Unpublished Disposition, 909 F.2d 1490 (9th Cir. 1988)

MEMORANDUM^** 

Beverly Violett ("Violett") appeals the district court's grant of summary judgment to Pay 'n Save and its denial of her motion for reconsideration in her action for wrongful termination. We have jurisdiction under 28 U.S.C. § 1291, and we affirm.

Violett began her employment with Pay 'n Save in February of 1979 at the Bentley Mall store in Fairbanks, Alaska. In June, 1986 she injured her back while lifting boxes at work. Pay 'n Save's 1984 Employee Handbook ("Handbook") provided six months paid medical leave, as well as automatic reinstatement, as long as the employee was certified medically fit to return to her position. The Handbook also provided for job modification in the event an employee was not able to resume her former duties, and extended leave based on a number of factors, at the sole discretion of the company.

Pay 'n Save granted Violett a six month leave at full pay. On November 7 a "letter of understanding" was submitted to her store manager, Ron Fassett, containing a work-hardening plan, whereby she would work two hours per day, have the assistance of a subordinate for lifting and bending, and work only on the ground floor so that she would not need to go up stairs. The proposal was forwarded to Pay 'n Save's regional director, Don McCumby for approval. After considering it, McCumby advised Violett that the company would prefer she remain on her paid leave until she was fully recovered. The store held her job open through February, 1987, in anticipation of her return.

After six months of treatment and rest, Violett was still not certified medically fit to return to her former position. On February 3, 1987, Pay 'n Save advised Violett in writing that, in light of her inability to pass a physical, she would be terminated. This would enable her to receive long-term medical disability and workmen's compensation.

Violett filed a wrongful termination action in state court in Alaska; the case was removed to federal court on July 31, 1988. On December 16, 1988, the district court granted Pay 'n Save's motion for summary judgment, finding that: 1) the mere fact that Violett was terminated 14 months prior to the full vesting of her pension did not raise a material issue of fact as to bad faith, especially when Pay 'n Save stated and the court surmised that she would be entitled to all the pension accrued to date; 2) there was no material issue of fact as to Pay 'n Save's violation of the Handbook because neither extended medical leave nor work-hardening were rights to which Violett was automatically entitled.

The district court found Violett's complaint and affidavits were full of hearsay, innuendo and personal impressions, rendering her evidence either inadmissible under the Federal Rules of Evidence or non-cognizable under Fed. R. Civ. P. 56. Violett subsequently filed a motion for reconsideration, which the court ruled was not timely under its local rules, and substantially a repetition of arguments previously rejected.

Violett raises four issues in her appeal. She contends that the district court (1) erred in applying the Federal Rules of Civil Procedure instead of local Alaska rules; (2) erred in granting Pay 'n Save's motion for summary judgment by ruling that Violett had failed to show a material issue of fact as to Pay 'n Save's bad faith breach of employment contract; (3) erred in denying Violett punitive damages; and (4) erred in denying Violett's motion for reconsideration. We will discuss each in turn.

Violett argues that the district court improperly applied the Federal Rules of Civil Procedure instead of Alaska Civil Rule 56 when considering Pay 'n Save's motion for summary judgment. Whether state or federal law applies in a diversity action and whether the court correctly construed state law are reviewed de novo. Sax v. World Wide Press, Inc., 809 F.2d 610, 613 (9th Cir. 1987). In a diversity action, the applicable procedural rules are determined by federal law. Id. Thus the district judge properly applied Fed. R. Civ. P. 56, and not the local rule.

The district court stated that it was "required to enter summary judgment against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." This is a proper summary of California Architectural Building Products, Inc. v. Franciscan Ceramics, 818 F.2d 1466, 1468 (9th Cir. 1987), cert. denied, 484 U.S. 1006 (1988).

Violett is correct in her assertion that the district court was obligated to apply Alaska law to determine who bears the burden of proof on the substantive state law claim of wrongful termination. Sax, 809 F.2d at 613. She argues that under Alaska law the employer bears the burden of proving good faith in a wrongful termination action. She bases this argument on an incorrect reading of Arco Alaska v. Akers, 753 P.2d 1150 (Alaska 1988) which stated, " [i]n Skagway City School Board v. Davis, 543 P.2d 218 (Alaska 1975), we held that once the plaintiff in a wrongful discharge case shows substantial performance of his contractual duties, the burden is on the defendant to show justification for the discharge." Id. at 1155.

While in Akers the court did place the burden on the employer to justify its termination, that burden shifted only after the employee had proven his "substantial performance." The district court in the instant case correctly concluded from the record before him that Violett was not medically able to perform her contractual duties. Therefore the burden remained on Violett to show that she was terminated in bad faith and not because she was unable to work.

In order for Violett to bring a successfully cause of action for wrongful termination, she must first establish that she had an employment contract and was not an at-will employee. The district court assumed without so finding that Violett was not an at-will employee. While there was no written contract other than the 1984 Employee Handbook, under Alaska law, an employee manual or handbook forms the basis of an employment contract, "under the general rule that applicable laws in existence at the time of the formulation of the contract and which the parties are presumed to know are incorporated into the contract and become a part of it as though they had been expressly set out in the contract." Skagway, 543 P.2d at 222; accord, Akers, 753 P.2d at 1155.

