NEWBERRY V. ALLIED STORES, INC., 1989-NMSC-024,
108 N.M. 424, 773 P.2d 1231 (S. Ct. 1989)
JOHN NEWBERRY, Plaintiff-Appellee and
Cross-Appellant,
vs.
ALLIED STORES, INC. d/b/a T-BIRD Home Centers, a New
Mexico
Corporation, and Derrell Ballard, individually and
agent for Allied Stores, Inc.,
Defendant-Appellant and Cross-Appellees
SUPREME COURT OF NEW MEXICO
1989-NMSC-024, 108 N.M. 424, 773 P.2d 1231
Appeal from the Fifth Judicial District
of Eddy County, Harvey W. Fort, District Judge
S. Thomas Overstreet P.C., Alamogordo,
New Mexico, Attorney for the Appellant
Eric Isbell-Sirotkin, Albuquerque, New
Mexico, Attorney for the Appellees
{1} Defendants-appellants,
Allied Stores, Inc. d/b/a T-Bird Home Centers (T-Bird) and Derrell Ballard,
appeal the verdict entered in favor of plaintiff-appellee, John Newberry.
Newberry cross-appeals the granting of defendants' motion for a directed
verdict on punitive damages for the breach of contract claim, on punitive
damages for the claim about his trustworthiness, and on the emotional distress
claim. We affirm the judgment of the district court on the cross-appeal, and
reverse the verdict in favor of Newberry against defendants, except we remand
the appeal for a new trial, limited to the issue of damages (compensatory and
punitive) against defendant Ballard for the statement, "he was fired for
stealing."
{2} Newberry was employed by
T-Bird from 1977 until he was terminated on December 19, 1984, by its general
manager, Ballard. At the time of the discharge, Newberry managed a T-Bird store
in Artesia, New Mexico. During the trial, Ballard testified he discharged
Newberry because on two
{*426} occasions
Newberry had failed to timely fill out the appropriate charge slips for
merchandise purchased from T-Bird, and these actions violated three company
regulations: theft of company property or any form of dishonesty; gross
insubordination; and flagrant violation of company policy.
{3} On June 2, 1986, Newberry
filed a complaint for damages alleging breach of an implied contract of
employment, retaliatory discharge, defamation and intentional or reckless
infliction of emotional distress. During the jury trial, the court granted
defendant's motion to dismiss the claim of retaliatory discharge, and it is not
a subject of this appeal.
{4} At the conclusion of
plaintiff's case, the trial court granted defendants' motion for a directed
verdict on punitive damages for an implied contract, on punitive damages for
the defamatory statement about Newberry's trustworthiness, and on the emotional
distress claim. The jury in special interrogatories entered a verdict in favor
of Newberry on the breach of an implied contract of employment in the amount of
$77,811, and on the defamation claims in the amount of $36,818 for compensatory
damages and $5,000 for punitive damages. The jury found that Newberry's
employment was not terminable at will, but instead was subject to an implied
contract requiring "good cause" for termination, and there was no
good cause to discharge Newberry. The jury also found defendants had defamed
Newberry during his termination and afterwards at a social function. The trial
court denied defendants' motion for remittitur and motion for judgment
notwithstanding the verdict. All parties appeal.
1. Implied Contract of Employment
{5} Defendants claim that,
since Newberry had no express agreement of employment with T-Bird, Newberry was
an employee at-will whose employment could be terminated with or without cause
unless the termination violated some public policy. To bolster this contention,
defendants argue the company policy manual has no specific procedures for
termination that could give rise to an implied employment contract like the
ones in
Forrester v. Parker, 93 N.M. 781,
606 P.2d 191 (1980) and
Lukoski
v. Sandia Indian Management Co., 106 N.M. 664,
748 P.2d 507 (1988).
The common-law rule regarding the termination of an at-will
employment contract is that if the employment is not for a definite term, and
if there is no contractual or statutory restriction on the right of discharge,
an employer may lawfully discharge an employee whenever and for whatever cause,
without incurring liability for wrongful discharge. In recent years, however,
there has been a growing trend toward a restricted application of this rule in
order to comport with express and implied public policy, as well as statutory
concerns.
* * * [A] number of jurisdictions have held or recognized
that under particular circumstances, the right of an employer to freely
discharge at-will employees may be contractually restricted as a result of the
promulgation of corporate employment policies specifying the procedures or
grounds for discharge or termination of employees.
