Nelson v. Emerald People's Utility Dist.

• Decision Date: 18 January 1994
• Citation: 862 P.2d 1293,318 Or. 99
• Court: Oregon Supreme Court
• Parties: Cindi L. NELSON, Respondent on Review, v. EMERALD PEOPLE'S UTILITY DISTRICT, a public utility district, Lionel Topaz, and Jim Theabolt, Petitioners on Review. CC 16-89-00028; CA A66055; SC S39866.

Page 1293

862 P.2d 1293

318 Or. 99

Cindi L. NELSON, Respondent on Review, v. EMERALD PEOPLE'S UTILITY DISTRICT, a public utility

district, Lionel Topaz, and Jim Theabolt,

Petitioners on Review.

CC 16-89-00028; CA A66055; SC S39866.

Supreme Court of Oregon.

Argued and Submitted Aug. 30, 1993.

Decided Dec. 9, 1993.

Reconsideration Denied Jan. 18, 1994.

David Jensen, of Jensen, Fadeley & Elmore, Eugene, argued the cause and filed the petition for petitioners on review.

[318 Or. 100-A] Martha L. Walters, of Walters Romm & Chanti, P.C., Eugene, argued the cause for respondent on review. With her on the response to the petition was Suzanne Bradley Chanti.

Timothy L. O'Byrne, Charles F. Hinkle, and Ronald W. Messerly, of Stoel Rives Boley Jones & Grey, Portland, filed an amici curiae brief on behalf of Consolidated Freightways, Inc.; Pacificorp; First Interstate Bank of Oregon; Tektronix, Inc. Kaiser Foundation Health Plan of the Northwest; and Harter Mechanical Contractors, Inc.

Before CARSON, C.J., and PETERSON, GILLETTE, VAN HOOMISSEN, UNIS and GRABER, JJ.

PETERSON, Justice.

This case involves two issues. The first is whether, under the facts of this case, an unemployment compensation decision by the Employment Division should be given preclusive effect in a subsequent civil action. The second issue is whether federal law governs the degree of proof and standard of conduct necessary for an award of punitive damages in a 42 USC § 1983 (1988) ¹ civil rights action. On the first issue, we conclude that, because of lack of identity of issues, the agency's decision should not have been given preclusive effect. On the second issue, we conclude that federal standards govern an award of punitive damages under section 1983.

The following facts are undisputed. Plaintiff was a clerical employee of defendant Emerald People's Utility District (Emerald) from 1985 through April 19, 1988. In February 1988, plaintiff submitted a bill for a positive pregnancy test to Emerald's benefits department. Emerald's senior staff previously had expressed concern about the costs of Emerald's medical insurance program. Plaintiff's pregnancy and the cost of her medical expenses related to the pregnancy were discussed by defendant Theabolt, Emerald's manager of finance and administration, and defendant Topaz, Emerald's general manager.

Plaintiff's doctor had advised her that, to control her pregnancy-related nausea, she should try to keep something in her stomach at all times by eating five or six small meals each day. Emerald's employees were permitted to eat snacks, but not meals, at their desks. Plaintiff had been warned that eating cereal at her desk was not permitted. She ate an egg sandwich at her desk on the morning of April 19, 1988.

Later that day, Theabolt told Topaz that plaintiff had been observed eating the egg sandwich at her desk. Theabolt recommended that plaintiff be given a written reprimand. Instead, Topaz decided that plaintiff should be fired. Theabolt prepared a letter of termination and gave it to plaintiff on the day of the incident. The letter stated that plaintiff's conduct was evidence of her "wilful disregard of work rules and warnings."

Plaintiff requested and received a post-termination hearing. Following the hearing, Emerald upheld the termination. Plaintiff then applied for, and was denied, state unemployment benefits. She requested a hearing. Defendants did not attend the hearing. An Employment Division referee set aside the denial and awarded unemployment benefits.

Plaintiff then brought this action. Her first claim was a section 1983 civil rights claim. Her second claim was for breach of contract. Both claims alleged that plaintiff was discharged because of her pregnancy and that she was not given a pre-termination hearing. Emerald's defense was that plaintiff was discharged for wilful disregard of an Emerald work rule. The trial court admitted a copy of the agency decision in evidence and instructed the jury:

"I instruct you that it has already been determined in a prior proceeding that plaintiff was not discharged for willful misconduct in connection with her work, and therefore you're precluded from finding the plaintiff engaged in willful misconduct."

The trial court also instructed the jury that plaintiff's burden of proving punitive damages on her section 1983 claim was by a preponderance of the evidence and that punitive damages could be awarded if defendant acted with "reckless or callous disregard of or indifference to" plaintiff's rights. The jury returned a verdict for plaintiff on both claims, including punitive damages on the first claim, and judgment was entered in favor of plaintiff. Attorney fees, pre-judgment interest, and costs also were awarded. Defendants appealed.

