Ainsworth v. Franklin County Cheese Corp.

NOTICE:  This opinion is subject to motions for reargument under V.R.A.P. 40
as well as formal revision before publication in the Vermont Reports.
Readers are requested to notify the Reporter of Decisions, Vermont Supreme
Court, 111 State Street, Montpelier, Vermont 05602 of any errors in order
that corrections may be made before this opinion goes to press.


                                   No. 89-325


Winston Ainsworth                            Supreme Court

                                             On Appeal from
     v.                                      Chittenden Superior Court

Franklin County Cheese Corp.                 November Term, 1990


David A. Jenkins, J.

John J. Bergeron of Bergeron, Paradis, Combs & Fitzpatrick and Michael Marks
  of Lisman & Lisman (Of Counsel), Burlington, for plaintiff-appellee

Paul D. Sheehey and David T. Austin of Sheehey Brue Gray & Furlong,
  Burlington, for defendant-appellant


PRESENT:  Allen, C.J., Gibson, Dooley and Morse, JJ., and Peck, J. (Ret.),
          Specially Assigned


     DOOLEY, J.   This is an appeal from a jury verdict against defendant
Franklin County Cheese Corporation for nonpayment of vested severance
benefits, awarding plaintiff Winston Ainsworth $316,050 in compensatory
damages and $200,000 in punitive damages.  Defendant raises four claims of
error:  1) the trial court erred in submitting to the jury the question of
whether plaintiff was discharged without cause; 2) punitive damages cannot
be awarded as a matter of law in a contract action without proof of an
independent malicious tort; 3) even if proof of an independent tort is not
required, the evidence failed to support an award of punitive damages; and
4) the trial court's instructions on punitive damages prejudiced the general
jury verdict.  We affirm.
     Defendant hired plaintiff in 1973 to manage defendant's cheese manufac-
turing plant in Enosburg, Vermont.  In addition to overseeing day-to-day
operations, plaintiff planned and supervised a major plant renovation,
improved quality control programs, and developed several new products.
         During plaintiff's thirteen-year tenure, the company experienced substantial
growth, including a four-fold increase in assets.  In 1984, plaintiff and
defendant entered into a written employment contract.  The contract provided
for one-year terms, automatically renewable unless one party chose to
terminate the contract upon thirty-days' notice to the other.  Under the
agreement, plaintiff was paid an annual bonus of fifteen percent of
defendant's pre-tax profits from the prior year.
     The contract contained a number of severance and termination clauses
that are central to this dispute.  Section 4.02 provided for a severance
         allowance if plaintiff were terminated without cause or for disability or if
plaintiff died.  The severance allowance was keyed to defendant's profits,
but was reduced to the extent his employment, as of the termination date,
had gone on for less than twenty years.  The sections critical to the
dispute involve termination without cause and termination for cause.  They
provided:
         Section 4.03 Termination without Cause - Without cause,
         the Employer may terminate his Employment at any time
         upon thirty (30) days' written notice to the Employee.
         Without cause, the Employee may terminate his Employment
         at any time upon thirty (30) days' written notice to the
         Employer.

         Section 4.05 Termination for Cause - With cause, the
         Employer may terminate his Employment at any time by
         providing written notice of the reasons therefor to the
         Employee.  In such an event the Employee shall not be
         entitled to receive the severance allowance referred to
         in Section 4.02 herein.  However, the Employee shall be
         entitled to receive his accrued pension benefits
     The parties differ substantially in their accounts of their relation-
ship during the period following the adoption of the employment contract.
Plaintiff testified that defendant's president and principal stockholder,
Walter Hildebrandt, expressed continued satisfaction with plaintiff's
performance and gave no indication that plaintiff's job was in jeopardy.
Plaintiff acknowledged that Hildebrandt was "frustrated" with some aspects
of the plant's operations, but attributed this sentiment to factors unre-
lated to plaintiff's performance.  Hildebrandt, on the other hand, testified
that he had complained to plaintiff on several occasions and had implicitly
warned plaintiff of the possibility of his dismissal.  Hildebrandt conceded
that he had proposed the employment agreement to reward plaintiff for his
excellent work and to ensure that plaintiff stayed with the company, and
that plaintiff was his most valued employee from 1973 to 1986.
     During a telephone conversation on August 25, 1986, Hildebrandt
informed plaintiff that his employment would be terminated.  Hildebrandt
provided no explanation for his decision, but offered plaintiff the option
of resigning or being fired.  Plaintiff asked for time to consider this
choice.  The following day, plaintiff received a letter from Hildebrandt
which stated:

          This is to confirm our conversation of today. With
          regret I accept your notice of termination from
          employment effective 30 days from today.
     At no time during the thirty-day post-notice period did defendant
provide plaintiff reasons for his dismissal.  Plaintiff did not question
defendant's decision and, at Hildebrandt's request, proceeded to train a
replacement and to update his files on his research and development
programs.  According to plaintiff, when he inquired as to whether severance
benefits would commence in late 1986 or early 1987, Hildebrandt responded
that he "hadn't gotten that far yet."
      On October 2, 1986, plaintiff received a letter from defendant, dated
September 30, 1986 and signed by Hildebrandt, which stated:
         This letter is forwarded to you for the purpose of
         providing to you written notice of the reasons why I
         requested that you terminate your employment with
         Franklin County Cheese Corp.

