IN THE SUPREME COURT OF THE STATE OF KANSAS
No. 82,611
RAYMOND WILKINSON,
Appellee/Cross-Appellant,
v.
SHONEY'S, INC., a/d/b/a CAPTAIN D's SEAFOOD,
and NEC, INC.,
Appellants/Cross-Appellees.
SYLLABUS BY THE COURT
1. Whether to adopt or recognize a new cause of action falling within the common law of tort or negligence is a question of law over which an appellate court has unlimited review.
2. We decline to recognize or adopt in Kansas the tort of malicious defense.
3. Generally, a sustainable verdict for actual damages is essential to the recovery for punitive damages.
4. A contract is made at the time when the last act necessary for its formation is done and at the place where that final act is done.
5. Mutual expressions of agreement may fail to consummate a contract for the reason that they are not complete due to some essential term or terms not being agreed upon.
6. Where it is alleged that an employment contract is one to be based upon the theory of "implied in fact," the understanding and intent of the parties is to be ascertained from several factors which include written or oral negotiations, the conduct of the parties from the commencement of the employment relationship, the usages of the business, the situation and objective of the parties giving rise to the relationship, the nature of the employment, and any other circumstances surrounding the employment relationship which would tend to explain or make clear the intention of the parties at the time said employment commenced.
7. A disclaimer in an employer's manual is not determinative as a matter of law on the issue of whether there is an implied contract of employment where the disclaimer is expressly or impliedly contradicted by other provisions in the manual, statements made by the employer, or other documents; it is one factor to be considered by a properly instructed jury.
8. The tort of negligent misrepresentation as set forth in Restatement (Second) of Torts § 552 (1976) does not by its terms apply to misrepresentation of an intention to perform an agreement. The tort only applies to cases of misrepresentation of factual, commercial information, not to statements of future intent.
9. In an action brought by an employee against his employer for breach of contract and retaliatory discharge, negligent misrepresentation, defamation, malicious defense, and punitive damages, the record is examined and it is held that the trial court (1) erred in denying the defendant's motion for summary judgment and directed verdict on the issue of malicious defense; (2) erred in submitting the issue of punitive damages to the jury and in granting punitive damages; and (3) erred in submitting the claim for negligent misrepresentation to the jury. It is further held that the trial court did not err in (4) holding the employment agreement was entered into in Kansas; (5) submitting the claim of breach of contract/retaliatory discharge to the jury; (6) refusing to allow testimony of after-acquired evidence of sexual harassment and testimony of a defendant employee; or (7) granting summary judgment on plaintiff's claim of defamation and refusing to grant plaintiff discovery sanctions. The verdict form utilized was not clearly erroneous, and the verdict of the jury on the implied contract/wrongful discharge claim is affirmed.
Appeal from Wyandotte district court; MURIEL Y. HARRIS, judge. Opinion filed April 28, 2000. Affirmed in part and reversed in part.
Jack L. Whitacre, of Spencer Fane Britt & Browne LLP, of Kansas City, Missouri, argued the cause, Michaela M. Warden, of Spencer Fane Britt & Browne LLP, of Overland Park, and William C. Martucci, of the same firm, were with him on the briefs for appellants/cross-appellees Shoney's Inc.
J. Eugene Balloun, of Shook, Hardy & Bacon L.L.P., argued the cause, and David J. Waxe and Barbara A. Harmon, of the same firm, were with him on the briefs for appellants/cross-appellees NEC, Inc.
Brian J. Niceswanger, of McDowell, Rice, Smith & Gaar, of Overland Park, argued the cause, and Richard W. Holmes, of Goodell, Stratton, Edmonds & Palmer, of Topeka, were with him on the briefs for appellee/cross-appellant Raymond Wilkinson.
The opinion of the court was delivered by
LARSON, J.: Raymond Wilkinson sued Shoney's and its agent in unemployment compensation matters, National Employers' Council, Inc. (NEC), after being fired from his management position at Shoney's and having his unemployment benefits claim challenged. Wilkinson alleged claims for defamation, malicious prosecution (malicious defense), wrongful discharge/ breach of implied employment contract, and negligent misrepresentation. A jury awarded Wilkinson damages of $533,271 and recommended the imposition of punitive damages, which were assessed by the court in the amount of $800,000. Shoney's and NEC appeal, raising numerous issues. Wilkinson cross-appeals.
