NO. 91-020
IN THE SUPREME COURT OF THE STATE OF MONTANA
1991
BRUCE SCOTT,
Plaintiff and Appellant, .,-.
, ..,,
-vs-
EAGLE WATCH INVESTMENTS, INC., i , r
!L
-C
.
.;c,j (?.{
a Montana Corporation, and PETER BOUMA, '"j
Defendants and Respondents.
APPEAL FROM: District Court of the Fourth Judicial District,
In and for the County of Missoula,
The Honorable John S. Henson, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
P. Mars Scott: Mulroney, Delaney & Scott, Missoula,
Montana.
For Respondents:
Edward A. Murphy; Datsopoulos, MacDonald & Lind,
Missoula, Montana.
Submitted on Briefs: October 31, 1991
Decided: December 1 9 , 1991
Filed:
Justice John Conway Harrison delivered the Opinion of the Court.
Appellant Bruce Scott (Scott) appeals from the judgment of the
District Court of the Fourth Judicial ~istrictfor Missoula County,
Montana. The court held that Scott breached his oral employment
contract and was properly terminated from his job as an athletic club
manager, r e q u i r i n g h i r n t o p a y r e s p o n d e n t / e m p l o y e r P e t e r B o u r n a (Bouma)
$755.81 with interest. We affirm.
The appellant takes issue with the District Court's Findings
of Fact, Conclusions of Law, and Judgment almost in their entirety.
We address only the following dispositive issues:
I. Whether the District Court erred in concluding that an at
will employment relationship existed between the parties.
11, Whether the District Court erred in concluding that the
employer did not breach the implied covenant of good faith and fair
dealing when he terminated the employee.
The history of this action spans nearly ten years and began
sometimein1980whenBoumabeganresearchinginvestmentswhichwould
provide him with tax advantages. Bauma became aware of a defunct
athletic club located east of Missoula and considered it a potential
investment. Through conversations with Scott, Bouma became acquainted
with Scott's previous involvement with a Missoula tennis club known
as Garden City Racket Club which failed after only three months of
operation in early 1 9 8 0 . The two men began informal talks about the
possibility of opening a full service athletic club (The Club) at
the site of the defunct athletic club east of Missoula. They made
inquires with financing entities and researched the existing liens
2
on the property. Bouma and Scott toured other athletic clubs in the
State of Montana. Bouma also traveled to Spokane, Washington to
observe another athletic club operation.
Bouma contributedapproximately $787,000 in capital to purchase
The Club. He pledged the necessary collateral to obtain financing.
Although Scott contributed his past experience in the area of tennis
andwiththe failedGardenCityRacket Club, hecontributednocapital
to the venture.
As the venture began to materialize, Bouma and Scott discussed
the idea that Scott become the general manager of The Club. The
parties met at various times and drafted an employment agreement.
Both parties acknowledged that various parts of the agreement were
not acceptable and consequently they did not sign the agreement.
Although the agreement remained unsigned, the parties made compensation
arrangements which involved splittingthemonthly net profits ofthe
operationafter some adjustments suchas depreciation. Additionally,
the parties agreed that Scott would act as the general manager in
charge of operations on a day-to-day basis, monitoring all aspects
of The Club.
In preparation of the venture, both parties worked in various
capacities to accomplish everything necessary to open The Club.
Construction plans were made, approved and implemented; mechanics
liens were removed; zoningproblems were addressed; a staff was hired;
a promotional campaign was initiated; and equipment was purchased.
On December 15, 1981, The Club membership roster immediately
filledto capacitywithapproximately 1,200 members, and the facility
opened on January 15, 1982. With such a large turnout the parties
employed the Dobbins accounting firm to compile monthly financial
statements and help in the billing process. The record indicates
that due to the volume of financial transactions various problems
were encountered with the financial records especially since all
transactions were initially handled manually at The Club.
Bouma and Scott met on a regular basis to discuss the progress
of The Club and work out problems. Bouma, who was financially at
risk forthe venture, was understandably interested in the financial
elements of The Club. Bouma requested basic financial information
from Scott such as the amount of accounts payable and receivable.
