IN THE SUPREME COURT
OF THE STATE OF NORTH DAKOTA
Supreme Court File No. 990296
|Plaintiff and Appellee,|
|Associated Potato Growers, Inc.,|
|a North Dakota corporation,|
|Defendant and Appellant.|
ON APPEAL FROM JUDGMENT OF THE DISTRICT COURT,
GRAND FORKS COUNTY, NORTH DAKOTA
|DONALD J. OLSON, #02682|
|DARIN B. BARKER, #05417|
|FOR:||Camrud, Maddock, Olson & Larson, Ltd.|
|401 DeMers Avenue, Suite 500|
|P.O. Box 5849|
|Grand Forks, ND 58206-5849|
|Attorneys for Defendant/Appellant|
TABLE OF CONTENTS
TABLE OF CONTENTS i
TABLE OF AUTHORITIES .. iii
JURISDICTIONAL STATEMENT 1
ISSUES PRESENTED .... 1
STATEMENT OF THE CASE . 1
STATEMENT OF FACTS 3
SUMMARY OF ARGUMENT . 9
ARGUMENT .. 10
STANDARD OF REVIEW 10
Associated had good cause for terminating Dennis
Thompson for altering company records .. 12
Falsification of records is a justifiable cause for
termination . 12
It was unnecessary for Associated to have had a
written policy forbidding the alteration of company
records by the general manager in order to justify
termination for cause 16
Thompson's failure to adequately explain himself to the
Board should not be held against Associated .. 20
Associated's investigation into Thompson's misconduct
and his opportunity to respond were adequate 22
The timing of Thompson's termination does not affect
the existence of good cause 26
It was improper for the District Court, acting as finder of fact,
to substitute its judgment for that of Associated that Thompson
had engaged in misconduct justifying termination for cause . 29
CONCLUSION .. 32
TABLE OF AUTHORITIES
Erway v. Deck, 1999 ND 7, 588 N.W.2d 862 (N.D. 1999) . 11
Estate of Wenzel-Gosset by Gaukler v. Nickels, 1998 ND 16,
575 N.W.2d 425 (N.D. 1998) ... 10
Lovgren v. Job Service North Dakota, 515 N.W.2d 143 (N.D. 1994) 13
McGregor v. Harm, 125 N.W. 885 (N.D. 1910) . 11
ProServe Corp. v. Rainey, 536 N.W.2d 373 (N.D. 1995) . 10, 11
Rudnick v. City of Jamestown, 463 N.W.2d 632 (N.D. 1990) . 24
Sadler v. Basin Electric Power Coop., 431 N.W.2d 296 (N.D. 1988) 17
Chrvala v. Borden, Inc.,
14 F.Supp.2d 1013 (S.D. Ohio 1998) . . 12, 14, 23, 28, 29, 30, 31, 32
Cleveland Board of Education v. Loudermill,
470 U.S. 532, 105 S.Ct. 1487, 84 L.Ed.2d 494 (1985) .. 26
Cotran v. Rollins Hudig Hall International, Inc.,
948 P.2d 412 (Cal. 1998) .. 13, 23, 24, 25, 26, 27, 28, 29, 30, 31
H. Vincent Allen & Associates, Inc. v. Weis,
379 N.E.2d 765 (Ill.App.Ct. 1978) . 12, 16
McIntyre v. Fort Vancouver Plywood Co., Inc.,
600 P.2d 619 (Wash.Ct.App. 1979) 12, 16, 17
Moore v. May Dept. Stores Co.,
271 Cal.Reptr. 841 (Cal.App. 2 Dist. 1990) . 18
Rush v. United Technologies, Otis Elevator Div.,
930 F.2d 453 (C.A. 6 (Mich.) 1991) 13, 17, 27
Wolfe v. Graether, 389 N.W.2d 643 (Iowa 1986) . 12, 16
NORTH DAKOTA STATUTES
North Dakota Century Code Section 34-03-05 .. 11
30 C.J.S. Employer-Employee .. 12, 28
William J. Holloway & Michael J. Leech,
Employment Termination, Rights and Remedies (1985) .. 13
IN THE SUPREME COURT
OF THE STATE OF NORTH DAKOTA
Dennis Thompson, )
) Supreme Court No.: 990296
Plaintiff and Appellee, ) Grand Forks No.: 95-C-632
Associated Potato Growers, Inc., )
a North Dakota corporation, )
Defendant and Appellant. )
Appeal is made to the North Dakota Supreme Court pursuant to its jurisdictional power to review decisions of the District Courts of the State of North Dakota. The decision appealed from is a Memorandum Opinion and Order for Judgment finding in favor of Dennis Thompson in his action for breach of contract/wrongful termination against Associated Potato Growers, Inc.
Whether good cause existed for the termination of Dennis Thompson by Associated Potato Growers, Inc., for altering company records.
Whether the District Court impermissibly substituted its judgment for that of Associated Potato Growers, Inc., that Thompson had engaged in misconduct justifying termination for cause.
STATEMENT OF THE CASE
In this case, Defendant/Appellant Associated Potato Growers, Inc., asks this Court to reverse a decision of the District Court that Associated breached an employment contract with former general manager, Plaintiff/Appellee Dennis Thompson, when it terminated him for cause in June of 1993.
Dennis Thompson ("Thompson"), former general manager of Associated Potato Growers, Inc., ("Associated") brought an action by Complaint dated April 2, 1997, for breach of employment contract/wrongful termination and tortious interference with contractual relations against Associated and Duane Hovet, a former salesperson for Associated. Associated counterclaimed that Thompson's wrongful changing of records damaged it in the amount of $25,000.00.
A bench trial was held in Grand Forks, North Dakota, before District Court Judge Joel D. Medd on March 16 through 19, 1999. Testimony was heard from bookkeeper Jody Larson and former employee Jon Seaberg that Thompson directed them to change records to reflect a grade of potato higher than what was assigned by a state or federal inspector. Jim Tallackson and Paul Dolan, who were Board members at the time, both testified that a manager may not change potato grades and records. Seaberg and Hovet both testified that they did not believe that a manager had such a right. Former plant manager Bernie Haugland testified that he was not aware of any managers prior to Thompson changing grades. Accountants Dan Monson and Gerald Nolte testified that their investigation confirmed that Thompson had changed grades and that these changes would have resulted in payment to certain growers which was higher than what they were entitled, and that other growers would necessarily receive less than what they were entitled. Thompson testified that he had the right to make the changes and that he was attempting to make an example by doing so. He was the only witness who testified that a manager may change grades and records.