This matter has previously been before our court in Wilkinson v. Shoney's, Inc., 265 Kan. 141, 958 P.2d 1157 (1998), where we dismissed that appeal as not being from a final judgment because the issues of the amount of punitive damages to be awarded had not been finally determined.
Our jurisdiction is pursuant to K.S.A. 20-3017 (transfer from the Court of Appeals).
We first consider Shoney's and NEC's challenges to the damage award for malicious defense and resulting punitive damages. We will later consider Shoney's contentions and arguments against the separate jury award for wrongful discharge and negligent misrepresentation. We will finally consider Wilkinson's cross-appeal. The facts relating to Wilkinson's various contentions are intertwined and we will set them forth generally with later elaboration as to particular issues.
Factual background
Shoney's and NEC entered into an agreement for NEC to represent Shoney's in responding to and defending against claims for unemployment compensation filed by Shoney's former employees. Shoney's was obligated to provide NEC with factual information regarding particular claims and NEC would make an appropriate response. NEC had the right to conduct its own investigation, obtain information from Shoney's management and employees, and arrange for witnesses at hearings. Although it was up to NEC to decide whether to contest a particular claim, Shoney's had instructed NEC to contest "any and all claims that [Shoney's] possibly can," and NEC challenged 75% to 80% of Shoney's unemployment claims.
Raymond Wilkinson and his wife, Rhonda, began working for Shoney's in the mid-1980's. Wilkinson entered the management trainee program and, after working in various Shoney's restaurants in Kansas and Missouri, eventually advanced to the position of store manager. In August 1992, while serving as kitchen manager in a Topeka Shoney's, he quit after being verbally abused by his area supervisor, Tommy Burkett. Although Shoney's disputed Wilkinson's claim for unemployment benefits, the Kansas Department of Human Resources (KDHR) determined Wilkinson was eligible, and he was paid benefits.
Wilkinson then obtained employment at Bennigan's restaurant, initially as a cook, but later was promoted to a trainer's position. In June 1993, Wilkinson had a chance meeting with Shoney's regional director, Robert White, at a Shoney's in Missouri where Rhonda was working. White told Wilkinson that Shoney's had changed, and he should consider coming back to work for them.
After phone conversations between the parties and consideration of the offer, Wilkinson told White he would come back to work for Shoney's but that he needed to give Bennigan's 2 weeks' notice. White told Wilkinson that he had to appear before the Rehire Board that met in Raytown, Missouri, before he could be approved for rehire. White told Wilkinson to talk to Mike Tucker, the manager of the State Avenue store in Kansas City, Kansas, to see if they could "get together" and "if they wanted to work together and establish a starting date position and salary."
Wilkinson was approved by the Rehire Board and testified that he viewed this approval as meaning that once approved, he could not be penalized or treated unfairly for anything that had happened during a previous employment. When Wilkinson arrived for the first day of work at the Kansas City, Kansas store, Tucker showed him the "Welcome to Shoney's Inc." poster that described various laws and rules applicable to employees, including Shoney's fair treatment guarantee and rehire policy. The poster states, in part: "You as an employee of Shoney's Inc., have certain rights. Realizing that problems do occur from time to time, we have prepared this poster to help you understand your rights. We want to make sure that you are always treated in a fair and consistent manner." Tucker also showed him a booklet containing Shoney's policies, including that of progressive discipline.
Under the "Fair Treatment Guarantee," the poster said: "Our Fair Treatment Guarantee provides that every employee, regardless of position, be treated with respect and in a fair and just manner at all times."
After being rehired, Wilkinson was promoted to kitchen manager and subsequently transferred to Shoney's Raytown, Missouri, store in October 1993 as assistant store manager.
Nineteen-year-old Jenny DeLapp worked as a waitress at the Raytown Shoney's. During a shift, Wilkinson was drawn into a conversation between DeLapp and the kitchen manager, Tracy Burrick. According to Wilkinson, DeLapp told them that men would not date her more than once because she would not "put out." Wilkinson said he replied to her in a joking manner that he would not go out with her either if he were single. Wilkinson stated that he perceived no indication that DeLapp felt harassed by his response.
