89 Hawai'i 234, Francis v. Lee Enterprises, Inc., 21631

• Decision Date: 21 January 1999
• Docket Number: No. 21631,21631
• Citation: 971 P.2d 707
• Parties: 89 Hawai'i 234, 137 Lab.Cas. P 58,554, 14 IER Cases 1294 Russ FRANCIS, Plaintiff-Appellant, v. LEE ENTERPRISES, INCORPORATED dba KGMB; Scott Picken; and Doe Defendants 1-10; Defendants-Appellees
• Court: Hawaii Supreme Court

Page 707

971 P.2d 707

89 Hawai'i 234, 137 Lab.Cas. P 58,554,

14 IER Cases 1294

Russ FRANCIS, Plaintiff-Appellant, v. LEE ENTERPRISES, INCORPORATED dba KGMB; Scott Picken; and Doe Defendants 1-10; Defendants-Appellees

No. 21631.

Supreme Court of Hawai'i.

Jan. 21, 1999.

David F. Simons, Matthew J. Viola, and Richard E. Wilson (of Simons & Ichinose), Honolulu, on the briefs, for plaintiff-appellant.

Barry W. Marr, Mark E. Recktenwald, William C.H. Jarrett, and Melanie S. Mito (of Marr Jones & Pepper), Honolulu, on the briefs, for defendant-appellee Lee Enterprises, Incorporated dba KGMB.

MOON, C.J., KLEIN, LEVINSON, NAKAYAMA, and RAMIL, JJ.

Opinion of the Court by MOON, C.J.

Plaintiff-appellant Russ Francis filed an action in the first circuit court against defendant-appellee Lee Enterprises, Inc., dba KGMB [hereinafter, KGMB], in which he asserted, inter alia, a claim for tortious breach of an employment contract. After removing the action to the United States District Court for the District of Hawai'i, KGMB moved to dismiss Francis's tortious breach of contract claim, arguing that Hawai'i law does not recognize tortious breach of contract in the "employment context." Francis countered that Hawai'i law recognizes tortious breach of contract whenever any contract is breached in a willful, wanton, or reckless manner.

The federal district court initially granted KGMB's motion to dismiss. Thereafter, Francis filed a motion for reconsideration, or in the alternative, for certification of this question to the Hawai'i Supreme Court. The federal district court concluded that there was no clear, controlling precedent in Hawai'i law and, therefore, certified the following question to this court:

Does Hawai'i law recognize a tortious breach of contract cause of action in the employment context?

Although, in the past, this court has recognized a cause of action for tortious breach of contract in certain circumstances, we believe that such a rule unnecessarily blurs the distinction between--and undermines the discrete theories of recovery relevant to--tort and contract law. Based on our reexamination of the rule announced in Dold v. Outrigger Hotel, 54 Haw. 18, 501 P.2d 368 (1972), we now hold that Hawai'i law will not allow tort recovery in the absence of conduct that (1) violates a duty that is independently recognized by principles of tort law and (2) transcends the breach of the contract. Consistent with this rule, emotional distress damages ¹ will only be recoverable where the parties specifically provide for them in the contract or where the nature of the contract clearly indicates that such damages were within the contemplation or expectation of the parties. Therefore, in answer to the certified question, Hawai'i law does not recognize tortious breach of contract actions in the employment context.

I. BACKGROUND

The following relevant facts are undisputed. KGMB is the local affiliate of the CBS television network. Francis, a well-known local sports figure, played football for fourteen years in the National Football League. On January 18, 1996, Francis and KGMB entered into a written employment contract under which Francis worked for KGMB as its sports director until he was terminated on January 20, 1997.

After he was terminated, Francis filed suit in the first circuit court. Francis's complaint contained five claims for relief, including: breach of contract (Count I); tortious breach of contract (Count II); promissory estoppel (Count III); wrongful termination in violation of public policy (Count IV); and punitive damages (Count V). In connection with Count II, the tortious breach of contract claim, Francis alleged that KGMB acted "wilfully, wantonly, recklessly and/or in bad faith" in breaching the written employment contract.

As previously stated, KGMB removed the case to the United States District Court for the District of Hawai'i and, on December 29, 1997, moved to dismiss Count II. Noting that Hawai'i courts had not expressly recognized tortious breach of contract in the employment context, the federal district court, on March 10, 1998, granted KGMB's motion to dismiss Count II of Francis's complaint. On March 20, 1998, Francis filed a motion for reconsideration or, in the alternative, for certification of this question to the Hawai'i Supreme Court. On April 24, 1998, the federal district court withdrew its order dismissing Count II of the complaint and granted Francis's motion for certification pursuant to Hawai'i Rules of Appellate Procedure (HRAP) 13(a).

