Ferren v. Westmed Incorporated ( 2021 )

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Tracy D Ferren, No. CV-19-00598-TUC-DCB 10 Plaintiff, ORDER 11 v. 12 Westmed Incorporated, et al., 13 Defendants. 14 15 The Court grants in part and denies in part the Motion to Dismiss the Second 16 Amended Complaint (Doc. 33). The case proceeds only on Count 2 under the Arizona 17 Employment Protection Act (AEPA), A.R.S. §§ 23-1501 and 1502, for constructive 18 discharge and retaliation for reporting consumer fraud product quality and safety issues. 19 Plaintiff filed this action on July 9, 2019, in the United States District Court for the 20 District of Kansas. Subsequently, the case was transferred here because the employment 21 grievance arose in Arizona. The Plaintiff filed a First Amended Complaint (FAC) to add 22 Arizona law, including wrongful termination claims under A.R.S. §§ 23-1501 and 1502. 23 On March 1, 2021, this Court granted Defendants’ Motion to Dismiss the FAC for failure 24 to state a claim, with leave to amend. “In the FAC, the Plaintiff, an employee of Westmed, 25 allege[d] state law claims of unlawful retaliation (demotion and constructive discharge), 26 breach of contract, negligent and fraudulent misrepresentation, and promissory estoppel 27 under Kansas and Arizona law.” (Order (Doc. 31) at 1-2.) 28 1 To recap the FAC, the Plaintiff alleged that he was promised a salary, commissions, 2 bonuses, and stock options in 2016, which induced him to leave his job and take 3 employment with Defendant Westmed. Allegedly, Defendants never gave him the stock 4 options, and they reduced his sales territories and number of sales managers reporting to 5 him so that the promised compensation never materialized. The Plaintiff alleged that he 6 reported this wrongful conduct, which he alleged violated federal wage laws, to the 7 Defendant’s Board of Directors. He also reported to the Board that he believed there were 8 violations of product safety (Food and Drug Administration (FDA)) regulations related to 9 Defendant’s product. Thereafter, the Defendants took retaliatory actions against him, 10 including reducing his compensation to levels so low that he was forced to resign and was, 11 thereby, constructively discharged. Id. The Court dismissed the FAC because the facts, 12 especially those alleging he reported federal law and regulatory violations, failed to state a 13 claim for wrongful termination under A.R.S. § 23-1501 et seq. 14 The Plaintiff has now filed a Second Amended Complaint (SAC), which alleges 15 only two claims: Count 1, Promissory Estoppel and Count 2, AEPA, A.R.S. §§ 23-1501 16 and 1502. He adds allegations that he reported to the Westmed Board of Directors product 17 quality and safety issues with Neovent due to its incompatibility with many neonatal 18 ventilators and resuscitations, “leading to potentially catastrophic failures, despite 19 Defendant Westmed advertising that the Neovent was compatible with a large array of 20 neonatal ventilators and resuscitators.” (SAC (Doc.32) ¶ 16.) He adds that he reported 21 violations of Arizona law, which includes consumer protections and prohibitions against 22 deceptive business practices and fraud: § 13-2202(A)(4) and (5) (Arizona’s deceptive 23 business practices statute), and § 44-1522(A) (Arizona’s consumer fraud statute). He 24 alleges that the wage law violations he reported to the Board are covered by § 23-355(A) 25 (Arizona’s employee recovery of wages statute) and A.R.S. § 13-1802(a)(1)-(3) (Arizona’s 26 criminal theft statute). (SAC (Doc. 32) at ¶¶ 17, 19.) 27 Defendants again respond with a Motion to Dismiss. The Court grants dismissal of 28 Count 1, Promissory Estoppel, and denies it as to Count 2, the AEPA claims under A.R.S. 1 § 23-1501 and 1502 for constructive discharge in retaliation for reporting consumer fraud 2 violations, deceptive business practices, and fraud affecting the public health and safety. 3 See (Order (Doc. 31) at 4-8.) The Court incorporates its discussion of the law, here, from 4 its prior Order granting the last Motion to Dismiss. (Order (Doc. 31)). 