Walker v. City of Cookeville

• Court: Tennessee Court of Appeals
• Writing for the Court: William C. Koch
• Decision Date: 12 August 2003
• Docket Number: No. M2002-01441-COA-R3-CV.,M2002-01441-COA-R3-CV.
• Citation: Walker v. City of Cookeville (Tenn. App. 2003)
• Parties: JUDITH ANN WALKER v. CITY OF COOKEVILLE, TENNESSEE, D/B/A COOKEVILLE REGIONAL MEDICAL CENTER.

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JUDITH ANN WALKER v. CITY OF COOKEVILLE, TENNESSEE, D/B/A COOKEVILLE REGIONAL MEDICAL CENTER.

No. M2002-01441-COA-R3-CV.

Court of Appeals of Tennessee at Nashville.

Filed August 12, 2003.

Appeal from the Circuit Court for Putnam County No. 00N0158 John J. Maddux, Judge.

Judgment of the Circuit Court Affirmed.

H. Rowan Leathers III, Nashville, Tennessee, for the appellant, City of Cookeville, Tennessee d/b/a Cookeville Regional Medical Center.

Phillip P. Welty, Nashville, Tennessee, and Ronald Thurman, Cookeville, Tennessee, for the appellee, Judith Ann Walker.

WILLIAM C. KOCH, JR., J., delivered the opinion of the court, in which BEN H. CANTRELL, P.J., M.S., and WILLIAM B. CAIN, J., joined.

OPINION

WILLIAM C. KOCH, JR., JUDGE

This appeal involves an employment dispute between the Cookeville Regional Medical Center and a senior management employee. After the hospital's chief executive officer removed the employee from her position as Interim Assistant Administrator and Director of Quality Management, the employee resigned and filed suit in the Circuit Court for Putnam County alleging that the hospital breached her employment contract by declining to pay her the severance benefits required by her employment contract. Following a bench trial, the court found that the hospital had breached the employment contract and awarded the employee severance benefits, prejudgment interest, and discretionary costs. The hospital argues on this appeal that the employee was not entitled to severance pay because (1) she had voluntarily resigned, (2) the parties understood that the employee's appointment as assistant administrator was not permanent, and (3) the employee's demotion did not materially alter her duties or status. We affirm the judgment because the hospital breached the employee's contract when it demoted her and declined to pay her the severance benefits required by her employment contract.

I.

Judith Ann Walker, a registered nurse with a bachelor's and a master's degree, was hired by the Cookeville Regional Medical Center ("hospital") in June 1994 as the Director of Quality Management. She was an at-will employee and was not a member of senior management. As Director of Quality Management, Ms. Walker was responsible solely for managing the Quality Management Department which provided support to the medical staff regarding credentialing, staff committees, and peer review and coordinated the hospital's quality management training and programs.

In 1998, the hospital was in turmoil because of the departure of its chief executive officer ("CEO") and the dispute between the hospital's board of trustees and the city council regarding the council's desire to sell the hospital. Eventually, William Jennings, the hospital's chief operating officer ("COO"), was named interim chief executive officer with the understanding that he would not be considered for the permanent CEO position. With a new administration on the horizon, Mr. Jennings set out to keep a core group of the hospital's managers intact by offering them the financial security that comes with an employment contract. Ms. Walker was one of these managers.

On March 17, 1998, Ms. Walker and the hospital entered into a contract naming her the hospital's "Interim Assistant Administrator and Director of Quality Management." Section 5 of the contract provided that

[t]he term of this Agreement shall be for one (1) year commencing on the date of the execution of this Agreement. Upon the expiration of this initial term, this Agreement shall continue for additional terms of one (1) year each year upon the same terms and conditions herein provided, unless either party gives written notice to the other party at least sixty (60) days prior to the expiration of the then current term of its or her election to terminate the Agreement at the expiration of the then current term. If such notice is given, this Agreement shall terminate at the expiration of the then current term.

Accordingly, either the hospital or Ms. Walker could elect to terminate the agreement by giving the other party at least sixty days notice prior to the expiration of the current term. If no notice was given, then the contract would be renewed for another year at the expiration of that term.