On December 3, 1993, DeLapp's boyfriend complained that she had been sexually harassed during a conversation involving Wilkinson. When the lead dining room manager at the Raytown store, Carol Sutton, called DeLapp to inquire about the problem, DeLapp agreed to write her a letter to explain what had happened.
DeLapp's letter described Wilkinson's behavior during her shifts with him. She described Wilkinson as having asked her to go out after work and "get a room," and that he stared at her as she sorted silverware. She quoted several comments allegedly made by him that had implicit sexual overtones, and she described him as having had conversations with waiters about how to engage in sexual discrimination without getting caught.
Sutton conveyed the letter to management and informed her supervisor, Mickey Brown, about the complaint. Brown told Wilkinson about the allegations 2 days later and also told his superior, White, who directed another of Wilkinson's supervisors, Hossein Nikzad, to get information from Sutton and report the allegation to Shoney's headquarters in Nashville and its Equal Employment Opportunity (EEO) office.
H. Benny Ball, who was Shoney's executive vice president of human resources, sent Juanita Presley, Shoney's EEO Manager, to investigate. She talked with Sutton and then spoke privately with Wilkinson who told her that he had stumbled into a conversation about DeLapp's dating which had been correctly described. Presley told him it was her obligation to make recommendations to her supervisor, and she did not know how the matter would turn out. Though her initial attempts to speak with DeLapp were unsuccessful, she did speak with several other Raytown employees.
While the investigation was still ongoing, Ball informed Shoney's regional vice-president, William Marstellar, about DeLapp's allegations. He learned from Ball that Wilkinson had worked the year before under another regional manager, Mike Cotter, at the Topeka store. Marstellar called Cotter, who told him that when Wilkinson worked for him, he had demoted Wilkinson from store manager to kitchen manager and then had fired him in 1992 because he did not keep a well-staffed, clean, well-operated store, and because he liked to party and come to work late. Marstellar asked if White had contacted Cotter for a reference before Wilkinson was rehired. Cotter said he had not been contacted and that he would not have rehired Wilkinson.
Marstellar called White and asked why he had not contacted Cotter for a reference prior to Wilkinson's rehire, and White said, he just had not. Marstellar decided then to terminate Wilkinson's employment even though the DeLapp investigation was not complete. He also terminated White's employment. Marstellar directed Nikzad to terminate Wilkinson's employment and assigned the code "management loss of confidence" as the reason for the termination.
Nikzad testified that he told Wilkinson on December 11, 1993, that he had been fired because of the allegations against him, but Wilkinson testified that Nikzad told him that it had been a decision by Marstellar in Nashville and that Nikzad did not know the reasons.
Wilkinson applied for unemployment benefits at the Division of Unemployment Security in Independence, Missouri, but the initial separation fact-finding report stated that Kansas was the state which was liable, and the matter was transferred to the KDHR. Wilkinson's application stated: "I was discharged . . . because one of the female employees said that I had said something offensive to her. I did not know what it was. I asked Hossein what I was supposed to have said. He did not tell me. To the best of my knowledge I did not say anything offensive. I do joke around but I really don't know what I said." On December 14, KDHR sent notice of Wilkinson's benefits claim to NEC through Shoney's. They had 10 days to respond or be barred from protesting any decision regarding the claim.
The notice was received by NEC on December 17, 1993, and its claim analyst was unable to obtain detailed information including what DeLapp had said or Presley did. She noted this in her records with the statement "'All I had to go on was sexual harassment. Waited on this from corporate office as long as we could. Had to respond.'"
NEC claims manager Nell Thomas became involved in the case on December 22, 1993, and had difficulty obtaining information because people were on vacation due to the holidays. Thomas said NEC at that point had reason to believe that Wilkinson was terminated for sexual harassment because they had been told so by Mickey Brown.
Presley received DeLapp's letter from Sutton on December 23, 1993, along with the statement that Wilkinson had been terminated for "manager loss of confidence."
The investigation by NEC continued although the response was made based upon what it then had available. It contended that Wilkinson was terminated pending investigation of sexual harassment and should be denied benefits. Attempts were made to contact DeLapp. Someone attempted to contact Marstellar but could not locate him, and there was testimony that the investigation had taken more time than usual because they could not locate people and could not obtain complete information.
