Towson Univ. v. Conte

• Decision Date: 17 November 2004
• Docket Number: No. 55,55
• Citation: 384 Md. 68,862 A.2d 941
• Parties: TOWSON UNIVERSITY v. Michael CONTE.
• Court: Maryland Court of Appeals

862 A.2d 941

384 Md. 68

TOWSON UNIVERSITY v. Michael CONTE.

No. 55, September Term, 2003.

Court of Appeals of Maryland.

November 17, 2004.

Reconsideration Denied January 7, 2005.

Mark J. Davis, Asst. Atty. Gen. (J. Joseph Curran, Jr., Atty. Gen., Dawna M. Cobb, Asst. Atty. Gen., on brief), for petitioner.

Philip B. Zipin (Omar VIncent Melehy, Zipin, Melehy & Driscoll, LLC, on brief), Silver Spring, for respondent.

Woodley B. Osborne, Osborne & Deutsch, Washington, DC, for Amici Curiae.

Argued before BELL, C.J., RAKER, WILNER, CATHELL, HARRELL, BATTAGLIA and JOHN C. ELDRIDGE (retired, specially assigned), JJ.

RAKER, J.

In this case, we must decide whether or to what extent a jury may examine or review the factual bases of an employer's decision to terminate an employee in the absence of an express directive from the employment contract. That question has been answered in this jurisdiction with regard to two different types of employees, the employee at-will and the employee subject to a satisfaction employment contract. We determine the answer with regard to a third type of employee, the employee who may be fired only for just cause.

I.

The controversy surrounds an employment agreement between Michael Conte, the employee, and Towson University (the University), the employer. In 1996, the University hired Dr. Conte to become the director of the Regional Economic Studies Institute at Towson University (RESI). The University and Dr. Conte executed an employment contract that enumerated Dr. Conte's duties as the new director of RESI, as well as his compensation, period of employment, and the causes for which he could be terminated.

In 1998, several events came to the attention of the University and led to the decision to terminate Dr. Conte. Most of these events centered around RESI's relationship with the State Department of Human Resources (DHR), RESI's primary revenue source. As the owner of RESI's computer database and software, under federal regulations, DHR was entitled to compensation for any income generated by RESI's use of DHR equipment. Dr. Conte was responsible for developing an acceptable methodology for compensating DHR. In June 1998, DHR complained to Dr. Conte about RESI's accounting of that compensation, which was, according to DHR, inconsistent and incomprehensible. Troubled by RESI's accounting procedures, DHR hired a private accounting firm to review them and tried to resolve its issues with RESI through Dr. Conte. None of these attempts was successful, and the relationship between DHR and Dr. Conte deteriorated until the University Provost John Haeger was informed of the dispute and intervened. Although the University eventually was able to save the contract and settle the disputed costs with DHR, it became extremely dissatisfied with the manner in which Dr. Conte had handled the issues and blamed him for the accelerated reduction in DHR's contract by $2,300,000.00 the following fiscal year.

Having lost confidence in Dr. Conte, the University initiated an internal investigation into RESI's activities and accounting procedures. In August of 1998, the University President Hoke Smith directed the University's auditor to examine RESI's records and to determine whether RESI had properly accounted for its expenditures and costs. A preliminary report of the audit in November revealed that personnel costs were documented improperly, in violation of University and federal regulations. In addition, the audit showed that the timekeeping procedures used by RESI attributed to DHR personnel costs which were unrelated to DHR's contract. In November of 1998, President Smith convened a meeting to discuss RESI's status. The meeting included RESI's associate director, an assistant director, and a former assistant director who had raised concerns about Dr. Conte's management of RESI. Shortly after the meeting, President Smith asked the University's counsel to investigate whether the University had just cause to terminate Dr. Conte. During the investigation, various other problems with RESI came to the University's attention, including irregularities in the services provided to other clients and Dr. Conte's alleged attempt to convert RESI into a private entity. After the meeting, Dr. Conte was informed of the University's intent to terminate him and its request for him to resign.