5 Count 1: Promissory Estoppel 6 The Court grants the Motion to Dismiss Count 1, Promissory Estoppel, because it 7 is barred by the one-year statute of limitations. Id. at 9-10 (citing Fallar v. Compuware 8 Corp., 202 F. Supp. 2d 1067, 1075–77 (Ariz. 2002) (finding breach of employment contract 9 barred by one-year statute of limitations); (Lytikainen v. Schaffer's Bridal LLC, 409 10 F.Supp.3d 767, 775-776 (Ariz. 2019) (bifurcating allegations and dismissing as time barred 11 those related to employment agreement and not those related to purchasing an interest in 12 the bridal company); Day v. LSI Corporation, 174 F.Supp.3d 1130, 1155 (Ariz. 2016) 13 (applying one-year statute of limitation to alleged promise to promote Day once hired to 14 vice president as an inducement to get him to accept position with LSI)). 15 The Court has taken a second look at the statute of limitations issue, specifically, in 16 the context of Count 1, Promissory Estoppel, which now alleges that Defendants made 17 representations regarding salary, commissions, bonuses, and stock options that they 18 intended he rely on, which he did rely on, when deciding to change jobs and begin working 19 for them. He alleges that Defendants, thereafter, manipulated the commissions and denied 20 him other promised compensation. Plaintiff simply sat on this claim to long. It commenced 21 in October 2016 when he took the job with Westmed, or shortly thereafter. (SAC (Doc. 32) 22 ¶ 12.) At the latest, he allegedly discovered he would not receive the promised stock options 23 on May 2017. (Response (Doc. 35) at 6.) He filed this case in 2019. 24 There is simply no case law to support the Plaintiff’s request for the Court to apply 25 the three-year statute of limitations, A.R.S.12-543, “[f]or debt where the indebtedness is 26 not evidenced by a contract in writing” or “[f]or relief on the ground of fraud or mistake, 27 which cause of action shall not be deemed to have accrued until the discovery by the 28 aggrieved party of the facts constituting the fraud or mistake.” The Plaintiff does no more 1 than merely allege the promise was based on a fraudulent misrepresentation and fails again 2 to state the wage claims with the specificity needed to allege fraud. (Order (Doc. 31) at 9.) 3 When two limitation periods may apply, the Court follows the more specific statute 4 of limitation period relevant to the facts of the claim. Monroe v. Arizona Acreage LLC, 443 5 P.3d 954, 959-96 (Ariz. App. 2019). “There shall be commenced and prosecuted within 6 one year after the cause of action accrues, and not afterward, the following actions: . . . For 7 breach of an oral or written employment contract including contract actions based on 8 employee handbooks or policy manuals that do not specify a time period in which to bring 9 an action.” A.R.S. § 12-541. “Employment contract” in A.R.S. § 12–541(3) should be 10 given its “ordinary meaning.” Redhair v. Kinerk, Beal, Schmidt, Dyer & Sethi, P.C., 183 11 P.3d 544, 546 (Ariz.Ct.App.2008). That meaning is: “a contract between an employer and 12 employee in which the terms and conditions of employment are stated.” Id. (quotation 13 omitted). In Redhair, the Court found the definition is not limited to “agreements affecting 14 a term of employment or altering or limiting the at-will presumption,” id. at 547 (quotation 15 omitted); it includes “all contracts defining specific responsibilities of the employer to the 16 employee,” id. at 548. In other words, the one-year statute of limitations applies to any 17 agreement related to “the nature, conditions, or duration” of employment, pursuant to 18 A.R.S. § 12–541(3), including payment of a bonus. Id. at 549. The Court reaffirms its 19 finding that the Plaintiff’s wage claims are barred by a one-year statute of limitation period 20 and dismisses Count 1, Promissory Estoppel. 