When no additional evidence was presented, the KDHR rendered its decision on January 6, 1994, and determined that there was insufficient evidence that Wilkinson had been fired for intentional misconduct. He was cleared for benefits. The notice stated that the examiner's determination would become final 16 days after having been mailed unless it was appealed in writing to a referee.
Wilkinson testified that after Shoney's disputed his claim of unemployment benefits, he attempted to avail himself of Shoney's fair treatment guarantee by writing a letter to the regional director with a request that it be passed to either Marstellar or another high level manager. He claimed to have never heard from Shoney's.
Based on the investigation, Presley concluded that while Wilkinson may not have violated federal law prohibiting sexual harassment, Shoney's policy of zero tolerance was stricter and he had violated their policy. Presley testified that had Wilkinson still been employed, she would have recommended terminating him for bad judgment as a manager in participating in sexual conversations and failing to discourage such conversations.
NEC appealed the examiner's decision on January 13, 1994. By that time, they had DeLapp's letter and attached it to the appeal notice with the statement, "It is the employer's position that the claimant was terminated for management loss of confidence pertaining to sexual harassment. It was brought to the employer[']s attention that the claimant was making unwelcome comments to fellow employees. This was investigated and the claimant was terminated for just cause."
A hearing was held on the matter attended by Wilkinson, Rhonda, Brown, DeLapp, Burrick, Mitchell, and an attorney for the employer. The referee determined there was evidence to show Wilkinson was fired for sexually harassing a waitress, but the referee noted no corroboration of DeLapp's story. The referee determined that Shoney's had failed to show actions rising to the level of misconduct under K.S.A. 44-706(b), and affirmed the examiner's determination. Shoney's did not appeal further.
Wilkinson sued Shoney's and NEC in September 1994, alleging claims for wrongful discharge/breach of implied contract, negligent misrepresentation, outrage, negligent infliction of emotional distress, and defamation. Wilkinson later amended his petition to allege claims for punitive damages, malicious prosecution, and loss of consortium on the part of Rhonda. The court granted summary judgment against Wilkinson on the claims of outrage, negligent infliction of emotional distress, and defamation. The remaining claims were submitted to a jury after the defendants' motions initially for summary judgment and at trial for directed verdict were denied. The jury returned verdicts for Wilkinson on all claims, awarded damages of $158,271 against Shoney's for the wrongful discharge and negligent misrepresentation claims; $300,000 against Shoney's for malicious prosecution; and $75,000 against NEC for malicious prosecution. After the first appeal was dismissed by this court as previously stated, punitive damages against Shoney's for malicious prosecution in the amount of $800,000 were ordered.
Standard of review
Many of the issues raised relate to rulings on motions for summary judgment, directed verdict, and trial rulings or legal issues which raise the following standards of review applicable to such rulings.
"The burden on the party seeking summary judgment is a strict one. The trial court is required to resolve all facts and inferences which may reasonably be drawn from the evidence in favor of the party against whom the ruling is sought. Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. When opposing a motion for summary judgment, an adverse party must come forward with evidence to establish a dispute as to a material fact. . . . . On appeal we apply the same rule, and where we find reasonable minds could differ as to the conclusions drawn from the evidence, summary judgment must be denied. [Citations omitted.]" Mitzner v. State Dept. of SRS, 257 Kan. 258, 260-61, 891 P.2d 435 (1995).
"When ruling on a motion for directed verdict, the trial court is required to resolve all facts and inferences reasonably to be drawn from the evidence in favor of the party against whom the ruling is sought. Where reasonable minds could reach different conclusions based on the evidence, the motion must be denied. A similar analysis must be applied by an appellate court when reviewing the grant or denial of a motion for directed verdict." Calver v. Hinson, 267 Kan. 369, Syl. ¶ 1, 982 P.2d 970 (1999).
"Judicial discretion is abused when judicial action is arbitrary, fanciful, or unreasonable, which is another way of saying that discretion is abused only when no reasonable person would take the view adopted by the trial court." State v. Davidson, 264 Kan. 44, 56, 954 P.2d 702 (1998); see Saucedo v. Winger, 252 Kan. 718, 850 P.2d 908 (1993).