Annotation, Right to Discharge Allegedly
"At-will" Employee As Affected By Employer's Promulgation of
Employment Policies As To Discharge, 33 A.L.R. 4th 120, 123-24 (1984).
{6} New Mexico recognizes an
exception to at-will employment for an implied contract based on the words and
conduct of the parties,
Kestenbaum v. Pennzoil Co., 108 N.M. 20,
766
P.2d 280 (1988), including provisions in a personnel manual or a handbook,
Forrester,
93 N.M. at 782, 606 P.2d at 192, and
Lukoski, 10 106 N.M. at 665-67 748
P.2d at 508-10. Where a manual or a handbook exists, it will not always change
the at-will employment relationship if the manual or handbook is not
sufficiently specific.
Sanchez v. The New Mexican, 106 N.M. 76,
738 P.2d
1321 (1987). In
Sanchez this court upheld the employer's contention
{*427} that "the handbook lacked specific
contractual terms which might evidence the intent to form a contract."
Sanchez,
106 N.M. at 79, 738 P.2d at 1324.
{7} Under New Mexico law, a
personnel manual gives rise to an implied contract if it controlled the
employer-employee relationship and an employee could reasonably expect his
employer to conform to the procedures it outlined.
Forrester, 93 N.M. at
782, 606 P.2d at 192. However, whether an employee handbook has modified the
employment relationship is a question of fact to be discerned from the totality
of the parties' statements and actions regarding the employment relationship.
Lukoski,
106 N.M. at 666, 748 P.2d at 509;
accord Boudar v. E.G. & G., Inc.,
106 N.M. 279, 283,
742 P.2d 491, 495 (1987).
Evidence relevant to this factual decision includes the
language used in the personnel manual as well as the employer's course of
conduct and oral representation regarding it. We do not mean to imply that all
personnel manual[s] will become part of employment contracts. Employers are
certainly free to issue no personnel manual at all or to issue a personnel
manual that clearly and conspicuously tells their employees that the manual is
not part of the employment contract and that their jobs are terminable at the
will of the employer with or without reason. Such actions... instill no
reasonable expectations of job security and do not give employees any reason to
rely on representations in the manual. However, if an employer does choose to
issue a policy statement, in a manual or otherwise, and, by its language or by
the employer's actions, encourages reliance thereon, the employer cannot be
free to only selectively abide by it. Having announced a policy, the employer
may not treat it as illusory.
Lukoski, 106 N.M. at 666-67, 748 P.2d at 509-10
(quoting Leikvold v. Valley View Community Hosp., 141 Ariz. 544, 548,
688 P.2d 170, 174 (1984) (en banc)); see also Kestenbaum. Thus, this court
held in Lukoski that a handbook distributed to all employees, signed and
verified by each, and requiring warning and suspension procedures for
termination gave rise to an employment contract.
{8} Thereafter in
Kestenbaum,
this court's latest pronouncement on the issue of an implied employment
contract, we stated that the totality of the parties' relationship,
circumstances, and objectives will be considered to overcome the presumption
that the employment contract was terminable at will. Notwithstanding the lack
of a manual or handbook, we held in that case there was substantial evidence to
support a jury finding of an implied employment contract allowing discharge
only for good reason. This holding was based on the following evidence: a
supervisor during the initial employment negotiations made it clear that the
employment would be long term and permanent if plaintiff did his job; plaintiff
would not have considered the job if offered on a short term basis; other
employees testified that the employer required good cause for dismissal and did
not maintain a "fire-at-will" management practice; and testimony was
presented that the insurance benefits policy and severance pay plan made no
mention of a termination without cause.
Kestenbaum, 108 N.M. 113, 766
P.2d at 285.
{9} In line with
Forrester,
Lukoski, and
Kestenbaum, we hold there is substantial evidence in
the instant case to support the jury's finding of an implied contract of
Newberry and T-Bird permitting termination only for good cause.
{10} In the case at bar the
court instructed the jury on the applicable law of employment contracts as
follows: "An implied contract is an agreement in which the parties by a
course
of conduct have shown an intention to be bound by such agreement."