         Your employment was terminated for cause.  The reasons
         which underlie this decision include but are not
         limited to the following:

                 Failure to follow my written and verbal
               directions such as my memo to you dated
               October 19, 1985.

                 Failure to follow the Company Operations
               Manual.

          Lest there be any doubt, this notice is provided to you
          pursuant to the provisions of Section 4.05 [Termination
          for Cause] of the Employment Agreement between you and
          Franklin County Cheese Corp.

 Because defendant asserted that plaintiff was fired for cause, it refused to
 provide the severance allowance provided for in Section 4.02 of the
 contract.
      Plaintiff brought suit, alleging that defendant had breached its duty
 to provide a severance allowance under the employment contract.  He alleged
 that his dismissal was actually without cause and the September 30 letter
 contained false allegations promulgated solely to deprive him of his vested
 severance allowance.  He further alleged that no cause existed to dismiss
 him.  This appeal followed a jury verdict in favor of plaintiff.
      Defendant's first argument is that there was no credible evidence to
 support a finding that plaintiff was dismissed without cause.  Defendant's
 position, in essence, is that it should have received a directed verdict at
 the close of plaintiff's case and a judgment notwithstanding the verdict
 after the verdict since plaintiff made no showing to establish defendant's
 liability.  In evaluating a denial of a directed verdict, we must examine
 the evidence in the light most favorable to the opposing party and ignore
 the effect of modifying evidence.  See Silva v. Stevens, 2 Vt. L.W. 22, 24
 (Jan. 11, 1991).  If there is any evidence fairly and reasonably supporting
 the opposing party's claim, it is proper to submit it to the jury.  See id.
      Plaintiff made two interrelated claims in this case:  (1) even if cause
 for dismissal existed, plaintiff was terminated under Section 4.03 of the
 contract, without cause, and was entitled to the severance allowance; and
 (2) no cause existed for termination under Section 4.05.  Defendant's
 motion, and its brief here, attack the second ground, asserting that it was
 undisputed that cause existed under the proper legal test.  We need not
 reach that argument because it is clear that evidence existed to support
 denial of the motion on the first theory.
      It is very common in employment disputes for the court to have to
 determine the reasons or motives that form the basis for an employer's
 action.  See, e.g., United States Postal Serv. Bd. v. Aikens, 460 U.S. 711,
 716 (1983) (in employment discrimination case, court must determine
 employer's motive); Mount Healthy City Bd. of Educ. v. Doyle, 429 U.S. 274,
 287 (1977) (public employee who claimed he was not rehired because of his
 exercise of his right of free speech must show speech was a motivating
 factor in the dismissal; employer can prevail on showing that employee would
 not have been rehired despite the speech).  A comparable situation was
 present in the leading case of Toussaint v. Blue Cross & Blue Shield of
 Michigan, 408 Mich. 579, 292 N.W.2d 880 (1980), where the Supreme Court of
 Michigan found that statements of company policy and procedure were
 enforceable so that an employee could be fired only for cause.  On the proof
 necessary for the employee to prevail, the Court explained:
            Where the employer alleges that the employee was
          discharged for one reason -- excessive tardiness -- and
          the employee presents evidence that he was really dis-
          charged for another reason -- because he was making too
          much money in commissions -- the question also is one of
          fact for the jury.  The jury is always permitted to
          determine the employer's true reason for discharging
          the employee.

