Date: 02-14-2005

Case Style: David G. Cole v. Valley Ice Garden, L.L.C, Valley Ice Garden Management, L.L.C. and William Martel

Case Number: 2005 MT 21

Judge: Patricia O. Cotter

Court: Montana Supreme Court on appeal from the District Court of Gallatin County

Plaintiff's Attorney:

Monte D. Beck, Esq., Beck, Richardson & Amsden, PLLC, Bozeman, Montana

Defendant's Attorney:

Richard J. Andriolo, Esq., Andriolo & Refling PLLC, Bozeman, Montana; Donald C. Robinson, Esq. and Ronald A. Thuesen, Esq., Poore, Roth & Robinson, P.C., Butte, Montana

Description:

1 Valley Ice Garden, L.L.C. and Valley Ice Garden Management, L.L.C. (hereinafter collectively referred to as VIG) and William Martel (Martel) appeal the judgment of the Eighteenth Judicial District Court, Gallatin County, that the termination of Plaintiff David G. Cole (Cole) as the hockey coach for the Bozeman Ice Dogs (the Ice Dogs) was without cause. We affirm in part and reverse and remand in part.

ISSUES

2 VIG presents the following issues on appeal:

3 1. Did the District Court err in concluding that Cole was terminated without cause?

4 2. Did the District Court err in concluding that a clause in the employment agreement which provided that Cole would receive one year's salary and a bonus if he was terminated without cause was a liquidated damages clause and was therefore void?

5 3. Did the District Court err in allowing Cole to assert a list of liquidated damages?

6 4. Did the District Court err in finding that the term of the employment agreement was for five years?

7 5. Did the District Court err in excluding evidence concerning the Immigration and Naturalization Services (INS) Visa status of Cole?

8 Cole raises the following issues on cross-appeal:

9 1. Did the District Court err in concluding that VIG did not breach the covenant of good faith and fair dealing?

10 2. Did the District Court err in failing to include social security and vehicle use benefits in its assessment of Cole's damages?

11 We affirm the District Court's determination that Cole was terminated without cause. However, we reverse the District Court's conclusion that a clause in the employment agreement which provided Cole with one year's salary and a bonus if he was terminated without cause was void as a liquidated damages provision. We therefore remand for further proceedings consistent with this Opinion. We do not reach VIG's remaining issues, nor do we reach Cole's cross-appeal issues.

FACTUAL AND PROCEDURAL BACKGROUND

12 In June of 1997, Martel purchased the Ice Dogs, a Junior A, American West Hockey League team. Because of the time in the season that Martel purchased the Ice Dogs, he needed to find a coach immediately. Hence, Martel met with and ultimately hired Cole as the Head Coach and General Manager of the Ice Dogs.

13 Martel asked Cole to draw up an employment agreement, which Cole did after consulting an attorney. The applicable portion of this employment agreement stated:

TERM: That the term of this Agreement shall be five (5) years, commencing on the 1st day of June 1997, and continuing thereafter, uninterrupted, unless employee is terminated for cause. In the event of the termination of employee for other than cause, employee shall receive one (1) full calendar year salary and a bonus equal to that paid to him for the preceding year.

14 The above-quoted provision of the agreement was subsequently amended in March 1998 to add the following:

Further, the term of this Agreement shall automatically renew, so as to have five (5) years remaining, each year on the 1st day of June, unless employer notifies employee in writing prior to the 1st day of May of that Year of the non-renewal.

Cole's annual base salary was fixed at $50,000.00.

15 The 1997-1998 hockey season was fairly successful, but the following 1998-1999 season was not. The Ice Dogs ended that season with a record of 18 wins, 35 losses, and 7 ties. The Ice Dogs did not qualify for the playoffs, Cole did not receive any performance bonuses, and the game attendance declined to approximately 1,000 fans per game.

