                                                                                                April 23 2013


                                           DA 12-0489

                  IN THE SUPREME COURT OF THE STATE OF MONTANA

                                          2013 MT 106



MICHAEL SULLIVAN,

              Plaintiff and Appellant,

         v.

CONTINENTAL CONSTRUCTION
OF MONTANA, LLC,

              Defendant and Appellee.



APPEAL FROM:            District Court of the Eighteenth Judicial District,
                        In and For the County of Gallatin, Cause No. DV 11-119A
                        Honorable Holly Brown, Presiding Judge


COUNSEL OF RECORD:

                For Appellant:

                        Todd Shea, Shea Law Firm, P.L.L.C.; Bozeman, Montana

                For Appellee:

                        Edmond E. Koester; Coleman, Yovanovich & Koester, P.A.; Naples,
                        Florida

                        Dennis P. Clarke; Smith, Walsh, Clarke & Gregoire, PLLP; Great Falls,
                        Montana


                                                    Submitted on Briefs: February 27, 2013
                                                               Decided: April 23, 2013


Filed:

                        __________________________________________
                                          Clerk
Justice Brian Morris delivered the Opinion of the Court.

¶1     Michael Sullivan (Sullivan) filed a wrongful discharge action in the Eighteenth

Judicial District, Gallatin County. The District Court granted summary judgment in favor of

Continental Construction of Montana, LLC (Continental Construction). Sullivan appeals.

We affirm.

¶2     Sullivan presents the following issues on appeal:

¶3     Whether the District Court properly concluded that Continental Construction had

good cause to terminate Sullivan’s employment?

¶4     Whether Continental Construction improperly considered hearsay evidence in

deciding to terminate Sullivan’s employment?

¶5     Whether the District Court improperly considered hearsay evidence in concluding

that Continental Construction had good cause to terminate Sullivan’s employment?

¶6     Whether the District Court properly concluded that Continental Construction did not

violate the provisions of its employee handbook when it terminated Sullivan’s employment?

                   PROCEDURAL AND FACTUAL BACKGROUND

¶7     Continental Construction operates a construction company from its headquarters in

Florida. Continental Construction hired Sullivan as a construction site supervisor in April

2008. Sullivan directly supervised many of Continental Construction’s employees in

Montana.     Sullivan also worked directly with many of Continental Construction’s

subcontractors and clients.



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¶8     Sullivan left Montana on a scheduled vacation on October 21, 2010. John Cecil

(Cecil), the Vice President of Construction for Continental Construction, travelled to

Montana from Florida to replace Sullivan while Sullivan was on vacation. A group of

Continental Construction employees approached Cecil that same day. The employees

informed Cecil that they were unhappy with Sullivan as a supervisor. Cecil understood that

these employees were threatening to quit unless Continental Construction immediately

terminated Sullivan’s position as their supervisor.

¶9     Cecil called Peg Wilson (Wilson), Continental Construction’s office manager in

Florida, to inform her of the employees’ dissatisfaction with Sullivan. Wilson instructed

Cecil to interview each of the employees individually about their experiences with Sullivan.

John Wallace (Wallace), the administrator for Continental Construction in Montana, helped

Cecil conduct these interviews the following day, on October 22, 2010.

¶10    These interviews revealed that many employees felt that Sullivan routinely made

demeaning and derogatory comments about Continental Construction’s management to both

employees and non-employees. Sullivan also made derogatory and demeaning comments to

employees and subcontractors about their work. Several employees reported that Sullivan

often showed up late to work and would disappear for extended periods of time during the

working shift. Many employees believed that Sullivan negatively affected employee morale.

¶11    Wallace e-mailed to Wilson copies of his notes from the employee interviews that

same day. Wilson shared the notes with James Murphy (Murphy), the sole owner and

president of Continental Construction, and Michael Kluck (Kluck), a Continental
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Construction supervisor in Florida. Wilson, Murphy, and Kluck determined that Sullivan’s

conduct did not meet the standards for Continental Construction supervisors. Wilson,

Murphy, and Kluck decided to terminate Sullivan’s employment immediately.

¶12    Continental Construction contacted Sullivan by telephone on October 26, 2010, to

notify him that his employment had been terminated. Continental Construction provided

Sullivan with a letter that set forth the reasons for his discharge. The letter stated that

Sullivan had been discharged for treating employees and subcontractors in a demeaning

manner; for having frequent unexplained absences from work; for speaking to others in a

derogatory manner about customers and employees; and for behaving in a manner that did

not meet the standards of Continental Construction.

