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Norcon, Inc. v. Kotowski (2/19/99), 971 P 2d 158
<![CDATA[
Notice: This opinion is subject to correction before publication in
the Pacific Reporter. Readers are requested to bring errors to the
attention of the Clerk of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, telephone (907) 264-0608, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
NORCON, INC., )
) Supreme Court No. S-6390
Appellant, )
) Superior Court No.
v. ) 3AN-90-1121 CI
)
MARY KOTOWSKI, )
)
Appellee. )
______________________________)
)
MARY KOTOWSKI, )
) Supreme Court No. S-6420
Cross-Appellant, )
) Superior Court No.
v. ) 3AN-90-1121 CI
)
NORCON, INC. and )
VECO, INC., ) O P I N I O N
)
Cross-Appellees. ) [No. 5085 - February 19, 1999]
______________________________)
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
Peter A. Michalski, Judge.
Appearances: Donna C. Willard, Law Offices
of Donna C. Willard, Anchorage, for Appellant
and Cross-Appellees. Robert John, Law Office
of William Satterberg, Jr., Fairbanks, for
Appellee and Cross-Appellant.
Before: Rabinowitz, Matthews, and Eastaugh,
Justices. [Moore, Chief Justice, Compton,
Justice, not participating.]
MATTHEWS, Justice.
EASTAUGH, Justice, concurring.
I. INTRODUCTION
A jury found Norcon, Inc., liable to Mary Kotowski for
sexual harassment, intentional infliction of emotional distress,
and negligent infliction of emotional distress. It awarded her
$8,494.40 for lost earnings and $1,850 for emotional distress. The
jury also found Norcon liable for punitive damages and awarded
$3,770,260.63. Foremost among the many issues presented are
whether an award of punitive damages is justified, whether the
award is excessive, and, if so, what an appropriate remittitur
amount would be. We hold that the evidence warranted a punitive
damages award, but that the existing award is excessive. We
conclude that the maximum allowable punitive damage award is
$500,000 and order a remittitur to that amount.
II. FACTS
Most of the issues in this case require that we view the
evidence in a light most favorable to Kotowski. Unless otherwise
indicated, the facts set forth are presented from this perspective.
Mary Kotowski was one of thousands of workers employed to
clean up the Exxon Valdez oil spill in Prince William Sound. Exxon
employed VECO, Inc., to act as general contractor on the spill
cleanup. Norcon, a sister corporation of VECO, was one of VECO's
subcontractors. Exxon, VECO, and Norcon had a strict policy
prohibiting the consumption of alcohol by anyone working on the
spill or living in contractor housing.
Kotowski was dispatched by her labor union in Fairbanks
to work for Norcon on June 15, 1989. After a day of orientation
she was assigned to work aboard a shower barge attached to the
vessel Pacific Northwest Explorer. She worked there for
approximately two weeks without days off, working at least twelve
hours each day. She slept on the Pacific Northwest Explorer.
Kotowski's immediate supervisor was Kathleen Brennan, who
reported to Mike Posehn, a general foreman for Norcon. Both
Brennan and Posehn were union members.
No incidents of importance occurred until June 28, 1989.
On that date Posehn told Kotowski she should pack her gear and
move to another barge, the Foss 280. Transportation to take her to
the Foss 280 did not arrive until the next day. She thus went to
the Foss 280 on June 29, checked in with security, and asked for
her room assignment. She was told that she had not yet been
assigned a room, but was taken to a work station where she busied
herself.
Kotowski was working alone when Mike Posehn appeared with
another individual. She testified that "he came up to me, he
kissed me, he kind of squeezed my bottom, asked me how's it going,
babe?" The kiss was on her lips. This was only the third or
fourth time she had seen Posehn. Kotowski was distressed but she
did not complain to Posehn. Subsequently she asked Posehn if there
was specific work that she should be doing. He replied that she
should ask "one of the girls running around out here . . . if they
need help with anything." Posehn and his companion then left.
After spending the day working on the Foss 280, Kotowski returned
to her room on the Pacific Northwest Explorer.
On the 30th, Kotowski returned to the Foss 280, sought
out and found Posehn. Kotowski testified that she "needed some
kind of direction to go and something to do other than just
standing around or pretending I was busy." She told Posehn that if
she wasn't needed on the Foss 280 there was work for her to do on
the Pacific Northwest Explorer and requested that she be allowed to
continue to work there. Posehn responded by inviting her to his
room for further discussion. She complied. In his room, Posehn
poured them both a drink of whiskey. While she took a sip, he
consumed his drink. Posehn told her to calm down, take the
afternoon off, and return to the Pacific Northwest Explorer for a
nap. He invited her to return to his room in the evening for a
party, and they could further discuss her employment then.
Kotowski returned to the Pacific Northwest Explorer. She
discussed the events on the Foss 280 with Elmo Savell, the Exxon
executive in charge of the cleanup task force. She told Savell
that she was being harassed, that Posehn had a reputation for
granting employment preferences in exchange for sex, that she had
been invited to a party in Posehn's room that evening, and that she
expected alcohol consumption to occur there. Savell furnished
Kotowski with a tape recorder to enable her to record conversations
at the party. Kotowski requested protection from being fired.
Savell typed and signed the following note: "To whom it may
concern. Ms. Mary [Kotowski], . . . a Norcon employee, has agreed
to assist in gathering information concerning alcohol/drug abuse
aboard the Foss 280 barge. She is to be granted amnesty from
prosecution and from being fired from her job."
Kotowski proceeded to the Foss 280 to attend the party.
Upon boarding she was met by a woman who told her that Kotowski
was transferred to the "beach," a less desirable assignment. The
party was held in Posehn's room, which was adjacent to the room
where Norcon's managers resided. The party was attended by
numerous people including some Norcon managers. There was sexual
banter at the party and alcohol was consumed. Posehn told Kotowski
that although she had been assigned to the beach, he had changed
the assignment.
Toward the end of the party the following colloquy took
place between Kotowski and Posehn:
Kotowski: Oh, okay. So I'll be here at noon.
Posehn: Huh uh.
Kotowski: Huh uh?
Posehn: I haven't decided yet. Go ahead and have
another drink. We'll decide by the time you
finish that.
Kotowski: You want me to have another drink and then
we'll decide by the time I leave, what time I
get here?
Posehn: Right.
Kotowski: What might be that time (laughs) by the time I
leave?
At approximately 11:00 p.m. Kotowski left the party to
use the bathroom. When she returned to Posehn's room no guests
were present and the lights were out. She opened the door and
found Posehn standing in his underwear. She told him that she was
leaving. Posehn invited her to spend the night. He was pushing
the door closed when she yanked it open and left, leaving her hard
hat, coat, and life vest in the room. She returned to the Pacific
Northwest Explorer and delivered the tapes and the tape recorder to
Savell's secretary.
The next day, Kotowski worked aboard the Pacific
Northwest Explorer, assisting Savell's secretary. She talked to
Savell briefly. He acknowledged that he had received the tapes and
listened to parts of them.
On July 1, Ron Nelson, a Norcon executive who had
attended Posehn's party, asked Dallas Wilmarth, a union steward, to
ask Kotowski to sign a statement that she had been insubordinate to
Norcon. Nelson promised that it would not affect Kotowski's job.
Wilmarth complied, telling Kotowski that "I was guaranteed that
your job wouldn't be terminated." After deliberating, Kotowski
signed the statement. Wilmarth delivered the statement to Nelson,
who was then lunching with other Norcon managers. He observed that
"[p]retty quick they started passing that paper around, laughing
about it, and I thought, oh boy, I think we're in trouble."
On July 2, Bill Arnold, Norcon's senior official in
Prince William Sound, arrived by helicopter. After discussion with
Savell and others, Kotowski was ordered to pack her bags and
accompany Arnold to Valdez.
In Valdez, Kotowski was questioned by six people employed
by Norcon, VECO, and their security contractor. She described the
interrogation as "very hostile." She was apprehensive, nervous,
and frightened. She testified that the interrogation lasted about
four hours and that at times she cried. Afterwards, Kotowski was
told that she could spend the night in the Norcon barracks. But
she was concerned for her safety, and decided instead to sleep in
a girlfriend's car. The next day she contacted Bill Arnold and
asked what she should do next. He told her to "sit tight, relax,
we'll figure something out." The next night she again slept in her
friend's car. The next day she called Arnold and another Norcon
employee and "requested that if I was going to be on hold, if I
could go home to Fairbanks." Kotowski's request was approved and
she returned to Fairbanks.
Norcon's manager on the Foss 280, Jerry Arnold, signed a
termination slip for Kotowski on July 2, 1989. The note indicated
that she had been terminated as of 5:30 p.m. "for leaving work here
without permission." This termination slip was not, however,
delivered to Kotowski. On July 6, 1989, Kotowski called Norcon to
inquire about her status. She first spoke with a woman who told
her she had been terminated for leaving the work site without
permission. Subsequently, she spoke with Norcon's labor relations
manager Gary Bacon, who told her that she had been terminated
because she had broken camp rules. Kotowski testified that she was
surprised by this because Bill Arnold had told her that she had not
been fired. On July 10 a second termination slip was issued,
stating that she was discharged for "breaking camp rules" and that
she was not eligible for rehire. Bill Arnold testified that
Kotowski was terminated for drinking.