 Id. at 622, 292 N.W.2d  at 896 (footnote omitted).
      As in Toussaint, the jury was permitted here to find the true reason
 for plaintiff's dismissal.  The evidence on the reason for plaintiff's
 dismissal was in conflict.  Hildebrandt initially offered plaintiff the
 option of resignation or dismissal and provided no explanation for the
 termination until after the thirty-day notice period.  If plaintiff were
 believed, defendant had virtually no grounds for his action, and he failed
 to give any real warning.  Only when it was brought to Hildebrant's atten-
 tion that defendant might owe a severance allowance under the contract did
 he create the grounds.  Plaintiff offered an alternative explanation for
 his termination.  We conclude that the evidence was more than adequate for
 the jury to conclude that the statement of grounds was a pretext and that
 plaintiff was really terminated under section 4.03 of the contract.  There
 is no error in the denial of the motions for a directed verdict or a
 judgment notwithstanding the verdict.
      Second, defendant argues that an award of punitive damages was
 inappropriate as a matter of law.  Defendant's argument is two-fold: 1)
 punitive damages are not available in contract cases absent evidence of each
 element of an independent tort; and 2) if damages are appropriate in this
 type of action, they were not warranted here because there was no evidence
 of actual malice on the part of defendant.
      As defendant correctly points out, several states do not allow
 punitive damages in a contract action unless there is evidence sufficient to
 establish all of the elements of an independent, wilful tort.  See, e.g.,
 American Int'l Land Corp. v. Hanna, 323 So. 2d 567, 569-70 (Fla. 1977)
 (independent malicious tort must be specifically pled); Kamler Corp. v.
 Haley, 224 Va. 699, 707, 299 S.E.2d 514, 518 (1983) (requiring "proof of an
 independent, wilful tort, beyond the mere breach of a duty imposed by con-
 tract, as a predicate for an award of punitive damages"); cf. Canada Dry
 Corp. v. Nehi Beverage Co. Inc., 723 F.2d 512, 524. (7th Cir. 1983)
 (applying Indiana law; punitive damages allowed in absence of independent
 tort only where such damages will serve the public interest by deterring
 future wrongdoers).  Clearly, there is some disagreement among jurisdictions
 "regarding just when punitive damages ought to be available in a contract
 action."  See 5 A. Corbin, Corbin on Contracts { 1077, at 161 (1991 Supp.).
      Vermont, however, has consistently followed a different rule that
 punitive damages are appropriate in contract actions "in certain extra-
 ordinary cases where the breach has the character of a wilful and wanton or
 fraudulent tort . . . ." Glidden v. Skinner, 142 Vt. 644, 647, 458 A.2d 1142, 1144 (1983) (emphasis added); see also Appropriate Technology Corp. v.
 Palma, 146 Vt. 643, 648, 508 A.2d 724, 727 (1986) (breaching party's conduct
 "takes on the character of a willful or fraudulent tort rendering the
 corporation liable for punitive damages"); Hilder v. St. Peter, 144 Vt. 150,
 163, 478 A.2d 202, 210 (1984) ("Although punitive damages are generally not
 recoverable in actions for breach of contract, there are cases in which the
 breach is of such a willful and wanton or fraudulent nature as to make
 appropriate the award of exemplary damages.")  We see no reason to depart
 from this approach.
      Under plaintiff's theory, Hildebrandt fabricated grounds for
 termination solely to deny plaintiff his severance allowance.  Further, he
 did so only after plaintiff had worked in good faith to finish up his work
 and turn over his position to a new manager.  This is the type of conduct
 that has given rise to an award of punitive damages in our prior cases.
 See, e.g.,  Palma, 146 Vt. at 648, 508 A.2d  at 727.
      Defendant argues that there was insufficient evidence to find actual
 malice to support the punitive damage award.  See, e.g., Meadowbrook
 Condominium Ass'n v. South Burlington Realty Corp., 152 Vt. 16, 28, 565 A.2d 238, 245 (1989) (fact that defendant did not fulfill contractual obligation
 because it did not want to spend the money did not evince degree of malice
 required).  Malice is shown by "conduct manifesting personal ill will,
 evidencing insult or oppression, or showing a reckless or wanton disregard
 of plaintiff's rights . . . ."  Crump v. P&C Food Markets, Inc., ___ Vt.
 ___, ___, 576 A.2d 441, 449 (1990).  Malice may be inferred from the nature
 of defendant's conduct and the surrounding circumstances.  Wheeler v.
 Central Vt. Medical Center, ___ Vt. ___, ___, 582 A.2d 165, 171 (1990).  We
 believe that the jury could find in this case that Hildebrandt's conduct
 showed a wanton disregard for plaintiff's rights and was done to oppress.
 There was no error in submitting the punitive damage issue to the jury.
      Finally, defendant asserts that the court's instructions on punitive
 damages prejudiced the general verdict on liability.  Defendant does not
 claim error in any specific language of the punitive damage instructions,
 but insists that their presence within the general instructions rendered a
 finding of liability "a foregone conclusion."
      The short answer to this argument is that defendant failed to preserve
 it below.  In order to preserve a charge issue for review, defendant must
 object to the charge "before the jury retires to consider its verdict,
 stating distinctly the matter objected to and the grounds of the objection."
 V.R.C.P. 51(b).  The defendant failed to object to the presence or placement
 of the punitive damage instructions on the theory advanced here.  Thus, it
 has waived any claim of error on appeal.  See Martell v. Universal
 Underwriters Life Ins. Co., 151 Vt. 547, 552-53, 564 A.2d 584, 588 (1989).
      Affirmed.



                                         FOR THE COURT:




                                         Associate Justice