The Court of Appeals vacated the trial court's award of pre-judgment interest and the punitive damages award against Theabolt and remanded the case for reconsideration of the amount of attorney fees. Nelson v. Emerald People's Utility Dist., 116 Or.App. 366, 840 P.2d 1384 (1992). The Court of Appeals held that the trial court's instruction on issue preclusion was proper, because it did not prohibit the jury from finding that plaintiff violated her employer's work rules, and that, even if the instruction were improper, giving it was harmless error. 116 Or.App. at 374, 840 P.2d 1384. The Court of Appeals also held that the instruction on punitive damages was proper and that the trial court did not err in denying defendants' motion to require plaintiff to elect, before judgment, either a contract or a tort remedy. Id. at 376, 840 P.2d 1384. ²

We first consider whether the trial court erred in instructing the jury that "it has already been determined * * * that plaintiff was not discharged for willful misconduct in connection with her work." This court has abandoned the use of the terms "res judicata " and "collateral estoppel" in favor of, respectively, "claim preclusion" and "issue preclusion." Drews v. EBI Companies, 310 Or. 134, 139, 795 P.2d 531 (1990); North Clackamas School Dist. v. White, 305 Or. 48, 50, 750 P.2d 485, modified on other grounds 305 Or. 468, 752 P.2d 1210 (1988).

Issue preclusion arises in a subsequent proceeding when an issue of ultimate fact has been determined by a valid and final determination in a prior proceeding. North Clackamas School Dist. v. White, supra, 305 Or. at 52, 750 P.2d 485; State Farm Fire & Cas. v. Reuter, 299 Or. 155, 157, 700 P.2d 236 (1985). Issue preclusion can be based on the constitution, common law, or a statute. See State v. Ratliff, 304 Or. 254, 257, 744 P.2d 247 (1987) (constitutional basis in a criminal case is the principle of double jeopardy, and civil common-law doctrine is based on judicial economy); ORS 43.130. ³ Because this case involves the preclusive effect of an administrative proceeding, it is governed by the common law. Drews v. EBI Companies, supra, 310 Or. at 142, 795 P.2d 531.

If one tribunal has decided an issue, the decision on that issue may preclude relitigation of the issue in another proceeding if five requirements are met:

1. The issue in the two proceedings is identical. North Clackamas School Dist. v. White, supra, 305 Or. at 53, 750 P.2d 485; State Farm Fire & Cas. v. Reuter, supra, 299 Or. at 158, 700 P.2d 236.

2. The issue was actually litigated and was essential to a final decision on the merits in the prior proceeding. Heller v. Ebb Auto Co., 308 Or. 1, 5, 774 P.2d 1089 (1989).

3. The party sought to be precluded has had a full and fair opportunity to be heard on that issue. Chavez v. Boise Cascade Corporation, 307 Or. 632, 635, 772 P.2d 409 (1989); State v. Ratliff, supra, 304 Or. at 258, 744 P.2d 247.

4. The party sought to be precluded was a party or was in privity with a party to the prior proceeding. North Clackamas School Dist. v. White, supra, 305 Or. at 53, 750 P.2d 485; State Farm Fire & Cas. v. Reuter, supra, 299 Or. at 159, 700 P.2d 236.

5. The prior proceeding was the type of proceeding to which this court will give preclusive effect. North Clackamas School Dist. v. White, supra, 305 Or. at 52, 750 P.2d 485; State v. Ratliff, supra, 304 Or. at 258, 744 P.2d 247. ⁴

The outcome in this case turns on the first question--was the issue identical in the two proceedings? Plaintiff claimed that she was discharged because she was pregnant. Defendant asserted that plaintiff was discharged because she violated an Emerald rule that employees not eat at their desks. Another Emerald rule provided that any "willful violation of the provisions of [Emerald's] * * * rules" might be "just cause for disciplinary action." The quoted Emerald rule contained no exception for "isolated instances of poor judgment." Plaintiff claims that the Employment Division referee found that she was not discharged for misconduct in connection with her work and that that finding foreclosed defendant from arguing that plaintiff was discharged for wilful violation of Emerald's rule. The trial court agreed and instructed the jury accordingly. We conclude that the referee made no such finding and that the trial court erred in so instructing the jury, because the issues in the two proceedings are not identical.

The issue in the Employment Division hearing was whether plaintiff was entitled to unemployment compensation. Plaintiff was entitled to compensation unless she had "been discharged for misconduct in connection with work," a statutory standard found in ORS 657.176(2)(a). That statute provides that "[a]n individual shall be disqualified from the receipt of benefits * * * if the [referee] finds that the individual * * * [h]as been discharged for misconduct connected with work." An Employment Division rule elaborated on the statutory standard. OAR 471-30-038(3) (1986) provided: ⁵

"Under the provisions of ORS 657.176(2)(a) and (b), misconduct is a wilful violation of the standards of behavior which an employer has the right to expect of an...