Kestenbaum v. Pennzoil Co.

• Decision Date: 30 November 1988
• Docket Number: No. 16965,16965
• Citation: 766 P.2d 280,1988 NMSC 92,108 N.M. 20
• Parties: , 4 Indiv.Empl.Rts.Cas. (BNA) 67 Louis KESTENBAUM, Plaintiff-Appellee and Cross-Appellant. v. PENNZOIL COMPANY and Vermejo Park Corporation, Defendants-Appellants and Cross-Appellees.
• Court: New Mexico Supreme Court

Page 280

766 P.2d 280

108 N.M. 20, 4 Indiv.Empl.Rts.Cas. (BNA) 67

Louis KESTENBAUM, Plaintiff-Appellee and Cross-Appellant. v. PENNZOIL COMPANY and Vermejo Park Corporation Defendants-Appellants and Cross-Appellees.

No. 16965.

Supreme Court of New Mexico.

Nov. 30, 1988.

Rehearing Denied Jan. 13, 1989.

[108 NM 21] Hinkle, Cox, Eaton, Coffield & Hensley, Harold L. Hensley, Jr., Stuart D. Shanor, James M. Hudson, Roswell, Ron D. Daugherty, Houston, Tex., for defendants-appellants and cross-appellees.

Chris Key, Kacey DeNoi, Albuquerque, for plaintiff-appellee and cross-appellant.

Mountain States Legal Foundation, Constance E. Brooks, Paul Farley, Denver, Colo., Losee & Carson, Jerry Losee, Artesia, amicus curiae.

OPINION

RANSOM, Justice.

Plaintiff Louis Kestenbaum was awarded damages for breach of an employment contract. The trial was had before a jury which found by special verdict that the employment was not terminable at will, but rather was subject to an implied contract requiring a good reason for termination, and that there was no good reason to discharge Kestenbaum. We affirm.

Kestenbaum was employed in March of 1977 by defendants Pennzoil Company and its subsidiary, Vermejo Park Corporation, as the vice president in charge of guest operations at a secluded ranch in northern New Mexico. The ranch maintains guest facilities and services for lodging, hunting, fishing, and other recreational activities.

By anonymous letter in January of 1984, Kestenbaum was accused of sexual harassment, illegal conduct, and mismanagement of the ranch. Pennzoil initiated an investigation in which information was gathered through interviews of Vermejo Park female employees, past and present. Subsequently, the investigators presented to Pennzoil officials an oral briefing and a written report that summarized the evidence. On February 13, 1984, Pennzoil summoned Kestenbaum to its headquarters in Houston where he met with the investigators who confronted him with the allegations concerning sexual harassment, which he denied. Thereafter, Pennzoil officials informed Kestenbaum of the names of the persons interviewed and he was given the opportunity to comment about each. Pennzoil also permitted Kestenbaum to name witnesses who would speak on his behalf. Kestenbaum met one more time with Pennzoil vice-president Rundle and again denied the allegations, but to no avail. On February 17, Kestenbaum's employment was terminated.

Kestenbaum claimed that, without fair investigation and consideration of the allegations and his response, he was terminated on the grounds of sexual harassment for which he was innocent. Pennzoil denied Kestenbaum's claim and affirmatively asserted that Kestenbaum was an employee at will and was dischargeable for any or no reason. Alternatively, if a good reason was required to discharge Kestenbaum, Pennzoil asserted that it had reasonable grounds to believe that sufficient cause existed to justify its actions.

By Instruction No. 8, the jury was instructed on Kestenbaum's claim that, by words and conduct, the parties entered into an employment contract which included among its terms that (1) in addition to a salary for Kestenbaum's labor and best job efforts, he would receive various fringe benefits, including but not limited to a retirement program, a stock purchase program, and health and other insurance; (2) the employment would be of a long-term nature, but subject to the normal contingencies of work life, such as a sale of the ranch, early voluntary retirement, layoffs and so on; and (3) with regard to involuntary termination of employment, Kestenbaum would be terminated only for just cause or, in other words, for a good reason, he would be treated fairly, have the opportunity to know some specifics of the charges against him, be given a chance to defend himself, and his supervisors would not determine whether there was just cause for the termination until hearing and fairly considering Kestenbaum's side of the story. Whether these claimed terms and conditions applied to the employment contract was left for the jury to determine on disputed evidence.

Without objection, the court instructed the jury on the applicable law of employment contracts, as follows:

INSTRUCTION No. 9

An implied contract is an agreement in which the parties, by a course of conduct, have shown an intention to be bound by such agreement.