16 Thereafter, during the off-season and at Cole's suggestion, Martel expended substantial sums of money in an effort to improve the team. In particular, Martel increased his recruitment efforts; entered the Ice Dogs in pre-season tournaments and in games in Canada; and hired a goalie coach and a new trainer. Despite these efforts, the 1999-2000 season again started out poorly, with the Ice Dogs winning one game and losing six.

17 On October 3, 1999, Martel terminated Cole due to the Ice Dogs' poor performance. Martel then told Cole that because he had cause to fire him, he felt he was not obligated to provide him severance pay. However, Martel did offer Cole $15,000 in severance pay, which Cole accepted. When Cole arrived to pick up his check, Martel asked him to sign a release from liability form, which Cole declined to sign. Cole then sought the advice of an attorney, and thereafter requested that Martel provide him with a written statement regarding his reasons for terminating him. Martel complied with Cole's request.

18 After receiving Martel's explanation, Cole brought an action for breach of the employment contract and for breach of the implied covenant of good faith and fair dealing. Cole filed a motion for partial summary judgment. VIG also filed a motion for summary judgment. The District Court denied VIG's motion, and it granted Cole's motion as to liability, holding, in part, that Cole was terminated without cause. Subsequently, a bench trial was held as to damages and Cole's bad faith claim.

19 Ultimately, the District Court determined that VIG did not violate the covenant of good faith and fair dealing; that the liquidated damages clause in the employment agreement was void because Cole's damages were both certain and ascertainable; that Cole's damages included lost wages and fringe benefits based on a five-year term of employment; and that the evidence concerning Cole's INS Visa status was inadmissable in that it was irrelevant, speculative, and not pled in VIG's Answer to Cole's Complaint. The District Court then calculated Cole's damages, accepting the viability of certain damage claims while rejecting others, and awarded damages to Cole in the sum of $199,193.00.

20 VIG now appeals the District Court's judgment, and Cole cross-appeals.

STANDARD OF REVIEW

21 We review a district court's findings of fact to determine whether the findings are clearly erroneous. Riverview Homes, II, Ltd. v. Canton, 2001 MT 309, 12, 307 Mont. 517, 12, 38 P.3d 848, 12. We review a district court's conclusions of law to determine whether the conclusions are correct. Riverview Homes, II, 12.

DISCUSSION

22 Did the District Court err in concluding that Cole was terminated without cause?

23 VIG contends it had good cause to terminate Cole, and that the District Court erred in concluding that Cole was discharged without cause. In this connection, it presents several arguments. First, VIG argues that under Montana law, if any uncertainty in a contract exists, that uncertainty must be construed against the drafter. As such, VIG contends that any uncertainty as to the meaning of "cause," as contained in the contract, must be construed against Cole, as he drafted the employment agreement. In addition, VIG maintains that the ordinary meaning of "cause" should apply, and that VIG had several "good or adequate" reasons for terminating Cole's employment.

24 VIG likens the present case to one brought under Montana's Wrongful Discharge from Employment Act (the WDEA). While acknowledging that the WDEA does not apply here, VIG argues that since "good cause" is defined in the WDEA, that definition provides this Court with a guideline for "cause" in the present case. Namely, the WDEA defines "good cause" as "reasonable job-related grounds for dismissal based on a failure to satisfactorily perform job duties, disruption of the employer's operation, or other legitimate business reason[s]." Section 39-2-903(5), MCA. VIG maintains that based on this definition, we have before upheld termination for "good cause" on the basis of poor job performance and we should do so here as well.

25 As VIG notes, Cole admits he was not terminated for a capricious or false reason; in fact, he concedes his termination was the result of his losing record. Thus, there is no allegation of a pre-textual or otherwise improper motive for the discharge. VIG further maintains that firing a coach for a poor win/loss record is hardly unusual in the sports industry. Indeed, VIG contends that the expectation for Cole to win was evident by the built-in bonuses for winning listed in the employment agreement. VIG argues that it is hypercritical for Cole--who drafted the employment agreement--to claim he should be financially rewarded for winning, yet not penalized for a poor win/loss record.

