Luedtke v. Nabors Alaska Drilling, Inc.

• Decision Date: 29 May 1992
• Docket Number: No. S-3828,S-3828
• Citation: 834 P.2d 1220
• Parties: 126 Lab.Cas. P 57,532, 7 IER Cases 834 Paul M. LUEDTKE, Appellant, v. NABORS ALASKA DRILLING, INC., Appellee.
• Court: Alaska Supreme Court

Page 1220

834 P.2d 1220

126 Lab.Cas. P 57,532, 7 IER Cases 834

Paul M. LUEDTKE, Appellant, v. NABORS ALASKA DRILLING, INC., Appellee.

No. S-3828.

Supreme Court of Alaska.

May 29, 1992.

Charles W. Coe and Michael Smith, Anchorage, for appellant.

Mary Poteet, Winner & Associates, Anchorage, for appellee.

Before RABINOWITZ, C.J., and BURKE, MATTHEWS, COMPTON and MOORE, JJ.

OPINION

COMPTON, Justice.

Paul M. Luedtke was suspended and then terminated from his employment with Nabors Alaska Drilling, Inc. (Nabors) after testing positive for marijuana use in a urinalysis. This court upheld Nabors' termination of Luedtke in Luedtke v. Nabors Alaska Drilling, Inc., 768 P.2d 1123 (Alaska 1989) (Luedtke I ), but the case was remanded for a determination of whether Luedtke's suspension violated the covenant of good faith and fair dealing. On remand, the superior court found that Nabors did not violate the covenant of good faith and fair dealing when it suspended Luedtke. The court also imposed sanctions against Luedtke and his attorney pursuant to Alaska Civil Rules 11 and 95(a), and awarded attorney's fees pursuant to Alaska Civil Rule 82. Luedtke appeals the judgment in its entirety. We reverse.

I. FACTUAL AND PROCEDURAL BACKGROUND

The facts leading up to Luedtke's suspension and termination are detailed in Luedtke I, 768 P.2d at 1125-26, and will not be repeated. Our instructions to the superior court on remand left one issue to be decided:

The question whether Paul's suspension breached the covenant of good faith and fair dealing is for the trier of fact. On remand, the trial court should determine whether the covenant has been breached, taking additional evidence if necessary.

Id. at 1137 (citation omitted). We remanded the issue of Luedtke's suspension in part because it was based on different facts than the termination, and the superior court had not applied the covenant of good faith and fair dealing to those facts.

After a failed attempt at settlement, Nabors filed a motion in limine seeking an order limiting Luedtke's remedies on remand. The court entered an order which declared that Luedtke would not be entitled to reinstatement of employment or lost wages after November 30, 1982, the date he was lawfully terminated. The court denied Luedtke's request for a four-day trial on the suspension and damages issue, and instead ordered the parties to brief the issues of whether Luedtke's suspension violated the covenant of good faith and fair dealing, and if so, what damages would result.

In his later Position Memorandum on Remand, Luedtke asked to present additional evidence that Nabors breached the covenant of good faith and fair dealing, and asked that the court consider the appropriate remedy. Luedtke continued to assert that he was entitled to reinstatement and back pay as a remedy for breach. Nabors asserted in response that Luedtke had not been suspended in bad faith, and simultaneously moved for costs and attorney fees pursuant to Civil Rules 11 and 95(a), asserting that Luedtke's arguments were frivolous because he presented no evidence of bad faith and because the remedies he sought had been precluded when its Motion in Limine was granted.

The superior court held a hearing on September 21, 1989. Luedtke again asked for an evidentiary hearing to prove damages, and also to show that he was treated differently from other employees. Nabors opposed introduction of any new evidence, and asserted that the only issues relevant to its good faith and fair dealing were the timing and notice of the test.

The superior court ruled in favor of Nabors on the good faith and fair dealing issue. The court also granted Nabors' motion for costs and attorney's fees under Civil Rules 11 and 95(a) in the amount of $8,578.11, but issued no findings to support that award. Nabors then moved for attorney's fees under Civil Rule 82(a)(1), which the superior court granted in the amount of $3,500.00.

II. NABORS' SUSPENSION OF LUEDTKE VIOLATED THE COVENANT OF GOOD FAITH AND FAIR DEALING

A. Standard of Review.

Whether Luedtke's suspension breached the covenant of good faith and fair dealing is a question for the trier of fact. Luedtke I, 768 P.2d at 1137. Normally we review such questions only for clear error. Alaska Civil R. 52(a). "However, we may review the application of a legal doctrine to undisputed facts without the usual deference to the superior court." Foss Alaska Line, Inc. v. Northland Servs., 724 P.2d 523, 526 (Alaska 1986). While there are still disputed facts in this case, the record on remand now reflects several undisputed facts relevant to Luedtke's suspension: Luedtke had no notice that his urine would be tested for drugs; Luedtke's drug test was not performed contemporaneously with his work schedule; and, Luedtke was suspended after his urine tested positive for marijuana, but before he was given the option of a retest or any other options. Thus, we may review de novo the superior court's determination that these facts do not prove a violation of the covenant of good faith and fair dealing.