After interviewing Kotowski, Norcon interviewed Posehn.
Although Posehn denied drinking with Kotowski, he said "and if we
had had a drink that was after working hours." Neither Posehn nor
anyone else -- except Kotowski -- was terminated for drinking, even
though the identity of some people drinking at Posehn's party is
evident from the tape. Posehn was terminated on July 10, 1989,
after discovery of his sexual relationship on the barge with
another female Norcon employee.
III. PROCEEDINGS
Upon her termination, Kotowski filed a complaint with her
union. The union refused to pursue her grievance because no
dispute existed as to whether she had consumed an alcoholic
beverage in violation of company policy. In February 1990 Kotowski
filed a complaint in the superior court against Norcon, Exxon, and
VECO.
Kotowski alleged that Norcon terminated her without just
cause and withheld unpaid wages in breach of its collective
bargaining agreement with her union. She also alleged that her
transfer, discharge, and harassment constituted gender
discrimination in the terms, conditions, and privileges of her
employment. She raised numerous other claims against Norcon and
alleged VECO's and Exxon's liability to her under various theories
as well. 1
Her claims went to trial. The jury found for VECO on all
claims. Because the jury found that Kotowski failed to file suit
against Norcon within the six-month limitations period, it did not
address her claim that she had been discharged discriminatorily, or
her claim that the discharge violated the implied covenant of good
faith and fair dealing.
The jury found Norcon liable to Kotowski for sexual
harassment and for intentional (IIED) and negligent (NIED)
infliction of emotional distress. It awarded compensatory damages
of $10,344.40 and punitive damages of $3,770,260.63. The superior
court entered final judgment. Norcon appeals; Kotowski cross-
appeals as to both Norcon and VECO.2
IV. DISCUSSION
A. Pre-emption by the Labor Management Relations Act 3
1. The claims the trial court found pre-empted
The superior court concluded that Kotowski's "just cause"
termination, sexual discrimination, and implied covenant of good
faith and fair dealing claims were pre-empted by section 301 of the
Labor Management Relations Act (LMRA), 29 U.S.C. § 185. The court
concluded that these claims were subject to the grievance
arbitration procedures of the LMRA. It interpreted the LMRA as
requiring Kotowski to present these claims within six months of the
date she knew or should have known that her union would not pursue
her grievance.
Based on this interpretation, the superior court
instructed the jury to proceed to the merits of Kotowski's "just
cause" termination, sexual discrimination, and breach of the
implied covenant of good faith and fair dealing claims only if it
found that she had brought these claims within the six-month LMRA
limitations period. The jury found that Kotowski had failed to
proceed within the limitations period, and thus rejected these
claims without addressing their merits.
The jury awarded $8,494.40 for lost earnings. Norcon
contends that the trial court erred by including this award in the
final judgment, in view of the court's ruling that Kotowski's
wrongful termination claim was subject to the LMRA and the jury's
determination that the LMRA limitations period had run.
The court also directed a verdict for the defendants on
Kotowski's claims for unpaid wages, overtime, and penalties,
finding that these claims likewise fell under the LMRA grievance
procedure. On cross-appeal, Kotowski concedes that her "just
cause" termination claim was subject to the LMRA statute of
limitations, but argues that her sexual discrimination, good faith
and fair dealing, unpaid wages, overtime, and penalties claims were
not pre-empted.
2. LMRA pre-emption
Section 301 of the LMRA pre-empts state law claims
"founded directly on rights created by collective-bargaining
agreements, and also claims 'substantially dependent on analysis of
a collective-bargaining agreement.'" Caterpillar Inc. v. Williams,
482 U.S. 386, 394 (1987) (quoting International Bhd. of Elec.
Workers v. Hechler, 481 U.S. 851, 859 n.3 (1987)). One of the
primary goals of pre-emption is to ensure the effectiveness of
arbitration. See Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 219
(1985). Congress did not intend, however, for the LMRA to pre-empt
"state rules that proscribe conduct, or establish rights and
obligations, independent of a labor contract." Id. at 212. States
are free to create and enforce causes of action that vest rights in
workers, so long as these rights can be adjudicated without having
to interpret collective bargaining agreements (CBAs). See Lingle
v. Norge Div. of Magic Chef, Inc., 486 U.S. 399, 411-13 (1988).
Before an employee may sue her employer for breach of a
CBA, she must attempt to exhaust any grievance or arbitration
remedies provided in the CBA. See DelCostello v. International
Bhd. of Teamsters, 462 U.S. 151, 163 (1983). A "wrongfully
discharged employee may bring an action against his employer . . .
provided the employee can prove that the union as bargaining agent
breached its duty of fair representation in its handling of the
employee's grievance." Vaca v. Sipes, 386 U.S. 171, 186 (1967).
The jury found such a breach in this case. The statute of
limitations for such an action is six months. See DelCostello, 462
U.S. at 169-172. In contrast, if the employee's suit against her
employer is based on state law claims neither founded on rights
created by a CBA nor dependent on the analysis or interpretation of
the CBA, the LMRA does not pre-empt such claims; the six-month
limitations period thus does not apply.
3. The sexual discrimination claim
Kotowski alleged that Norcon had subjected her to sexual
discrimination in violation of AS 18.80.220 through her transfer,
her discharge, and the harassment directed at her. 4 The superior
court agreed with Norcon's contention that, while Kotowski's sexual
harassment claims were independent of the CBA, "any claim that she
was terminated because of her sex, that similarly situated males
were not terminated is a termination for other than just cause and
could have been grieved under the collective bargaining agreement."
Thus the jury received separate questions concerning sexual
discrimination and harassment and answered the latter, but not the
former, once it determined that the six-month LMRA limitations
period had run. 5
The superior court erred in preventing the jury from
deciding Kotowski's discriminatory transfer and termination claim.
The question of whether Kotowski's transfer and termination
violated AS 18.80.220 "was a question of state law, entirely
independent of any understanding embodied in the collective-
bargaining agreement." Livadas v. Bradshaw, 512 U.S. 107, 125
(1994). The right to a non-discriminatory workplace conferred upon
Kotowski by AS 18.80.220 could not be waived by any contrary
contractual provision. Because it is a non-waivable state law
right, no need exists to consult the CBA to determine its meaning.
We were presented with a similar situation in Public
Safety Employees Association v. State, 658 P.2d 769 (Alaska 1983)
(PSEA). In PSEA, we explored the relationship between a statutory
right to sue under the Uniform Residential Landlord and Tenant Act
(URLTA), AS 34.03, and language in a CBA requiring arbitration for
disputes involving "the meaning or application of the express terms
of the [CBA]." 658 P.2d at 772. We held that because "the right
to sue under the act cannot be prospectively bargained away," it
followed that "the contract remedy here cannot displace that which
is provided by the act." Id. at 774-75. Thus the existence of the
arbitration remedy did not preclude the exercise of the statutory
remedy. See id. at 774.
Even if Norcon had just cause under the terms of the CBA
to terminate Kotowski once she drank on duty, this fact would not
make interpretation of the CBA necessary to resolve her sexual
discrimination claim. The question whether Norcon sexually
discriminated against Kotowski is a factual question as to motive:
did Norcon transfer and terminate Kotowski because of her gender,
or did it transfer and terminate her for drinking an alcoholic
beverage in violation of the zero tolerance, alcohol-free workplace
policy? 6 See AS 18.80.220(a)(1). Answering this question of
motive does not require interpretation of the CBA.
Our conclusion is consistent with the Supreme Court's
reasoning in Hawaiian Airlines, Inc. v. Norris, 512 U.S. 246
(1994). Norris involved a pre-emption question under the Railway
Labor Act (RLA), 45 U.S.C. § 151 et seq., under which the Supreme
Court applies the same pre-emption analysis as under the LMRA. See
512 U.S. at 260. Norris was a mechanic who was terminated after he
refused to sign an aircraft maintenance record certifying that
repairs had been satisfactorily performed. See id. at 249-50.
Norris brought a state law wrongful discharge suit over this
termination, which Hawaiian Airlines defended by arguing that
resort to the CBA was necessary and Norris's suit therefore was
pre-empted by the mandatory grievance procedures of the RLA. See
id. at 250-51.
In Norris the Court observed that purely factual
questions about an employer's conduct and motives do not require
interpretation of the CBA to answer. See id. at 261. Because
Norris's state law wrongful discharge claim involved this sort of
factual determination, it was not pre-empted. See id. at 266.