Although Scott was the on site general manager in charge of the
employees who handled the income and expenses of The Club, Scott
continually referred Bouma to the Dobbins firm and simply presented
Theclub's financial pictureas positive. Scottdidnotprovide Bouma
with even the most basic list of accounts payable and receivable as
requested.
Bouma later became aware of other problems at The Club such as
lack of cleanliness, an unauthorizedgiftofa free lifetimemembership
(which was not discovered until after Scott's termination), and lack
of policy development. He also learned of an unpaid invoice when
a supplier contacted him at home indicating that delivery would be
suspended unless the account was brought current. Bouma became
increasingly frustrated with Scott's performance, particularly in
the financial area. In view of Bouma's investment and Scott's
performancedeficiencies, Boumaconsideredterminationbutpostponed
such action pending a financial report from the Dobbins firm.
On June 13, 1982, Bouma made an appointment with Scott for the
following day to assure his availability. That same day, Scott went
to see Bouma and stated that The Club's bills were paid and there
wasmoney in The Club's checking account. The next day Bouma acquired
the financial report from the Dobbins firm which confirmed that The
Club's bank account was overdrawn, numerous outstanding accounts
payable existed, and that Scott had taken two cash withdrawals
totalling approximately $13,000. In view of Scott's performance
deficiencies, Bouma terminated him that day. Due to the financial
state of The Club, Bouma borrowed an additional $25,000 to meet
existing operating expenses.
Scottinitiated suit on a variety of theories requesting monetary
relief including punitive damages, but primarily seeking damages of
$720,000 in lost profits due to his termination. The District Court
found that Scott was an at will employee and that Scott breached the
oral employment agreement. The court also found that Bouma was
justified in terminating Scottand ordered Scottto pay Bouma $755.81
plus interest to compensate Bouma fordraws Scotttook as over-payment.
STANDARD OF REVIEW:
The trier of fact is in the best position to hear the testimony
and observe the witnesses and their demeanor, therefore, on appeal,
we will not overturn the findings of fact unless they are clearly
erroneous. Morin v. Mapston (1985), 217 Mont. 403, 407, 705 P.2d
118, 120; Rule 52(a), M.R.Civ.P. "Particularly where credibility
of witnesses is involved, we give great weight to fact-findings of
a district court." Morin, 217 Mont. at 407, 705 P.2d at 120. We
will not overturn the conclusions of law unless they are incorrect.
Steer, Inc. v. Dept. of Revenue (1990), 245 Mont. 470, 474, 803 P.2d
601. 603.
ISSUE I. Did the District Court err when it found that an at will
employment relationship existed between the parties.
Today, the concept of at will employment or the "employment at
will rule" is deceptively simple. The employment at will rule has
been defined as follows: when "an employer may dismiss an at-will
employee for a good reason, bad reason, or for no reason at all."
Henry H. Perritt, Jr. , Emplovee Dismissal Law and Practice, p. 1 (2d
ed. 1987). Montana has implemented protective devices through both
the legislature and case law that operate to curb the harsh effects
of the rule. Prout v. Sears (1989), 236 Mont. 152, 157, 772 P.2d
288, 291 (decided on pre-Wrongful Discharge Act law and provides for
four exceptions to the termination at will rule; also see Montana's
Wrongful Discharge Act 5 5 39-2-901 et seq., MCA, enacted in 1987).
These devices however do not obliterate the at will rule. Medicine
Horse v. Trustees, Big Horn County School Dist. (No. 91-090, decided
December 10, 1991), P.2d -I - St.Rep. -.
In the case at bar, the record indicates that while the parties
met and contemplated a written employment agreement with a term of
five years, a contract to that effect was never finalized. The parties
each indicated that they wished to make various revisions to the
agreement and therefore did not sign the agreement. Section 28-2-
903 (1)(a), MCA (198l), states:
The following agreements are invalid unless the same or
some note or memorandum thereof is in writing and subscribed
by the party to be charged or his agent: (a) an agreement
that by its terms is not to be performed within a year from
the making thereof; . . .