The District Court held that Thompson was terminated without cause, and was therefore entitled to damages in the amount of $129,400.00, and that Duane Hovet did not tortiously interfere with Thompson's contract. Associated withdrew its counterclaim during the trial.
Associated filed a Notice of Appeal with this Court dated October 1, 1999. Subsequently, upon receiving a Notice of Entry of Judgment from Dennis Thompson, Associated re-filed the Notice of Appeal dated October 14, 1999. Duane Hovet is not a party to this appeal. Associated contends that it had just cause for terminating Thompson, and that the Trial Court, acting as finder of fact, impermissibly substituted its judgment for that of Associated that Thompson committed misconduct justifying termination for cause. Associated respectfully requests that this Court reverse the District Court's decision finding that Associated breached its employment contract with Thompson, and its award of damages to Thompson in the amount of $129,400.00.
STATEMENT OF FACTS
Associated is a cooperative corporation organized under North Dakota law. (App. A-6.) Its business is to store, wash, and sell potatoes belonging to its members, most of whom are potato growers. (App. A-30 A-31.) Associated has storage and wash plant facilities in Grand Forks, Grafton, and Drayton, North Dakota. (Id.)
Thompson was hired as general manager of Associated under an employment contract dated August 1, 1991, and ending July 31, 1992. (App. A-96 A-103.) This contract was extended to cover an additional year from August 1, 1992, to July 31, 1993. (App. A-72 A-73.)
On May 28, 1993, Thompson was called to a special meeting of Associated's Board of Directors to hear allegations that he had altered sales records for certain growers. (App. A-80.) The meeting was attended by the entire office staff, which consisted of Jody Larson, Duane Hovet, Claudia Quinonez, Mandy George, and Kevin Knop. (Id.; App. A-35 A-36.) Examples of the allegations included the changing of records by Thompson to reflect the sale of potatoes as U.S. 1's when they had actually been invoiced and sold as U.S. 2's. (App. A-45 A-47; A-80.) U.S. 1 is a superior grade to U.S. 2, and therefore brings a higher price. (App. A-106.)
Thompson admitted to changing grades, but he claimed that he had a right to do so. (App. A-80.) The Board and office staff felt that he did not have such a right. (Id.) Thompson was given a two-week leave of absence, with pay. (Id.; App. A-71.) The Board retained two certified public accountants, Jerry Nolte and Dan Monson, of the accounting firm of Drees, Riskey and Vallager, to conduct a "mini audit" of Bins 59 and 61, the bins in question. (App. A-60; A-80.)
On May 29, 1993, the day after he was put on a leave of absence, Thompson wrote a letter to Jim Tallackson, then the president of the Board of Directors of Associated, in which he elected to extend his contract of employment for another year. (App. A-104.) Under paragraph 15 of the employment contract, this was the last day that Thompson could have made this election. (App. A-102 ¶ 15.)
On June 10, 1993, the Board held a meeting at which accountants Jerry Nolte and Dan Monson presented their findings from the "mini audit." (App. A-81.) Nolte and Monson confirmed that Thompson had made changes to certain grower records. (Id.; App. A-84; A-85 A-90.) The investigation also showed that some of the potatoes that Thompson had upgraded had been included in the pool out of which growers in Drayton and Grafton had already been paid, thereby affecting the pool price by including those inferior potatoes in the pool. (App. A-48 A-49.)
The accountants' analyses for Bins 59 and 61 as presented to the Board of Directors on June 10, 1993, showed that the combined value of those two bins based on changes that had been made to the records of Associated amounted to $31,244.50, when the true value of those two bins based on the federal inspection grade and applying pool pricing, was only $15,337.02. (App. A-59; A-84; A-89 A-90.) The Board moved to terminate Thompson without cause, subject, however, to legal review. (App. A-81.) Thompson was not present at this meeting. (Id.)
On June 14, 1993, another Board meeting was held at which Thompson was present. (App. A-109.) The Board asked Thompson for his resignation. (Id.) Thompson refused and elected to proceed with what the minutes of the June 14, 1993, Board meeting refer to as an arbitration hearing. (Id.) A committee of Board members was formed to allow Thompson to again explain his actions to the committee and the accountants. (Id.) The committee was made up of Board members Mike Emmanuelson, Jon DeSautel, Gerald Kjorvestad, and Jim Tallackson. (Id.)
The arbitration hearing was held on June 16, 1993. (App. A-83.) Jerry Nolte, one of the accountants, testified that Thompson admitted to changing grades of potatoes, and that he did so in order to "make an example." (App. A-61.) Nolte further testified that Thompson did not elaborate as to the nature of the "example." (App. A-62.)
On June 17, 1993, the office staff of Associated, consisting of Duane Hovet, Jody Larson (Campbell), Claudia Quinonez, Mandy George, and Kevin Knop, provided a letter to the Board members in which they expressed concerns regarding whether they would be able to provide input as to the allegations against Thompson, and expressing concern that Thompson may be blaming them for the problems experienced at Associated. (App. A-111.)
Also on June 17, 1993, the committee of the Board that had been appointed to meet with Thompson reported to the full Board what had transpired in the meeting with Thompson on June 16, 1993. (App. A-83.) The minutes of the meeting of June 17, 1993, show that a motion was made to terminate Thompson with cause. (Id.) The Board voted unanimously to approve the motion. (Id.; App. A-32.) On June 18, 1993, Thompson was informed by letter that he was terminated for cause by action of Associated's Board of Directors. (App. A-105.) The cause for termination was the changing of potato grades and the making of false entries in Associated's business records by Thompson. (App. A-27 A-28; A-69.)