21 Count 2: the AEPA (Constructive Discharge and Retaliation) 22 Count 2, the AEPA claim remains. It bears repeating that the Arizona Legislature 23 enacted the AEPA in 1996, in response to Wagenseller v. Scottsdale Memorial Hospital, 24 147 Ariz. 370, 710 P.2d 1025 (1985). In short, the AEPA enumerates the circumstances 25 for when an employee may bring a wrongful termination action in Arizona, which includes 26 suing an employer for terminating an employee in retaliation for refusing to violate Arizona 27 law or for reporting violations of Arizona law to the employer's management or other 28 investigative authority. Galati v. Am. W. Airlines, Inc., 292, 69 P.3d 1011, 1013 (Ariz. App. 1 2003); A.R.S. § 23–1501(3)(c)(i)-(ii). Here, the Plaintiff alleges that he was wrongfully 2 terminated for reporting violations of Arizona law under subsection (c)(ii), which provides: 3 “The disclosure by the employee in a reasonable manner that the employee has information 4 or a reasonable belief that the employer, or an employee of the employer, has violated, is 5 violating or will violate the Constitution of Arizona or the statutes of this state to either the 6 employer or a representative of the employer who the employee reasonably believes is in 7 a managerial or supervisory position and has the authority to investigate the information 8 provided by the employee and to take action to prevent further violations of the 9 Constitution of Arizona or statutes of this state or an employee of a public body or political 10 subdivision of this state or any agency of a public body or political subdivision.” 11 Plaintiff alleges he disclosed to the Westmed Board of Directors information or his 12 reasonable belief that it and its agent, Defendant McKinnon, were violating Arizona law, 13 and within close proximity to this reporting, his working conditions, specifically his 14 compensation was so reduced, that he was compelled to resign. The alleged proximity in 15 time can be sufficient to raise an inference of retaliation. (Order (Doc. 31) at 8-9.) 16 It is undisputed that the Defendants did not fire him. Instead, Plaintiff’s AEPA claim 17 is based on § 23-1502(A), which provides: “In any action under the statutes of this state or 18 under common law, constructive discharge may only be established by evidence of either 19 of the following: 1) objectively difficult or unpleasant working conditions to the extent that 20 a reasonable employee would feel compelled to resign [or] 2) outrageous conduct by the 21 employer or a managing agent of the employer, including sexual assault, threats of violence 22 directed at the employee, a continuous pattern of discriminatory harassment by the 23 employer or by a managing agent of the employer or other similar kinds of conduct, if the 24 conduct would cause a reasonable employee to feel compelled to resign.” Plaintiff alleges 25 facts supporting a claim of difficult or unpleasant working conditions. His allegations of 26 outrageousness and discrimination are entirely conclusory and lack any factual basis.1 27 1 For purposes of the Motion to Dismiss, the Court assumes that the employee notice requirements for bringing an action for constructive discharge were waived by the 28 Defendants because they failed to comply with the employer notice requirements contained in A.R.S. § 23-1502(E). There is no basis for waiver based on outrageous conduct. 1 The Court finds the SAC states a wrongful termination claim based on 2 constructive discharge, pursuant to A.R.S. 23-1502(A), in retaliation for reporting a 3 violation of Arizona law, A.R.S. 23-1501(c)(ii) but dismisses the Plaintiffs claim of 4 retaliatory discharge based on assertions that he reported wage violations protected by 5 Arizona’s wage law, A.R.S. § 23-355(A). The AEPA, 23-1501(B) provides: “If the 6 statute provides a remedy to an employee for a violation of the statute, the remedies 7 provided to an employee for a violation of the statute are the exclusive remedies for the 8 violation of the statute or the public policy prescribed in or arising out of the statute.” 