SCRA 1986, 13-803 (emphasis added). Thus, to find an implied contract of
employment, the jury was to consider evidence of all the parties' conduct,
including their words and the policy manual. Newberry testified that when he
took the job with
{*428} T-Bird he
understood he would have a great future there; during his training as a manager
he was told that the company policy manual was "his bible," which he
had to follow. Evidence indicated that this policy manual applied to hourly and
salaried employees and the employees understood that termination from their
jobs would be only for a good reason. Although the manual covered a variety of
personnel-type matters, it also included a section on termination, as well as
one on rules and regulation, a violation of which was "sufficient grounds
for disciplinary actions ranging from a warning to immediate dismissal."
The section on involuntary termination states: "To be discharged as the
result of rule infractions, poor performance, or other 'cause' is a situation
you and only you, control." This statement suggests that it was T-Bird's
policy not to terminate employment except for a good reason. Based on the
totality of the parties' relationship and surrounding circumstances, it is
clear that the manual controlled the employee-employer relationship and that
Newberry could expect T-Bird to conform to the procedures in the policy guide.
The manual, words and conduct of the parties here gave rise to an implied
contract of employment.
{11} Defendants claim,
however, that regardless whether an implied contract of employment exists,
Newberry was terminated for cause. Newberry was discharged for failing to
timely fill out the appropriate charge slips for merchandise he purchased and
removed from the T-Bird store. This failure to make out a proper charge slip
was classified by T-Bird as dishonesty, gross insubordination and flagrant
violation of company policy. According to that policy, an infraction of these
company rules is sufficient grounds for immediate dismissal based on the
severity of the infraction. Prior to Newberry's dismissal on December 19, 1984,
he had previously been warned about failing to fill out a charge ticket for a
lawn mower he had purchased and removed from the T-Bird store. At the time of
Newberry's discharge, he had purchased and removed some items from the store
for which he did not have a charge ticket.
{12} Evidence presented at
trial indicated that before an employee may take merchandise from the store, a
charge ticket must be filled out and that this was understood by the employees
of T-Bird to be company policy. Moreover, this policy applied to all employees
including assistant managers and managers but that store managers had the
discretion to "arrange a satisfactory payment schedule" with the
employees. The company manual is devoid of any statement permitting a store
manager to remove merchandise from a store without first completing the
appropriate charge ticket.
{13} On appeal, we resolve
all disputed facts in favor of the successful party, indulge all reasonable inferences
in support of a verdict, and disregard all evidences and inferences to the
contrary.
Vigil v. Sandoval, 106 N.M. 233, 237,
741 P.2d 836, 840 (Ct.
App. 1987). In the present case, there is not substantial evidence to uphold
the jury's verdict that Newberry was discharged without a good reason. Based on
this conclusion Newberry is not entitled to an award of damages for breach of
an implied employment contract. We reverse that portion of the verdict and
enter judgment for defendants.
2. Defamatory Statements.
{14} Defendants claim the two
statements by Ballard, "I don't trust you" and "he was fired for
stealing," are not defamatory because they are an expression of opinion,
the truth or privileged. Moreover, defendants argue the verdicts were excessive,
and that, as a matter of law, punitive damages were erroneously assessed
against T-Bird.
{15} The uncontroverted
evidence at trial sets forth the following facts: On December 19, 1984, Ballard
discharged Newberry in the back offices of the T-Bird store in Artesia. After
Ballard emerged from these offices, Newberry followed him onto the store floor
{*429} to discuss the matter further. An
argument ensued at which time Ballard said in a loud voice, "I don't trust
you." Then in May 1985 at a dinner, Ballard was asked by a former T-Bird
employee, the spouse of a manager of a T-Bird store, why Newberry had been
discharged. In response, Ballard stated, "he was fired for stealing."
At trial, Ballard testified that he terminated Newberry for being dishonest based
on Newberry's failure to fill out the charge slips timely, and that, he was not
discharged "for theft."
{16} The lines of demarcation
between slander (an oral communication) and libel (a written communication),
subcategories of defamation, have become sufficiently blurred that we agree
"there are good reasons for abolishing the distinction between
[them]."
See Reed v. Melnick, 81 N.M. 608, 612,
471 P.2d 178, 182
(1970),
overruled on other grounds, Marchiondo v. Brown, 98 N.M. 394,
649 P.2d 462 (1982)
(Marchiondo II). Generally, the elements of a
defamation action include: a defamatory communication, published by the
defendant, to a third person, of an asserted fact, of and concerning the
plaintiff, and proximately causing actual injury to the plaintiff.
