UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
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No. 96-60578
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WILLIAM DRAKE,
Plaintiff-Appellant,
versus
ADVANCE CONSTRUCTION SERVICE, INC.;
ARROW CONSTRUCTION, INC.,
Defendants-Appellees.
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Appeal from the United States District Court
for the Northern District of Mississippi
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July 2, 1997
Before SMITH, BARKSDALE, and BENAVIDES, Circuit Judges.
RHESA HAWKINS BARKSDALE, Circuit Judge:
For the summary judgment awarded Advance Construction
Services, Inc., and Arrow Construction, Inc., against William Drake
in this Mississippi diversity action, we conclude that material
fact issues exist for Drake’s employment termination (allegedly for
refusing to falsify reports to the Government); and that, if he was
so discharged, this falls within Mississippi’s public policy
exception to its employment-at-will doctrine. Accordingly, we
REVERSE and REMAND.
I.
In 1994, the United States Army Corps of Engineers (COE)
contracted with Arrow for the performance of channel improvements
at a creek in Mississippi. Although Arrow subcontracted part of
the work, it remained responsible for laying the filter cloth,
bedding material, and rip-rap (rock).
Arrow employed Drake in July 1994 to serve as Quality Control
Manager. Drake did not have a written employment contract for a
specific duration. His duties included preparing and submitting to
the COE a daily, form Quality Control Report (QCR), including a
description of any deficiencies in the work performed that day.
On 20 December 1994, Drake observed deficiencies in the
placement of rip-rap. He reported on his QCR for that day that
rip-rap was being dropped from above the slope, resulting in
displacement of the bedding stone and tearing of the filter cloth.
The next day, Drake again included similar deficiency information
in his QCR. Two days later, he was discharged.
In this action against Arrow and Advance (alleged to be
Arrow’s alter ego), Drake alleged that, on 20 December 1994,
Arrow’s vice president instructed him not to report deficiencies in
the work in his QCRs; and that he was discharged because he filed
accurate reports describing the deficiencies. He claimed that his
discharge was in violation of the public policy of Mississippi
because he refused to commit an illegal act.
The parties consented to proceed before a magistrate judge.
Summary judgment was awarded Arrow and Advance. The court
concluded that, based on the summary judgment record, the
“[d]eliberate failure to note a deficiency in the placement of rip-
rap, while perhaps unprofessional or immoral, is not an illegal
act”.
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II.
Drake contends, inter alia, that genuine issues of material
fact exist on whether he was discharged for refusing to commit an
illegal act. (In granting summary judgment, the court did not
address either Advance’s motion for partial summary judgment on the
ground that it is not a proper party to this action, or Drake’s
contention that Arrow is the alter ego of Advance. We need not do
so, either, because a remand is necessitated by our conclusion that
genuine issues of material fact exist on Drake’s discharge.)
We review a summary judgment de novo, using the same criteria
as the district court and viewing all facts, and the inferences to
be drawn from them, in the light most favorable to the non-movant,
Drake. E.g., Forsyth v. Barr, 19 F.3d 1527, 1533 (5th Cir.), cert.
denied, 513 U.S. 871 (1994). The judgment is proper if, based on
the summary judgment record, there is no material fact issue and
the movant “is entitled to a judgment as a matter of law”. FED. R.
CIV. P. 56(c).
Mississippi follows “the common law rule that a contract for
employment for an indefinite term may be terminated at the will of
either party”. Kelly v. Mississippi Valley Gas Co., 397 So. 2d 874
(Miss. 1981). But, in McArn v. Allied Bruce-Terminix Co., Inc.,
626 So. 2d 603, 607 (Miss. 1993), the Mississippi Supreme Court
created a “narrow public policy exception” to that rule; an
employee discharged either for refusing to participate in an
illegal act, or for reporting illegal acts of his employer to the
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employer or anyone else, is not barred by the employment-at-will
doctrine from bringing a tort action against his employer. Id.
Drake contends that the first prong of the exception (refusal
to participate in an illegal act) is applicable, because he was
discharged for refusing to follow Arrow’s instructions to omit
deficiencies from the QCRs submitted to the COE. According to
Drake, submission of a QCR which falsely reported no deficiencies
in Arrow’s work would have constituted a violation of 18 U.S.C. §
1001, which provides:
(a) Except as otherwise provided in this
section, whoever, in any matter within the
jurisdiction of the executive, legislative, or
judicial branch of the Government of the
United States, knowingly and willfully--
(1) falsifies, conceals, or
covers up by any trick, scheme, or
device a material fact;
(2) makes any materially false,
fictitious, or fraudulent statement
or representation; or
(3) makes or uses any false
writing or document knowing the same
to contain any materially false,
fictitious, or fraudulent statement
or entry;
shall be fined under this title or imprisoned
not more than 5 years, or both.