9 Reyes v. Revlon Consumer Product Corp., 2013 WL 1225030 at *7 (Ariz. March 28, 10 2013) (dismissing constructive discharge breach of contract claim premised on a 11 violation of A.R.S. § 23-355(A); Whitmire v. Wal-Mart Stores Inc., 359 F. Supp. 3d 761, 12 781 (D. Ariz. 2019) (finding Arizona Medical Marijuana Act (AMMA) provides private 13 cause of action, dismissing AEPA claim as duplicitous and also because “it would not 14 consider the parties' arguments as to whether or not the AMMA supplies the public 15 policy for Plaintiff's AEPA claim.”)2 16 The Court rejects the Defendants’ attack on the AEPA constructive discharge, 17 wrongful termination claim “because he does [not] plead and (and cannot plead) that he 18 ever reported what would amount to a violation of any of these statutes to his superiors 19 and thus the causal connection required for an AEPA claim, namely that an employee be 20 terminated because he reported or disclosed a violation of a Arizona law or statue, is 21 completely absent here.” (Motion (Doc. 33) at 4.) If Defendants are arguing that the 22 Plaintiff must allege an actual violation of Arizona law, they are wrong. An actual 23 statutory violation need not occur; “a discharge for refusing to violate a statute or the 24 relevant public policy underlying a statute may also give rise to a wrongful termination 25 claim.” Harper v. State, 388 P.3d 552, 554 (Ariz. App. 2016) (citing Logan v. Forever 26 Living Products Intern. Inc., 52 P.3d 760, 763-64 (Ariz. 2002) (en banc)). 27 2 The Consumer Fraud Act discussed below provides a private cause of action for the 28 injured consumer and, is therefore, distinguishable from the reported wage law violations. Only the Arizona wage laws provide a remedy to the employee Plaintiff. 1 Not every statutory violation supports an AEPA claim. Public policy is articulated 2 by constitutional, statutory, or decisional law—it is not a right inherent in the at-will 3 contract, or in any other contract, even if expressly provided. Murcott v. Best W. Int'l, Inc., 4 9 P.3d 1088, 1096 (Ariz. App. 2000), as amended (Oct. 16, 2000) (citing Wagenseller, 710 5 P.2d at 1036). Public policy violations for whistle-blowing protection contain certain 6 essential elements, beginning with “some ‘important public policy interest embodied in the 7 law’ [having] been furthered by the whistleblowing activity.’” Wagner v. City of Globe, 8 722 P.2d 250, 257 (1986) (quoting Wagenseller, 710 P.2d at 1035). In part the question is 9 whether the affirmative remedial action, i.e., whistle blowing, was “not merely private or 10 proprietary, but instead [sought] to further the public good.” Id. Put another way, the 11 question is whether the whistleblowing complaints addressed an important public policy 12 interest. This requires the alleged statutory violation reported by the whistleblower to 13 “‘strike at the heart of the citizen's social rights, duties and responsibilities.’” Murcott, 9 14 P.3d at 1096 (citing Wagenseller 710 P.2d at 1032 (quoting Palmateer v. International 15 Harvester Co., 421 N.E.2d 876, 878–79 (Ill. 1981)). “Although public policy need not 16 always derive from a criminal statute, Wagenseller stated that the criminal code is a clear 17 expression of state public policy.” Id. Arizona's antitrust statutes have been found to 18 parallel criminal statutes in some respects, including enforcement being delegated to the 19 state through the Attorney General rather than being reserved to individual parties; 20 penalties which go well beyond compensatory and remedial relief, with punitive (treble 21 damages) employed for the benefit of the aggrieved private party. Id. at 1098 (citing United 22 Nuclear Corp. v. General Atomic Co., 93 N.M. 105, 597 P.2d 290, 310 (1979) (finding 23 Arizona Legislature enacted a Uniform State Antitrust Act in A.R.S. section 44–1401 24 (1974) with underlying purpose to establish a “public policy of first magnitude” in 25 furthering a competitive economy). 26 The elements of a private claim under the Arizona Consumer Fraud Act, A.R.S. § 27 44–1522, are a false promise or misrepresentation, made in connection with the sale or 28 advertisement of merchandise, and the plaintiff's consequent and proximate injury from 1 reliance on such a misrepresentation; such reliance need not be reasonable. Watts v. 2 Medices Pharm. Corp., 342 P.3d 847 (Ariz. App. 2015), opinion aff'd in part, vacated in 3 part, 365 P.3d 944 (2016). The purpose of the Consumer Fraud Act has been described 4 as: “to protect the public from deceptive acts,” requiring only the showing of intent to do 5 the act involved, i.e., general intent, not a specific intent to deceive. State ex rel. Babbitt 6 v. Goodyear Tire & Rubber Co., 626 P.2d 1115, 1118 (Ariz. App. 1981). 