See
SCRA 1986, 13-1002. A statement is deemed to be defamatory per se, if, without
reference to extrinsic evidence and viewed in its plain and obvious meaning,
the statement imputes to plaintiff: the commission of some criminal offense
involving moral turpitude; affliction with some loathsome disease, which would
tend to exclude the person from society; unfitness to perform duties of office
or employment for profit, or the want of integrity in discharge of the duties
of such office or employment; some falsity which prejudices plaintiff in his or
her profession or trade; or unchastity of a woman.
Marchiondo v. New Mexico
State Tribune Co., 98 N.M. 282, 287-88,
648 P.2d 321, 326-27 (Ct. App.
1981),
cert. quashed, 98 N.M. 336,
648 P.2d 794 (1982)
(Marchiondo
I). Any other communication, though not defamatory on its face, but which
becomes defamatory when its meaning is illuminated by proof of extrinsic facts
is actionable per quod.
See id. at 288-89, 648 P.2d at 326-27.
Traditionally, if a statement was found to be defamatory per se, damages to the
reputation of the plaintiff were presumed.
New York Times Co. v. Sullivan,
376 U.S. 254, 262, 84 S. Ct. 710, 716, 11 L. Ed. 2d 686 (1964). This per se -
per quod rule, however, has probably been overtaken by rulings of the United
States Supreme Court, in
New York Times, and its progeny through
Dun
& Bradstreet Inc., v. Greenmoss Builders, Inc., 472 U.S. 749, 105 S.
Ct. 2939, 86 L. Ed. 2d 593 (1985), which have held that, generally, damages
cannot be presumed in a defamation action.
{17} Under the now-existing
law of defamation in New Mexico, the standard of strict liability no longer
applies.
Marchiondo II, 98 N.M. at 402, 649 P.2d at 470. Damages must be
proved and cannot be presumed.
Poorbaugh v. Mullen, 99 N.M. 11, 20,
653
P.2d 511, 520 (Ct. App.),
cert. denied, 99 N.M. 47,
653 P.2d 878 (1982).
In determining the correct standard of proof for damages, the relevant question
is not whether the defamation is per se or per quod, but whether the plaintiff
is a private or public figure.
See Marchiondo II, 98 N.M. at 399, 649
P.2d at 467. The ordinary common-law negligence standard of proof applies to
private defamation plaintiffs to establish liability, and proof of actual
malice (knowledge of the falsity of the statement or reckless disregard of the
truth) applies to the public official and public figure plaintiff.
Id.
at 402, 649 P.2d at 470. This establishes liability for compensation of actual
injury.
Suffice it to say that actual injury is not limited to out-of-pocket
loss. Indeed, the more customary types of actual harm inflicted by defamatory
falsehood include impairment of reputation and standing in the community,
personal humiliation, and mental anguish and suffering. Of course, juries must
be limited by appropriate instructions, and all awards must be supported by
competent evidence concerning {*430} the
injury, although there need be no evidence which assigns an actual dollar value
to the injury.
Id. (quoting Gertz v. Robert Welch, Inc., 418
U.S. 323, 350 (1974)). Further in New Mexico, a private defamation plaintiff
must plead and prove special damages in order to recover them. Marchiondo
II, 98 N.M. at 402, 649 P.2d at 470. Special damages encompass only
pecuniary loss. Marchiondo I, 98 N.M. at 289, 648 P.2d at 328.
{18} A public figure or
public official plaintiff must also show the falsity of the statements at issue
in order to prevail.
Philadelphia Newspapers, Inc. v. Hepps, 475 U.S.
767, 774-76, 106 S. Ct. 1558, 1563, 89 L. Ed. 2d 783 (1986). The traditional
rule in New Mexico is that truth is an affirmative defense to an action for
defamation, and as such, the defendant has the burden of pleading and proof on
the issue. NMSA 1978, §
38-2-9 (Repl. Pamp. 1987). The treatment of truth as an
affirmative defense remains where the plaintiff is a private figure.
See Dun
& Bradstreet. Where the plaintiff is a public figure or public
official, he or she must prove the falsity of the statement as an element of
defamation.