Furthermore, the Supreme Court was not "persuaded by petitioners'
contention that the state tort claims require a determination
whether the discharge . . . was justified by respondent's failure
to sign the maintenance record, as the CBA required him to do."
Id. While such a determination would have been necessary in a
wrongful discharge claim alleging violation of the CBA, it was not
necessary in the state law claim requiring only the purely factual
determination of the employer's motive. See id.
Similarly, the jury could have addressed Kotowski's
sexual discrimination claim by determining whether Norcon's
transfer and termination of her were motivated by gender bias. The
fact that Kotowski's alcohol consumption may have been just cause
under the CBA for terminating her is no more relevant than the fact
that Norris's refusal to sign maintenance records may have been
just cause under the CBA to terminate him in Norris. The LMRA did
not pre-empt Kotowski's sexual discrimination claim.
4. The breach of the implied covenant of good faith and
fair dealing claim
Kotowski also claimed she was discharged in retaliation
for investigating "safety violations," specifically, violations of
the zero tolerance, alcohol-free workplace policy in effect during
the cleanup. She claims that this retaliatory discharge breached
the covenant of good faith and fair dealing implied in all
employment contracts. See Reed v. Municipality of Anchorage, 782
P.2d 1155, 1158 (Alaska 1989) (Reed II); Knight v. American Guard
& Alert, Inc., 714 P.2d 788, 792 (Alaska 1986).
The superior court agreed with Norcon that the implied
covenant was a part of the contract, and that any claims alleging
violations of the covenant were therefore claims brought under the
CBA and pre-empted by the LMRA. Support for this view can be found
in Allis-Chalmers Corp. v. Lueck, 471 U.S. 202 (1985). In Allis-
Chalmers, the Supreme Court reversed a decision of the Wisconsin
Supreme Court which had held that a bad faith tort claim was not
pre-empted by the LMRA, because it was based on an independent
state law implied covenant of good faith and fair dealing. The
Court observed that its pre-emption
analysis must focus, then, on whether the
Wisconsin tort action for breach of the duty
of good faith as applied here confers
nonnegotiable state-law rights on employers or
employees independent of any right established
by contract, or, instead, whether evaluation
of the tort claim is inextricably intertwined
with consideration of the terms of the labor
contract.
471 U.S. at 213. It found that "[b]ecause the right asserted not
only derives from the contract, but is defined by the contractual
obligation of good faith, any attempt to assess liability here
inevitably will involve contract interpretation." Id. at 218.
Thus the LMRA pre-empted Lueck's state law claim. See id. at 218-
19.
The Supreme Court's analysis of the relationship between
the bad faith tort claim, the implied covenant, and the contract in
Allis-Chalmers is inapplicable to the present case, however. In
Allis-Chalmers the issue was whether an employer who ordered
periodic insurance cutoffs and medical reexaminations had acted in
bad faith. The Court found that "under Wisconsin law it appears
that the parties to an insurance contract are free to bargain about
what 'reasonable' performance of their contract obligation
entails." Id. at 217. Thus the employee's claim could not be
resolved without referring to the terms of the contract, since the
reasonableness of the cutoffs and reexaminations could only be
determined by consulting such terms. In contrast, the implied
covenant claim here requires no contractual interpretation.
We have recognized that a retaliatory discharge gives
rise to a cause of action for breach of the duty of good faith and
fair dealing. See Reed II, 782 P.2d at 1158. "[T]he public policy
approach is largely encompassed within the implied covenant of good
faith and fair dealing." Knight, 714 P.2d at 792. The fact that
the "whistle blower" claim in this case involved the violation of
a privately enforced safety policy, rather than violations of law,
is irrelevant insofar as public policy favors safe workplaces.
Kotowski still can bring an action for breach of the implied
covenant of good faith and fair dealing if her termination was in
retaliation for her reporting breaches of Exxon's zero tolerance,
alcohol-free workplace policy. The CBA is irrelevant in
adjudicating such an action; Kotowski and Norcon could not have
contracted away Kotowski's right to report safety violations, even
had they tried to do so. Nothing in the CBA could have altered,
circumscribed, or defined this right. The implied covenant claim
at issue can be distinguished from implied covenant claims of the
sort found in Allis-Chalmers insofar as it rests on a non-
negotiable right. Because the contours of this right are not
defined through the bargaining process, they can be traced out
without any reference to the CBA.
The United States Court of Appeals for the Ninth Circuit
explored the relationship between the LMRA and the Alaska implied
covenant of good faith and fair dealing in Eldridge v. Felec
Services, Inc., 920 F.2d 1434 (9th Cir. 1990). In Eldridge, the
court examined Alaska cases 7 and accurately concluded that we treat
retaliatory discharge claims as violations of the implied covenant
of good faith and fair dealing, that the state policy on such
discharges is non-negotiable, and that Eldridge's state law implied
covenant claim did not depend on any interpretation of the CBA.
See id. at 1436-39. The court concluded that the implied covenant
claim in that case was distinguishable from the one in Allis-
Chalmers where the "scope of the duty . . . was defined by the
express terms of the collective bargaining agreement itself." Id.
at 1438. As the court observed:
To defend the claim against it, Felec Services
need only show that it was motivated to
discharge Eldridge for reason other than to
retaliate for the assertion of rights under
the Alaska Workers' Compensation Act. It is
irrelevant whether the company's reliance on
the labor agreement was reasonable or whether
its interpretation of the agreement was
correct.
Id. at 1439. The court's reasoning is both persuasive and
applicable to Kotowski's claim.
Furthermore, the Supreme Court has found other state law
retaliatory discharge and public policy claims sufficiently
independent under the LMRA pre-emption analysis. See Norris, 512
U.S. at 266; Lingle, 486 U.S. at 407. The fact that these cases
involved causes of action based in tort, while breach of the
implied covenant of good faith and fair dealing is an action based
in contract, is irrelevant. Courts applying the LMRA pre-emption
analysis should not "elevate form over substance," but instead
determine whether the adjudication of the right at issue requires
interpretation of the CBA. See Allis-Chalmers, 471 U.S. at 211;
Eldridge, 920 F.2d at 1437. Kotowski's implied covenant of good
faith and fair dealing claim was not pre-empted by the LMRA because
it required no such interpretation.
5. The unpaid wages, overtime, and penalties claim
Kotowski argues that her unpaid wages, overtime, and
penalties claim had an independent basis in state law, was not
dependent on the CBA, and should not have been taken from the jury.
She bases this claim on AS 23.05.140. 8
Alaska Statute 23.05.140 confers on an employee an
independent statutory right that requires no CBA interpretation to
adjudicate. 9 As the Supreme Court has said in analyzing a similar
California statutory right, "the primary text for determining
whether [the plaintiff] was entitled to a penalty was not the
[CBA], but a calendar." Livadas, 512 U.S. at 124.
Insofar as Kotowski and Norcon might disagree on the
applicable wage rate, and on the degree that Kotowski might claim
that she was owed extended post-discharge pay or other special
payments under the CBA, such claims would be pre-empted by the LMRA
since their adjudication would require interpretation of the CBA.
Insofar as Kotowski merely demands unpaid wages and overtime pay
she never received, however, her claims could be adjudicated
without reference to the CBA, as could the issue of any statutory
penalties also owed. These claims were not pre-empted by the LMRA,
and the superior court erred in directing a verdict concerning
them.
The superior court did not err when it included the
$8,494.40 award for lost earnings in Kotowski's judgment. Under
the affirmative answers given in the special verdict, the award
addressed damages legally caused by sexual harassment. 10 Kotowski's
lost earnings claims under other theories need not be retried as
she has received what presumably is a full award of lost earnings.
She is, however, entitled to a trial on her unpaid wages,
overtime, and penalties claims.
B. Admission of the Ford Memo and Virginia Perry's Testimony
1. The Ford memo
Kotowski's Exhibit 7 is a three-page, handwritten memo
from Bruce Ford, an investigator with Purcell Security, to Tom
Varnell, his superior. VECO had contracted with Purcell to provide
security for the cleanup, which included the investigation of
allegations of rulebreaking on the cleanup vessels. The Ford memo
summarizes the information Ford and fellow Purcell employee Mark
Flechsing had gathered concerning Kotowski, Posehn, and other
Norcon employees between July 2, 1989, and July 5, 1989. Kotowski
offered the memo into evidence to prove the truth of the matters
asserted in the following portion of the memo:
Re: Mike Posehn. I talked with two roommates
of Mike Posehn at the Foss 280 Rm. 235. The
individuals were Jim Stampley and Mark Ruder
and both Norcon employees. Stampley said that
Posehn did have a lot of female visitors in
his room and there was drinking of alcoholic
beverages as a supervisor as a "springboard"
for sexual activity with the females under his
supervision.
I also talked with Sgt. Mark Flechsing
who is the head of security for Purcell at the
Midway Barge. Flechsing said he had talked to
Larry Coyle, one of the head supervisors for
Norcon, concerning Posehn. Coyle told
Flechsing that Posehn would do favors for some
of his female crew in exchange for some sort
of sexual activity. Coyle is now on R & R and
is unavailable to be interviewed.
