Liberatore, James v. Melville Corp

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 13, 1998 Decided March 16, 1999

No. 96-7067

James Liberatore,

Appellant

v.

Melville Corporation, t/a CVS,

Appellee

Appeal from the United States District Court

for the District of Columbia

(No. 94cv01422)

Damon K. Bernstein argued the cause and filed the briefs
for appellant.

John M. Nolan argued the cause for appellee, with whom
Carlton J. Trosclair was on the brief.

Before: Henderson, Rogers and Garland, Circuit Judges.

Opinion for the Court filed by Circuit Judge Rogers.

Rogers, Circuit Judge: James Liberatore appeals from the
grant of summary judgment to his former employer, the
Melville Corporation ("Melville") on his claim for wrongful
discharge. Although hired as an at-will employee, he con-
tends that his discharge was in retaliation for his threat to
report to the Federal Drug Administration ("FDA") the
unlawful condition in which his employer was storing pharma-
ceutical drugs, and that his claim of wrongful discharge
therefore falls within the public policy exception to the at-will
employment doctrine under District of Columbia law. While
his appeal was pending, the District of Columbia Court of
Appeals decided Carl v. Children's Hospital, 702 A.2d 159
(D.C. 1997) (en banc), in which the court held that the public
policy exception was not limited to cases where an at-will
employee was discharged for having outright refused to vio-
late a law.1 Id. at 160. Thereafter, in Washington v. Guest
Services, 718 A.2d 1071 (D.C. 1998), that court held Carl was
retroactive.2 Accordingly, we hold that Liberatore has stated
a cause of action for wrongful discharge under Carl's expand-
ed public policy exception to the at-will employment doctrine,
and we reverse.

I.

James Liberatore was employed from 1980 to 1993 as a
pharmacist for People's Drug Store, and subsequently for
CVS when CVS's parent company, the Melville Corporation,
purchased People's in 1990. It is undisputed that he was an

__________
1 After Liberatore filed his appeal of the October 2, 1995 order
granting summary judgment to the Melville Corporation, he filed a
motion to stay the appeal on October 18, 1996 pending the District
of Columbia Court of Appeals' en banc decision in Carl. The
motion to stay was granted on November 8, 1996.

2 Following oral argument, this court held Liberatore's appeal
in abeyance pending a decision by the D.C. Court of Appeals on
whether Carl was retroactive. Order of April 16, 1998. That issue
was decided in Washington, which became final on December 17,
1998, when the D.C. Court of Appeals denied a petition for rehear-
ing en banc.

at-will employee.3 At the time of his discharge, Liberatore
was the manager of the pharmacy department at the Thomas
Circle drug store in the District of Columbia. In late Janu-
ary 1993, the pharmacy was relocated to a glass enclosed area
that protruded beyond the building's exterior wall. Libera-
tore and other employees began to notice that inadequate
temperature control in the pharmacy was adversely affecting
the condition of certain drugs. Liberatore initially brought
the matter to the attention of his immediate supervisor, Nita
Sood, and later to her supervisor, Jon Roberts. Liberatore
continued to report his concerns to upper-level management
as the temperature in the pharmacy rose, causing visible
adulteration of a number of drugs. Although management
informed Liberatore that it was working on the problem, the
problem persisted during the spring and early summer.

On July 29, 1993, Liberatore told the Area Vice President,
Larry Merlo, that although he "didn't want to have to do
this," he had a neighbor who was the "number three guy in
the FDA," and he wondered what the FDA "would think
about a seven month delay in a drugstore that can't control
the temperatures of the pharmacy." That evening, manage-
ment authorized the removal of drugs worth $250,000 from
the pharmacy for reclamation.4 On August 2, 1993, Libera-
tore's immediate supervisor notified the loss prevention de-
partment that certain other drugs were missing from invento-
ry. After the department questioned pharmacy staff about
the shortage, Liberatore was identified as a suspect, and
management turned over the investigation to the Metropoli-
tan Police Department. On August 6, Liberatore was ques-
tioned by the police. On the same date, Liberatore was
discharged; the stated reason was not the drug loss investi-

__________
3 Under District of Columbia law, "employment is presumed to
be at will, unless the contract of employment expressly provides
otherwise." Carl, 702 A.2d at 162.

4 Reclamation is the process by which drugs unfit for sale are
reclaimed, removed from the store's inventory, and eventually
destroyed.

gation, but the lapse of Liberatore's pharmacy license, which
management claimed not to have discovered until that date.