Philadelphia Newspapers, 475 U.S. at 774-76, 106 S. Ct. at
1563.
{19} As to punitive damages,
they are recoverable if there is proof that the publication was made with
actual malice.
Marchiondo II, 98 N.M. at 403, 649 P.2d at 471. This
requires proof by clear and convincing evidence that publication of the
communication by the defendant was made with knowledge of its falsity or with
reckless disregard of the truth. SCRA 1986, 13-1011;
see also New York
Times, 376 U.S. at 285-86, 84 S. Ct. at 728-29. The United States Supreme
Court recently distinguished
Gertz and declared that states may award
punitive damages to private plaintiffs who are the subject of defamation on a
matter not of public concern, even in the absence of malice as defined in
Gertz.
Dun & Bradstreet. We decline to follow
Dun & Bradstreet on
that issue.
{20} In the instant case we
agree with defendants that the statement, "I don't trust you," said
during an argument is an expression of opinion and not a statement of existing
fact. Whether a publication constitutes opinion or fact "depends upon
whether ordinary persons hearing * * * the matter complained of would be likely
to understand it as an expression of the speaker's * * * opinion, or as a
statement of existing fact."
Marchiondo II, 98 N.M. at 404, 649
P.2d at 472 (quoting
Mashburn v. Collin, 355 So. 2d 879, 885 (La.
1977)). A publication is not defamatory "merely because the opinion may be
expressed in terms of strong invectives, profanity, or sarcastic
language."
Marchiondo I, 98 N.M. at 292, 648 P.2d at 331. The
statement to Newberry was said in response to Ballard's discovery that Newberry
had on two occasions failed to complete charge slips for merchandise he removed
from the store, which was in violation of company policy. Under these
circumstances, the statement is not actionable defamation. We reverse the
damage award of $21,286 and enter judgment in favor of defendants on this
issue.
{21} There is substantial
evidence to support the jury's verdict that the statement, "he was fired
for stealing" is defamatory. To determine the amount of damages to which
plaintiff is entitled, we must first ascertain plaintiff's status. Newberry is
a private plaintiff and the subject of the defamation is a private matter.
Accordingly, for Newberry to be compensated for actual injury, he must prove
that Ballard negligently published the communication, and that, the
communication proximately caused actual injury to plaintiff's reputation. The
instruction to the jury said that plaintiff had the burden of proving one or
more of the following injuries: harm to plaintiff's good name and character
among friends, neighbors and acquaintances; harm to plaintiff's good standing
in the community; personal humiliation; and mental anguish and suffering.
{22} Testimony was presented
that for a short period of time after his termination,
{*431}
Newberry stayed home, but, by the end of January 1985, he was employed and
performed his job satisfactorily and continued to do so until the time he
joined his wife's business in June 1985. There was also evidence that upon his
discharge, Newberry was in shock, humiliated, his stomach was in knots, and his
headaches reactivated his high blood pressure. The statement in question,
however, was not made until May 1985, at which time Newberry was gainfully
employed. There may not be substantial evidence to support the jury's verdict
against defendants in the amount of $15,535 for actual damages. Moreover, there
is no evidence that Ballard made the statement during the scope of his
employment. "[E]mployers may be vicariously liable for
compensatory
damages which result from torts of employees acting within the scope of their
employment, regardless of the culpability of the employer."
Samedan Oil
Corp. v. Neeld, 91 N.M. 599, 602-03,
577 P.2d 1245, 1248-49 (1978)
(emphasis in original). Consequently, T-Bird cannot be held liable, because the
statement by Ballard was not said during the scope of his employment.
{23} For the jury to return a
verdict of punitive damages against Ballard, the jury had to find by clear and
convincing evidence that Ballard made the statement with actual malice
(knowledge of its falsity or with a reckless disregard for whether it was false
or not). Ballard testified that Newberry was not discharged "for
theft," but for being dishonest. The jury returned a verdict of punitive
damages against both defendants for $5,000. This verdict cannot stand against
T-Bird. The law in New Mexico states that a master or employer is liable for
punitive damages for the tortious act of an employee acting within the scope of
his employment
and where the employer in some way participated in,
authorized or ratified the tortious conduct of the employee.
Id. at 603,
577 P.2d at 1249. Again, the statement was not made during the course of
Ballard's employment and, unless compensatory damages are first found, punitive
damages cannot be awarded against T-Bird, the employer.