Norcon objected, arguing that this memo was inadmissible hearsay.
Kotowski argued that the memo fell within the business records
exception to the hearsay rule. See Alaska R. Evid. 803(6). Norcon
also contested this, in part because the memo was an investigative
report containing the hearsay statements of others. The superior
court admitted the memo under the business records exception.
The business records exception to the hearsay rule allows
the admission of hearsay evidence that is:
A memorandum, report, record, or data
compilation, in any form, of acts, events,
conditions, opinions, or diagnosis, made at or
near the time by, or from information
transmitted by, a person with knowledge
acquired of a regularly conducted business
activity, and if it was the regular practice
of that business activity to make and keep the
memorandum, report, record, or data
compilation, all as shown by the testimony of
the custodian or other qualified witness,
unless the source of information or the method
or circumstances of preparation indicate lack
of trustworthiness.
Alaska R. Evid. 803(6).
On appeal Norcon does not contest the superior court's
implicit findings that Ford acquired his information as part of a
regularly-conducted business activity, and that it was Purcell's
regular practice to make and keep memoranda of this type. Instead,
Norcon objects to the fact that the memo consisted of the "double
and triple hearsay" of Coyle and Stampley, the informants who
provided the information contained in the memo. According to
Norcon, even if Ford acted within the regular course of business in
preparing the memo, no indication exists that these informants were
acting within the regular course of their business. Norcon refers
this court to the commentary on Rule 803(6), which reads in part:
Sources of information present no
substantial problem with ordinary business
records. All participants, including the
observer or participant furnishing the
information to be recorded, are acting
routinely, under a duty of accuracy, with
employer reliance on the result, or in short
"in the regular course of business." If,
however, the supplier of the information does
not act in the regular course, an essential
link is broken; the assurance of accuracy does
not extend to the information itself, and the
fact that it may be recorded with scrupulous
accuracy is of no avail.
Alaska R. Evid. 803(6) commentary.
Kotowski argues that Coyle and Stampley had business
reasons, as employees of Norcon, to provide accurate and truthful
responses. She argues alternatively that the testimony of these
informants should be regarded as non-hearsay, as admissions of a
party-opponent. Alaska R. Evid. 801(d)(2). This alternative
argument rests on the assumption that because Coyle and Stampley
were "supervisory and safety employees," their statements concerned
a matter within the scope of their agency or employment. See
Alaska R. Evid. 801(d)(2)(D). 11
In its reply brief, Norcon does not contest the
admissibility of the Ford memo based on this alternative theory.
In our view, the alternative argument has merit. To use the terms
of Rule 801(d)(2), both Coyle and Stampley were agents speaking at
a time that they were employed by Norcon. As supervisors and
safety employees, alcohol use and sexual harassment are apparently
matters which their jobs required them to report, especially in
response to an employer-initiated investigation. We therefore
conclude that it was not error to admit the Ford memo.
2. Virginia Perry's testimony
Virginia Perry was a Norcon employee and foreman of a
crew working on the oil spill cleanup. Her supervisor was Posehn.
She was allowed to testify that Posehn had made sexual advances to
her, that she had rejected them, and that he had retaliated by
humiliating her in front of her crew and giving her and her crew
difficult work assignments. She testified that the women Posehn
was "close to" were given the "cushy jobs." She said that she was
unaware of any Norcon procedures for reporting sexual harassment,
that if such procedures existed she would have used them, and that
she and her crew were terrified by Posehn.
Norcon argues that Perry's testimony was "far more
prejudicial than probative" and the court should have excluded it
under Evidence Rule 403. 12
Norcon apparently never objected to the portions of her
testimony outlined above. 13 Under these circumstances, we consider
this point waived. See Williams v. Utility Equip., Inc., 837 P.2d
1112, 1116-17 (Alaska 1992).
C. The Exclusive Remedy Provision of the Alaska Workers'
Compensation Act
Norcon argues that Kotowski's entire claim was barred by
AS 23.30.055, which provides that an employer's liability for a
worker's compensation under AS 23.30.045 "is exclusive and in place
of all other liability of the employer and any fellow employee to
the employee." One of Kotowski's responses to this argument is
that it was not timely raised. The exclusive remedy defense was
raised below for the first and only time in one sentence as part of
Norcon's reply memorandum in support of its motion for JNOV. 14
In VECO v. Rosebrock, ___ P.2d ___, Op. No. 5084 (Alaska,
February 19, 1999), we held that claims of sexual harassment under
Alaska's anti-discrimination statute may include damages for
emotional distress and that such claims are not barred by the
exclusive remedy provision of the Workers' Compensation Act. VECO,
Slip Op. at 26-27. Further, we held in Cameron v. Beard, 864 P.2d
538, 545 n.9 (Alaska 1993), that claims for lost wages due to
breach of an employment contract are not barred by the exclusivity
provision.
But Kotowski's tort claims for IIED and NIED might have
been subject to that defense had the defense been timely raised.
See Elliott v. Brown, 569 P.2d 1323, 1325-27 (Alaska 1977)
(exclusive remedy clause bars suit against employer for intentional
tort committed by co-employee, suit against co-employee not
barred). As it was, however, Norcon permitted these claims to go
to the jury without objection based on the exclusivity clause.
This failure is important because the jury's award of emotional
distress damages might be ascribable either to Kotowski's sexual
harassment claim or her IIED and NIED tort claims. An award under
the last two theories, but not the first, might be barred. A
timely objection, if granted, would have eliminated the need to
speculate as to whether the jury's award was attributable to the
permissible or the possibly barred theories. We therefore conclude
that the exclusive remedy defense was not timely raised below. It
is therefore waived on appeal.
D. Offsetting the Exxon Settlement from the Compensatory
Damages Award
Kotowski prevailed on her sexual harassment, IIED, and
NIED claims. Kotowski also raised similar claims against Exxon. 15
She eventually settled with Exxon for $20,000. Kotowski was
awarded compensatory damages for emotional distress and lost
earnings. These elements of damage were also claimed from Exxon.
Norcon argues that the compensatory damage award must be offset by
the amount of the Exxon settlement in order to avoid a double
recovery. We agree. See Navistar Int'l Transp. Co. v. Pleasant,
887 P.2d 951, 957-58 (Alaska 1994).
E. Substantial Evidence of Sexual Harassment
Norcon contends that the evidence was insufficient to
warrant submission of the issue of sexual harassment to the jury.
The jury was instructed on claims for "hostile environment sexual
harassment" and "quid pro quo sexual harassment." The basic
elements of the former theory were encompassed in Instruction No.
21, which outlined the following elements that Kotowski had to
prove:
(1) that she was subjected to sexual advances,
requests for sexual favors or other verbal or
physical conduct of a sexual nature,
(2) that this conduct was unwelcome,
(3) that the conduct was sufficiently severe
or pervasive to alter the conditions of the
plaintiff's employment and to create an
abusive working environment, and
(4) that she suffered damages as a result of
the sexual harassment.
The elements of the quid pro quo claim were encompassed in
Instruction No. 24. Kotowski was required to prove:
(1) that she was subjected to sexual advances,
requests for sexual favors or other verbal or
physical conduct of a sexual nature;
(2) that this conduct was unwelcome; and
(3) either (a) that submission to such conduct
was made either explicitly or implicitly, a
term or condition of her employment, or (b)
that her submission or rejection of such
conduct was used as the basis for an
employment decision or decisions affecting her
employment; and
(4) that she suffered damages as a result of
the sexual harassment.
We find the evidence was sufficient to present claims
under both theories. Viewed most favorably to Kotowski, evidence
existed that she was subjected to unwelcome sexual advances,
requests for sexual favors, and physical conduct of a sexual
nature. The jury could reasonably conclude that these acts were
sufficiently severe (if not pervasive from the standpoint of
Kotowski) to create a hostile working environment. Given the
evidence that Posehn was trading favorable assignments for sex,
Posehn's sexual conduct toward Kotowski, Kotowski's assignment to
the Foss 280, her reassignment to the beach, and Posehn's
cancellation of that assignment can reasonably be viewed as
"decisions affecting her employment." Thus there was also evidence
of quid pro quo sexual harassment.
Norcon also argues that Kotowski was required to prove
that Posehn "was aided in accomplishing the tort by existence of
the agency relation." Norcon states that Kotowski failed to prove
this.
In VECO, we held that an employer may be vicariously
liable for acts of a supervisor who creates a hostile working
environment even where the acts are outside the scope of the
supervisor's employment:
Harassment by supervisors is facilitated, made
more serious, and is less apt to be reported
because supervisors are "understood to be
clothed with the employer's authority."
[Meritor Savings Bank v. Vinson, 477 U.S.] at
77. The Restatement (Second) of Agency §
219(2)(d) supports imposing vicarious
liability in such circumstances. It provides:
(2) A master is not subject to liability
for the torts of his servants acting
outside the scope of their employment,
unless:
. . . .