¶13    Sullivan filed an action that alleged that Continental Construction had violated the

Montana Wrongful Discharge from Employment Act (WDEA), §§ 39-2-901 to 39-2-915,

MCA. Continental Construction defended on the basis that it had terminated Sullivan’s

employment for a valid business reason. Sullivan and Continental Construction filed cross-

motions for summary judgment. The District Court granted Continental Construction’s

motion for summary judgment. Sullivan appeals.

                                STANDARD OF REVIEW

¶14    We review de novo a district court’s grant of summary judgment. McConkey v.

Flathead Elec. Coop., 2005 MT 334, ¶ 19, 330 Mont. 48, 125 P.3d 1121. We apply the same

method of evaluation applied by the district court. McConkey, ¶ 19. Summary judgment is

proper if no genuine issues of material fact exist and the moving party is entitled to judgment
                                              4
as a matter of law. McConkey, ¶ 19. The party seeking summary judgment possesses the

burden of establishing a complete absence of any genuine issues of material fact. McConkey,

¶ 19. Once the moving party has met its burden, the opposing party must present material

and substantial evidence, rather than mere conclusory or speculative statements, to raise a

genuine issue of material fact. McConkey, ¶ 19.

                                       DISCUSSION

¶15    Sullivan argues that he raised genuine issues of material fact to suggest that

Continental Construction violated WDEA when it terminated Sullivan. Sullivan first argues

that he raised genuine issues of material fact to demonstrate that Continental Construction

had discharged him without good cause, in violation of § 39-2-904(1)(b), MCA. Sullivan

claims that the District Court improperly relied upon hearsay evidence in finding that

Continental Construction possessed good cause. Sullivan further argues that he raised

genuine issues of material fact to demonstrate that Continental Construction had not

followed the provisions of its employee handbook when it terminated his employment, in

violation of § 39-2-904(1)(c), MCA.

¶16    Whether the District Court properly concluded that Continental Construction had

good cause to terminate Sullivan’s employment?

¶17    A discharge is wrongful if no good cause exists for the termination. Section 39-2-

904(1)(b), MCA. Good cause includes a legitimate business reason. A legitimate business

reason involves “a reason that is neither false, whimsical, arbitrary or capricious and it must



                                              5
have some logical relationship to the needs of the business.” McConkey, ¶ 26 (quoting Buck

v. Billings Mont. Chevrolet, Inc., 248 Mont. 276, 281-82, 811 P.2d 537, 540).

¶18   This Court has stressed the importance of the “right of an employer to exercise

discretion” over whom “it will employ and keep in employment.” McConkey, ¶ 26 (quoting

Buck, 248 Mont. at 282, 811 P.2d at 540). We afford employers the greatest discretion

where an employee occupies a “sensitive” managerial position and exercises “broad

discretion” in his job duties. McConkey, ¶ 26. We have emphasized that a court should not

become involved in the day-to-day employment decisions of a business regarding its

management. McConkey, ¶ 26 (quoting Buck, 248 Mont. at 282, 811 P.2d at 541).

¶19   This Court considered an employer’s desire to hire a trusted manager in Buck. Jim

Buck (Buck) served as general manager at a Chevrolet dealership. Buck, 248 Mont. at 279,

811 P.2d at 539. F.S. Enterprises purchased the dealership and promptly terminated Buck’s

employment. Buck, 248 Mont. at 280, 811 P.2d at 539. F.S. Enterprises did not allege that

Buck had engaged in any wrongful conduct that merited termination. In fact, Buck had been

an exemplary employee. Buck, 248 Mont. at 279, 811 P.2d at 539. F.S. Enterprises

nevertheless replaced Buck as general manager with a longtime employee of F.S.

Enterprises.

¶20   The controlling stockholder of F.S. Enterprises lived in Louisiana. He wanted a long-

term employee whom he trusted to manage his new investment in Montana. Buck, 248

Mont. at 282, 811 P.2d at 541. This Court recognized that it would be “against common

sense and rationality” to force F.S. Enterprises to “retain someone who it did not know or
                                            6
perhaps even trust to manage a large dollar investment.” Buck, 248 Mont. at 282-83, 811

P.2d at 541. This Court agreed that F.S. Enterprises possessed a legitimate business reason

to terminate Buck. Buck, 248 Mont. at 283, 811 P.2d at 541.

