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Dorshkind v. Oak Park Place of Dubuque II, L.L.C.

Supreme Court of Iowa

August 2, 2013

KAREN DORSHKIND, Appellee,
v.
OAK PARK PLACE OF DUBUQUE II, L.L.C., Appellant.

On review from the Iowa Court of Appeals.

Appeal from the Iowa District Court for Dubuque County, Michael J. Shubatt, Judge.

An employee and an assisted living facility seek further review of a court of appeals decision affirming a judgment for wrongful termination and reversing a judgment awarding punitive damages.

Thomas D. Wolle of Simmons Perrine Moyer Bergman PLC, Cedar Rapids, and Thomas R. Crone of Melli Law, S.C., Madison, Wisconsin, for appellant.

Mark L. Zaiger and Drew Cumings-Peterson of Shuttleworth & Ingersoll, P.L.C., Cedar Rapids, for appellee.

Ryan G. Koopmans of Nyemaster Goode, P.C., Des Moines, for amicus curiae Iowa Association of Business and Industry.

WIGGINS, Justice.

In this appeal, we must decide if an internal complaint by an employee against an assisted living facility concerning forged training documents, which the state mandates, gives rise to a wrongful-termination action. The district court determined a wrongful-termination suit lies and submitted the case to the jury. The jury returned a verdict against the assisted living facility for actual and punitive damages. The facility appealed. We transferred the case to the court of appeals. The court of appeals affirmed the actual damages claim but reversed on the punitive damages issue. Both parties asked for further review, which we granted. On further review, we affirm the decision of the court of appeals (1) because the employer's retaliatory discharge of an at-will employee, who internally reported her employer's forgery of state-mandated training documents, violated public policy; and (2) because punitive damages are not recoverable, due to the fact that at the time of the employee's wrongful discharge we did not recognize a public-policy exception to the at-will employment doctrine based upon a violation of administrative rules. Accordingly, we remand the case to the district court to enter judgment consistent with our decision.

I. Facts and Prior Proceedings.

A. Facts.

This appeal arose from the district court's denial of a motion for directed verdict. Accordingly, we review the facts in the light most favorable to the party against whom the motion for directed verdict was made. Iowa R. App. P. 6.904(3)(b); Fly v. Blauvelt, 818 N.W.2d 123, 134 (Iowa 2012). Because Oak Park made the motion for directed verdict, we review the facts in the light most favorable to Karen Dorshkind.

Oak Park Place in Dubuque is an assisted living facility. Alternative Continuum of Care owns the Dubuque facility, as well as a network of other assisted living homes all named Oak Park. Headquarters for the company is in Madison, Wisconsin.[1]

Oak Park contains 131 beds and has fifty-five employees who provide patients with several different levels of care. The lowest level of care includes the administration of medications, assistance with bathing and dressing, and help with mobility to and from meals.

Oak Park is also certified as a dementia-specific assisted living program. This means the facility holds itself out as providing specialized care in a dedicated setting for patients with dementia but may also provide care to patients without cognitive disorders. In late 2008, Oak Park had approximately thirteen patients in its dementia program.

Because Oak Park includes a special unit for its patients suffering from dementia, Oak Park is subject to the provisions in Iowa Code chapter 231C (2007) and the Iowa Administrative Code rule 321- 25.34(1) (2006), [2] which require direct care staff to complete dementia-specific training. Forgery of documents certifying completion of this training constitutes a violation of law. See Iowa Code § 231C.14(1), (3) (imposing civil penalties for noncompliance with regulations and interfering in any way with an Iowa Department of Inspections and Appeals (DIA) representative). The DIA is responsible for enforcing these provisions. Iowa Admin. Code r. 321-26.3.

Dorshkind worked at Oak Park from April 10, 2006, to September 5, 2008. Dorshkind was hired as an at-will employee for the position of sales and marketing assistant. About six months later, Oak Park promoted her to marketing director. Dorshkind's primary responsibility was to increase the number of patients at Oak Park.