We have previously stated that "[tlhe word 'invalid,' as employed
in these statutes, means void; of no force or effect. Therefore the
contract cannot be relied upon or furnish evidence for any purpose."
Mahoney v. Lester (1946), 118 Mont. 551, 560, 168 P.2d 339, 343; citing
Dreidlein v. Manger (1923), 69 Mont. 155, 163, 220 P. 1107, 1109.
Here neither party signed the agreement committing them to a specified
employment term. Therefore, under the facts of this case the agreement
of employment is an at will employment relationship.
ISSUE 11. Did the District Court err in concluding that Bouma did
not breech the implied covenant of good faith and fair dealing when
he terminated Scott.
In Montana, termination of an at will employment relationship
is governed by 3 39-2-503, MCA, which provides that "an employment
havingno specifiedtermmaybeterminatedatthewillof either party
on notice to the other. . . .'
I Supplementing this statute is our
opinion of Crenshawv. Bozeman DeaconessHosp. (1984), 213 Mont. 488,
693 P.2d 487, in which we said that an employer owes even a
probationary employee a duty of good faith and fair dealing. In
Crenshaw, we stated that "[e]mployers can still terminate untenured
employees at-will and without notice. They simply may not do so in
bad faith or unfairly without becoming liable for damages." Crenshaw,
213 Mont. at 498, 693 P.2d at 492.
With this in mind we look to the facts of the case at bar. First,
Scott insists that the termination notification requirements set forth
in the draft ofthe employment contract should be followed. However
since the contract was never signed the provisions of the contract
governingnoticearenotcontrolling. Instead, the notice requirements
of g 39-2-503, MCA, are determinative; no prior notice is required.
Gates v. Life of Montana Ins. Co. (1982), 196 Mont. 178, 185, 638
P.2d 1063, 1067. In the case at bar, Bouma properly followed the
notice requirement when he informed Scott that their employment
relationship was terminated.
Secondly, much is also made of whether The Club was profitable
from its date of opening until Scott's termination, a period of about
sixmonths. The parties hotly contestedthe profitability issue and
numerous calculations with various inclusions and exclusions were
presented at trial. The lack of profitability was again one of the
written contract provisions under which Bouma could terminate the
employment relationship. We have already stated that the contract
provisions cannot control since they were not the final expression
of the parties as evidenced by its lack of signatures. We take time
to point out that the profitability of The Club was only one factor
in Scott's termination. If the profitability issue was the sole reason
for termination, we must look to the belief of the employer at the
time of termination. If the termination was rooted in a mistaken
belief, "[elven an honest, though mistaken, belief that the employer
for legitimate business reasons had good cause for the discharge would
negate bad faith." Heltborg v. Modern Machinery (1990), 244 Mont.
2 4 , 37-38, 795 P.2d954, 962; citing~ughv.
See's Candies, Inc. (Cal.
Important to the issue of bad faith in the case at bar, is that
the record indicates that Bouma chose to terminate the at will
employment relationship due to various deficiencies in Scott's
performance. Accordingly, the District Court stated in Findings of
Fact #33 that:
[B]ouma began to questfon Scott more closely about payables,
policies and money. Scott was nonresponsive and
nonproductive. Often when Bouma went into the facility
he would see Scott on the courts playing tennis. Bouma
began to show his dissatisfaction with the way he was being
put off, but Scott was either unconcerned about that or
didnot recognize it. The formerisprobablythe case since
a reasonable manager would know why his employer kept asking
the questions and that his employer expected informed
responses. Scott should have been prepared to give the
information that Bouma wanted. Boumals requests were
reasonable and confined to the things that a person with
overall responsibility for a business ought to know.
Court's ~onclusions Law #7 follows the
Further, the ~istrict of
same train of thought :
[Bouma] had fair and honest reasons to discharge Bruce Scott
from employment. He w a s non-responsive when the employer
made reasonable demands for information relating to the
financial condition of the business. He failed to write
and implement policies for the conduct of the business as
requested by the employer. He made unauthorized draws of
money. He jeopardized the business by withdrawing large
sums of money for his own use when the funds were intended
to act as working capital. He failed to fulfill his
responsibilitiestosetupanaccountingsystem. He failed
to maintain the level of cleanliness expected by the
customers of the business. He allowed payables to go
unpaid. Underhismanagement, membership levels declined.