¶21    The Court cautioned, however, that its determination applied only to employees who

“occupy sensitive managerial or confidential positions” that “require the exercise of broad

discretion.” Buck, 248 Mont. at 283, 811 P.2d at 541. A company’s interest in “running its

business as it sees fit” would not apply to a decision to terminate a lower echelon employee.

Buck, 248 Mont. at 283, 811 P.2d at 541.

¶22    This Court considered again in McConkey a firm’s interest in employing a manager

whom it could trust. Warren McConkey (McConkey) served as the general manager of

Flathead Electric Cooperative (FEC). McConkey, ¶ 8. McConkey convinced FEC to acquire

another utility. McConkey, ¶ 9. FEC’s debt to equity ratio fell to the low single digits after

FEC’s acquisition of the other utility. McConkey, ¶ 27. FEC also substantially increased its

electricity rates, including 6.9% in 2000, 29% in April 2001, and 12.5% in October 2001.

McConkey, ¶ 11. The FEC Board of Trustees voted unanimously in February 2002 to

terminate McConkey’s employment as the general manager. McConkey, ¶ 14.

¶23    This Court determined that FEC possessed a legitimate business reason to terminate

McConkey’s employment. McConkey, ¶ 31. FEC believed that McConkey’s managerial

decisions had caused substantial damage to the company. McConkey, ¶ 31. FEC possessed

broad discretion to terminate employment of a general manager if he failed to perform his

job satisfactorily. McConkey, ¶ 31.
                                              7
¶24       Sullivan, similar to McConkey and Buck, occupied a managerial position within his

company. Continental Construction’s executives work in Florida. Continental Construction

argues that the lack of daily oversight from its Florida executives made it especially

important to employ a trustworthy construction site manager in Montana. See Buck, 248

Mont. at 282, 811 P.2d at 541.         Sullivan had engaged in activities that Continental

Construction feared would cause substantial damage to the company. See McConkey, ¶ 31.

¶25       Continental Construction possessed broad discretion to terminate a person in an

executive position, like Sullivan, if he had failed to fulfill his job requirements. See

McConkey, ¶ 31. Continental Construction also possessed broad discretion to terminate

Sullivan if it believed it could not trust him as a manager to run the day-to-day operations.

See Buck, 248 Mont. at 282, 811 P.2d at 541. Here, Continental Construction concluded on

the basis of its investigation that Sullivan had failed to fulfill the requirements of his

managerial position and had failed to act in a trustworthy manner. We agree with the

District Court that Continental Construction made what it determined to be a legitimate

business decision to terminate Sullivan’s employment. We afford considerable discretion to

Continental Construction’s decision. See McConkey, ¶ 31; Buck, 248 Mont. at 282, 811 P.2d

at 541.

¶26       Sullivan argues that he raised genuine issues of material fact to suggest that

Continental Construction lacked good cause to terminate his employment. Sullivan points to

statements by other Continental Construction employees who indicated that Sullivan had not

acted inappropriately in their presence. Sullivan also argued that he regularly had invited his
                                              8
employees over to his house for dinner and recently organized a group golf trip for his

employees.

¶27    The fact that not every Continental Construction employee complained about Sullivan

failed to undermine the validity of Continental Construction’s conclusion that Sullivan’s

continued employment could threaten its future viability in Montana. Similarly, the fact that

Sullivan apparently treated some employees well does not challenge the validity of the

complaints made by other Continental Construction employees. Sullivan failed to present

material and substantial evidence to raise a genuine issue of material fact as to whether

Continental Construction possessed a legitimate business reason to terminate Sullivan’s

employment. McConkey, ¶ 19.

¶28    Whether Continental Construction improperly considered hearsay evidence in

deciding to terminate Sullivan’s employment?

¶29    Sullivan argues that Continental Construction improperly relied upon hearsay

statements from Continental Construction employees when it made the determination to

terminate Sullivan’s employment. Sullivan points out that the Continental Construction

managers who made the decision to terminate Sullivan’s employment never had spoken

directly with the employees who had complained about Sullivan. Sullivan contends that

Continental Construction acted arbitrarily and capriciously when it terminated Sullivan’s

employment based entirely on hearsay statements detailed in the interview notes.