26 Cole contends that because the plain language of the employment agreement does not list as one of Cole's duties the need to maintain a specific win/loss ratio, this Court need not analyze the contract any further, as it cannot insert terms into the contract that are not there. Hence, because the win/loss ratio was not delineated in the employment agreement, the fact that Cole was terminated because of it proves that he was not terminated "for cause." He then maintains that "[t]he fundamental issue in this case is not whether VIG had a right to discharge Coach Cole." Rather, he argues that because coaches are commonly terminated for failing to maintain a winning record, it follows that VIG is obligated to pay off the remainder of a coach's contract, as is the case here. Cole further maintains that the WDEA's definitions do not apply to the present case. Finally, he asserts that the employment agreement should not be construed against him because VIG, as the employer, was in the superior bargaining position and took unfair advantage of him.

27 The District Court found the following with regard to VIG's termination of Cole's employment:

The Agreement contained the following "Duties and Obligations" for Cole's employment: "The duties and obligations of employee include coaching, recruiting and overseeing players and staff of the Bozeman Ice Dogs franchise, together with coordination [of] the staff and programs and the Valley Gardens Ice Center, to include hockey camps and clinics, coaching clinics and hockey instruction." The Agreement did not contain an obligation to sustain a certain win/loss ratio or that he had to win a certain amount of games in a season to retain his employment.

28 We will not disturb a district court's finding of fact unless that finding is clearly erroneous. Pankratz Farms, Inc. v. Pankratz, 2004 MT 180, 44, 322 Mont. 133, 44, 95 P.3d 671, 44. A finding is clearly erroneous if: (1) substantial credible evidence does not support the finding; (2) the district court misapprehended the effect of the evidence; or (3) a mistake has been committed. Pankratz Farms, Inc., 44. Under the specific facts and contract terms presented here, we cannot conclude that the District Court's finding regarding Cole's termination was clearly erroneous. Accordingly, we affirm the District Court's finding that Cole was terminated without cause.

29 Did the District Court err in concluding that a clause in the employment agreement which provided that Cole would receive one year's salary and a bonus if he was terminated without cause was a liquidated damages clause and was therefore void?

30 The parties disagree as to whether § 28-2-721, MCA, precludes the enforcement of the provision of the parties' agreement which states that in the event of a termination without cause, Cole will receive a full calendar year's salary together with a bonus equal to that paid in the preceding year. See 13. Cole argues that this provision is a liquidated damages clause and is thus unenforceable under § 28-2-721, MCA. The District Court agreed with Cole. 31 VIG argues that either § 28-2-721, MCA, does not apply here at all, or that, if it does, Cole must prove the provision of the agreement unconscionable under our decision in Arrowhead Sch. Dist. # 75, Park Co. v. Klyap, 2003 MT 294, 318 Mont. 103, 79 P.3d 250. VIG maintains that because the clause was drafted by Cole--a fact not in dispute--he cannot prove the clause's unconscionability, and that, therefore, the provision is enforceable.

32 Section 28-2-721, MCA, provides:

(1) Every contract by which the amount of damage to be paid or other compensation to be made for a breach of an obligation is determined in anticipation thereof is to that extent void, except as expressly provided in subsection (2).

(2) The parties to a contract may agree therein upon an amount which shall be presumed to be an amount of damage sustained by a breach thereof when, from the nature of the case, it would be impracticable or extremely difficult to fix the actual damage.

33 The District Court concluded that the clause in question was void because Cole's damages were in fact both certain and ascertainable; thus, the exception set forth in § 28-2-721(2), MCA, was inapplicable. The District Court then proceeded to award to Cole damages including lost wages and fringe benefits based on a full five-year term of employment. We conclude that because Cole waived the benefit of the liquidated damages law by virtue of the contract provisions he drafted, the District Court erred in applying the provisions of the liquidated damages statute to the contract before us.