(d) the servant purported to
act or to speak on behalf of the
principal and there was reliance
upon apparent authority, or he was
aided in accomplishing the tort by
the existence of the agency
relation.
VECO, __ P.2d at __, Op. No. 5084 at 15.
But the jury was not instructed on this theory in the
present case. Instead, there were two other theories on which the
jury might have held Norcon liable for sexual harassment. Under
Instruction No. 25 the first was if Norcon had actual or
constructive knowledge of the harassment and failed to take prompt
and adequate remedial measures. Under Instruction No. 28 the
second was if Posehn was acting within the course and scope of his
employment. Norcon does not challenge the substance of either
instruction in this appeal. But it argues that Instruction No. 25
should not have been given because it was unwarranted by the
evidence.
The evidence was sufficient to justify a finding that
Norcon knew or should have known of Posehn's sexual harassment of
female employees and took no remedial measures. Posehn had several
victims. He roomed and partied next door to Norcon's managers,
some of whom partied with him. Norcon had not communicated
instructions to its employees concerning what to do in cases of
sexual harassment. When Kotowski, through Savell, complained of
sexual harassment, Norcon turned a deaf ear to the substance of her
complaint. Thus Instruction No. 25 was warranted by the evidence. 16
F. Intentional and Negligent Infliction of Emotional
Distress
1. The IIED claim
Citing Richardson v. Fairbanks North Star Borough, 705
P.2d 454, 456 (Alaska 1985), Norcon claims that the trial court
"apparently failed to make" a threshold determination as to whether
the severity of the emotional distress claimed by Kotowski and the
conduct of Norcon warranted an IIED claim. Richardson does not
hold that a trial court must make formal findings, but rather that
it "should make" the actual determination itself. See id. Here,
the determination is implicit in the fact of submission of the IIED
claim to the jury.
We thus proceed to the question whether the evidence was
such that submission of the IIED claim was justified. Norcon
claims that there was no proof of two of the essential IIED
elements set forth in Cameron v. Beard, 864 P.2d 538, 548 (Alaska
1993), namely: (1) extreme and outrageous conduct, and (2) severe
distress.
We disagree. Posehn's sexual harassment of Kotowski can
reasonably be characterized as extreme and outrageous. The jury
was instructed that Norcon could be responsible for this on a
vicarious liability theory if Posehn was acting within the scope of
his employment, or on a theory of actual or constructive knowledge
and failure to remedy. As discussed above, the evidence justified
instructing on these theories. Furthermore, as we explain in
discussing whether punitive damages were warranted, Norcon's
actions toward Kotowski after her report to Savell can reasonably
be regarded as extreme and outrageous.
With respect to the degree of the emotional distress
suffered by Kotowski, we think the jury might reasonably find it to
be severe. A person working in an isolated location would
naturally suffer a great deal of distress upon learning that the
nature of her work assignments would be dependent on whether she
submitted to a supervisor's sexual advances. And this distress
would be exacerbated if, upon making an effort to report the
situation, she found that she, rather than the supervisor, had
become the target of the employer's investigation. This was the
position Kotowski perceived herself to be in. She testified that
she found it so distressing that she was afraid to sleep in the
housing supplied by Norcon in Valdez, opting instead to spend two
nights in a car.
For these reasons we conclude that the trial court did
not err in submitting the IIED claim to the jury. 17
2. The NIED claim
The superior court instructed the jury that an NIED claim
requires some physical injury in addition to severe emotional
distress. Norcon argues that the physical harm alleged by Kotowski
was insufficient for a jury finding of NIED liability, and that the
court should have directed a verdict on this issue.
Norcon may be correct that the physical phenomena
testified to by Kotowski, headaches and sleeplessness, did not
suffice to justify submission of the NIED claim to the jury. But
if error occurred, it was harmless because the jury found that
Norcon was responsible for intentional infliction of emotional
distress. Negligent infliction is subsumed within intentional
infliction and no proof of physical injury is required for an IIED
claim. 18
G. Punitive Damages
Norcon argues that insufficient evidence existed to
present the question of punitive damages to the jury and,
alternatively, that the jury's award of punitive damages was
excessive and requires remittitur. We turn first to whether the
evidence was sufficient to justify submission to the jury.
1. Evidence justifying submission of punitive damages
to the jury
The trial court instructed the jury that punitive damages
could be awarded only if the jury concluded that Norcon's conduct
was "outrageous." Outrageous conduct in turn was defined as
conduct which is "the result of maliciousness or hostile feelings
toward the plaintiff, or was undertaken with reckless indifference
to the interests, rights, or safety of others." Kotowski was
required to prove outrageousness by clear and convincing evidence.
Punitive damages against Norcon were permitted only with respect to
Kotowski's sexual harassment, IIED, and NIED claims. The court
gave a supplemental instruction concerning the amount of punitive
damages. The instruction specified certain factors which the jury
could consider:
The law provides no fixed measure as to
the amount of punitive damages, but leaves it
to you to decide an amount that will fairly
accomplish the purposes of punishment and
deterrence. In assessing such damages you may
consider the magnitude and flagrancy of
Norcon, Inc.'s offense, the importance of the
policy violated, the wealth of Norcon, Inc.,
and the amount of compensatory damages.
Norcon does not challenge the court's instructions.
Instead, it makes a conclusory factual argument that "the
relatively minor incidents of alleged harassment experienced by
Kotowski simply are not sufficient to support [any award of
punitive damages]." We reject this argument. As previously
discussed, the sexual harassment by Posehn can reasonably be
regarded as outrageous.
Norcon also argues that the sexual harassment by Posehn
was neither known to nor authorized by management and therefore
Norcon cannot be liable for punitive damages attributable to
Posehn's harassment. Norcon contends that an employer may be
liable for punitive damages for sexual harassment only in the event
of actual participation or willful indifference by upper
management. But "willful indifference" is a standard different
from and more demanding than the "reckless indifference" standard
in the jury instruction. Since the correctness of this instruction
has not been made an issue, the appropriate question which we must
answer is whether the evidence could support a jury conclusion that
Norcon management was recklessly indifferent to the dangers of
sexual harassment on the oil spill cleanup project. We answer this
question in the affirmative given the pervasiveness of Posehn's
conduct, Norcon's managers' association with Posehn in his illicit
partying, Norcon's failure to communicate an anti-sexual harassment
policy, and Norcon's response to the information conveyed to
Savell.
Further, the jury was authorized to attribute Posehn's
acts to Norcon if it found that Posehn was acting within the course
and scope of his employment. Quid pro quo sexual harassment
entailing employment decisions made by a supervisor generally is
within the scope of the supervisor's employment. 19 In such
circumstances, the supervisor's intentional acts of sexual
harassment are attributable to the employer. Under the instruc-
tions given, Norcon's liability for Posehn's acts within the scope
of his employment was not limited to compensatory damages. In this
respect the instructions comport with prior case law which
indicates that punitive damages may be awarded against an employer
for the acts of employees within the scope of their employment.
See, e.g., Alaskan Village, Inc. v. Smalley, 720 P.2d 945, 948-49
(Alaska 1986).
There is another basis by which Norcon could have been
found liable for punitive damages. The tort of intentional
infliction of emotional distress will support an award of punitive
damages. Under the court's instructions, the elements of this tort
were (1) intentional conduct (2) which is extreme or outrageous (3)
and which caused severe emotional distress or bodily harm. These
elements could reasonably have been found satisfied by the facts
underlying Kotowski's "whistleblower" claim. After Kotowski
reported sexual harassment and alcohol consumption to Savell,
Norcon responded by firing Kotowski rather than addressing her
claims on their merits. And the manner in which Norcon acted made
the situation worse. It used pretextual reasons for firing her,
broke explicit promises that she would not be fired, and subjected
her to a lengthy and hostile interrogation.
We thus conclude that the issue of punitive damages was
properly submitted to the jury on three theories: reckless
indifference to sexual harassment on the part of Norcon, vicarious
liability for acts of Posehn within the scope of his employment,
and the tort of intentional infliction of emotional distress
arising out of Norcon's treatment of Kotowski after she reported
her concerns to Savell.
2. Excessiveness of the punitive damages award
Norcon argues that the $3,770,260.63 award of punitive
damages is excessive. Norcon contends that the ratio of punitive
to compensatory damages, 361.12 to 1, is so disproportionate as to
require reduction. Further, Norcon argues that its wealth and
earnings do not warrant the punitive damages award. Norcon argues
that the punitive award essentially deprived it of all of its
earnings for the past three years and more than half of the stock-
holder's equity as of 1993. 20
Kotowski responds by arguing that at most the ratio of
compensatory to punitive damages is one among many factors which a
reviewing court should consider in determining whether an award of
punitive damages is excessive. Kotowski also contends Norcon's
argument that its wealth and earnings do not justify the award
lacks merit since it ignores the profits Norcon made on the oil
spill reflected in 1990. Further, she argues that there are no set
rules of proportionality between punitive damages and earnings or
equity.