¶30    No legal authority supports the notion that a business cannot rely on hearsay

statements when it makes a business judgment regarding whether to terminate an employee.
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The Montana Rules of Evidence, which limit the admissibility of hearsay evidence, apply

only to courts, not to private businesses. See M. R. Evid. 101. Further, it would have been

impractical to have required Continental Construction’s managers in Florida to conduct in-

person interviews with each employee in Montana before having made a determination

whether to terminate Sullivan’s employment. Nothing prohibited Continental Construction

from directing two of its employees to conduct interviews in Montana and report their

findings to the management in Florida. Nothing prohibited Continental Construction from

relying on these reports when it made its determination whether to terminate Sullivan’s

employment.

¶31    Whether the District Court improperly considered hearsay evidence in concluding

that Continental Construction had good cause to terminate Sullivan’s employment?

¶32    Sullivan next argues that the District Court improperly considered hearsay evidence as

it determined whether Continental Construction possessed good cause to terminate Sullivan’s

employment. Hearsay is a statement, other than one made by the declarant while testifying,

offered into evidence to prove the truth of the matter asserted. M. R. Evid. 801. Evidence

introduced for a purpose other than to establish the truth of the statement is not hearsay. See

Moats Trucking Co. v. Gallatin Dairies, 231 Mont. 474, 479, 753 P.2d 883, 886 (1988).

¶33    Continental Construction submitted the depositions of Cecil, Wallace, Wilson,

Murphy, and Kluck in support of its motion for summary judgment. These Continental

Construction managers described having conducted interviews with employees, having taken

notes, having submitted those notes to the Florida office, and the decisions made in the
                                              10
Florida office based on those notes. Continental Construction also submitted the underlying

interview notes. Continental Construction admits that this evidence would have represented

inadmissible hearsay if Continental Construction had offered it to prove the truth of the

allegations against Sullivan.

¶34    Continental Construction argues instead that it introduced the interview notes and

depositions to explain its subsequent decision to terminate Sullivan’s employment.

Continental Construction contends therefore that this evidence did not represent inadmissible

hearsay. See Moats, 231 Mont. at 479, 753 P.2d at 886. We agree. The statements

contained in the reports that Continental Construction received from its employees formed

the basis for its decision to terminate Sullivan’s employment. The District Court properly

considered this evidence when it determined that Continental Construction possessed a

legitimate business reason that was not false, whimsical, arbitrary or capricious, when it

terminated Sullivan’s employment. See Moats, 231 Mont. at 479, 753 P.2d at 886.

¶35    Continental Construction further argues that the WDEA does not require it to prove

the truth of the allegations of bad behavior against Sullivan. In light of Sullivan’s

managerial status and the employer’s basis for dismissing him, the WDEA requires the

District Court to consider whether Continental Construction possessed a business reason that

was not arbitrary or capricious to terminate Sullivan’s employment. McConkey, ¶ 26. The

District Court properly considered whether Continental Construction, based on the

information that it had before it, acted arbitrarily or capriciously when it terminated

Sullivan’s employment. Sullivan has not argued or provided any evidence that Continental
                                             11
Construction fabricated the employee reports as a pretext to terminate Sullivan’s

employment or that Continental Construction otherwise acted in bad faith. Nothing in the

WDEA requires the District Court to conduct independent fact-finding to determine the truth

of the allegations against Sullivan under the facts presented here.

¶36    Sullivan further alleges that Continental Construction terminated his employment

based on a mistake. Sullivan argues, as a result, that the District Court should have

evaluated the truth of the allegations against Sullivan. Sullivan cites a Ninth Circuit

decision, Marcy v. Delta Airlines, 166 F.3d 1279 (9th Cir. 1999), for the proposition that the

District Court needed to consider the truth of the allegations against Sullivan to conclude that

Continental Construction had not terminated Sullivan’s employment based on a mistake.

¶37    The employer in Marcy terminated an employee after she had falsified her payroll

records. The employee introduced evidence to suggest that she had falsified the payroll

record inadvertently and therefore had been terminated based on a mistake. Marcy, 166 F.3d

at 1280. The Ninth Circuit determined that Montana law precludes summary judgment when

an employee claims that the employer terminated her employment based on a mistake, even

if no evidence existed that the employer acted in bad faith. Marcy, 166 F.3d at 1287.

