No. 86-380
I N THE SUPREME COURT O F THE S T A T E O F MONTANA
1987
MICHAEL R I L E Y ,
P l a i n t i f f and R e s p o n d e n t ,
-vs-
WARM S P R I N G S S T A T E H O S P I T A I , ,
DEPARTMENT O F I N S T I T U T I O N S , S T A T E
O F MONTANA, a n d THE I N D E P E N D E N T
UNION O F T H E WARM S P R I N G S S T A T E
HOSPITAL,
D e f e n d a n t s and. A p p e l l a n t s .
A P P E A L FROM: D i s t r i c t C o u r t of t h e T h i r d J u d i c i a l D i s t r i c t ,
I n and f o r t h e C o u n t y of D e e r L o d g e ,
T h e H o n o r a b l e M a r k Sullivan, Z u d g e presiding.
COUNSEL O F RECORD:
For A p p e l l a n t :
K a r l N a g e l argued, S p e c i a l A s s t . A t t o r n e y G e n e r a l f o r
T h e D e p t . of I n s t i t . u t l o n s , H e l e n a , M o n t a n a
For R e s p o n d e n t :
Johnson, S k a k l e s & Kebe; Greg. J. S k a k l e s argued,
Anaconda, Montana
Submitted: November 10, 1 9 8 7
Decided: December 30, 1987
Filed:
DEC 30 1
W
Clerk
Mr. Justice Fred J. Weber delivered the Opinion of the Court.
In July 1979, Mr. Riley was fired from his position as a
psychiatric aide at Warm Springs State Hospital (Hospital).
He brought this suit against the Hospital, and against his
union for failure to adequately represent him. His primary
contention against the Hospital at trial was that the Hospi-
tal had violated the covenant of good faith and fair dealing
in employment. The jury in the District Court for the Third
Judicial District, Deer Lodge County, award.ed Mr. Riley a
judgment of $18,343 against the defendants. The Hospital
appeals and Mr. Riley cross-appeals. We vacate the judgment
against the Hospital and remand to District Court.
One issue decides this appeal: Did the District Court
err in determining that an implied covenant of good faith and
fair dealing existed in the employment contract between the
Hospital and its union employee Mr. Riley?
Mr. Riley worked at the Hospital during several summers
and one Christmas vacation while he was in high school and
college. In May 1979, he again took an aide position there.
He was on 6-month probationary status, in a pool of temporary
employees with no permanent assignment. He normally worked
graveyard shift in the forensic unit, but on the night of
July 14, 1979, he was assigned to the children's unit. He
was not happy with his assignment and sat in a chair in a
darkened room most of the night. He said his allergies were
bothering him. His co-workers say he was sleeping on the
job.
Mr. Riley worked the four following nights, then was off
two nights. He did not return to work after his two nights
off because he received a phone message through his sister
that his employment had been terminated. Following the phone
call, he received a registered letter advising him of the
termination.
Mr. Riley's union had negotiated a collective bargaining
agreement which provided at Article 3, Section 3 that:
At any time during the probationary period, the
employee may be terminated. Should the Union
believe the dismissal was in fact discriminatory or
capricious, a hearing shall be held with the Hospi-
tal Administrator and he/she shall render a deci-
sion thereon. The decision of the Hospital
Administrator may be a subject for grievance in
accordance with the grievance proceedings provided
in this Agreement.
The extensive grievance procedure as described at Article 13
culminates in a decision by an arbiter which "shall be final
and binding".
P r Riley contacted his union representative, who at
l.
first told Mr. Riley that his time for filing a grievance had
expired. Mr. Riley then asked for and was granted a meeting
of his union, himself, and Hospital management. The union's
president and one of its directors attended the meetinq. At
the meeting, the Hospital justified the four day delay in the
notice to Mr. Riley of his termination as time necessary to
get signed statements from Mr. Riley's co-workers. The
severe penalty of termination of employment was explained as
a result of the combination of Mr. Riley's prior record of
excessive absenteeism and his sleeping on the job. The union
officers who were present at the meeting testified at trial
that they concluded the termination was justified. After the
meeting, Mr. Riley was advised that his termination was
final.