For the first two years of her employment, Dorshkind's supervisor was Marthe Jones, the regional marketing director. Thereafter, in April 2008, Dorshkind began reporting to Tim Hendricks, the housing director for Oak Park. Hendricks reported to Toni Carruthers, the regional director of operations. Carruthers, in turn, was supervised by Scott Frank, the CEO and majority owner of the Oak Park network.

During an unannounced inspection by the DIA on July 24, 2008, Dorshkind witnessed what she believed to be her supervisor, Hendricks, and the supervisor of the certified nursing assistants at Oak Park, Kristi Niemer, falsifying state-mandated training documents for the dementia program. Dorshkind testified that she witnessed Niemer making copies of test papers and then later saw Niemer with Hendricks in his office with some stacks of paper. Niemer was filling out answers to what appeared to be true or false questions. Hendricks had another pile of papers and was writing on them. A different stack of papers was stamped "post-test" at the top. Eyewitnesses testified that the two did not attempt to hide what they were doing. Instead, Hendricks and Niemer told other employees that their acts were going to "save the day for Oak Park."

Dorshkind left Hendricks' office and returned to her own. Pat True, the director of maintenance at Oak Park, later came by and said he had also seen Niemer and Hendricks forging training documents. True had been called into Hendricks' office to sign a paper. At that time, he observed the two forging other employees' names. True told Hendricks he should at least use different colored pens to vary the signatures he was forging on the documents. Hendricks later laughed and recounted the comment to Denise Schiltz, the director of nursing at Oak Park, who also witnessed the incident.

Schiltz told Dorshkind she had seen Hendricks and Niemer forging staff names on the dementia training documents. During testimony, Schiltz said that none of the training certified in the documents ever occurred. Schiltz realized Hendricks and Neimer's conduct constituted forgery and immediately submitted her resignation on July 24.

For obvious reasons, Dorshkind did not report these concerns to her then-supervisor, Hendricks. Approximately six weeks after the incident, Dorshkind called Jones, her former supervisor who was then working as the marketing director in Madison, which was not a supervisory position and did not involve human resources responsibilities. Jones described her relationship to Dorshkind as a coworker or peer. Jones admitted that at the time of the report, there was no supervisor–subordinate relationship between her and Dorshkind.

Dorshkind told Jones about the suspected forgery. During her testimony, Dorshkind explained her rationale for doing so as follows: "Well, my concern was, number one, for the residents. If tests had been falsified, I felt that meant that the staff hadn't had the training. My first concern was always the residents." Dorshkind was also concerned Oak Park would lose its license. While speaking with Jones, Dorshkind additionally communicated her belief that two employees, including her supervisor, were having an extramarital affair.

When testifying regarding her conversation with Jones, Dorshkind stated that Jones asked Dorshkind if she wanted Jones to talk to Tara Klun, the director of human resources for Oak Park at the Madison headquarters. Jones testified, "I said, Karen, I don't know what to do. Would you like me to go to human resources and talk to them and see what path you should take?" Later, Jones added, "I told [Dorshkind] I would talk to Tara Klun and ask her what she should do in this situation."

Dorshkind believed the internal report was a collaborative effort, even though Jones said she was the first one to raise the question of whether it should be reported to Klun. Dorshkind had gone to Jones to get "Marthe's advice." However, Dorshkind testified that Jones believed her going to Klun "would be the best way that we can handle any situation."

Jones spoke with Klun on September 3. Klun testified that "she understood at the time that Ms. Dorshkind and Ms. Jones had just completed a telephone call before [Jones] came into [Klun's] office to talk." During Jones's conversation with Klun, Jones reported, "Karen Dorshkind called me today" and said "Kristi and Tim were falsifying documents." Jones specifically stated that the "falsification that had occurred, " as well as "an illicit personal relationship, " "[wa]s reported by Ms. Dorshkind." Jones said, "[W]e [meaning Dorshkind and Jones] don't know what to do."