¶38    Sullivan has offered no evidence that Continental Construction decided to terminate

Sullivan’s employment based on a mistake. Sullivan offered evidence that some employees

and subcontractors stated that they had enjoyed working with Sullivan and that he had not

acted inappropriately toward them.         Continental Construction possessed substantial

conflicting evidence in the interview notes. Continental Construction made a business
                                              12
judgment to terminate an employee who acted inappropriately some, but perhaps not all, of

the time. No issue of mistake existed here. The WDEA does not require the District Court

to conduct independent fact-finding to determine the truth of the allegations against Sullivan

under the facts presented here.

¶39    Whether the District Court properly concluded that Continental Construction did not

violate the provisions of its employee handbook when it terminated Sullivan’s employment?

¶40    Sullivan next argues that Continental Construction wrongfully discharged him when it

violated the protocols set forth in the employee handbook. Continental Construction

provided Sullivan with no prior written warning. Sullivan argues that the employee

handbook required Continental Construction to give him two prior written warnings before

Continental Construction could terminate his employment.

¶41    Continental Construction’s employee handbook provides that “[a] violation . . . will

result in the issuance of a written warning unless the seriousness of the violation calls for a

stronger disciplinary action.” The employee handbook lists “types of conduct” that may lead

to disciplinary action “up to and including immediate termination of employment.” The

employee handbook preserved Continental Construction’s right to terminate immediately an

employee based on the “seriousness of the violation.”

¶42    Continental Construction’s employee handbook provided that Continental

Construction could terminate Sullivan immediately for any of the reasons enumerated in its

termination letter. The employee handbook stated that “excessive tardiness or absenteeism”

could result in termination of employment. Engaging in “conduct detrimental to Continental
                                              13
Construction and/or its efficient operation” could result in immediate termination. The

employee handbook further provided that “this is not an all-inclusive listing of unacceptable

behaviors. Other types of conduct will be evaluated and handled according to the severity of

the conduct.”

¶43    A review of Continental Construction’s employee handbook demonstrates that no

guarantee existed that Sullivan would receive two written warnings before Continental

Construction could terminate his employment. The employee handbook provides that

Continental Construction could terminate employees immediately for a variety of

misconduct. This misconduct includes the types of activities for which Continental

Construction terminated Sullivan’s employment.

¶44    Further, Continental Construction possessed more leeway in determining whether to

give written warnings or to terminate Sullivan’s employment immediately after Continental

Construction learned that Sullivan, a manager, had engaged continually in multiple

violations of the employee handbook. This Court may have more closely scrutinized

Continental Construction’s decision to terminate Sullivan’s employment immediately if

Continental Construction had learned of only one violation, or had learned of a violation

committed by a lower echelon employee. See Buck, 248 Mont. at 283, 811 P.2d at 541.

¶45    Sullivan next argues that Continental Construction violated the employee handbook

by failing to provide Sullivan with a “fair” and “thorough” hearing before it terminated his

employment. Continental Construction provided Sullivan with no chance to explain his

actions before it made the decision to terminate his employment. The employee handbook
                                             14
does not guarantee, as Sullivan argues, that Continental Construction will “fairly” and

“thoroughly” discuss disciplinary matters with an employee before it terminates his

employment. The employee handbook discusses “fair” and “thorough” in a section entitled

Grievance Problem-Solving.        This section discusses the process that Continental

Construction will follow when an employee complains about a problem that he is

experiencing at work. The employee handbook does not discuss “fair” or “thorough” in

relation to its disciplinary procedure.

¶46    Continental Construction attempted to address fairly and thoroughly concerns raised

by its Montana employees regarding Sullivan’s conduct.           Continental Construction

interviewed each employee individually and provided the notes taken during those

interviews to the office in Florida. Continental Construction ultimately determined that the

employees’ concerns merited the removal of their immediate supervisor, Sullivan.

Continental Construction did not violate the provisions of its employee handbook in the

manner that it terminated Sullivan’s employment.

¶47    Affirmed.

                                                 /S/ BRIAN MORRIS


We Concur:

/S/ MIKE McGRATH
/S/ MICHAEL E WHEAT
/S/ LAURIE McKINNON
/S/ BETH BAKER



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