(Emphasis added.)
A.
Accepting Drake’s factual scenario as true for summary
judgment purposes, the appellees respond that such concealment of
deficiencies still would not have constituted a violation of § 1001
because it was not “material”, inasmuch as the COE either knew
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about, or would have discovered, the deficiencies. A false
statement is “material” if it has “a natural tendency to influence,
or [be] capable of influencing, the decision of the decisionmaking
body to which it was addressed”. United States v. Gaudin, 515 U.S.
506, ___, 115 S. Ct. 2310, 2313 (1995).
The appellees maintain that omission of deficiencies from
Drake’s QCRs would not tend to influence the COE’s decisionmaking
process. They claim that the COE constantly had its own
representatives at the job site monitoring and inspecting the
project; that a COE representative was an eyewitness to the alleged
deficiencies and told Arrow that the COE was not going to pay for
work performed in that manner; and that the COE will not pay for
work until it has first inspected and approved it.
Drake produced summary judgment evidence, however, that the
COE’s knowledge of the deficiencies came from his QCRs; that the
COE inspector was not at the jobsite all day, every day, and the
COE does not have the resources to inspect the entire project
(seven to eight miles long) and, therefore, the COE depends on the
contractor’s QCRs to inform it about deficiencies in the work;
that, if Drake had failed to report the deficiencies, the displaced
bedding stone and torn filter cloth could have been covered by rip-
rap and not discovered by the COE; and that, as a result, the COE
would have paid Arrow for work that did not comply with the
contract plans and specifications.
Although Drake testified in his deposition that a COE
representative was “there every day” and “was there on the first
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day” (presumably referring to 20 December, the first date Drake
reported deficiencies in a QCR), he also testified that the COE
inspector was not there every day. The exhibits to his deposition,
which are part of the summary judgment record, reflect that the COE
did not inspect the project every day. Those exhibits include
copies of Drake’s diary, which reflects that there was no COE
inspection on 27 October and 3 November 1994, as well as the COE’s
20 December daily inspection report and Drake’s QCR for that date,
both of which reflect that there was no COE inspection on 20
December.
Also included among Drake’s evidence in opposition to summary
judgment were excerpts from the deposition of Arrow’s president,
who testified that, if the quality control coordinator were
instructed by his superior not to identify deficiencies, he would
not be doing his job properly and it “would be illegal”. (Emphasis
added.) This testimony is consistent with the “Contractor’s
Certification” signed by Drake on the form QCRs:
I certify that the above report is complete
and correct and that all material and
equipment used, work performed and tests
conducted during this reporting period were in
strict compliance with the contract plans and
specifications except as noted above.
In short, material fact issues exist as to the materiality of the
information in issue.
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B.
In the alternative, the appellees contend that Mississippi’s
public policy exception applies only to illegal acts constituting
fraud on a third party which results in pecuniary gain, and should
not be extended to other illegal acts. Such fraud appears to be the
situation at hand. In any event, their contention is not supported
by McArn. There, the Mississippi Supreme Court stated that the
exceptions apply “where the illegal activity either declined by the
employee or reported by him affects third parties among the general
public, though they are not parties to the lawsuit.” Id. Drake
submitted evidence that, if he had not reported the deficiencies in
the QCR, the COE might not have discovered them and could have been
misled into paying Arrow for substandard work, which would have
affected not only the COE, but also the taxpayers.
Contrary to the appellees’ assertion, McArn did not limit
application of the public policy exception to employees who are
discharged for refusing to commit fraud for monetary gain; instead,
the Mississippi Supreme Court reversed the directed verdict in
favor of the defendant and remanded for a determination of whether
McArn “was actually discharged for a refusal to commit deceptive,
fraudulent or illegal actions against the clients of [the
defendant] or for reporting same.” Id. (emphasis added); see
also Willard v. Paracelsus Health Care Corp., 681 So. 2d 539, 542
(Miss. 1996) (reversing verdict for employer and remanding for new
trial because retaliatory discharge and punitive damages
instructions should have been given to jury in that evidence
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suggested that employees “were fired in retaliation for reporting
an illegal act of their employer, i.e., forgery and financial
irregularities”).
III.
For the foregoing reasons, the judgment is REVERSED and the
case is REMANDED for further proceedings.
REVERSED and REMANDED
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