Klun informed the CEO of both allegations. Klun testified that if an employee has a problem and wants to make a report, the employee "would follow the chain of command and go to their supervisor, and if they didn't feel comfortable, to the next level and/or human resources."

On September 4, 2008, Klun and Carruthers went to Oak Park to investigate the claims. Immediately when Klun arrived, Dorshkind approached her and said, "Tara, I'm glad you're here. Can I talk to you alone[?]" Klun responded, "not now . . . let's wait until we can talk in private." Klun never spoke with Dorshkind privately to inquire about what she knew regarding the allegation, which Klun admits, "that she reported." During her testimony, Klun explained her rationale for not approaching Dorshkind as follows:

I believe that she would not have anything further than what Marthe Jones shared with me, for she shared the full conversation that she had with Karen. And at the time I did not feel that she would give me any new information on the 4th of September.

Klun later reiterated on cross-examination that she believed Jones "shared with me the entirety" of Dorshkind's information regarding the allegations. Jones was the first person who reported the forgery to Klun.

After conducting a two-day investigation, both Klun and Carruthers concluded there was no validity to Dorshkind's report of forgery and an affair. Klun later admitted that her investigation of the forgery allegations was "very poor."

The following day, Oak Park terminated Dorshkind's employment. In a letter signed by Klun and Carruthers, the basis for the termination was stated as follows:

After a long 2 day and careful investigation, speaking with many individuals, ones you specifically mentioned, we have come to a conclusion that you have not been truthful. Upon the investigation we learned of several incidents where you have not been truthful; spreading rumors regarding a false relationship between two employees, malicious statements regarding forging of documents, and false statement to a Regional Director about move in numbers, all with in these two days. This is jeopardizing and affecting the working environment at Oak Park.
Due to the above issues, we are at a point where we are unable to trust you. Therefore, it is in Oak Park's best interest to end the relationship effective immediately. (Emphasis added.) Jones was also fired.

On September 25 and 29, after receiving a complaint from Schiltz about the incident on July 24, the DIA conducted an on-site investigation at Oak Park. In its final report, the DIA concluded certain state-mandated documents relating to the dementia training program had been forged. Accordingly, the DIA imposed a civil penalty of $10, 000 and barred the facility from admitting any new patients while under conditional certification status.

B. Prior Proceedings.

On September 7, 2010, Dorshkind sued Oak Park for wrongful discharge of employment in violation of public policy. Oak Park responded by filing a motion for summary judgment, arguing no established public policy protects Dorshkind's activity because she did not report the alleged misconduct externally to the DIA, but rather, only internally. Thus, Oak Park urged the district court to find Dorshkind's termination does not jeopardize public policy. Oak Park also alleged there was an overriding business justification for the discharge.

The district court denied the motion. The matter proceeded to a jury trial on November 15, 2011. Before resting, Dorshkind moved the district court to present the issue of punitive damages to the jury. Oak Park resisted, claiming Iowa has not previously recognized the public policy asserted by Dorshkind, and thus, punitive damages are not recoverable. The district court granted Dorshkind's motion and rejected Oak Park's argument. The district court held:

There is a defined public policy to protect residents in assisted living facilities, particularly those who suffer from dementia. Toward that end, the State requires training to ensure that people with dementia receive proper care and are not abused in any manner. That is the purpose of the regulation.

Accordingly, the district court allowed the question of punitive damages to be submitted to the jury.

Oak Park then moved for directed verdict on the same grounds as the motion for summary judgment. The district court denied the motion without explanation.

The jury returned a verdict for Dorshkind, finding Oak Park terminated her in retaliation for whistleblowing and with a willful and wanton disregard for the rights or safety of others. Accordingly, the jury awarded $178, 500 in compensatory damages, including $156, 000 in lost pay and benefits and $22, 500 in emotional distress damages. The jury award also included $178, 500 in punitive damages. The district court entered judgment on November 22.