Mr. Riley filed this suit in March 1980, and trial was
finally held in February 1986. In separate verdicts, the
jury awarded Mr. Riley damages of $18,343 from the ~ospital
and from the union. The union did not appeal.
Did the District Court err in determining that an im-
plied covenant of good faith and fair dealing existed in the
employment contract between the Hospital and its union em-
ployee Mr. Riley?
Mr. Riley argues that the Hospital has waived this
argument by proposing jury instructions on the covenant of
good faith and fair dealing at the time instructions were
settled. However, the record shows that the Hospital raised
the issue of whether the covenant was applicable prior to
trial, in a motion for summary judgment. The court denied
that motion while jury instructions were being settled, when
it accepted Mr. Riley's first proposed instruction on the
covenant. At that point, the Hospital was entitled to
present its own proposed instructions on the covenant, having
made its objection to the covenant's application in this
case.
The implied covenant of good faith and fair dealing in
employment was first recognized in Montana in Gates v. Life
of Montana Ins. Co. (1982), 196 Mont. 178, 638 P.2d 1063,
rev'd - other grounds after remand, 205 Mont. 304, 668 P.2d
on
213. Mr. Riley's claim against the Hospital is based on the
law articulated in that case and those cases founded on
Gates. The Hospital objects to application of the covenant
to a termination which occurred three years before the Gates
decision. It asserts that Gates should not be retroactively
applied to this case.
In December 1986 this Court ruled that a claim for
violation of the implied covenant of good faith and fair
dealing was barred where the plaintiff was covered by a
collective bargaining agreement. Brinkman v. State (Mont.
19861, 729 P.2d 1301, 43 St.Rep. 2163. Mr. Riley argues that
Rrinkman should not be retroactively applied.
Three factors are considered before adopting a rule of
nonretroactive application of a judicial decision. Jensen v.
State, Dept. of Labor and Industry (Mont. 19841, 689 P.2d
1231, 1233, 41 St.Rep. 1971, 1973, aff'd after remand, 718
P.2d 1335, 43 St.Rep. 621. First, the ruling to be applied
nonretroactively must establish a new principle of law either
by overruling precedent or by deciding an issue of first
impression whose result was not clearly foreshadowed. Next,
the new rule must be examined to determine whether retroac-
tive application will further or retard its operation.
Third, the equity of retroactive application must be
considered.
Although it can be argued that both Gates and Brinkman
established new principles of law, it can also be argued that
both principles were clearly foreshadowed. We conclude this
factor does not weigh heavily toward either side in this
case. The second factor to be weighed is whether retroactive
application will further the operation of the rules. The
purpose of the covenant of good faith and fair dealing is to
protect the employee's interest in job security. The purpose
of nonapplication of the covenant to employees covered by
collective bargaining agreements is to lend judicial support
to the collective bargaining process. We conclude that
retroactive application will further the operation and pur-
pose of the rules set out in both Gates and - -
Brinkman. Third,
we consider whether retroactive application of these rules to
this case is equitable. Both Ms. Gates and Mr. Brinkman were
terminated before the rules of law which governed the dispo-
sition of their claims were enunciated. Mr. Riley's employ-
ment was terminated in July 1979, Ms. Gates' in October 1979,
and Mr. Brinkman's in 1983. We conclude that to have
retroactively applied the rules in the two previous cases and
not to apply them in this case would be clearly inequitable.
We hold that the covenant of good faith and fair dealing
would be applicable in this case, except that Mr. Riley's
cause of action against the Hospital was barred because it
posed a significant threat to the collective bargaining
process, as discussed in Brinkman. We noted in Brinkman that
some claims invoke state interests in protecting the general
public which outweigh the interest in supporting the collec-
tive bargaining process and justify application of the cove-
nant. Brinkman, 729 P.2d at 1305-09. Mr. Riley's employment
was terminated for unsatisfactory work performance. His
claim does not invoke a state interest which outweighs the
interest in supporting collective bargaining.