Liberatore sued Melville for wrongful discharge and defa-
mation.5 He alleged that he was fired because he threatened
to report the temperature control problem in the pharmacy to
the FDA, and that his lapsed license was a pretext because
other pharmacists were not fired for failing to renew their
licenses and his supervisor had known of his lapsed license
for months. The district court dismissed Liberatore's wrong-
ful discharge claim for failure to state a cause of action within
the narrow public policy exception to at-will employment set
forth by the District of Columbia Court of Appeals in Adams
v. George W. Cochran & Co., 597 A.2d 28, 34 (D.C. 1991).
Although Liberatore had complained to various supervisors
and threatened to report the temperature control problem to
the FDA, the district court concluded that because he contin-
ued to dispense drugs voluntarily, unlike the plaintiff in
Adams, he did not present his employer with an outright
refusal to violate a specific statute or regulation.

II.

An employee who serves at the will of his or her employer
may be discharged "at any time and for any reason, or for no
reason at all." Adams, 597 A.2d at 30; see Pfeffer v. Ernst,
82 A.2d 763, 764 (D.C. 1951). This proposition "has long been
settled in the District of Columbia," Adams, 597 A.2d at 30,
and it is only in recent years that the District of Columbia
Court of Appeals has identified a public policy exception to
the at-will employment doctrine. In Adams, the D.C. Court
of Appeals held that an at-will employee stated a cause of
action for wrongful discharge where the employee would have
been forced to violate the law in order to avoid termination.
The employer in Adams had allegedly fired a delivery truck
driver after he had refused to drive a truck that did not have
an inspection sticker on its windshield because it was illegal

__________
5 Liberatore does not appeal the award of no damages on his
defamation claim arising from a CVS security guard's statement
that Liberatore had been using or taking drugs.

to operate a motor vehicle in the District of Columbia without
one. Id. at 29-30 & n.1. The D.C. Court of Appeals conclud-
ed that because the employer's instructions would have forced
Adams to violate the law, strong public policy considerations
weighed in favor of a narrow exception to the at-will employ-
ment doctrine. The court explained:

Appellant Adams was forced to choose between violating
the regulation and keeping his job--the very choice
which, ... he should not have been required to make.
Even though the criminal liability facing him was not
very great, it was nonetheless unacceptable and unlawful
for his employer to compel him to choose between break-
ing the law and keeping his job. We therefore hold, ...
that there is a very narrow exception to the at-will
doctrine under which a discharged at-will employee may
sue his or her former employer for wrongful discharge
when the sole reason for the discharge is the employee's
refusal to violate the law, as expressed in a statute or
municipal regulation.

Id. at 34.

After Adams, the D.C. Court of Appeals resisted further
expansion of the public policy exception to the at-will employ-
ment doctrine. See, e.g, Gray v. Citizens Bank of Washing-
ton, 602 A.2d 1096 (D.C. 1991), reh'g en banc granted and
opinion vacated, id. at 1102, opinion reinstated on denial of
reh'g en banc, 609 A.2d 1143 (D.C. 1992). In Gray, a bank
employee alleged that he was fired after reporting to his
superior evidence of illegal activities by other employees. Id.
at 1096. The court held that Gray did not fall within Adams'
narrow public policy exception to the at-will employment
doctrine, and declined to expand the scope of possible excep-
tions. A cause of action for wrongful discharge would lie only
where the employee refuses to violate a specific law and the
employer puts to the employee the choice of breaking the law
or losing his job. Although the court initially granted rehear-
ing en banc, it ultimately declined reconsideration. Similarly,
in Thigpen v. Greenpeace, Inc., 657 A.2d 770, 771 (D.C. 1995),
the D.C. Court of Appeals declined to expand Adams' narrow

exception where an employee, somewhat like Liberatore,
communicated with his superiors and filed a complaint with
the District authorities about his employers' alleged violation
of the minimum wage law, but "continued to work as before
and did not refuse to carry out any instructions from his
employer." This was the state of the District of Columbia
law when the district court granted summary judgment in the
instant case.

During the pendency of Liberatore's appeal, however, the
D.C. Court of Appeals decided in Carl, 702 A.2d 159, that an
expansion of the public policy exception was warranted even
in the absence of a refusal by an employee to violate the law.
In Carl, the at-will employee, a nurse, alleged inter alia, that
she was wrongfully discharged in retaliation for testifying
before the Council of the District of Columbia on proposed
tort reform legislation, taking a position that advocated pa-
tients' rights adverse to the interests of her employer. Id. at
160. Her employer claimed she was fired for failing to meet
orientation requirements for probationary employees. See id.
D.C. Code s 1-224 makes it unlawful to intimidate or impede
a witness in any proceeding before the D.C. Council. Be-
cause the employee alleged she was discharged in retaliation
for her testimony before the D.C. Council, the court held that
the public policy embodied in s 1-224 warranted expansion of
the exception to the at-will employment doctrine. At the time
Liberatore's appeal was argued in this court, it was unclear,
however, whether as a matter of District of Columbia law,
Carl was retroactive. That question was decided by the D.C.
Court of Appeals in Washington, 718 A.2d 1071.