This court reviews jury awards of punitive damages for
excessiveness. Alaskan Village, Inc. v. Smalley, 720 P.2d 945, 949
(Alaska 1986). "A punitive damage award is excessive if it is
manifestly unreasonable." Id. Where we find an award to be
excessive we will vacate the award and may order a remittitur. See
Sturm, Ruger & Co. v. Day, 615 P.2d 621, 624 (Alaska 1980). The
amount on remittitur should be the maximum amount which the jury
could have awarded which would not be excessive. See Exxon Corp.
v. Alvey, 690 P.2d 733, 742 (Alaska 1984) ("[M]aximum possible
recovery approach is more appropriate in a remittitur context,
because it comes closer to approximating the decision made by the
jury."). Factors relevant in determining whether a punitive award
is excessive "include the compensatory damage amount, magnitude of
the offense, importance of the policy violated, and the defendant's
wealth." Alaskan Village, 720 P.2d at 949. 21
Kotowski correctly suggests that there is no definitive
ratio between compensatory and punitive damages which establishes
excessiveness. In Cameron v. Beard, 864 P.2d 538, 544 (Alaska
1993), a compensatory damage award for IIED of $1,000 was assessed
against individual defendants. A punitive damage award of $70,000
was assessed against one of the defendants. See id. This was
attacked as excessive and the suggestion was made that the punitive
award should be reduced to a three to one ratio. See id. at 550.
We rejected the argument, stating that we have
refused to prescribe a definite ratio between
compensatory and punitive damages. Though
comparing punitive and actual damage awards is
one way to determine if punitive damages are
excessive, other factors, such as the
magnitude and flagrancy of the offense, the
importance of the policy violated, and the
defendant's wealth, are equally important to
the determination.
Id. at 551 (citations omitted). In Sturm, Ruger, 615 P.2d at 624
n.3, we noted that the relationship between punitive and
compensatory damages was "a factor" but "there may be cases in
which it is only of slight value or is totally inapplicable." In
this case we consider the high ratio between punitive and
compensatory damages as one indicator that the award was excessive.
But it is not, by itself, dispositive.
With respect to the "magnitude" factor, the following
observations seem pertinent. The sexual harassment to which
Kotowski was subjected occurred on only two days, June 29 and June
30, 1989. It was thus of short duration. 22 Although it was
serious, frightening, and resulted in great emotional distress, it
was not of disastrous proportions. However, given the evidence
that the harassment of Kotowski was only one in a series of sexual
harassment incidents, the seriousness of the conduct for which
Norcon is responsible is somewhat increased.
Concerning the importance of the policy violated, there
is a strong public policy against sexual harassment in the work
place.
With respect to the wealth of the defendant, Norcon
apparently had a pre-tax net profit of more than $19,000,000 in
fiscal year 1990. This was doubtless related to the oil spill
cleanup as profits were much less in the following years. The
$3,700,000 award in this case would not necessarily bankrupt
Norcon, but it is more than is necessary to drive home the message
to Norcon that it should not tolerate sexual harassment and that it
should take affirmative steps to guard against such conduct.
Other possible factors are suggested by the Model
Punitive Damages Act promulgated by the Uniform Law Commissioners.
The model act lists nine relevant factors:
(1) the nature of defendant's wrongful
conduct and its effect on the claimant and
others;
(2) the amount of compensatory damages;
(3) any fines, penalties, damages, or
restitution paid or to be paid by the
defendant arising from the wrongful conduct;
(4) the defendant's present and future
financial condition and the effect of an award
on each condition;
(5) any profit or gain, obtained by the
defendant through the wrongful conduct, in
excess of that likely to be divested by this
and any other actions against the defendant
for compensatory damages or restitution;
(6) any adverse effect of the award on
innocent persons;
(7) any remedial measures taken or not
taken by the defendant since the wrongful
conduct;
(8) compliance or noncompliance with any
applicable standard promulgated by a
governmental or other generally recognized
agency or organization whose function is to
establish standards; and
(9) any other aggravating or mitigating
factors relevant to the amount of the award
Model Punitive Damages Act (U.L.A.) § 7(a).
Factors (1), (2) and (4) are similar to those we have
previously identified as relevant. We discussed them above.
Factor (5), any profit or gain through the wrongful conduct, is
apparently not an element in this case as there is no evidence
concerning it. Factor (3) requires consideration of fines,
penalties, damages, or restitution. It does not appear that Norcon
has been made to pay any fines, penalties, or restitution. Thus,
except by this litigation, Norcon has not been punished. No
evidence was presented concerning Factor (6) (adverse effect of
award on innocent persons), Factor (7) (remedial measures taken or
not taken), or Factor (8) (compliance or noncompliance with any
applicable standard). Factor (9) requires consideration of any
potentially relevant aggravating or mitigating factors. One
aggravating factor here is that the jury could have found two
serious wrongs in this case, sexual harassment and punishment of
the person who reported wrongful conduct.
In light of the foregoing considerations, we find the
award of punitive damages excessive, but that a substantial award
is justified. We recognize that the process by which a maximum
justifiable award is decided cannot be explained in comprehensive
detail. Such decisions thus may seem in part arbitrary. It is,
nonetheless, our ineluctable duty to reach a decision. Our
decision is that the maximum justifiable punitive damage award on
this record is $500,000. We thus order a remittitur to this
amount. Should Kotowski choose not to accept this remittitur, she
is entitled to a new trial on punitive damages issues.
H. VECO's Vicarious Liability for Sexual Harassment
Kotowski argues that the superior court should have found
VECO liable as a matter of law for any sexual harassment for which
Norcon is liable. Kotowski bases this argument on the doctrine of
non-delegable duty.
"A non-delegable duty is an established exception to the
rule that an employer is not liable for the negligence of an
independent contractor." Jackson v. Power, 743 P.2d 1376, 1383
(Alaska 1987). Non-delegable duties typically concern matters that
might endanger the safety of others. See id. at 1385 ("general
acute care hospital's duty to provide emergency room physicians
non-delegable"); Alaska Airlines, Inc. v. Sweat, 568 P.2d 916, 925-
26 (Alaska 1977) (duty of common air carrier for safety of
passengers non-delegable). However, "'[i]t is difficult to suggest
any criterion by which the non-delegable character of such duties
may be determined, other than the conclusion of the courts that the
responsibility is so important to the community that the employer
should not be permitted to transfer it to another.'" Jackson, 743
P.2d at 1384 (emphasis omitted) (quoting W. Keeton, D. Dobbs, R.
Keeton, D. Owen, Prosser and Keeton on the Law of Torts, § 71 at
512 (5th ed. 1984)). A non-delegable duty may be voluntarily
assumed by contract. See Jackson, 743 P.2d at 1383.
In Jackson we held that a general acute care hospital
providing emergency room services was liable, under the theory of
non-delegable duty, for the negligence of an emergency room
physician who was an independent contractor rather than an employee
of the hospital. See id. at 1384-85. In Sweat we held that the
doctrine of non-delegable duty prevented a scheduled common carrier
airline from escaping liability for a crash attributable to an
independent contractor's pilot error. 568 P.2d at 925-26.
The situation in the present case is notably different.
While VECO enjoyed exclusive control over the cleanup operation,
this exclusive control was the product of a private contract
between VECO and Exxon, not of a public franchise or license
granted by the government in the context of a highly-regulated
industry. While the existence of a non-delegable duty is not
necessarily dependent on the degree to which an industry is subject
to regulation or licensing, we find the absence of a comprehensive
scheme of public regulation, licensing, and franchising significant
in answering the question of whether a non-delegable duty existed
in the case before us. We conclude that the fact that the
government did not grant VECO a monopoly-like franchise or license
within the context of a highly-regulated industry tilts the balance
towards the conclusion that VECO had not assumed a non-delegable
duty to members of the public to prevent acts of sexual harassment
by its independent contractors.
In Jackson we observed that the hospital regulatory
scheme "manifests the legislature's recognition that it is the
hospital as an institution which bears ultimate responsibility for
complying with the mandates of the law." 743 P.2d at 1384. In
Sweat, we observed that "[a] scheduled common carrier such as
Alaska [Airlines] is given a monopoly or semi-monopoly primarily
for the purpose of furnishing safe and reliable scheduled air
transportation." 568 P.2d at 926. These observations suggest the
reason why the granting of public licenses or franchises in a
highly-regulated industry may be a significant factor in
determining whether a non-delegable duty exists. The public's
grant of a monopoly-like franchise in such an industry is an act of
trust which places a corresponding duty upon the holder of such a
franchise to bear the ultimate responsibility to ensure that this
exclusive franchise is exercised in a safe manner. After all, it
is this concern for public safety which frequently underlies the
highly-regulated nature of the industry at issue, as well as the
granting of exclusive franchises and licenses within the industry.