II. STANDARD OF REVIEW

The issue presented by the certified question, i.e., whether Hawai'i recognizes tortious breach of contract in the employment context, is a question of law. "Questions of law are reviewable de novo under the right/wrong standard of review." Best Place, Inc. v. Penn America Ins. Co., 82 Hawai'i 120, 123, 920 P.2d 334, 337 (1996) (citation omitted).

III. DISCUSSION

Francis argues that the "well-settled rule that a wanton or reckless breach of contract is actionable in tort" applies, without exception, to written employment contracts. Francis makes this argument because he seeks traditional tort damages due to KGMB's alleged breach of the employment contract at issue. Although Francis correctly states the rule relating to tortious breach of contract announced in Dold v. Outrigger Hotel, 54 Haw. 18, 501 P.2d 368 (1972), we believe, for the reasons discussed infra, that the rule was improvidently created, and today we abolish it.

A. Stare Decisis

Before examining the theories of recovery relevant to tort and contract law, we briefly review certain well-established principles governing the deference we generally accord prior decisions of this court. As a general rule,

we do not lightly disregard precedent; we subscribe to the view that great consideration should always be accorded precedent, especially one of long standing and general acceptance. Yet, it does not necessarily follow that a rule established by precedent is infallible. If unintended injury would result by following the previous decision, corrective action is in order; for we cannot be unmindful of the lessons furnished by our own consciousness, as well as by judicial history, of the liability to error and the advantages of review.

Espaniola v. Cawdrey Mars Joint Venture, 68 Haw. 171, 182-83, 707 P.2d 365, 373 (1985). As this court has long recognized, "[w]e not only have the right but are entrusted with a duty to examine the former decisions of this court and [,] when reconciliation is impossible, to discard our former errors." Koike v. Board of Water Supply, 44 Haw. 100, 117-18, 352 P.2d 835, 845, reh'g denied, 44 Haw. 146, 352 P.2d 835 (1960); see also Parke v. Parke, 25 Haw. 397, 401 (1920) ("It is generally better to establish a new rule than to follow a bad precedent.").

B. The Dold Rule And Its Progeny

With these principles in mind, we address the rule announced in Dold. In that case, the plaintiffs, tourists from the mainland, arranged for hotel accommodations at the Outrigger Hotel. Upon arriving at the hotel, the Outrigger refused to accommodate them and instead transferred them to another hotel of lesser quality because the Outrigger lacked available space. Thereafter, the Dolds sued for actual and punitive damages based, inter alia, on the Outrigger's alleged breach of contract.

The trial court permitted an instruction on the issue of damages for emotional distress, but refused to allow an instruction on the issue of punitive damages. The jury found in favor of the Dolds and awarded them $600. Although the judgment was favorable to them, the Dolds appealed to this court on the issue of punitive damages. In affirming the judgment and upholding the trial judge's decision to refuse the punitive damages instruction, this court established the rule that, "where a contract is breached in a wanton or reckless manner [so] as to result in a tortious injury, the aggrieved person is entitled to recover in tort. Thus, in addition to damages for out-of-pocket losses, the jury was properly instructed on the issue of damages for emotional distress...." Dold, 54 Haw. at 22-23, 501 P.2d at 372.

This court later reaffirmed the Dold rule in the commercial contract setting. In Chung v. Kaonohi Center Co., 62 Haw. 594, 618 P.2d 283 (1980), the Chungs were prospective lessees of concession space for a fast-food restaurant. Although the contract to lease the property to the Chungs had been signed, Kaonohi Center continued to negotiate a lease for the same space with three additional parties, giving a right of first refusal to one of these negotiating parties. Although Kaonohi Center was aware of the effort and funds the Chungs had expended in reliance on the lease, it allowed the Chungs to continue to believe that they had secured the lease. Moreover, when a newspaper reported that the space would be leased to another party, Kaonohi Center flatly denied it.

Based on these facts, the trial court gave an instruction that allowed the jury to award "reasonable compensation for emotional distress and disappointment." The jury awarded, among other things, $50,000 in damages for emotional distress. Kaonohi Center appealed the jury's award, arguing, in part, that this court should limit the Dold rule to "personal" contracts, such as contracts of marriage, burial, and delivery of personal messages. However, rather than adopt Kaonohi Center's proposed limitation, this court extended the Dold rule to the commercial contract setting, stating: "We do not think that the dispositive factor in allowing damages for emotional distress is the nature of the contract. The dispositive factor is, rather, the wanton or reckless nature of the breach." Chung, 62 Haw. at 602, 618 P.2d at 289 [hereinafter, the Dold-Chung rule].

C. Distinguishing the Dold-Chung Rule From the Tort of Bad Faith

Preliminarily, we note that our decision today does not affect this court's prior decisions...