In Washington, a cafeteria employee alleged that she was
discharged in retaliation for following the District of Colum-
bia health laws. After Washington, a cook in a retirement
home, told a fellow worker to stop spraying poisonous clean-
ing fluid next to uncovered food, she alleged that the manager
told her he had ordered the employee to clean the area, and
for her to tell the employee otherwise constituted insubordi-
nation. See id. at 1072. Because the conduct at issue had
occurred prior to Carl, the court had to decide whether Carl
would be retroactive. In concluding that it would, the court

applied Mendes v. Johnson, 389 A.2d 781 (D.C. 1978) (en
banc), pretermitting a determination of whether Mendes was
implicitly overruled by the Supreme Court in James B. Beam
Distilling Co. v. Georgia, 501 U.S. 529 (1991), and Harper v.
Virginia Department of Taxation, 509 U.S. 86 (1993). Under
Mendes, the court considers four factors in determining
whether to apply a new civil rule retroactively: the extent of
the parties' reliance on the old precedent, the avoidance of
altering vested contract or property rights, the desire to
reward plaintiffs seeking to initiate just changes in the law,
and the fear of burdening the administration of justice by
disturbing decisions reached under the overruled precedent.
389 A.2d at 789.

In Washington, the court concluded that the employer's
stated reason for firing Washington belied any notion of
actual reliance on the narrow public policy exception an-
nounced in Adams, and that in general, neither employers
nor the public could reasonably have relied on the Adams
standard because the court had never explicitly held that
there was only one narrow public policy exception. 718 A.2d
at 1076-77. The court took note of the expanded public
policy exception in other jurisdictions6 and supervening Su-
preme Court decisions on the retroactivity of new civil rules
in Beam Distilling, 501 U.S. 529, and Harper, 509 U.S. 86,
and concluded that it gave employers fair warning of the
retroactive application of any expansion of the public policy
exception. Washington, 718 A.2d at 1078. The employer
cited no authority for a vested right to discharge an at-will
employee, and the court was unpersuaded that an employer's

__________
6 See id. at 1079 (citing Bernstein v. Aetna Life & Cas., 843
F.2d 359, 363-64 (9th Cir. 1988) (applying Arizona law); Newman v.
Emerson Radio Corp., 772 P.2d 1059, 1062-72 (Ca. 1989); Martin
Marietta Corp. v. Lorenz, 823 P.2d 100, 110-14 (Colo. 1992); McGe-
hee v. Florafax Int'l , 776 P.2d 852, 853-54 (Okla. 1989)); id. at 1077
(citing 82 Am. Jur. 2d on Wrongful Discharge s 15, at 688 (1992),
noting that courts generally protect three categories of protected
employee conduct: (1) exercising a statutory right or civil obli-
gation, (2) refusing to engage in illegal activity, and (3) reporting
criminal conduct to supervisors or outside agencies)).

expectation that the public policy exception would remain
limited, as announced in Adams, created such a right. See id.
Noting that Washington had not brought her lawsuit to effect
a change in the law, the third Mendes factor did not weigh in
her favor. On the other hand, the court rejected the notion
that applying Carl retroactively would result in a plethora of
wrongful discharge lawsuits. Id. at 1079.

Melville's contentions that Carl should not apply to Libera-
tore's case are unpersuasive. As in Washington, the employ-
er's stated reason for firing was Liberatore's lapsed license,
thereby belying actual reliance on the narrower public policy
exception announced in Adams. 718 A.2d at 1076. The D.C.
Court of Appeals in Washington rejected the argument that
Carl broke completely new ground and was not foreshadowed
by any prior holdings. Id. at 1077-78. Any reliance on the
old at-will employment doctrine fails the reasonable reliance
test, the D.C. Court of Appeals concluded, in light of Adams,
the law in other jurisdictions, and the supervening Supreme
Court decisions on retroactivity. Id. To no more avail is a
contention based on the burden on the administration of
justice, for as the Washington court noted, there is nothing of
record to suggest that a substantial number of pending
appeals would be subject to being reopened. Id. at 1078-79.

Consequently, we conclude that the grant of summary
judgment for failure to state a cause of action within the
public policy exception must be reversed. Although there
was no agreement by the D.C. Court of Appeals in Carl about
the nature of the conduct that would qualify under its expand-
ed public policy exception, the separate views of the judges
indicate that "the effective holding of the en banc court," 702
A.2d at 197 n.2 (Steadman, J. dissenting), is that circum-
stances other than an employee's outright refusal to violate a
law constitute grounds for a public policy exception if "solidly
based on a statute or regulation that reflects the particular
public policy to be applied." Id. at 163; see also id. at 164 n.6
(Terry, J).