We do not see a comparable assumption of responsibility
towards the public by VECO, nor do we see a comparable placing of
the public trust in VECO. The government did not grant VECO the
exclusive right to conduct the oil spill cleanup; Exxon did. VECO
did not receive a public franchise or license that would place the
ultimate responsibility for public safety on its shoulders.
Instead, VECO merely entered into a contract with another private
party, and then hired an independent contractor to perform certain
duties it had assumed under this contract. "In general, the
employer of an independent contractor owes no duty to the
independent contractor's employees to protect them from the
negligence of the employees' own master." Moloso v. State, 644
P.2d 205, 210 (Alaska 1982). Because we conclude that VECO did not
assume a non-delegable duty to protect the safety of its
independent contractor's employees as members of the general
public, we hold that the superior court did not err in ruling that
VECO was not liable as a matter of law for the sexual harassment
for which Norcon was liable.
I. Reduction of the Attorney's Fee Award
The superior court awarded Kotowski $379,526.06 in
attorney's fees, pursuant to the schedule set forth in Alaska Civil
Rule 82. While our decision has not altered the basic fact that
Kotowski was the prevailing party, the size of Kotowski's
attorney's fee award will need to be recalculated in light of the
reduction in the damages award. Accordingly, we vacate the award
of attorney's fees.
V. CONCLUSION
The jury's verdict that Norcon is liable for sexual
harassment and intentional infliction of emotional distress is
AFFIRMED. The verdict that Norcon is liable for negligent
infliction of emotional distress is AFFIRMED. Norcon is entitled
to an offset against compensatory damages in the sum of $20,000
because of the Exxon settlement. The award of punitive damages is
excessive. We order a remittitur to a punitive damage award of
$500,000. If Kotowski does not accept this award, a new trial on
the issue of punitive damages shall be held. The jury's verdict
finding VECO not liable to Kotowski is AFFIRMED. Kotowski is
entitled to a new trial on her claims for unpaid wages, overtime,
and penalties. The award of attorney's fees in favor of Kotowski
should be VACATED and recalculated when a final judgment is
entered. 23
Footnotes
1 Kotowski settled with Exxon, which is not a party to this
appeal.
2 Counsel for Norcon and VECO on appeal did not serve as
their trial counsel.
3 The question whether the LMRA pre-empts the enforcement
of various state causes of action is a question of law. On
questions of law, we do not defer to the lower court's decision,
but adopt the rule of law most persuasive in light of precedent,
reason, and policy. See Guin v. Ha, 591 P.2d 1281, 1284 n.6
(Alaska 1979).
4 AS 18.80.220(a) reads in part:
[I]t is unlawful for
(1) an employer to refuse employment to
a person, or to bar a person from employment,
or to discriminate against a person in
compensation or in a term, condition, or
privilege of employment because of the
person's race, religion, color, or national
origin, or because of the person's age,
physical or mental disability, sex, marital
status, changes in marital status, pregnancy,
or parenthood when the reasonable demands of
the position do not require distinction on the
basis of age, physical or mental disability,
sex, marital status, changes in marital
status, pregnancy, or parenthood[.]
We have recognized a private right of action under AS
18.80.220. See Ratcliff v. Security Nat'l Bank, 670 P.2d 1139,
1142 (Alaska 1983).
5 The questions posed to the jury phrased the distinction
as one between "sexual harassment" on the one hand and whether
Norcon sexually "discriminated against" Kotowski on the other. On
the surface, this distinction would seem impossible to draw, since
the allegations of harassment were pled as part of a discrimination
claim under AS 18.80.220. The instructions to the jury, however,
made clear that the "discrimination" question was directed
specifically at Kotowski's transfer and termination. The jury was
instructed that it could award damages for past lost earnings for
"sexual harassment."
6 The superior court correctly instructed the jury that it
could find for Norcon if Norcon "had a legitimate,
nondiscriminatory reason for the plaintiff's transfer or
termination," so long as the company "would have made the same
decision regardless of gender." However, the jury did not reach
this issue because it concluded that the six-month LMRA limitations
period had run.
7 Reed v. Municipality of Anchorage, 782 P.2d 1155 (Alaska
1989); Leudtke v. Nabors Alaska Drilling, Inc., 768 P.2d 1123
(Alaska 1989); Knight v. American Guard & Alert, Inc., 714 P.2d 788
(Alaska 1986).
8 AS 23.05.140 provides in part:
(b) If the employment is terminated,
regardless of the cause of termination, all
wages, salaries, or other compensation for
labor or services become due immediately and
shall be paid within three working days after
the termination . . . .
. . . .
(d) If an employer violates (b) of this
section by failing to pay within three working
days of termination, the employer may be
required to pay the employee a penalty in the
amount of the employee's regular wage, salary,
or other compensation from the time of demand
to the time of payment, or for 90 working
days, whichever is the lesser amount.
9 In Reed v. Municipality of Anchorage, 741 P.2d 1181, 1185
(Alaska 1987) (Reed I), we found that a cause of action that
included a claim under AS 23.05.140 alleged a breach of a CBA for
statute of limitations purposes. We concluded that the employee's
cause of action was not "strictly or solely an action for liability
based upon a statute" since the CBA contained the specified wage
rate, and "a failure to pay the specified wage would be a violation
of the [CBA]." Id.
The conclusion reached in Reed I does not control
however, since it was not based on the same considerations
applicable in a LMRA pre-emption analysis. In Reed I, it was
sufficient to ask whether the failure to pay wages pursuant to AS
23.05.140 might also constitute a breach of the CBA; because the
CBA established the wage rate, a failure to pay the wages contained
therein would constitute such a breach. LMRA pre-emption questions
require a different sort of analysis, however. Here we must ask
whether the resolution of Kotowski's AS 23.05.140 claim would
require the interpretation of the CBA. See Lingle, 486 U.S. at
411-13. The CBA needs to be consulted to determine the applicable
wage rate. However, unless the language setting forth the wage
rate is subject to conflicting interpretations, there will be no
need to actually interpret or construe the terms of the CBA to
determine the rate.
10 See note 5, supra.
11 Rule 801(d)(2) provides that such admissions are
admissible as non-hearsay. A statement may be considered the
admission of a party-opponent when:
The statement is offered against a party
and is (A) the party's own statement, in
either an individual or a representative
capacity, or (B) a statement of which the
party has manifested an adoption or belief in
its truth, or (C) a statement by a person
authorized by the party to make a statement
concerning the subject, or (D) a statement by
the party's agent or servant concerning a
matter within the scope of the agency or
employment, made during the existence of the
relationship, or (E) a statement by a co-
conspirator of a party during the course and
in furtherance of the conspiracy.
Alaska R. Evid. 801(d)(2) (emphasis added).
12 Evidence Rule 403 provides:
Although relevant, evidence may be
excluded if its probative value is outweighed
by the danger of unfair prejudice, confusion
of the issues, or misleading the jury, or by
considerations of undue delay, waste of time,
or needless presentation of cumulative
evidence.
13 Norcon did object to Perry's testimony that Posehn had
discriminated against her on racial grounds. The court sustained
this objection.
14 Appellate Rule 212(c)(8)[c] requires that appellant's
brief indicate the pages of the record where each point on appeal
was raised in the trial court. Norcon has not complied with this
rule with respect to the exclusive remedy contention.
15 While Kotowski did not raise a sexual harassment claim
against Exxon under AS 18.80.220, as she did against Norcon, she
claimed that Exxon was liable to her under AS 18.80.260 for "aiding
and abetting sex discrimination."
16 Norcon does not contend that Instruction No. 28,
encompassing the scope of employment theory, was unsupported by the
evidence. With respect to quid pro quo harassment it clearly was
justified. See Faragher v. City of Boca Raton, 118 S. Ct. 2275
(1998) (employers liable for supervisors' sexually motivated
employment actions such as hiring, firing and work assignments).
17 On cross-appeal, Kotowski claims that the trial court
erred by striking the word "reckless" from the IIED instruction.
Kotowski is correct that recklessness may provide sufficient
culpability for IIED liability. Richardson, 705 P.2d at 456.
Still, the error was harmless, since the jury found Norcon liable,
even after it was given an instruction requiring intent.
18 We note that the jury made no award for physical injury.
19 Faragher v. City of Boca Raton, 118 S. Ct. 2275 (1998).
20 Norcon supplies a table of its gross revenue, pre-tax net
profit, and equity as follows:
Pre-Tax
Fiscal Yr. Gross Revenue Net Profit Equity
1990 106,017,945 19,843,477 20,333,201
1991 20,779,818 949,944 6,090,140
1992 16,459,596 809,624 6,899,764
1993 27,726,321 1,023,167 7,922,933
21 Effective August 1997, the legislature enacted a statute
which provides both standards and maxima for punitive damage
awards. The jury is directed to consider the following factors in
determining the amount of punitive damages
(1) the likelihood at the time of the
conduct that serious harm would arise from the
defendant's conduct;
(2) the degree of the defendant's
awareness of the likelihood described in (1)
of this subsection;
(3) the amount of financial gain the
defendant gained or expected to gain as a
result of the defendant's conduct;
(4) the duration of the conduct and any
intentional concealment of the conduct;
(5) the attitude and conduct of the
defendant upon discovery of the conduct;
(6) the financial condition of the
defendant; and
(7) the total deterrence of other damages
and punishment imposed on the defendant as a
result of the conduct, including compensatory
and punitive damages awards to persons in
situations similar to those of the plaintiff
and the severity of the criminal penalties to
which the defendant has been or may be
subjected.