Whether to adopt or recognize a new cause of action falling within the common law of tort or negligence is a question of law over which we have unlimited review. See Bonin v. Vannaman, 261 Kan. 199, 225, 929 P.2d 754 (1996); OMI Holdings, Inc. v. Howell, 260 Kan. 305, 306, 314, 918 P.2d 1274 (1996).
Should the trial court have granted NEC's and Shoney's motions for summary judgment and directed verdict/judgment as a matter of law on Wilkinson's claims of malicious prosecution (malicious defense)?
Shoney's and NEC contend the tort of malicious prosecution, which we deem to be more correctly labeled as "malicious defense," has not previously been recognized in Kansas and the trial court erred in denying their motions for summary judgment and directed verdict on this claim. Wilkinson contends the malicious defense claim is justified based upon the initial contesting and later appeal of his claim for unemployment compensation benefits.
The landmark case in Kansas relating to malicious prosecution of a civil action is Nelson v. Miller, 227 Kan. 271, 276, 607 P.2d 438 (1980), which contains a lengthy summary of the basic principles, some of which are hereinafter set forth:
"(2) To maintain an action for malicious prosecution of a civil action the plaintiff must prove the following elements:
"(a) That the defendant initiated, continued, or procured civil procedures against the plaintiff.
"(b) That the defendant in so doing acted without probable cause.
"(c) That the defendant acted with malice, that is he acted primarily for a purpose other than that of securing the proper adjudication of the claim upon which the proceedings are based.
"(d) That the proceeding terminated in favor of the plaintiff.
"(e) That the plaintiff sustained damages. [Citations omitted.]
"(3) In addition to the initiation of the prior action, it is sufficient if it is shown that the defendant continued or procured the filing of the action.
. . . .
"(8) In order to maintain an action for malicious prosecution, the plaintiff must prove that the defendant initiated the proceedings of which complaint is made without probable cause. . . .
"(9) Malice is an essential element of an action for malicious prosecution but it is not restricted to the personal hatred, spite, or revenge of the one who institutes the prosecution. It is enough if the prior action was instituted for any improper or wrongful motive. . . ."
In contending that Shoney's and NEC maliciously defended the unemployment compensation benefits claim, Wilkinson relies on the "continuation or procurement of civil proceedings against another" wording of Restatement (Second) of Torts § 674 (1976), which states:
"One who takes an active part in the initiation, continuation or procurement of civil proceedings against another is subject to liability to the other for wrongful civil proceedings if
"(a) he acts without probable cause, and primarily for a purpose other than that of securing the proper adjudication of the claim in which the proceedings are based, and
"(b) except when they are ex parte, the proceedings have terminated in favor of the person against whom they are brought."
Although malicious prosecution can sometimes be based on administrative proceedings, such cases have generally involved actions against a party who later brings the claim because of an action to revoke a license or the filing of a disciplinary complaint with a state board. See Restatement (Second) of Torts § 680 (1976); 7 Am. Jur. Proof of Facts 2d 181, § 7 (1975); Lindenman v. Umscheid, 255 Kan. 610, 633, 875 P.2d 964 (1994) (KDHE began proceeding to revoke day care center's license).
Wilkinson does not dispute that neither Shoney's nor NEC initiated the unemployment compensation proceedings, but he strongly contends that the proceedings were "continued or procured" by their actions.
Shoney's and NEC assert that Kansas and the vast majority of other states do not recognize a cause of action for "malicious defense" or "malicious appeal" and that in Kansas we have specifically in the past refused to do so. This is a question of law over which this court exercises unlimited review.
No Kansas court has ever held that a malicious prosecution action lies against a party who defends against or appeals a claim initiated by a plaintiff and, in fact, early Kansas precedent is against this cause of action. In Baxter v. Brown, 83 Kan. 302, 305, 111 Pac 430 (1910), the plaintiff-appellant, sued for malicious defense of an action, alleging that Brown, one of the defendants in the plaintiff's action to recover on a note, had filed an untrue verified answer to the plaintiff's petition, "maliciously and without probable cause, with the intent and purpose . . . to put the plaintiff to unnecessary cost and expense in maintaining his cause of action against him." 83 Kan. at 303. The second suit was dismissed for failure to state a cause of action, and on appeal, our court noted that we have recognized causes of action for malicious prosecution of a civil action but that "[w]e have failed, however, to find any authority for assessing damages for a malicious defense of an action." 83 Kan. at 305.