In finding that Luedtke's suspension did not violate the covenant, the superior court reasoned that "Nabors had no other alternative but to suspend Mr. Luedtke immediately." It stated that sending Luedtke to the work site would have compromised the safety of Nabors' employees and compromised Nabors in any litigation that resulted from an accident involving Luedtke. However, in reaching this conclusion, the superior court misapplied the covenant of good faith and fair dealing and misconstrued our instructions on remand.

B. The Covenant of Good Faith and Fair Dealing.

We have recognized a covenant of good faith and fair dealing in all at-will employment contracts. Mitford v. de Lasala, 666 P.2d 1000, 1007 (Alaska 1983). "This covenant does not lend itself to precise definition, but it requires at a minimum that an employer not impair the right of an employee to receive the benefits of the employment agreement." Jones v. Central Peninsula Gen. Hosp., 779 P.2d 783, 789 (Alaska 1989). The covenant is breached, for example, if an employee proves that the employer fired the employee "for the purpose of preventing him from sharing in future profits" to which the employee is entitled. Mitford, 666 P.2d at 1007. In Hagans, Brown & Gibbs v. First National Bank of Anchorage, 783 P.2d 1164 (Alaska 1989), we held that an attorney's client could be subject to liability for attorney's fees "if it can be shown that the [client's] decision to settle or not settle [the case] was made with the intent of taking advantage of the attorney." Id. at 1168. Mitford, Jones and Hagans establish that if it is proved that an employer's motive in firing an employee is to deprive the employee of the economic benefits of the contract, it is per se a bad faith termination. These decisions focus on the intent of the employer in evaluating whether bad faith exists, and uphold a finding of bad faith when the record supports a finding of an improper employer motive.

Mitford, Jones and Hagans, however, do not limit breach of the covenant of good faith and fair dealing to those circumstances. In Jones, we noted that the covenant of good faith and fair dealing "also requires that an employer treat like employees alike." Jones, 779 P.2d at 789 n. 6. See also Rutledge v. Alyeska Pipeline Serv. Co., 727 P.2d 1050, 1056 (Alaska 1986). We have held that proof that an employee was fired for an unconstitutional reason "amounts to unfair dealing as a matter of law." State v. Haley, 687 P.2d 305, 318 (Alaska 1984). In Luedtke I, 768 P.2d at 1130, we also stated that proof that a private employer's violation of a public policy could constitute a breach of the covenant of good faith and fair dealing.

These cases, rather than focusing on the intent of the employer, indicate that the covenant of good faith and fair dealing also requires the parties to act in a manner which a reasonable person would regard as fair. Indeed, in ARCO Alaska, Inc. v. Akers, 753 P.2d 1150, 1156 (Alaska 1988), this court upheld a jury instruction in which the judge stressed that an employer's discretion must be "exercised reasonably and in good faith" and that the employer's decisions must be made "fairly and in good faith." (Emphasis added.) In Klondike Indus. Corp. v. Gibson, 741 P.2d 1161, 1168 (Alaska 1987), we cited with approval excerpts from the Restatement of Contracts:

Subterfuges and evasions violate the obligation of good faith in performance even though the actor believes his conduct to be justified. But the obligation goes further: bad faith may be overt or may consist of inaction, and fair dealing may require more than honesty.

Restatement (Second) of Contracts § 205 comment d (1981).

Thus, our cases establish that the covenant of good faith and fair dealing includes multiple expectations about the behavior of the parties to a contract.

The Uniform Commercial Code's requirement of good faith and fair dealing in the case of merchants, contained in section 2-103, requires more than just absence of evil motive. " 'Good faith' in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade." U.C.C. § 2-103(1)(b). ¹ Courts and commentators which have addressed the issue say that this imposes an objective as well as a subjective standard. ²

C. Our Instructions on Remand.

In Luedtke I, we considered the issue of whether Nabors' decision to fire Paul Luedtke (and his brother Clarence) violated the covenant of good faith and fair dealing based on the claim that Nabors' drug tests intruded upon their privacy:

We conclude that there is a public policy supporting the protection of employee privacy. Violation of that policy by an employer may rise to the level of a breach of the implied covenant of good faith and fair dealing. However, the competing public concern for employee safety present in the case at bar lea...