In addition, Section 6.1(h) of the contract contained the following provision regarding severance pay:

Hospital may also terminate this Agreement "without cause" at any time upon thirty (30) days prior written notice to Walker. Provided, however, that in the event of Walker's termination "without cause" Hospital shall be obligated to pay to Walker, as severance pay, an amount equal to the aggregate compensation and all benefits due Walker for the balance of the current term of this Agreement, or one (1) year, whichever is longer.

The agreement also provided that Ms. Walker could terminate the agreement "without cause" at any time upon thirty days prior written notice, "but no severance pay or benefits shall be paid to her."

Ms. Walker's duties and status at the hospital changed significantly after she became the Interim Assistant Administrator and Director of Quality Management. Prior to the contract, she supervised only the Quality Management Department. After the contract, she became responsible for additional departments, including the hospital resources library, education, oncology services, infection control, and environmental services. She answered directly to the interim CEO and was responsible for working with the directors of the departments under her supervision with regard to budget matters and problem solving issues. In addition, her requisition authority was increased from $250 to $1,000, and she became part of the small group of senior managers who met periodically to discuss hospital policy and to make management and policy decisions for the hospital.

In February 1998, the hospital hired Tod Lambert as its new permanent CEO, and Mr. Jennings temporarily returned to his COO position awaiting the hiring of his successor. Mr. Lambert hired a financial consultant and a nursing consultant to review the hospital's operations and began making personnel changes at the senior management level. At least two other assistant administrators — Ms. Walker's peers — stepped down and were given their contractual severance benefits under Section 6.1(h). Because the hospital did not give Ms. Walker the required notice of its intent not to renew her contract as Interim Assistant Administrator and Director of Quality Management, her employment contract was automatically renewed on March 17, 1999 for another year.

In April 1999, Mr. Lambert hired Bernard Mattingly as the hospital's new COO. Shortly thereafter, the hospital published a new organizational chart that still recognized Ms. Walker's status and position as Interim Assistant Administrator. Even though she now reported to Mr. Mattingly rather than Mr. Lambert, Ms. Walker was still a member of the senior management team¹ and remained responsible for the management and control of the departments placed under her supervision.

Later in the year, Messrs. Lambert and Mattingly decided to combine the corporate compliance, internal audit, and quality management programs under a new Assistant Administrator of Quality and Compliance. They recruited and hired a new employee for this position, and in late September 1999, Mr. Lambert met with Ms. Walker to tell her that the hospital had created a new position of Assistant Administrator of Quality and Compliance and that her current position of Interim Assistant Administrator and Director of Quality Management would be abolished.² He also informed her that he intended to "demote" her to Director of Quality Management and that she would answer to the new Assistant Administrator of Quality and Compliance. As a result of this demotion, Ms. Walker would no longer be part of the hospital's senior management team and would again become an employee at will. Mr. Lambert also told Ms. Walker that her salary would not be reduced but that she had "topped out" as far as the salary for the Director of Quality Management position was concerned.

Mr. Lambert advised Ms. Walker to be a "team player" and told her that he expected her to teach the new Assistant Administrator of Quality and Compliance everything she knew. He also told her that "being demoted wasn't so bad because he himself had been demoted, and that the people at the hospital were too caught up in titles." The meeting ended when Ms. Walker stated that she desired time to think about her circumstances and to talk with her lawyer.

The hospital proposed that Ms. Walker take a brief administrative leave to consider Mr. Lambert's proposal. After several days of leave, Mr. Lambert asked Ms. Walker for her decision. She informed him that she did not desire to be moved back to the Director of Quality Management position and that she desired to invoke the severance rights under her contract. Mr. Lambert responded by suggesting that Ms. Walker hire a lawyer and resolve the matter with the hospital's Director of Human Resources. Ms. Walker also informed Mr. Lambert that she was prepared to work out her thirty days notice or leave immediately whichever he preferred. Ms. Walker had no other conversations with Mr. Lambert. At some point during the process, the hospital offered her $39,000 to resolve the remaining issues regarding her termination of employment. Ms. Walker did not accept the offer and left her employment at the hospital with no severance benefits of any sort.

On May 5, 2000, Ms. Walker filed suit against the City of Cookeville in the Circuit Court for Putnam County, alleging that the hospital had breached her employment contract by refusing to pay her severance benefits under Section 6.1(h) of her employment contract after terminating her job as "Interim Assistant Administrator and Director of Quality Management" without cause. The trial court handed down...