Thompson caused the grades of potatoes in Bins 59 and 61 to be changed in two ways. (App. A-40; A-54 A-55.) One way was to cause the grade assigned to potatoes by federal or state inspectors to be changed to a higher grade. (App. A-53 A-55.) Jon Seaberg was an employee of Associated who was responsible for recording the inspection grade. (App. A-50 A-51.) Seaberg testified that he was instructed by Thompson to change the inspection grade for potatoes in Bin 59. (App. A-52 A-53.) Seaberg recorded the changes in a notebook he kept within the course of his employment. (App. A-50 A-51; A-112 A-118.) Similar changes were made to potatoes in Bin 61. (App. A-54 A-55.)
The second way used by Thompson to change the value of potatoes in Bins 59 and 61 was to tell Jody Larson, Associated's bookkeeper, to change Associated's business records. (App. A-43.) Larson testified that Thompson told her to change the records for the Omlid's. (Id.) The Omlid's stored potatoes in Bins 59 and 61. (App. A-85; A-91.) According to Larson, Thompson would tell her at various times to change the grades in certain grower records from U.S. 2's to U.S. 1's. (App. A-40 A-41.)
The combined effect of the changes made to Bins 59 and 61 was presented by the accountants to Associated's Board of Directors at its meeting on June 10, 1993. (App. A-81 ; A-84 A-88; A-89 A-95.) The bin analyses for Bins 59 and 61 showed that 7,132 hundred weight of potatoes had been upgraded, resulting in an over-valuation of the potatoes in an amount of $15,907.48. (App. A-84; A-89 A-90.)
Thompson maintained at trial that he caused the grower sales records to be changed because he was going to "make an example." (App. A-74.) However, Jim Tallackson and Paul Dolan, both of whom were on the Board at the time, testified that Thompson never told this to the Board until after he was confronted. (App. A-34; A-70.) Thompson, himself, acknowledged that only he, and perhaps the bookkeeper, Jody Larson, knew that the growers' sales analyses for Bins 59 and 61 contained false information. (App. A-77.) Moreover, the unanimous vote by the Board to terminate Thompson for cause strongly suggests that Thompson was unable to offer a plausible explanation for his actions to the satisfaction of the Board. (App. A-32; A-83.)
Certain growers were paid for their potatoes based on the inclusion of the upgraded potatoes from Bin 59 in the U.S. 1 pool. (App. A-76.) The potatoes in Bin 59 were described by Associated's warehouse foreman, Bernie Haugland, as "garbage". (App. A-63.) The pool price was therefore affected by the inclusion of the upgraded potatoes. (App. A-76.) Even if Thompson had, in fact, been trying to make an example, his actions affected everyone in the pool because if one or more growers receive too much money for their potatoes, other growers must necessarily receive less. (App. A-33.) After the Board of Directors discovered that other growers were affected by what Thompson had done, Associated tried to correct the situation by recalculating the pool price, and then paying growers additional sums for their potatoes based on the revised pool prices. (App. A-44.)
SUMMARY OF ARGUMENT
An employee employed for a specific term may be terminated for cause if the employee engages in misconduct. It is unnecessary that the employment contract specify all the possible causes for dismissal. Thompson's changing of grades assigned to potatoes by a federal inspector, and his subsequent alteration of company records to reflect these unauthorized changes, justified Associated's decision to terminate him for cause. "Good cause" for termination of an employee may be defined as fair and honest reasons, regulated by good faith on the part of the employer, supported by substantial evidence gathered through an adequate investigation that includes notice and a chance to be heard.
Associated conducted a thorough investigation by independent certified public accountants to determine whether and to what extent Thompson's changes had been made to the grades assigned for potatoes in Bins 59 and 61. The investigation produced substantial evidence of changes to the grades of potatoes in these bins that had been made at Thompson's direction, which caused a significant increase in the value of the potatoes. When the Board discovered that Thompson had caused records of Associated to be changed, it gave Thompson at least two chances to be heard and to explain his actions. After the Board made its investigation and after giving Thompson a chance to explain, the Board made its decision in good faith by a unanimous vote to terminate Thompson for cause.
The role of the finder of fact in determining whether misconduct sufficient to justify termination of an employee for cause is to ascertain whether the employer had reasonable grounds for believing that the alleged misconduct occurred, and whether the decision was made in good faith and on the basis of substantial evidence. It is improper for the finder of fact to substitute its own judgment for that of the employer so long as the requisite good faith and substantial evidence are present. In this case, there is no question that what Thompson was accused of actually occurred, that there was an adequate investigation, and that there was good faith on the part of Associated. Thompson's contention that he was attempting to act in the best interests of the growers when he changed grades and records lacks credibility because the Board of Directors, made up entirely of potato growers, did not believe his explanation, as evidenced by the unanimous vote to terminate him with cause.
LAW AND ARGUMENT
STANDARD OF REVIEW
Associated respectfully requests that this Court determine whether certain uncontroverted facts, or facts as established from the record, satisfy the legal standard of proof for a termination of employment for cause, which is a mixed question of fact and law, reviewable de novo. See Estate of Wenzel-Gosset by Gaukler v. Nickels, 1999 ND 16, ¶ 28, 575 N.W.2d 425, 431 (N.D. 1998) (stating that the legal effects of underlying factual circumstances are conclusions of law). This Court has stated that "whether an employee's behavior is misconduct depends in part on the nature of the work and presents a mixed question of fact and law." ProServe Corp. v. Rainey, 536 N.W.2d 373, 376 (N.D. 1995) (citations omitted). While ProServe is an unemployment compensation case, it is useful because it provides a definition of "misconduct" that has grown out of North Dakota case law. "Misconduct" is defined as:
[Misconduct] is limited to conduct evincing such willful or wanton disregard of an employer's interests as is found in deliberate violations or disregard of standards of behavior which the employer has the right to expect of his employee, or in carelessness or negligence of such degree or recurrence as to manifest equal culpability, wrongful intent or evil design, or to show an intentional and substantial disregard of the employer's interests or of the employee's duties and obligations to his employer. On the other hand mere inefficiency, unsatisfactory conduct, failure in good performance as the result of inability or incapacity, inadvertencies or ordinary negligence in isolated instances, or good faith errors in judgment or discretion are not to be deemed "misconduct" within the meaning of the statute.