In his brief, Liberatore cites both federal and District of
Columbia law proscribing the improper storage of drugs.

The FDA regulations require the storage of drug products
under appropriate conditions of temperature, humidity, and
light so that the identity, strength, quality, and purity of the
drugs products are not affected. 21 C.F.R. s 211.142(b).
Failure to comply results in adulterated drugs as defined by
Section 501 of the Food, Drug, and Cosmetic Act, 21 U.S.C.
s 351, see 21 C.F.R. s 210.1(b), and the violator is subject to
a fine, imprisonment up to one year, or both. 21 C.F.R.
s 333(a)(1). Under D.C. Code s 2-2013(a) (1981), "[d]rugs
which may deteriorate shall at all times be stored under
conditions specified on the label of the original container and
in accordance with applicable District of Columbia or federal
laws or regulations."

The conduct that Liberatore claims resulted in his termi-
nation implicates the public policy underlying the legal pro-
scriptions on the storage and handling of drugs. On nu-
merous occasions, Liberatore notified management of the
temperature control problems in the pharmacy, and when
the problems continued, he threatened to alert the FDA.
His claim that he was discharged for his threat to report
conditions to the FDA that were in violation of federal and
District of Columbia laws protecting the public from the
purchase of adulterated drugs implicates the kind of public
policy embodied in a statute or regulation underlying the
D.C. Court of Appeals' decision in Carl to expand Adams'
narrow exception to the at-will employment doctrine. See
702 A.2d 164-65; Washington, 718 A.2d at 1080.

Contrary to the Melville's contentions, neither Adams nor
its progeny indicates that the D.C. Court of Appeals would
draw a distinction between a threat and an actual complaint
to the appropriate enforcement official. In Washington, the
employee did not threaten to notify health authorities but
simply informed management of the alleged law violations.
See 718 A.2d at 1072; cf. Adler v. American Standard Corp.,
538 F. Supp. 572, 577-80 (D. Md. 1982); Sheets v. Teddy's
Frosted Foods, Inc., 427 A.2d 385, 388 (Conn. 1980);
McQuary v. Bel Air Convalescent Home, Inc., 684 P.2d 21,
22-23, 24 (Or. Ct. App. 1984). In other cases cited by
Melville, the employee simply disagreed with management

decisions and did not allege a violation of law or action
contrary to public policy.7 Were the court to agree that
discharges from employment in retaliation for internal com-
plaints of law violations are not protected by the public policy
exception, it would "create perverse incentives by inviting
concerned employees to bypass internal channels altogether
and immediately summon the police." Belline v. K-Mart
Corp., 940 F.2d 184, 187 (7th Cir. 1991).

Nor is there authority to support the proposition that
Liberatore has failed to state a cause of action because he
violated the same drug safety standards that are the basis of
his alleged wrongful discharge. Liberatore's violation does
not excuse the employer's like failure, itself an independent
violation of the public policy underlying the legal proscrip-
tions, much less permit retaliatory discharges. The conten-
tion that Liberatore was properly discharged for jeopardizing
the employer's interests is a question of disputed fact, and
hence, summary judgment on that basis would be inappropri-
ate. Melville's reliance on Korb v. Raytheon Corp., 574
N.E.2d 370 (Mass. 1991), involving a lobbyist who spoke to
the press against his employer's interest in greater defense
spending, is misplaced because Liberatore's duties as a man-
ager of the pharmacy department were neither incompatible
with the employer's interests nor such as to preclude him
from complaining about temperature control problems in the
pharmacy.

Accordingly, because the complaint states a cause of action
for wrongful discharge under the expanded public policy
exception to the at-will employment doctrine recognized by
the D.C. Court of Appeals in Carl, and there remains a
genuine issue of material fact as to the employer's stated

__________
7 See Suchodolski v. Michigan Consol. Gas Co., 316 N.W.2d
710, 711-12 (Mich. 1982); Pierce v. Ortho Pharm. Corp., 417 A.2d
505, 513-14 (N.J. 1980); DeVries v. McNeil Consumer Prod. Co.,
593 A.2d 819, 825-27 (N.J. Super. Ct. App. Div. 1991); House v.
Carter-Wallace, Inc., 556 A.2d 353, 356 (N.J. Super. Ct. App. Div.
1989); Jones v. Gilstrap, 343 S.E.2d 646, 646-49 (S.C. Ct. App.

reason for Liberatore's discharge, we reverse the grant of
summary judgment.

__________
1986); cf. Mello v. Stop & Shop Cos., 524 N.E.2d 105, 106-08 (Mass.
1988).