INSTRUCTION No. 10

Under New Mexico law, the general rule is that a contract for permanent employment, calling only for the performance of duties and payment of wages, is a contract for an indefinite period. It is terminable at the will of either party. A discharge without reason is not a breach of such an at will employment.

INSTRUCTION No. 11

In every contract the law implies a covenant of good faith and fair dealing between the parties ...

The implied covenant of good faith and fair dealing, however, is not to be used by you in determining whether or not there was a term of an implied contract calling for discharge for just cause only. You must first find from the words and conduct of the parties that they intended that the plaintiff's discharge would be made for just cause only.

If you find that there was an implied contract of employment between the parties which included a good-reason standard for termination, then the implied covenant of good faith and fair dealing requires in the traditional sense a moral quality equated with honesty of purpose, freedom from fraudulent intent and faithfulness to duty or obligation.

The jury also was instructed that, for purposes of guidance, it could properly resort to Equal Employment Opportunity Commission guidelines that define what constitutes sexual harassment under the "totality of the circumstances" rule. The guidelines describe the strict responsibility of an employer for the acts of its supervisory employees with respect to sexual harassment and state that an employer should develop appropriate sanctions and take all steps necessary to prevent sexual harassment. The court further instructed the jury that sexual harassment by a supervisor is a violation of law and that, where an employer receives allegations of conduct that could amount to sexual harassment, the employer has a legal duty and obligation to investigate and promptly take appropriate remedial action. Finally, the court instructed that evidence in a case involving sexual harassment is typically contradictory. Nonetheless, the employer still has the duty to take action to prevent sexual harassment.

We address the following issues raised by Pennzoil in this appeal: (1) Whether the claim for breach of an implied employment contract was barred by the statute of frauds? (2) Whether there was substantial evidence to support the jury's finding of an implied employment contract requiring a good reason for termination? (3) Whether the law applied by the court unduly restricted Pennzoil's showing that there was a good reason for the discharge? (4) In terminating employment for good reason, what is the standard for judging the conduct of the employer? (5) Whether the court committed reversible error in refusing to instruct specifically on asserted defense theories as requested by Pennzoil? (6) Whether Pennzoil was entitled to a new trial by reason of inflammatory closing arguments, by reason of the receipt of evidence germane to claims dismissed on directed verdicts, but irrelevant and immaterial to the claims finally submitted, or by reason of a verdict contrary to the weight of the evidence?

Statute of Frauds. Pennzoil contends that the trial court erred in denying its motion for directed verdict on the breach of contract claim. Pennzoil asserts that, because the action was based on an oral employment contract that could not be performed within one year, the action was barred by the statute of frauds. See Skarda v. Skarda, 87 N.M. 497, 501, 536 P.2d 257, 261 (1975). At the least, Pennzoil argues, the court erred in keeping the issue from the jury. Pennzoil maintains that an agreement for employment until Kestenbaum's retirement would have been for a specific term more than one year, rather than for life or for an indefinite period. Pennzoil concedes that the statute of frauds does not apply to a contract under the latter circumstances. See Hodge v. Evans Fin. Corp., 823 F.2d 559, 561-65 (D.C.Cir.1987). Nor does it apply to a contract for employment until retirement.

There is no indication in local law or elsewhere that a permanent employment contract should be construed as a contract for an expressly stated, fixed term of years by virtue of an employee's expectation that he or she will retire at some point. No court or commentator has ever suggested that the possibility of the employee's death within one year would "defeat" rather than "complete" such a contract. To the contrary, courts and commentators have consistently accepted the view that indefinite permanent employment contracts such as Hodge's fall outside the statute because they are capable of full performance within one year. See, e.g., 2 Corbin on Contracts Sec. 446, at 549-50 (Permanent employment contracts fall outside the statute because "[t]he word 'permanent' has, in this connection, no more extended meaning than 'for life.' "); 3 Williston on Contracts Sec. 495, at 582 ("A promise of permanent personal performance is on a fair interpretation a promise of performance for life, and therefore not within the Statute.").

823 F.2d at 564 (footnote omitted). As with Hodge, Kestenbaum unequivocably alleged a contract for permanent employment, not a contract until he reached a specified age of retirement.

Further, Pennzoil bore the burden of pleading and proving the affirmative defense of the statute of frauds. See SCRA 1986, 1-008(C). As a general rule, determination of the applicability of the defense of the statute of frauds is a question of law for the court, not the jury. Sanchez v. Martinez, 99 N.M....