ProServe, 536 N.W.2d at 376 (citations omitted) (emphasis added).
The portion of this definition that is of particular relevance to the case at hand is the reference to the disregard of the standards of behavior which the employer has a right to expect of its employee. See id. The definition appears to be fully compatible with NDCC § 34-03-05, which authorizes an employer to terminate an employee at any time for a willful breach of duty by the employee in the course of his or her employment.
Although somewhat dated, this Court has specifically held that when the facts in reference to the discharge of an employee are not in dispute, it is a question of law whether the discharge was with or without cause. McGregor v. Harm, 125 N.W. 885, 887 (N.D. 1910). In any event, the question before this Court involves the legal consequences of the underlying factual circumstances, and as recently stated in Erway v. Deck, 1999 ND 7, ¶ 11, 588 N.W.2d 862, 864 (N.D. 1999), the factual circumstances relating to events constitute findings of fact as distinguished from the legal effect of the facts which is a conclusion of law that is fully reviewable on appeal. Id. In the case at hand, there is no question that the conduct for which Thompson was terminated did, in fact, occur. (App. A-80.) The question is whether this conduct constitutes good cause for termination, and should therefore by fully reviewable by this Court.
Associated had Good Cause for Terminating Dennis Thompson for Altering Company Records.
In order to justify termination of one employed for a specific term, an employer must show that the employee breached an express or an implied provision of the employment contract. 30 C.J.S. Employer-Employee § 62 (1992). It is sufficient for an employer to show that the employee engaged in conduct whose natural tendency was to injure the employer's business. Id., § 60. Actual harm need not be shown. Id. The grounds constituting good cause need not be specified in the employment contract. See, e.g., Wolfe v. Graether, 389 N.W.2d 643, 657 (Iowa 1986); H. Vincent Allen & Associates, Inc. v. Weis, 379 N.E.2d 765, 772 (Ill.App.Ct. 1978); McIntyre v. Fort Vancouver Plywood Co., Inc., 600 P.2d 619, 624 (Wash.Ct.App. 1979). Good cause exists only where termination is objectively reasonable. See Chrvala v. Borden, Inc., 14 F.Supp.2d 1013, 1017 (S.D. Ohio 1998); 30 C.J.S. Employer-Employee § 60 (1992).
A. Falsification of records is a justifiable cause for termination.
This case essentially comes down to whether changing grades of potatoes assigned by a federal inspector, and altering grower records to reflect those changes, constitutes good cause for termination. This Court has not defined the terms "good cause" or "just cause" in the context of the termination of an employee employed for a specific term. The California Supreme Court has recently defined "good cause" as:
fair and honest reasons, regulated by good faith on the part of the employer, that are not trivial, arbitrary or capricious, unrelated to business needs or goals, or pretextual. A reasoned conclusion, in short, supported by substantial evidence gathered through an adequate investigation that includes notice of the claimed misconduct and a chance for the employee to respond.
Cotran v. Rollins Hudig Hall International, Inc., 948 P.2d 412, 422 (Cal. 1998).
Dishonesty is one example of a justifiable cause for termination. William J. Holloway & Michael J. Leech, Employment Termination, Rights and Remedies 121 (1985). More specifically, the falsification of records is considered to be a serious breach of responsibility and a justification for termination. Rush v. United Technologies, Otis Elevator Div., 930 F.2d 453, 455 (C.A. 6 (Mich.) 1991). This Court has stated in dictum that the falsification of records is a serious offense. Lovgren v. Job Service North Dakota, 515 N.W.2d 143, 146 (N.D. 1994).
Applying the definition of "good cause" formulated by the California Supeme Court, and followed by a number of other courts, it is clear that good cause existed in this case for Associated to terminate Thompson. See Cotran, 948 P.2d at 418-20 (discussing standards for "good cause" determination by appellate courts of various states). First, there is no question that the conduct for which Thompson was terminated did, in fact, occur. (See, e.g., App. A-75.). The changing of potato grades and the alteration of company records were not arbitrary or capricious reasons for termination in that these actions affected both what the owner of the potatoes is paid, and also what other growers in the pool are paid. (See, e.g., App. A-76.) If one grower receives more than he or she is entitled, other growers must necessarily receive less. (App. A-33.) These reasons were clearly not pretextual, nor has Thompson ever claimed that they were. Finally, Associated hired an independent accounting firm to conduct an investigation, and gave Thompson more than one opportunity to explain himself prior to terminating him for cause. (App. A-80; A-83; A-109.) The arbitration hearing, Thompson's final chance to explain his actions, was preceded by two days notice. (App. A-83; A-109.)
Associated acted reasonably in this case. Once the Board was notified of
Thompson's actions, it called a special meeting at which Thompson was informed of the allegations and given a chance to explain. (App. A-80.) The Board was unsatisfied with Thompson's explanation and his assertion that he had a right to change grades and records, so it put him on paid leave, and hired accountants Jerry Nolte and Dan Monson to conduct a "mini audit" of the bins in question. (Id.) Hiring an accounting firm to investigate allegations of alteration of records should qualify as an adequate investigation because it was made in good faith and it uncovered substantial evidence that changes had been made in records at the direction of Thompson. See Chrvala v. Borden, Inc., 14 F.Supp.2d 1013, 1018 (S.D. Ohio) (stating that the relevant inquiry in determining the existence of good cause for termination is whether the employer engaged in good faith investigation and whether decision was based on substantial evidence).
Once the audits were completed, the Board again gave Thompson the opportunity to explain his actions at an arbitration hearing. (App. A-83; A-109.) He had two days notice of the hearing. (App. A-83; A-109.) The unanimous vote of the Board to approve the motion to terminate Thompson for cause strongly supports the fact that Thompson was unable to offer a plausible explanation for his actions. (App. A-32; A-83.) Accountant Jerry Nolte, who was present at the arbitration hearing, testified that Thompson's only explanation was that he was "making an example," and that Thompson did not elaborate further. (App. A-61 A-62.)