7 Section 44-1522 is the Consumer Fraud Act, Article 7, of Title 44, Trade and 8 Commerce. It fits squarely within the confines of the public policy discussions in Murcott 9 for Article 1, Uniform State Antitrust Act, which involved the termination of a former 10 officer of a non-profit business-membership organization for reporting antitrust violations 11 by the board for, allegedly, engaging in unfair competition by favoring some member 12 applicants over others. Both the antitrust and consumer fraud protection provisions protect 13 trade and commerce by protecting fair competition. The Court notes that in the case of the 14 Consumer Fraud Act, the fair business practice protections serve the dual public purpose 15 of promoting fair business practices and product safety. Cf., Salt River Project Agric. 16 Improvement and Power Dist. v. Westinghouse Elec. Corp., 694 P.2d 198, 205–06 17 (1984)(describing strict liability as reflecting public policy for safety in market place by 18 creating disincentive to manufacturers to place defective and unreasonably dangerous 19 products into the stream of commerce.) 20 In comparing the public policy antitrust discussions in Murcott, the Court notes that 21 the Consumer Fraud Act also delegates enforcement to the Attorney General. A.R.S. § 44- 22 1524. Instead of treble damages for flagrant antitrust violations, A.R.S. 44-1408(B), there 23 is a penalty fine of not more than $10,000 for willful consumer fraud violations, A.R.S. § 24 1531. Lastly, there is a criminal statute that reflects the public policy to protect the public 25 from deceptive business practices. A.R.S. (Criminal) 13-2202(A)(4)-(5) (making it a 26 misdemeanor to commit deceptive business practices in the course of engaging in a 27 business, occupation or profession, if a person recklessly: sells, offers or exposes for sale 28 1 adulterated goods or services, or sells, offers or exposes for sale mislabeled goods or 2 services). 3 The Court finds in accord with the reasoning in Murcott that Arizona's consumer 4 fraud statutes reflect public policy because they parallel some criminal statutes in some 5 respects, including enforcement being delegated to the state through the Attorney General 6 and penalties that go beyond compensatory and remedial relief, including a penalty fine 7 provision. See also Wagenseller, 710 P.2d at 1032 (citing Harless v. First National 8 Bank, 162 W.Va. 116, 246 S.E.2d 270 (1978) (finding public policy existed for applying 9 whistle blower protection where employee refused to violate consumer protection law). 10 Conclusion 11 The Court denies the Motion to Dismiss the AEPA claim alleging termination by 12 constructive discharge in retaliation for Plaintiff’s reporting to the Westmed Board of 13 Directors product quality and safety issues with Neovent due to its incompatibility with 14 many neonatal ventilators and resuscitations, contrary to its advertised compatibility, and 15 which created the potential for catastrophic injury. 16 This Court is participating in an informal early-settlement pilot program for 17 employment law cases and, therefore, refers this case for such a settlement conference. 18 The Defendants’ Answer shall be due thereafter if the case is not resolved by settlement. 19 Accordingly, 20 IT IS ORDERED that the Motion to Dismiss (Doc. 33) is GRANTED IN PART 21 AND DENIED IN PART as to Count 2, the AEPA claim alleging termination by 22 constructive discharge in retaliation for reporting alleged violations of the Arizona 23 Consumer Fraud Act. 24 IT IS FURTHER ORDERED that this employment law case is referred to the 25 Honorable Bruce G. Macdonald for an early settlement conference on July 21, 2021 at 26 9:30 a.m. The parties shall contact his chamber directly for further instructions regarding 27 the settlement conference by calling Marcia Delanty, Law Clerk, at 520 205-4521. 28 ! IT IS FURTHER ORDERED that in the event the case is not resolved by 2 settlement, the Defendants shall Answer the Second Amended Complaint within 20 days 3 of the settlement conference. 4 IT IS FURTHER ORDERED that NO EXTENSIONS OF TIME SHALL BE > REQUETED OR GRANTED WITHOUT SHOWING GOOD CAUSE. Dated this 19th day of May, 2021. SS Honorable-David C. Byt 12 United States District Judge 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -10-