We therefore vacate the judgment against the Hospital
and remand with instructions that the District Court dismiss
the claim against the Hospital.
We Concur:
Mr. Justice L. C. ~ulbrandson,specially concurring.
I specially concur with the result expressed in the
majority opinion, but I do not agree that - -
Gates, supra,
should be applied to a termination that occ d three years
prior to that decision.
Mr. Justice John C. Sheehy, dissenting:
It is important to this case that Michael Riley was
fired from his position at Warm Springs State Hospital and
that he brought suit against his employer, and also against
his union, on the grounds that the union and the hospital had
each failed to protect his interests properly under the
collective bargaining agreement.
The jury in this case agreed with Mr. Riley. It awarded
a judgment of $18,343 against the employer hospital, but also
awarded a separate judgment of $18,343 against the union for
inadequate representation. The hospital appealed the
judgment to this Court. The union has not appealed,
apparently because the judgment against the union is
uncollect able.
It is the duty of an appellate court to view the
testimony in the light most favorable to the prevailing party
at the trial level and to deem every fact proved which the
evidence tends to prove. Hannigan v. Northern Pacific
Railway Company (1963), 142 Mont. 335, 384 P.2d 493. On
appeal, the facts as stated by the witnesses and believed by
the jury and claimed by the prevailing party must be assumed.
Holland v. Konda (1963), 142 Mont. 536, 385 P.2d 272, 6
A.L.R.3d 824. The statement of facts in the majority opinion
overlook this elementary appellate rule.
The verdicts of the jury against his employer, and
against the union, require us to accept as proven that under
the collective bargaining agreement Riley was entitled to
certain procedures before his employment could be suspended
or terminated. The collective bargaining agreement required
that Riley, if he were suspended, should be immediately
"verbally" so advised and within three days notified in
writing of the specific causes for his suspension. This was
not done. The collective bargaining agreement required both
union and management to make every effort to advise the
employee of his rights. This was not done. The collective
bargaining agreement required that if the union believed the
dismissal was discriminatory or capricious, that a hearing be
held before the hospital administrator. He was not given
this hearing. His union representative failed to carry out
the grievance procedures provided in the collective
bargaining agreement. It was the duty of the union - -and the
hospital to follow the grievance procedures which required
(1) that the grievance be first taken up with his immediate
supervisor within five days of the grievance; (2) that if
not then resolved, then the grievance be presented to the
hospital superintend.ent or his designee in writing within
four days of the first step; ( 3 ) if settlement was not
reached in step two, that it be presented in writing to the
Director of the Department of Institutions within five days
of step two; and if settlement then failed that procedures be
instituted for arbitration. None of these were granted to
Riley.
There are two rules of law that should proceed from this
case that are completely lacking in the majority opinion.
The first rule of Law should be that if the employer
arbitrarily and capriciously fails to accord the employee his
rights under a collective bargaining agreement, that in
itself is a breach of the covenant of good faith and fair
dealing. This Court has held that a collective bargaining
agreement supplants the implied covenant of good faith and
fair dealing between employer and employee. If however the
collective bargaining agreement is arbitrarily disregarded by
the employer, the implied covenant should come back into
pl-ay.
The second rule of law that should issue from this case
is that the Brinkman rule is inapplicable in any wrongful
discharge case were the collective bargaining agreement has
proved to be ineffectual.
It is demonstrably unfair that the Brinkman rule should
be utilized by the majority to bar Riley's cause of action
because of the collective bargaining agreement, when the
collective bargaining agreement, as observed by both his
union and the employer deprived him of his employment rights.
It was on that state of facts that the jury found its
verdicts against both the Hospital and the union and in this
case the verdict against the employer/hospital should be
upheld.