Because Dr. Conte refused to resign, Provost Haeger sent him a detailed letter explaining the causes for his termination. Alleging "incompetence" and "wilful neglect of duty" — two of the just causes for termination enumerated in Dr. Conte's employment contract — the University cited Dr. Conte's handling of the DHR contract, which resulted in an approximate $2,300,000 revenue loss for the fiscal year 1999; RESI's estimated operating losses of $930,000 for the period between July and December 1998; RESI's failure to abide by federal, state, and University regulations in its record-keeping practices; the dissatisfaction of other clients with RESI's work product; the dissatisfaction of several RESI employees who complained about Dr. Conte's management style; as well as various other reasons for the termination. Dr. Conte disputed these allegations and said that they did not constitute incompetence or wilful neglect of duty as required by the contract. After a brief hearing before the University President with his counsel, Dr. Conte was formally terminated from his position as director on January 26, 1999.

Dr. Conte filed a complaint in the Circuit Court for Baltimore County against the University, alleging, inter alia, that the University had wrongfully discharged him and breached his employment contract. He sought damages for his alleged wrongful termination as director of RESI, the University's refusal to pay him additional compensation as defined by his employment agreement,¹ and the University's failure to appoint him to the faculty after his termination as director as required by the agreement. The University responded to the complaint with several defenses, including the defense that the University had just cause under the contract to terminate Dr. Conte.

In September 2001, trial commenced before a jury in the Circuit Court for Baltimore County. At the close of the evidence and testimony of several witnesses, the trial judge instructed the jury that the "University has the burden to prove by a preponderance of the evidence that one or more of the [causes in Dr. Conte's] contract existed for the plaintiff's termination" (emphasis added). The trial judge refused the University's request to instruct the jury that, in the event they find just cause to be required under the contract, the University was nevertheless permitted to terminate Dr. Conte for "common law cause" or cause that goes to the "essence of the contract." The jury returned with a verdict in Dr. Conte's favor, finding that the University did not prove by a preponderance of the evidence that just cause existed under the contract to fire Dr. Conte, and awarding him $926,822.00 in damages. The University noted a timely appeal to the Court of Special Appeals, arguing that the trial court had erred when it instructed the jury that the University was required to show just cause for the termination and when it refused to instruct the jury on common law cause. The Court of Special Appeals, in an unreported opinion, agreed with the Circuit Court and affirmed the judgment.

The University filed a petition for writ of certiorari in this Court to consider two questions.² 376 Md. 543, 831 A.2d 3 (2003). Slightly rephrased, the principal question raised in the petition is whether or to what extent a jury may examine or review the factual bases of an employer's decision to terminate an employee. The second question is whether Dr. Conte's employment contract was exclusive in its enumeration of the just causes for which Dr. Conte could be terminated, thereby prohibiting termination based upon any other cause, such as common law cause.³

II.

From petitioner's perspective, a jury's role in disputes involving just cause employees is not to determine whether just cause in fact existed, but to determine whether the employer acted in good faith, and not arbitrarily or capriciously, when it decided there was just cause to fire the employee. Put another way, provided the University genuinely believed that Dr. Conte was incompetent or wilfully neglectful of his duties as director, whether Dr. Conte was actually incompetent or wilfully neglectful is irrelevant to the jury's inquiry. According to petitioner, then, the jury's inquiry must center on the employer's motive and state of mind, not on the actions of the employee and whether they constitute just cause for termination.

Underlying petitioner's position is the strong judicial policy against interfering with the business judgment of private business entities. See Sadler v. Dimensions, 378 Md. 509, 526-27, 836 A.2d 655, 665 (2003). To that end, petitioner relies heavily on a Court of Special Appeals case, Elliott v. Board of Trustees, 104 Md.App. 93, 655 A.2d 46 (1995). Writing for the panel, Judge Cathell, now on this Court, noted that courts and juries should refrain from becoming involved in an employer's personnel decisions, lest they become "super personnel officers," second-guessing an employer about its own business needs. The Elliott court gleaned from Maryland precedent that "absent evidence of bad faith on the part of an employer, courts should be reluctant to overturn an employer's decision to discharge an employee when the employer has complied with its own procedures for resolving matters such as this." Id. at 108-109, 655 A.2d at 53. Petitioner argues that this rule is applicable to the University's decision to terminate Dr. Conte.

Supplementing the argument, petitioner also asserts that Dr. Conte's employment contract expressly reserved to the University, not to a trial court or jury, the right to determine...