It is significant that the Board members to whom Thompson was explaining his actions were all potato growers and had a good deal of knowledge about Associated and the potato industry. At the meeting of May 28, 1993, Thompson's first opportunity to explain himself, eleven Board members were present. (App. A-80.) At the arbitration hearing, four Board members were present. (App. A-109.) The Board also gave Thompson the opportunity to resign instead of being terminated. (Id.) He refused. (Id.) After the arbitration committee reported to the full Board regarding the results of the hearing, the full Board voted unanimously to terminate Thompson with cause. (App. A-32; A-83.)
The seriousness of changing potato grades and records, and the fact that the Board was in a better position than the District Court in weighing the credibility of Thompson's explanations or lack thereof, both support the fact that good cause existed for the termination of Thompson.
B. It was unnecessary for Associated to have had a written policy forbidding the alteration of company records by the general manager in order to justify termination for cause.
The District Court stated in its Memorandum Opinion that "the lack of written policies and the broad responsibilities of the general manager position indicate that no cause existed." (App. A-16.) Thompson's employment contract provided that "[t]he employer may terminate this Agreement immediately for material violation of the employer's policies or material breach of the provisions of this Agreement . . .." (App. A-102 ¶ 14.) Regardless of the existence of any written policy so stating, however, Associated had cause for terminating Thompson for changing potato grades and altering company records.
While this Court has not addressed the issue of whether a written employment contract must contain all possible grounds for termination, other courts have determined that employers have the right to terminate an employee for good cause even if the contract states certain other causes for discharge. See, e.g., Wolfe v. Graether, 389 N.W.2d 643, 657 (Iowa 1986); H. Vincent Allen & Associates, Inc. v. Weis, 379 N.E.2d 765, 772 (Ill.App.Ct. 1978). An employee's misconduct which might injuriously affect the employer's business constitutes good cause for termination, irrespective of any employment contract. McIntyre v. Fort Vancouver Plywood Co., Inc., 600 P.2d 619, 624, 625 (Wash.Ct.App. 1979) (citations omitted). It stands to reason that it is unnecessary for an employer to reduce all policies or all possible grounds for termination to writing in order to discharge an employee for cause. "Implied grounds for termination have long been recognized to exist independently of any employment contract." Id. at 624.
The District Court stated that "an employment contract may expressly define what constitutes cause for termination," citing the case of Sadler v. Basin Electric Power Coop., 431 N.W.2d 296 (N.D. 1988). (App. A-15.) However, while it is true that a contract may specify the grounds for termination, this decision does not limit an employer's right to terminate for reasons not specified in an employment contract, nor has this Court ever held as such. See generally Sadler, 431 N.W.2d 296. Falsification of records is generally considered to be just cause for termination. See, e.g., Rush v. United Technologies, Otis Elevator Div., 930 F.2d 453, 455 (C.A. 6 (Mich.) 1991). It is clear that Associated was not required to have included all possible causes for termination in its contract with Thompson in order to terminate him for cause. Altering records was an act that was injurious to Associated, and it therefore was justified in terminating Thompson for cause. See, e.g., McIntyre, 600 P.2d at 625.
Regardless of the existence of any written policy so stating, basic concepts of fairness and honesty dictate that a manager or any other employee may not change records, especially when the result of the changes affects how much other growers will be paid. The record shows that no witness testified that any previous manager of Associated had ever engaged in the practice of changing grades and records. Only Thompson himself claimed he had such a right. Clearly Thompson should have realized that upgrading poor quality potatoes was wrong, and that he did not have a right to do so.
The District Court also cited a phrase from the post-trial brief of Associated to support its position that Thompson had the authority to change grades, but in reality, this phrase has the opposite meaning from how the District Court apparently interpreted it. The District Court stated: "Defendant APG also acknowledges that '[w]hen an employee occupies a managerial position, the employer must be allowed substantial scope for the exercise of subjective judgment.'" (App. A-16.) This proposition was cited in Associated's post-trial brief, and was taken from the case Moore v. May Dept. Stores Co., 271 Cal.Reptr. 841, 843 (Cal.App. 2 Dist. 1990). In reality, this proposition clearly means that an employer, in this case Associated, must be given substantial scope when dealing with an employee (Thompson) occupying a sensitive managerial position. See id. It stands to reason that if the actions of one in a sensitive managerial position result in a lack of trust in the manager's ability by the employer, the decision of the employer to terminate the manager should be given deference, in accordance with the business judgment rule, unless the termination was unreasonable. See Chrvala v. Borden, Inc., 14 F.Supp.2d 1015, 1018 n.1 (S.D. Ohio 1998). It was reasonable for the Board to have been very concerned about changing potato grades, as doing so gave Thompson the ability to unilaterally disregard the grade assigned by a state or federal inspector, and to therefore unilaterally determine how much a given grower would be paid, as well as affecting the pool prices for some or all of the other growers.
The District Court also stated in its memorandum opinion that employees have the right to make mistakes. (App. A-16.) However, Thompson has never stated that his actions were a mistake. Thompson claimed at trial that he had the right to make the changes that he did, and significantly, he was the only witness at trial who had this opinion. Conversely, Board members Jim Tallackson and Paul Dolan, along with former employees Duane Hovet and Jon Seaberg, all testified that they did not believe that a manager had such a right. (App. A-29; A-37 A-38; A-57 A-58; A-66 A-67.)
The District Court's assertion that cause did not exist due to a lack of written policies also failed to acknowledge that by the terms of Thompson's employment contract, he himself was responsible for formulating policies. (App. A-98 ¶ D(3).) The District Court's finding that altering records is allowable due to the lack of a written policy forbidding it merely rewards Thompson for his failure to formulate policies. It also fails to acknowledge that it is self-evident that an employee may not alter records. Furthermore, even if there was not a written policy stating that the general manager may not change potato grades, neither was there a policy that stated that the manager had a right to do so. Therefore, even if Thompson thought that he had a reason for changing the potato grades, he had a responsibility to present this new policy to the Board for approval prior to implementation. (Id.) He failed to do so, and was therefore in breach of his contract, which provides that policies are to be submitted to the Board for approval. (Id.)