Oak Park timely filed a notice of appeal. We transferred the case to the court of appeals. The court of appeals affirmed the district court judgment in part by finding the public-policy exception protected Dorshkind's employment from retaliatory termination and consequently, concluded the district court properly denied Oak Park's motion for directed verdict. However, the court of appeals reversed the district court's decision to submit the issue of punitive damages to the jury. The court of appeals held "there has been no specific declaration by our courts or legislature that internal whistleblowing may be protected under certain circumstances."

Both parties sought further review, which we granted.

II. Issues.

The first issue is whether an at-will employee, who was discharged by her employer after making an internal report of forgery regarding state-mandated documents certifying dementia training, is protected from retaliatory termination under the public-policy exception to the at- will employment doctrine. The second issue asks whether an at-will employee who is wrongfully discharged based upon a violation of administrative rules may recover punitive damages.

III. Standard of Review.

This appeal arises from the district court's denial of a motion for directed verdict. Thus, our review is for correction of errors at law. Estate of Ryan v. Heritage Trails Assocs., Inc., 745 N.W.2d 724, 728 (Iowa 2008). We review the evidence in the light most favorable to the nonmoving party, taking into consideration all reasonable inferences that could fairly be made by the jury, regardless of whether the evidence is contradicted. Slocum v. Hammond, 346 N.W.2d 485, 494 (Iowa 1984). Our role on appeal is to decide "whether the trial court correctly determined there was sufficient evidence to submit the issue to the jury." Easton v. Howard, 751 N.W.2d 1, 5 (Iowa 2008).

IV. Analysis.

A. At-Will Employment.

Employment in Iowa is at will. Berry v. Liberty Holdings, Inc., 803 N.W.2d 106, 109 (Iowa 2011). Therefore, unless the employee has a valid contract of employment, "the employment relationship is terminable by either party 'at any time, for any reason, or no reason at all.' " Fitzgerald v. Salsbury Chem., Inc., 613 N.W.2d 275, 280 (Iowa 2000) (quoting Phipps v. IASD Health Servs. Corp., 558 N.W.2d 198, 202 (Iowa 1997)). Yet, the employer's right to discharge an employee under an at-will employment contract may be limited by public policy considerations. Teachout v. Forest City Cmty. Sch. Dist., 584 N.W.2d 296, 299 (Iowa 1998).

B. Public-Policy Exception.

Iowa follows the majority of states by carving out a public-policy exception to the general rule of at-will employment for wrongful-discharge claims. See Springer v. Weeks & Leo Co., 429 N.W.2d 558, 560 (Iowa 1988) (adopting the public-policy exception in Iowa).

Public policy is an elusive legal construct. We have previously said public policy is that which " 'generally captures the communal conscience and common sense of our state in matters of public health, safety, morals, and general welfare.' " Berry, 803 N.W.2d at 110 (quoting Jasper v. H. Nizam, Inc., 764 N.W.2d 751, 761 (Iowa 2009)). Another definition includes those matters "fundamental to citizens' social rights, duties, and responsibilities." Id. Once identified, the public policy "becomes a benchmark in the application of our legal principles." Jasper, 764 N.W.2d at 761.

An employee seeking protection under the public-policy exception in his or her wrongful-discharge claim must prove the following elements:

(1) the existence of a clearly defined and well-recognized public policy that protects the employee's activity; (2) this public policy would be undermined by the employee's discharge from employment; (3) the employee engaged in the protected activity, and this conduct was the reason the employer discharged the employee; and (4) the employer had no overriding business justification for the discharge.

Berry, 803 N.W.2d at 109–10. The first two elements constitute questions of law to be determined by the court. Fitzgerald, 613 N.W.2d at 282. If the discharged employee successfully establishes each of these elements, "he or she is entitled to recover ...


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