s t a t u t e , an employer c a n

d i s c h a r g e a n e m p l o y e e f o r any r e a s o n w i t h o u t

incurring l i a b i l i t y .

" I f w e h e l d t h a t p u n i t i v e damages c o u l d be

a w a r d e d i n t h e p r e s e n t c a s e , w e would be p e r -

m i t t i n g t h e j u r y t o p u n i s h d e f e n d a n t s f o r con-

d u c t which t h e y c o u l d n o t h a v e d e t e r m i n e d

be£ orehand was even actionable. The

a s s e s s m e n t of p u n i t i v e damages h a s some of t h e

same f u n c t i o n s a s t h e s a n c t i o n s of c r i m i n a l

law. . . . The s a n c t i o n s of t h e c r i m i n a l law

c a n n o t c o n s t i t u t i o n a l l y be imposed when t h e

c r i m i n a l i t y of t h e c o n d u c t is n o t c a p a b l e of

b e i n g known b e f o r e h a n d . " 272 O r . 210, 536

P.2d a t 516-17.

I would h o l d t h a t p u n i t i v e damages a r e n o t a l l o w a b l e w h e r e

there has b e e n no showing that the termination of an a t - w i l l

employee v i o l a t e d p u b l i c p o l i c y , u n t i l such t i m e a s t h e l e g i s l a -

t u r e r e p e a l s o r amends s e c t i o n 39-2-503, MCA.

I c o n c u r i n t h e f o r e g o i n g d i s s e n t of M r . J u s t i c e G u l b r a n d s o n :

Mr. Justice Fred J. Weber dissents as follows:

I join in the dissent of Justice Gulbrandson. In

addition I dissent as follows:

With regard to the covenant of good faith, the majority

opinion holds in part:

"Breach of the covenant to deal fairly is, simply

stated, breach of a legal duty to deal fairly.

Breach of the duty owed to deal fairly in the

employment relationship is a tort for which

punitive damages can be recovered if defendant's

conduct is sufficiently culpable."

I am unable to understand how the majority has arrived at

that conclusion.

The majority refers to section 27-1-221, MCA, which in

pertinent part states:

"In any action for a breach of an obligation - not

arising from contract ...

the jury may give ...

damages for the sake of example and by way of

punishing the defendant." (Emphasis added.)

The basic question here is whether there is a breach of an

obligation not arising from contract.

In our original opinion, Gates v. Life of Montana Ins.

Co. (1982), Mont . , 638 P.2d 1063 at 1067, we

stated the key holding:

"We hold that a covenant of good faith and fair

dealing was implied in the employment contract of

the appellant."

In reaching that conclusion, we pointed out that a general

principle of good faith and fair dealing has been recognized

under the Uniform Commercial Code and also has been

recognized in insurance contracts. We also pointed out that

recent decisions in other jurisdictions support the

proposition that a covenant of good faith and fair dealing is

implied in employment contracts. Since we then concluded

that in the Gates case a covenant of good faith and fair

dealing was implied in the employment contract, it seems

clear that such a covenant becomes a part of the employment

contract as if it were set forth in writing.

An implied covenant can be breached just as a covenant

expressly stated in the contract can be breached. The

present case is an action for breach of the covenant of good

faith and fair dealing, arising - - contract from which

from the

that covenant is implied. Comparing the contractual covenant

of good faith and fair dealing with the punitive damages

section, it seems clear that breach of such a contractual

obligation does not justify an award of punitive damages

under the express terms of the statute.

The majority holds that the code section exempts only

breach of contract actions from its provisions. Essentially,

that is the nature of the present claim for relief.

The present holding has little relationship to our

original holding in Gates. There we held that a covenant of

good faith and fair dealing was implied in the employment

contract. We remanded the cause to determine if the employee

had been given due process and, if so, whether a breach of

the covenant of good faith and fair dealing resulted. If I

understand the majority, we now disregard the contractual

relationship and its implied covenant, and hold that there is

a duty to deal fairly, which apparently - - arise from

does not

the contract itself, and the breach of such duty is a tort

for which punitive damages can be recovered.

While I agree that it may be reasonable to amend section

27-1-221, MCA, to allow punitive damages for breach of an

obligation arising from contract, we have traveled a long way

to arrive at a conclusion which should have been left to the

legislature.