The issue that the District Court should have answered in this case is whether alteration of records is a justifiable ground for termination, and whether it was reasonable for Associated to believe that Thompson committed these acts. The answers to both of these questions are clearly yes, and therefore Associated was not in breach of its contract with Thompson when it terminated him for cause.
Thompson's failure to adequately explain himself to the Board should not be held against Associated.
The record shows that prior to his termination, Thompson's only explanation for why he was changing grades and records was that he was trying to make an example. (App. A-61.) Jerry Nolte testified that Thompson did not explain the nature of this "example" at the arbitration hearing, however. (App. A-62.) Furthermore, even if Thompson had been attempting to "make an example," this does not explain why he would direct Jon Seaberg to change grades on source documents, such as wash reports. (App. A-56.) The wash reports are the documents that are provided to bookkeeper Jody Larson and provide her with the information to enter into the grower records. (App. A-55.) Larson also testified that Thompson told her on other occasions to change grades because "they" did not know what they were doing. (App. A-41.) Larson was uncertain as to who Thompson was referring to. (Id.) The testimony of both Seaberg and Larson undermine Thompson's "example" explanation of why he changed grades, as even if had he been trying to make an example, it was clearly improper to do so by changing source documents, and it was clearly improper to do so after the pool price had been set when it would be too late to change the grades back without affecting other growers in the pool. Larson's testimony also shows that Thompson changed grades on other occasions. (Id.)
Even assuming for the sake of argument that Thompson thought that he did have a reason for making the changes that he made, his lack of an adequate explanation coupled with the evidence that he had been making changes in potato grades and records for certain growers made it objectively reasonable for the Board to terminate him with cause. If there was a reasonable explanation, Thompson's failure to communicate it to the Board should not be held against Associated. Even Thompson admitted that he probably failed to adequately explain himself at the arbitration hearing:
What I'm wondering about, Mr. Thompson, is just wouldn't it have been a fairly simple deal that would have cleared up a lot of the problem that we're having here had you just said May 28, yeah, here's what I did, I told Jody to put these numbers in the growers sales analysis for bins 59 and 61?
I thought I did that.
But you told me just now you didn't tell the board.
I didn't tell?
You didn't tell the committee.I didn't say that I made false entries. I thought I explained myself thoroughly. Evidently I didn't.
(App. A-78 A-79.)
The evidence available to the Board was that grades and records had been changed either by Thompson or at his direction, and that those changes would cost Associated money and affect what other growers would be paid. Thompson failed to explain why he was making the changes, despite the fact that he was given two opportunities to do so. (App. A-80; A-83.) Coupled with the evidence of Thompson's misconduct, the Board was aware that the general morale of the office staff was low, as shown by the letter provided to the Board. (App. A-111.) There is no question that it was objectively reasonable, therefore, for the Board to terminate Thompson with cause.
Associated's investigation into Thompson's misconduct and his opportunity to respond were adequate.
The District Court concluded that the investigation into Thompson's changing of grades and records and his opportunity to respond to the charges were inadequate. (App. A-17.) The District Court placed great emphasis on the language of a letter of engagement from the accountants to Associated in which the accountants state: "[o]ur engagement cannot be relied upon to disclose errors, irregularities, or illegal acts, including fraud or defalcation, that may exist. However, we will inform you of any such matters that come to our attention." (App. A-107.) There has never been any allegation that Thompson's actions were unlawful, and the investigation conducted by Nolte and Monson was obviously not a criminal investigation. The job the accountants were hired to do was to analyze certain bins in which changes were believed to have been made by Thompson. (Id.) They completed this job and determined that Thompson had, indeed, changed records and grades for certain growers. (App. A-84; A-89 A-90.) These changes, if undiscovered, would have cost Associated money by paying growers for higher quality potatoes than had actually been invoiced and sold. (Id.) Furthermore, the testimony of Jon Seaberg and Jody Larson confirmed the misconduct Thompson had committed. (App. A-40; A-56.) The disclaimer in the accountants' letter of engagement did not prejudice Thompson in any way, and it was not relevant to the inquiry into the adequacy of the investigation in this matter.
While Thompson's employment contract does not provide for any certain procedures to have been followed by Associated in investigating charges of misconduct, the California Supreme Court indicated in the Cotran case that an investigation should be "adequate." Cotran v. Rollins Hudig Hall International, Inc., 948 P.2d 412, 422 (Cal. 1998). The Court went on to observe that what constitutes a fair hearing and an adequate investigation need not follow any formal or rigid procedures. Id. The Federal District Court for the District of Ohio indicated that the appropriate standard for an employer in determining the existence of good cause for termination is to engage in a good faith fact-finding investigation. Chrvala v. Borden, Inc., 14 F.Supp.2d 1013, 1018 (S.D. Ohio 1998). Regardless of what standard this Court deems appropriate, it is evident that Associated's investigation was conducted in good faith, and was sufficient to determine that Thompson had engaged in misconduct. Hiring independent accountants to conduct an extensive investigation is all that an employer may reasonably be expected to do in determining whether an employee engaged in misconduct amounting to good cause for termination. Furthermore, the investigation confirmed that changes to records had occurred. (App. A-84; A-89 A-90.) There is no evidence in the record to support the proposition that Associated's investigation was not made in good faith.
The District Court also determined that Thompson's opportunity to be heard was inadequate. (App. A-17.) Again, the employment contract did not spell out any particular procedure for Associated to follow in this regard. The standard enumerated by the Cotran court is that the employee be allowed an opportunity to respond. Cotran, 948 P.2d at 422. Even the more stringent standard required in the case of the termination of a public employee, which Thompson was not, provide that a pre-termination "hearing" need not be elaborate. Rudnick v. City of Jamestown, 463 N.W.2d 632, 639 (N.D. 1990) (citations omitted). In the case at hand, Thompson was given two opportunities to explain his side of the story, and this was all that he was reasonably entitled. (App. A-80; A-83.)