{24} In sum, as to the
statement, "he was fired for stealing," we reverse the award of
damages against T-Bird; we reverse and remand for a new trial limited to the
issue of damages, actual and punitive, against Ballard.
3. Newberry's Cross-Appeal.
{25} Newberry cross-appeals
the granting of defendants' motion for a directed verdict on three claims:
punitive damages for the breach of an implied employment contract; punitive
damages for the statement, "I don't trust you"; and intentional or
reckless infliction of emotional distress. We will address each claim in
seriatim.
{26} The standard to be
followed by the trial court in ruling on a motion for a directed verdict, and
the scope of review of the evidence on appeal from a judgment entered upon a
directed verdict, are set out in
Melnick v. State Farm Mutual Automobile
Insurance Co., 106 N.M. 726,
749 P.2d 1105,
cert. denied, ... U.S.
..., 109 S. Ct. 67, 102 L. Ed. 2d 44 (1988), wherein it is stated:
Neither the trial court in ruling upon a motion for a
directed verdict, nor an appellate court in reviewing the evidence on appeal
from a judgment entered pursuant to a directed verdict, is authorized to
consider only the evidence most favorable to the party opposing the motion. All
the evidence must be reviewed, but, if there [are] conflicts or contradictions
in the evidence, these conflicts must be resolved in favor of the party
resisting the motion. Insofar as the properly admitted evidence is
uncontroverted, it must be considered. However, if any uncontradicted evidence,
including the reasonable inferences deducible therefrom, may reasonably be
interpreted in different ways, then the interpretation most favorable to the
resisting party must be accepted.
{*432} {27} Applying these considerations to the facts in
the present case, we affirm the trial court's granting of the motion for a
directed verdict on the above stated claims. While it is true that punitive
damages are allowable in breach of contract cases, it is only upon a showing of
bad faith by an employer during the course of a plaintiff's employment or in
the manner and method used to terminate him. Boudar v. E. G. & G., Inc.,
106 N.M. 279, 283, 742 P.2d 491, 495 (1987). Newberry failed to make this
showing. Ballard terminated Newberry in the back offices of the store for
violating company policy. Even though Ballard's method of termination, namely,
shouting at Newberry, is not above reproach, it does not evince bad faith.
Further, a defamation claim requires proof of actual malice for an award of
punitive damages. Marchiondo II, 98 N.M. at 403, 649 P.2d at 471. Based
on the facts herein, Ballard's statement, "I don't trust you," was
not said with actual malice, that is, knowledge of its falsity or reckless
disregard of the truth. Since reasonable minds cannot differ on the conclusion
to be reached under the evidence presented, a directed verdict was proper.
{28} Finally, the evidence
does not support Newberry's claim that Ballard inflicted emotional distress
upon him, either intentionally or recklessly. New Mexico follows the Restatement
(Second) of Torts § 46 (1965), which describes the tort as follows: "One
who by extreme and outrageous conduct intentionally or recklessly causes severe
emotional distress to another is subject to liability for such emotional
distress, and if bodily harm to the other results from it, for such bodily
harm." The extreme and outrageous conduct must be "so outrageous in
character, and so extreme in degree, as to go beyond all possible bounds of
decency, and to be regarded as atrocious, and utterly intolerable in a
civilized community." Dominguez v. Stone, 97 N.M. 211, 214, 638
P.2d 423, 426 (Ct. App 1981) (quoting Restatement (Second) of Torts § 46
comment d (1965)). There was no evidence that Ballard's conduct rose to such a
level in the present case. Ballard in a loud voice did discharge Newberry and
did shout at Newberry on the sales floor, "I don't trust you;"
however, this is not extreme and outrageous conduct.
{29} We affirm the judgment
of the trial court granting defendants' motion for a directed verdict. We
reverse the award of damages and enter judgment in favor of defendants on the
breach of an implied employment contract and on the defamation count for the
statement, "I don't trust you." As to the statement, "he was
fired for stealing," we reverse the award of damages (compensatory and
punitive) against T-Bird and enter judgment in its favor, and remand for a new
trial, limited to the issue of damages, against Ballard.
HARRY E. STOWERS, JR., Justice, DAN SOSA, JR., Chief Justice,
JOSEPH F. BACA, Justice, concur.