AS 09.17.020(c). In general, punitive damages may not exceed the
greater of three times the amount of compensatory damages or
$500,000. See AS 09.17.020(f). However, this cap may be exceeded
where the conduct in question was motivated by financial gain and
an actual knowledge standard is met. In such cases the cap on
punitive damages may not exceed the greatest of four times the
amount of compensatory damages, four times the aggregate amount of
financial gain resulting from the misconduct, or $7,000,000. See
AS 09.17.020(g). Notwithstanding the foregoing provisions, an
action under AS 18.80.220 for unlawful employment practices,
including sexual harassment, is capped at $200,000 if the employer
has fewer than 100 employees in the state, $300,000 if the employer
has between 100 and 200 employees, $400,000 if the employer has
between 200 and 500 employees, and $500,000 if the employer has 500
or more employees in the state. See AS 09.17.020(h). The statute
applies to all cases accruing after its effective date, August 7,
1997. Ch. 26, § 55, SLA 1997.
We are foreclosed from drawing on the statute as a source
of public policy applicable to cases accruing before the effective
date because the legislature declared its intent "as a matter of
public policy to . . . ensure that this act does not apply to or in
any way have an effect on existing litigation or a civil cause of
action that accrues before the effective date of this Act." Ch.
26, § 1, SLA 1997.
22 But her emotional distress continued through the inter-
rogation of July 2 and until she left Valdez two days later.
23 In her cross-appeal Kotowski argues that she should have
been awarded interest on the jury's award from the time the verdict
was announced rather than from when the judgment was entered. She
also contends that the court erred in not awarding her full costs,
in awarding attorney's fees to VECO, and in apportioning costs and
fees between Norcon and VECO. We have reviewed these points and
find them meritless. Kotowski also raises a number of points
relating to discovery and the preclusion of testimony which are
mooted by our disposition herein.
EASTAUGH, Justice, concurring.
Although I agree with the result reached by the court on
all issues, I am writing separately to explain my reasoning on the
punitive damages award and the remittitur. The court's opinion
discusses factors potentially bearing on the award of punitive
damages. I agree with that discussion in the abstract, but the
only factors germane here are those which these parties agreed
would govern this jury's deliberations.
The punitive damages instruction allowed the jury "to
decide an amount that would fairly accomplish the purposes of
punishment and deterrence." The instruction submitted only these
factors to the jury: the magnitude and flagrancy of the offense,
the importance of the policy violated, Norcon's wealth, and the
amount of compensatory damages. We have long discussed these
factors in analyzing punitive damages issues in Alaska, 24 but they
offer a jury little guidance. Whether they offer too little is not
before us here; Norcon did not object to the substance of the
punitive damages instruction. 25 My comments concern several of
these factors.
Norcon argues that the punitive damages-compensatory
damages ratio is excessive. The instruction did not limit the jury
to a maximum ratio. 26 And in my view, a fixed ratio may result in
punitive damages awards which are either too large or too small,
and thus not optimally effective in punishing and deterring
outrageous conduct. 27 If compensatory damages are small relative
to the expense of litigating, restricting a jury to a fixed ratio
may prevent it from entering an award that is large enough to deter
or punish outrageous conduct. For example, applying a fixed three-
to-one ratio in this case would limit punitive damages to $31,033.
Such an award would be unlikely to deter conduct like that of
Norcon after Kotowski reported Posehn's harassment. It would be
insufficient to encourage employers like Norcon to adopt and
enforce effective anti-harassment policies and procedures, and
would probably make it more economic to litigate such claims than
to avoid and cure the problem revealed by Kotowski's report.
At the other end of the scale, if compensatory damages
are very large, even a ratio as low as three-to-one could lead to
a needlessly large, and thus not optimal, punitive damages award.
And a compensatory award that is very large relative to the cost
of adopting and enforcing effective anti-harassment policies and
procedures may also justify a relatively smaller punitive award.
Likewise, the cost of prosecuting a case relative to the
potential size of a compensatory award may bear on the size of an
optimal punitive damages award and thus on the punitive damages-
compensatory damages ratio. Norcon employed Kotowski only briefly.
Consequently when she reported Posehn's harassment, Norcon could
anticipate that any wage loss claim would be modest. Indeed, the
expense and aggravation of litigation and the prospect of modest
compensatory damages awards would deter some ex-employees in
Kotowski's position from pursuing any claim. Therefore, the
relatively high (forty-eight-to-one) ratio following remittitur
here is still within permissible limits.
Nonetheless, I agree with the remittitur the court
requires because $500,000 is, in my view, the largest punitive
damages award that can be justified here. Posehn's conduct was
outrageous and Norcon's corporate response to Kotowski's complaint
was appalling. But the remittitur is appropriate because
unexplained evidence of a defendant's wealth or annual earnings
provides little insight into the size of award needed to alter or
punish corporate culture. There is no evidence of how much Norcon
saved annually by failing to adopt and enforce an effective anti-
harassment policy and by failing to educate and supervise
supervisors like Posehn and those who tacitly approved his conduct.
One can only guess at the maximum amount necessary to convince
Norcon that it must change its corporate ways. In my view, an
award no larger than $500,000 should be ample to remove all profit
derived by tolerating such practices and to punish Norcon. Any
larger award is therefore both unnecessary and inefficient. 28 Given
the annual earnings discussed in note 19 of the court's opinion,
any larger award would be unreasonable.
Footnotes
24 See, e.g., Sturm, Ruger & Co. v. Day, 594 P.2d 38, 48
(Alaska 1979), overruled on other grounds, Dura Corp. v. Harned,
703 P.2d 396, 405 n.5 (Alaska 1985).
25 The legislature has now enacted a statute listing factors
to be considered in punitive damages cases. AS 09.17.020(c). That
statute does not apply to Kotowski's cause of action, which accrued
before the statute's effective date. Ch. 26, § 55, SLA 1997.
26 Moreover,
[t]his court has refused to prescribe a
definite ratio between compensatory and
punitive damages. Though comparing punitive
and actual damages awards is one way to
determine if punitive damages are excessive,
other factors, such as the magnitude and
flagrancy of the offense, the importance of
the policy violated, and the defendant's
wealth, are equally important to the
determination.
Cameron v. Beard, 864 P.2d 538, 551 (Alaska 1993) (citations
omitted).
27 Cf. BMW of North America, Inc. v. Gore, 517 U.S. 559
(1996) (recognizing that higher ratios may be justified by
circumstances).
28 See A. Mitchell Polinsky and Steven Shavell, Punitive
Damages: An Economic Analysis, 111 Harv. L. Rev. 869, 879-80
(1998).
In the Supreme Court of the State of Alaska
Norcon, Inc., )
) Supreme Court No. S-06390/06420
Appellant, )
v. ) Order
)
Mary Kotowski, )
)
Appellee. ) Date of Order: 2/19/99
)
Trial Court Case # 3AN-90-01121CI
Before: Matthews, Chief Justice, Eastaugh, Justice, and Rabinowitz, Justice pro tem.
[Fabe, Bryner, and Carpeneti, Justices, not participating.]
On consideration of appellant counsel's request, dated January 21, 1999, for a
modification of the opinion to reflect that she was not appellant's trial court counsel,
IT IS ORDERED:
Opinion No. 5060, issued December 31, 1998, is WITHDRAWN and Opinion No.
5085 is issued in its place today. A new footnote 3 has been added on page 9 and the subsequent
footnotes renumbered.
On page 50, "(twenty-to-one)" has been changed to "(forty-eight-to-one)".
Entered at the direction of the court.
Clerk of the Appellate Courts
Deputy Clerk
Distribution:
William R. Satterberg
Law Office of William Satterberg
709 Fourth Avenue
Fairbanks AK 99701
Timothy D. Dooley
Attorney at Law
921 West 6th Avenue, Suite 200
Anchorage AK 99501
Robert John
Law Office of Robert John
PO Box 73570
Fairbanks AK 99707
Donna C. Willard
Law Office of Donna C. Willard
124 East 7th Avenue
Anchorage AK 99501
John M. Miller
Eide & Miller
425 G Street, Suite 930
Anchorage AK 99501
Mary L. Pate
Eide & Miller
425 G Street, Suite 930
Anchorage AK 99501
-53- 5085
Order86.wpt
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