On May 28, 1993, Thompson was called to a special Board of Directors meeting at which he was asked to explain why certain grower records had been changed. (App. A-80.) The minutes of that meeting reflect that his explanation was that he had the right to make the changes. (Id.) The minutes further show that the Board felt he did not have such a right and placed him on a leave of absence. (Id.)
On June 14, 1993, Thompson was informed that he could request an arbitration hearing to further explain why he had made the changes. (App. A-109.) He requested the hearing, which was to be held on June 16, 1993. (Id.; App. A-83.) He therefore had two days notice of the hearing, and he was aware, or he should have been aware, that the topic of the hearing was the changing of records and grades, since he was still on a leave of absence for engaging in these activities. (App. A-80.) The arbitration hearing allowed Thompson to explain himself to four Board members and the accountants. (App. A-109.) These opportunities to be heard are all that Associated could reasonably have been expected to provide.
The District Court did not indicate in its Memorandum Opinion what more Associated should have done to provide an opportunity for Thompson to explain himself, but providing two opportunities to be heard, including two days notice for the second opportunity, clearly should be considered to be an adequate opportunity to be heard. See Cotran, 948 P.2d at 422.
The District Court also determined that Thompson was not informed of the charges against him. (App. A-17.) While it is true that he was not informed in writing of the allegations, he was clearly informed of what he was accused of. The minutes of the Board meeting of May 28, 1993, show that Thompson was asked to respond to allegations of changing grower records. (App. A-80.) Upon hearing that Thompson felt that he had the right to make such changes, the Board placed him on a leave of absence. (Id.) It is therefore clear that as of May 28, 1993, Thompson knew what actions the Board was concerned with, and why he was placed on a leave of absence. (Id.)
The minutes of the Board meeting of June 14, 1993, show that the Board asked for Thompson's resignation. (App. A-109.) At this point, Thompson was still on a leave of absence for changing records. He refused to resign and requested an arbitration hearing. (Id.) At the arbitration hearing, the topic was the changing of records by Thompson. (Id.; App. A-61.) The day after the hearing, Thompson was terminated for cause. (App. A-83.) It is inconceivable that Thompson did not know why he was terminated, and the minutes of the Board meetings of May 28, 1993, and June 14, 1993, and the fact that Thompson was still on a leave of absence for the changing of records at the time he was terminated, all support the fact that he was informed of the cause.
All that an employee is entitled to prior to termination is an adequate investigation by the employer, notice of the claimed misconduct, and an opportunity to respond. Cotran, 948 P.2d at 422. There is no need for that notice to be in writing. Even in the context of a procedural due process question, a public employee is entitled to either written or oral notice of the charges against him or her. Cleveland Board of Education v. Loudermill, 470 U.S. 532, 545-46, 105 S.Ct. 1487, 1495, 84 L.Ed.2d 494, 506 (1985) (emphasis added). It is therefore clear that the pre-termination oral notification of the misconduct with which Thompson was accused, given at the Board meetings and the arbitration hearing, was sufficient. See id. The District Court's determinations that Thompson was not afforded adequate notice of the reasons for his termination, and that Associated's investigation and Thompson's opportunities to be heard were inadequate, were incorrect as a matter of law.
E. The timing of Thompson's termination does not affect the existence of good cause.
The District Court determined that the "timing" of Associated's termination of Thompson did not support a finding that cause existed. (App. A-18.) The District Court placed great importance on the fact that initially, the Board moved to terminate Thompson without cause, subject to legal review, at its meeting of June 10, 1993. (App. A-81.) However, it is significant that this motion was made "subject to legal review of the contract." (Id.) There is nothing in the record to indicate that Thompson was ever informed of this motion. Subsequent to this Board meeting, Associated's attorney reviewed Thompson's employment contract, and the arbitration hearing was held. (App. A-83; A-109.) After these two events occurred, Thompson was terminated with cause, and was informed by letter of this decision. (App. A-105.) The issue that the District Court should have answered is whether cause existed--not whether a motion was made at a Board meeting to terminate without cause, subject to legal review. There is no question why the Board terminated Thompson. There is no question that alteration of records is a legal ground for termination with cause. See, e.g., Rush v. United Technologies, Otis Elevator Div., 930 F.2d 453, 455 (C.A. 6 (Mich.) 1991). There is no question that Thompson was afforded fair procedure prior to termination. See Cotran, 948 P.2d at 422. Associated was entitled to have its attorney review Thompson's employment contract prior to its determination of whether or not to terminate him with or without cause.
Much was made by Thompson at trial that some of the information provided to the Board by the auditors relative to how much money Thompson's actions would have cost Associated was inaccurate, and that after Thompson's termination, Associated subsequently paid Gerald and Jon Omlid, whose potatoes were in Bins 59 and 61, more than they were entitled. Paul Dolan testified at trial that apparently, the changes made by Thompson had not been changed back after his termination, and that was the reason the Omlid's were overpaid. (App. A-68.) This was all irrelevant, however, because the standard for an employer should be whether it had reasonable grounds for believing that the misconduct occurred. See Chrvala, 14 F.Supp.2d 1013, 1017; see also Cotran, 948 P.2d 412, 419 (focusing on the objective reasonableness of the employer's determination that good cause exists). Thompson was engaging in the activities for which he was terminated, and those actions did damage Associated. Actions of an employee which have a tendency to damage the employer justify dismissal of the employee. 30 C.J.S. Employer-Employee § 60 (1992). Whether the damage was of the same value as originally thought is not the proper inquiry, nor is it relevant. It was objectively reasonable for the Board to determine that changing potato grades and records would cause it damage by paying some growers more than they were entitled, and affect the pool price out of which other growers are paid.
It was also not relevant that Associated mistakenly failed to change back the grades changed by Thompson, and therefore overpaid some growers. Had Thompson not changed the records in the first place, there would have been no need to change them back. It is clear that any mistakes made by Associated subsequent to Thompson's termination have no bearing on the issue of whether it had cause to terminate him.