34 Section 1-3-204, MCA, provides:

Anyone may waive the advantage of a law intended solely for his benefit. But a law established for a public reason cannot be contravened by a private agreement.

We have had recent occasion to address the application of this statute. In Rothwell v. Allstate Ins. Co., 1999 MT 50, 293 Mont. 393, 976 P.2d 512, we were called upon to determine whether the provisions of § 39-2-701(1), MCA, which required an employer to indemnify an employee for money she expended in the discharge of her duties of employment, could be waived by the provisions of an employer's standard written contract of employment. The employer argued that § 1-3-204, MCA, permitted the employee who signed the contract agreeing to accept less than full indemnification for employment-related expenses, to waive the benefits of the indemnification statute. This Court disagreed, concluding that, should the employer's argument prevail, then the "waiver of the right to indemnification would result in the forfeiture of a valuable right granted to all Montana employees." Rothwell, 12. In reaching this decision, we cited with approval other employment-related cases in which we determined that employees could not, by signing contracts drafted by their employers, bargain away their statutory rights. See, State ex rel. Neiss v. District Ct. of Thirteenth J.D. (1973), 162 Mont. 324, 511 P.2d 979 (employees may not bargain away their right to receive minimum wage), and Hoehne v. Sherrodd, Inc. (1983), 205 Mont. 365, 668 P.2d 232 (laws establishing an employee's right to receive overtime compensation are expressions of public policy created for the protection and benefit of the general public and thus may not be waived by agreement). We concluded in these cases that employees' statutory rights to minimum wage and overtime payments were rights that were established for a public reason and could therefore not be waived by private agreement. Against this backdrop, we now analyze § 28-2-721, MCA, and its applicability to the unique circumstances presented here.

35 Section 28-2-721, MCA, applies in general to contracts entered into between bargaining parties; it does not fall within the Code's chapters governing employment-related benefits as did the overtime and indemnification statutes addressed in Rothwell. Moreover, the existence of § 28-2-721(2), MCA, in the statutory scheme supports the proposition that it is a law whose provisions are intended for the benefit of--and therefore may be waived by-- contracting parties. In other words, the fact that § 28-2-721(2), MCA, allows by its provisions the waiver of the benefit of the statute, demonstrates that it is not a law established for a public reason, because such laws cannot be contravened by private agreement. Section 1-3-204, MCA.

36 Here, it is Cole, as the party claiming damages, to whose benefit the provisions of the liquidated damages statute would normally run. However, it was Cole who drafted the employment agreement and inserted into it the clause providing that, should he be terminated for "other than cause," he would receive a full year's salary together with a bonus equal to that paid to him the previous year. And it is Cole who argued successfully to the District Court that he was fired for "other than cause," thus triggering the provisions of the salary clause he drafted. In sum, by virtue of the provisions he inserted into the contract, Cole effectively waived the advantage of a law intended for his benefit, as is his right under § 1-3-204, MCA. Therefore, we conclude that Cole waived the advantage of the liquidated damages law by inserting into the contract between him and VIG the provision requiring payment to him of a full year's salary and bonus in the event he was terminated without cause.

37 The decision we reach here is only fair. It is incongruous for Cole to seek on the one hand to enforce one provision of the contract he drafted and at the same time distance himself from another provision that he now concludes in hindsight is less than lucrative. If, as Cole successfully argued, the plain language of the contract compels a conclusion that he was terminated without cause, see 26, than the plain language of the clause he drafted setting forth the compensation to be paid under that very circumstance should govern as well.

38 Accordingly, we affirm the District Court's conclusion that Cole was fired without cause. We reverse the District Court's conclusion that Cole is entitled to five years worth of salary and benefits, and remand for an award of damages to Cole in the amount of one full calendar year's salary, together with a bonus equal to that paid to him in the preceding year, all as more particularly set forth in the provisions of his employment agreement.

39 Reversed and remanded. * * * *

Outcome: 39 Reversed and remanded.

Plaintiff's Experts: Unknown

Defendant's Experts: Unknown

Comments: None