Under his management, the business ran out of cash. All
of the foregoing happened in a five month period. Such
events would give any employer a fair and honest reason
to terminate a manager.
S c o t t ' s own testimony supports the c o u r t ' s s t a t e m e n t s p a r t i c u l a r l y
w i t h r e g a r d t o t h e c a s h b a l a n c e s o f The Club and t h e l a r g e draws t a k e n
by S c o t t . S c o t t acknowledgedthe p r o g r e s s i v e l y d e c l i n i n g c a s h b a l a n c e
o f T h e C l u b t s checkingaccountandstatedthathemaintainedpossession
o f t h e c h e c k i n g r e g i s t e r i n h i s d e s k which h e c o n s u l t e d "on a r e g u l a r
basis." D e s p i t e t h i s knowledge, when The Club was o n l y a few months
o l d and c a s h f l o w s t r e a m s were unproven and u n p r e d i c t a b l e , S c o t t t o o k
draws t o t a l l i n g o v e r $13,000 i n c a s h . A d d i t i o n a l l y , S c o t t t e s t i f i e d
t h a t h e was d i r e c t l y r e s p o n s i b l e f o r t h e i n f o r m a t i o n t h a t went t o
t h e Dobbins f i r m , but declined t o take responsibility f o r t h e
information. S c o t t n e g l e c t e d t o m o n i t o r The Club's b a s i c income and
e x p e n s e s and f a i l e d t o o b t a i n s u c h i n f o r m a t i o n when r e q u e s t e d .
F u r t h e r , S c o t t d i d n o t c o r r e c t t h i s performance problem which was
c r i t i c a l e s p e c i a l l y f o r a s s e s s i n g t h e v i a b i l i t y o f a new b u s i n e s s ,
and r e f e r r e d Bouma t o t h e Dobbins f i r m . S e c t i o n 39-2-404, MCA
provides :
[A]n employee must s u b s t a n t i a l l y comply w i t h a l l t h e
d i r e c t i o n s of h i s employer c o n c e r n i n g t h e s e r v i c e on which
h e is engaged, e x c e p t where s u c h o b e d i e n c e i s i m p o s s i b l e
o r u n l a w f u l o r would impose new and u n r e a s o n a b l e b u r d e n s
upon t h e employee.
W e conclude t h a t obtaining a l i s t o f a c c o u n t s p a y a b l e and
r e c e i v a b l e f r o m i n v o i c e s and c h e c k s r e c e i v e d a t The Club and reviewed
by t h e manager was p o s s i b l e and w i t h i n t h e c a p a b i l i t y o f t h e g e n e r a l
manager. Overall, S c o t t d i d n o t f u l f i l l t h e b a s i c f u n c t i o n s of a
g e n e r a l manager and Bouma h o n e s t l y b e l i e v e d h i s i n t e r e s t s were b e i n g
mishandled. B o u m a t o o k s t e p s t o c o r r e c t t h e p r o b l e m a n d w a s j u s t i f i e d
i n terminating Scott. Under t h e c i r c u m s t a n c e s , t h e District C o u r t
d i d not err in concluding that Bouma did not violate t h e covenant
of good faith and fair dealing when terminating Scott from the at
w i l l employment relationship.
In t h e case at bar, we find that the court's Findings of Facts
were supported by the record and were not clearly erroneous. The
court also made correct Conclusions of Law. Therefore, we will not
disturb the court's ruling. Affirmed.
W e concur:
December 19. 1991
CERTIFICATE O F SERVICE
I hereby certify that the following order was sent by United States mail, prepaid, to the
following named:
P. Mars Scott
Mulroney, Delaney & Scott
P.O. Box 8228
Missoula, MT 59807
Edward A. Murphy
Datsopoulos, MacDonald 21: Lind
201 W. Main, Ste. 201
Missoula, MT 59802
ED SMITH
CLERK OF THE SUPREME COURT
STAT ONTANA