The totality of circumstances in this case are such that this Court should find that Associated had good cause for terminating Thompson. The grades given potatoes are extremely important in that they determine not only what an individual grower will be paid, but they also affect all other growers as well due to pool pricing. Thompson changed grades assigned by a federal inspector. Not only did he change the grades, he changed source documents, namely, wash reports, as well. This is not consistent with his explanation that he was making an example. Associated conducted an extensive investigation to verify that changes were, in fact, made. Finally, a Board made up of eleven individuals, all of whom were potato growers and ostensibly the persons Thompson claimed to have been trying to benefit, voted to terminate him for cause. Associated respectfully requests that this Court determine as a matter of law that Associated had cause to terminate Thompson.
It was Improper for the District Court, Acting as Finder of Fact, to Substitute its Judgment for that of Associated that Thompson had Engaged in Misconduct Justifying Termination for Cause.
As discussed above, the standard for determining whether "good cause" for termination exists is whether the employer had fair and honest reasons, regulated by good faith, are not arbitrary, capricious or pretextual, and are supported by substantial evidence gathered through an adequate investigation that includes a notice of the claimed misconduct. Cotran v. Rollins Hudig Hall International, Inc., 948 P.2d 412, 422 (Cal. 1998).
A recent federal case out of Ohio contains facts quite similar to the case at hand, and provides guidance on the role of the finder of fact in determining whether an employer's decision to terminate an employee for cause is reasonable. In Chrvala v. Borden, Inc., 14 F.Supp.2d 1013 (S.D. Ohio 1998), the plaintiff Chrvala was an executive employed under two contracts which contained a termination for cause section, providing that among other things, Chrvala could be terminated for "willful failure to discharge" his duties. Id. at 1015. Chrvala was terminated for allegedly having been involved in a transaction that artificially improved his department's productivity by failing to account for the repayment of an advance from a customer. Id. at 1016.
Chrvala sued Borden, alleging, among other things, breach of contract. Id. at 1017. Borden moved for summary judgment. Id. at 1014. The Court ultimately denied Borden's summary judgment motion due to factual issues as to whether the investigation was pretextual. Id. at 1020-21. However, the Court outlined the appropriate standards in determining whether an employee employed under a contract may be terminated for cause.
First, the Court determined that the appropriate standard for determining whether an employer's decision to terminate an employee for cause is whether the employer had reasonable grounds for believing the alleged misconduct occurred, and whether the decision was made in good faith and on the basis of substantial evidence. Id. at 1017. The Court noted that under Ohio law, the relevant inquiry in determining the propriety of a just cause termination is whether the employer engaged in a good faith fact-finding investigation and whether the decision was founded upon substantial evidence. Id. at 1018. In a footnote, the Court stated that it agreed with California Supreme Court in the Cotran case for the proposition that "allowing a jury to trump the factual findings of an employer that an employee has engaged in misconduct rising to the level of good cause for discharge, made in good faith and in pursuit of legitimate business objectives, is a highly undesirable prospect." Chrvala, 14 F.Supp.2d at 1018 n.1; Cotran, 948 P.2d at 419 (citations omitted). The Court further stated that hindsight evaluation of the wisdom of employment decisions is contrary to the policy behind the business judgment rule. Chrvala, 14 F.Supp.2d at 1018 n.1.
Similarly, after discussing the appropriate standard for the finder of fact in wrongful termination/breach of employment contract cases, the California Supreme Court stated in the Cotran case:
Although these features do not justify a rule permitting employees to be dismissed arbitrarily, they do mean that asking a civil jury to reexamine in all its factual detail the triggering cause of the decision to dismiss--including the retrospective accuracy of the employer's comprehension of that event--months or even years later, in a context distant from the imperatives of the workplace, is at odds with an axiom underlying the jurisprudence of wrongful termination. That axiom, clearly enunciated in Pugh IIis the need for a sensible latitude for managerial decisionmaking and its corollary, an optimum balance point between the employer's interest in organizational efficiency and employee's interest in continuing employment.
Cotran, 948 P.2d at 421.
In the case at hand, the District Court, acting as the finder of fact, trumped the findings of Associated that Thompson engaged in conduct rising to the level of good cause for discharge. The Board had an interest in seeing that potato grades assigned by a federal inspector were not randomly changed. To do so would have allowed Thompson to be the sole judge of what a grower would be paid. Furthermore, Thompson's actions were not authorized by any Associated policy. It is not necessary for an employer to spell out every possible action that an employee may not take. Basic common sense should dictate that an employee may not alter records, especially when the result is to affect what other growers will be paid.
Once the Board received the results of the audits from the accountants, it allowed Thompson to have an arbitration hearing to explain his side of the story. Thompson was unable to convince the committee members that what he was doing was fair or justified, as evidenced by the unanimous vote to terminate him for cause. (App. A-32.) Finally, the morale of the office staff who was supervised by Thompson was low, as indicated by the letter sent to the Board. (App. A-111.) The Board justifiably believed that Thompson could not be trusted to be the general manager, and it terminated him for cause. (App. A-64 A-65.) If Thompson had a valid reason or excuse for his actions, he did not share it with the Board members during his opportunities to be heard, and that should not be held against Associated. Associated conducted a good faith investigation, and there was substantial evidence that Thompson was changing grades and altering records. That should have been the sole inquiry of the finder of fact, and that should be enough to satisfy the "good cause" requirement. See Chrvala, 14 F.Supp.2d at 1018. It was improper for the District Court to substitute its judgment for that of Associated given the evidence that alteration of records had occurred at Thompson's direction, and the inability of Thompson to explain himself to the Board on either of his two opportunities.
Associated submits that the process followed by the Board of Directors is the way the law would want a board to proceed in dealing with the difficult task of terminating an employee for cause. For the reasons stated in this Brief, Associated respectfully asks that the decision of the Trial Court be reversed.
DATED this 23rd day of December, 1999.
|DONALD J. OLSON (#02682)|
|DARIN B. BARKER (#05417)|
|FOR:||Camrud, Maddock, Olson & Larson, Ltd.|
|401 DeMers Avenue, Suite 500|
|P.O. Box 5849|
|Grand Forks, ND 58206-5849|
|Attorneys for Defendant/Appellant|