The Baxter syllabus states:
"In a civil action in which the defendant answers by a general denial and verifies his answer, but asks no affirmative relief, and judgment is finally rendered against him in the action, he is not responsible in another action for damages for expenses incurred in obtaining proof to sustain the allegations of the petition, although the defendant knew at the time he answered that the allegations were true, and that his verified denial would involve the plaintiff in considerable expense to establish the truth thereof."
The precise holding of Baxter must be read in light of the procedural rules under which civil litigation now operates in the State of Kansas. For example, parties against whom claims are made are now obligated to make admissions if requested under K.S.A. 60-236 and be subject to court-ordered sanctions as allowed by K.S.A. 60-237 if unnecessary proof is required. Shoney's and NEC further point out that under existing Kansas statutes, an employer has the absolute right to contest an unemployment compensation claim that the employer has reason to believe is without merit. K.S.A. 44-709. These statutory provisions impose a monetary penalty or imprisonment on parties who submit a false statement or representation knowing it to be false. K.S.A. 44-719(b). As such, Shoney's and NEC convincingly argue there is no public policy justification to create a cause of action for malicious defense against an employer for defending an unemployment compensation claim when adequate statutory remedies are available.
Although not exactly on point, the requirement that the party must have been the moving force behind the wrongful procedure was clearly recognized in Hokanson v. Lichtor, 5 Kan. App. 2d 802, 809, 626 P.2d 214 (1981). In that case, Hokanson sued Faulkner for personal injury after an accident. Faulkner's insurer employed Lichtor to testify as an expert on Faulkner's behalf. Hokanson later brought an action against Lichtor, Faulkner's attorney, and the insurer, alleging they had conspired to present Lichtor's allegedly perjured testimony and seeking actual and punitive damages.
Hokanson appealed from the trial court's dismissal. The Court of Appeals considered Hokanson's argument that he had pled a valid cause of action either for wrongful use of civil proceedings or abuse of process, but found neither claim to exist.
With regard to the wrongful use of civil proceedings, the Court of Appeals' opinion looked to the elements of Nelson v. Miller, 227 Kan. 271, in holding that malicious prosecution required the culpable party to have been the moving force behind the wrongful civil proceeding. The opinion stated:
"'To recover for use of wrongful civil proceedings, the present plaintiff must show that the present defendant, who was the plaintiff in the alleged wrongful civil proceedings, initiated or continued the proceedings, both without having probable cause for bringing it and primarily for a purpose other than that of obtaining the proper adjudication of the claim on which the civil proceedings were brought. The meaning of probable cause is treated in § 675. The propriety of the purpose for which an action is brought is treated in § 676. (§ 674, Comment i).'
"This clearly does not apply here where plaintiff himself brought the first lawsuit." 5 Kan. App. 2d at 809.
Wilkinson, in relying on the Restatement (Second) of Torts § 674, comment c (1976), states that even if the proceeding was properly brought in the first instance, one who either continues or takes an active part in continuing a civil proceeding for an improper purpose after learning there is no probable cause for the defense "becomes liable [for wrongful use of civil proceedings] as if he had then initiated the proceeding." None of the examples in the comments to § 674 involve liability attaching to one who defends in an action without asserting a counterclaim or cross-claim.
Some authorities have recognized an action for malicious prosecution based on the filing of a cross-complaint or counterclaim by defendant on the theory that such cross-pleadings institute a separate and independent cause of action and potentially subject the cross-defendant to the same potential liability and injury as any other claim brought in the first instance. See 7 Am. Jur. Proof of Facts 2d § 6 (1975). Most courts, however, have found that a purely defensive action provides an insufficient basis for liability. See Annot., 65 A.L.R.3d 906.
One of the few cases in the country permitting a malicious defense cause of action is Aranson v. Schroeder, 140 N.H. 359, 365-67, 671 A.2d 1023 (1995), which adopted the tort on the basis that the injury and expense of litigating a matter is the same whether it has its origin in a claim or defense of a claim. The dissenting opinion specifically cited the Kansas case of Baxter v. Brown, 83 Kan. 302, for rej