Second, in order to prove that the breach was in bad faith, she must establish both the existence of an implied covenant of good faith and fair dealing, and the kind of conduct or motive that would violate the covenant. Several Alaska cases hold that implied in every contract, including an employment contract, is the covenant of good faith and fair dealing. See, Mitford v. de Lasala, 666 P.2d 1000, 1006-07 (Alaska 1983); Knight v. American Guard & Alert, Inc., 714 P.2d 788, 792 (Alaska 1986). However, "any business is entitled to exercise managerial discretion so long as it is exercised reasonably and in good faith. This means that even though you think a particular decision is wrong and you would have acted differently had it been up to you, as long as it was done fairly and in good faith, no breach of contract occurs." Akers, 753 P.2d at 1156.

Violett argues that Pay 'n Save had the ulterior bad faith motive of avoiding the payment of her pension when it terminated her after denying her work-hardening and extended leave. She bases her belief that she will lose her benefits on the Employee Handbook which states: " [w]hen you reach retirement age your pension is determined by your age and years of service (you must have 10 years of service to receive a benefit)...." Handbook at 5.4. Since Violett had worked only eight years and 10 months before her discharge, she alleges that she will be ineligible to recover any pension benefits.

It is true that if Pay 'n Save had fired Violett for the purpose of preventing her from receiving her pension, this would be a breach of the implied covenant of good faith and fair dealing. Mitford, 666 P.2d at 1007. However, her only evidence that she was fired to prevent her from receiving her pension benefits is her own opinion contained in her affidavit. The district court properly rejected this evidence. Isler v. Jensen, 382 P.2d 901, 902 (Alaska 1963). Thus the district judge held that while, "it would be breach of the duty of good faith and fair dealing under Mitford, and also breach of the specific term in the [handbook] if Pay 'n Save fired Ms. Violett to prevent her from obtaining her pension.... I cannot find any genuine issue [because] ... [t]here is no cognizable evidence.... [T]he timing is not ... at all suggestive of a dismissal to keep Ms. Violett from getting her pension." We agree.

Violett argues that she was entitled to extend her medical leave beyond six months, because there was a provision in the Employee Handbook allowing that option to the company. The district court found no indication in the record that Violett had even requested an extension of the six month medical leave. In any event, the court stated that in light of the discretionary language of the provision, "The corporation is under no obligation to extend medical leave." We agree that the language of the provision is not mandatory but discretionary. Therefore its denial cannot be the basis of a wrongful termination action.

Violett also relies on the Handbook's discretionary language for what she calls a right to work-hardening. Violett argues that this provision entitled her to job modification and the company denied her that right in bad faith, when she requested it approximately four months into her six month medical leave. To support her argument she cites the "letter of understanding" proposing work-hardening. She also argues that the fact that Pay 'n Save granted work-hardening to other employees constitutes cognizable evidence of bad faith.

These contentions lack merit. First, the language of the provision makes it clear that Fassett did not have authority to grant work-hardening without approval of his superiors. Second, the fact that other employees were given work-hardening is not dispositive, since the provision is clearly discretionary, presumably on a case by case basis. The two employees Violett referred to were not in situations similar to her. They did not require full-time assistants during their work-hardening, and they were able to work nearly full-time as they resumed their positions. Neither exhausted their medical leaves. Thus Pay 'n Save's denial of Violett's work-hardening program cannot form the basis of her wrongful termination suit.

Violett also claims that she is entitled to punitive damages and damages for emotional distress. She now claims to suffer from a peptic ulcer brought on by the stress of being fired. The district court correctly denied punitive damages under Alaska law. "Punitive damages are not recoverable for breach of contract unless the conduct constituting the breach constitutes an independent tort ... [W]e hold that punitive damages are not recoverable for breach of the implied covenant of good faith and fair dealing." Akers, 753 P.2d at 1153, 1154.

Violett may not recover punitive damages or damages for emotional distress because she has neither pled nor proved a tort independent from her wrongful discharge claim. To establish the claim of intentional infliction of emotional distress, Violett would need to prove that Pay 'n Save acted intentionally or with reckless disregard to cause her injury. Zeman v. Lufthansa German Airlines, 699 P.2d 1274, 1286 (Alaska 1985). There is absolutely no evidence that the company purposefully fired Violett in order to inflict emotional distress upon her.

Finally, Violett claims that the court erred in denying her motion for reconsideration. A denial of a motion for reconsideration will not be reversed absent an abuse of discretion. Fiester v. Turner, 783 F.2d 1474, 1476 (9th Cir. 1986).

The district court properly denied the motion as untimely pursuant to General Rule 5(J) of the local rules of the Alaska district court. Rule 5(J) provides that " [a] motion for rehearing or reconsideration shall be filed within ten (10) days of service of the order or ruling upon which rehearing or reconsideration is being requested." Pay 'n Save's motion for summary judgment was granted at the conclusion of oral argument on December 9, 1988, and then by written order on December 13, 1988. Violett filed her motion for reconsideration on December 27, 1988, several days after the expiration of the ten-day filing period. We conclude, therefore, that the district court did not abuse its discretion in denying Violett's motion for reconsideration.

For the foregoing reasons, the district court's grant of summary judgment to Pay 'n Save is

AFFIRMED.