Roy R. Ferguson v. State of Tennessee ( 2002 )

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
April 17, 2002 Session
ROY R. FERGUSON v. STATE OF TENNESSEE
Appeal from the Claims Commission of the State of Tennessee
No. 96001513 W.R. Baker, Commissioner
FILED MAY 21, 2002
No. E-2001-02158-COA-R3-CV
Roy R. Ferguson (“Plaintiff”) filed suit in the Claims Commission against the State of Tennessee
(“Defendant”) after he was denied tenure at Roane State Community College (“Roane State”).
Plaintiff claimed Defendant, by and through its agents, failed to follow its policies and procedures,
thereby violating the implied covenant of good faith and fair dealing in his employment contract.
Defendant filed a motion to dismiss alleging, inter alia, the covenant of good faith and fair dealing
could not form the basis of a breach of contract claim against the State because it was not in writing.
Defendant also argued the Claims Commission (“Commission”) lacked subject matter jurisdiction
over the claim. The Commission concluded it did not have jurisdiction over Plaintiff’s claim
because the implied covenant of good faith and fair dealing was not written. The Commission
further concluded Plaintiff’s claim should have been brought pursuant to the provisions of the
Uniform Administrative Procedures Act and not in the Claims Commission, and dismissed the
complaint for lack of subject matter jurisdiction. We affirm, as modified.
Tenn. R. App. P. Appeal as of Right; Judgment of the Claims
Commission Affirmed, as Modified; Case Remanded.
D. MICHAEL SWINEY , J., delivered the opinion of the court, in which HOUSTON M. GODDARD, P.J.,
and HERSCHEL P. FRANKS, J., joined.
Samuel W. Brown, Knoxville, Tennessee, for the Appellant Roy R. Ferguson.
Eugenie B. Whitsell, Senior Counsel, and Elizabeth Martin, Senior Counsel, Nashville, Tennessee,
for the Appellee State of Tennessee.
OPINION
Background
Plaintiff filed a complaint against Defendant in the Claims Commission for the State
of Tennessee alleging breach of contract. Plaintiff began working at Roane State in 1989 as an
Assistant Professor/Program Director. According to the complaint, this position was a tenure-track
position subject to annual renewal for a maximum probationary period of seven years. Plaintiff
remained employed as an Assistant Professor until 1994. Plaintiff claims he was rejected for tenure
in 1994, despite his professional accomplishments and advancements. The denial of tenure
purportedly was based on poor evaluations which Plaintiff claims were “inaccurate, erroneous,
undocumented, and not supported by substantial evidence.” Plaintiff asserted Roane State’s agents
consistently violated Roane State’s own policies and procedures as well as those of the Board of
Regents during the process of denying him tenure. Plaintiff’s request for tenure was denied by the
Tenure and Promotion Committee, and Plaintiff apparently utilized the internal appeal process.
Plaintiff alleges proper procedures were not followed during that internal appeal process either.
Plaintiff claims that by violating its own policies and procedures and those of the Board of Regents,
Roane State breached the implied covenant of good faith and fair dealing contained within Plaintiff’s
employment contract.
Plaintiff’s employment contract with Roane State set forth Plaintiff’s title and annual
salary. As relevant to this appeal, the contract also provided as follows:
1. This appointment is made subject to the laws of the State of
Tennessee, the requirements and policies of the State Board
of Regents, and the requirements and policies of this
institution. Any renewal of this appointment will be subject
to all laws, requirements and policies in effect at the time of
renewal.
****
5. This appointment is a tenure-track appointment, which is for
faculty employed in a probationary period of employment. A
tenure-track appointment does not include any right to
permanent or continuous employment or any interest in or
expectancy of renewal of the appointment. This appointment
is on an annual basis only, subject to renewal by this
institution, and annual approval by the State Board of
Regents, for a maximum probationary period of seven years.
The minimum requirements and conditions for the award of
tenure by the State Board of Regents upon completion of that
probationary period are set forth in the policy on academic
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freedom, responsibility and tenure adopted June 25, 1976, by
the Board, which policy is incorporated by reference as if
fully set forth herein. Requirements and conditions for the
recommendation of tenure by this institution are set forth in
the policies of the institution. Tenure may only be awarded
by positive action by the State Board of Regents.
Defendant filed a motion to dismiss claiming: (1) the State cannot be sued for breach
of an implied covenant because a claim for breach of contract against the State must be based on a
written contract; (2) Plaintiff essentially was asking the Commission to review the decision not to
award him tenure, a review outside the jurisdiction of the Commission; and (3) Plaintiff suffered no
damages because his last contract was for a period of one year and that contract was honored.
Plaintiff obviously opposed this motion.
A hearing was held on Defendant’s motion to dismiss. In ruling on the motion, the
Commissioner quoted a portion of the argument of Plaintiff’s counsel during the hearing, which is
as follows:
What we believe we can show, however, is that there was such an
overwhelming one-sided departure from even the minimum standards
for tenure and such a blatant disregard of these tenure standards and
the policies and procedures that are set forth in the Roane State
material itself, that the [Plaintiff was] denied a meaningful
consideration for tenure … a violation of the covenant of good faith
and fair dealings …. Roane State, by and through its agents, parted
so far from the tenure guidelines and the policies and procedures
incorporated in the contract that they did not, in fact, give …
meaningful consideration for tenure.…
The Commissioner observed that prior to 1987, the Commission had jurisdiction to
hear claims based upon breach of a written or implied contract, but a 1987 amendment narrowed the
jurisdiction to claims founded on an “express contract.” A 1989 amendment narrowed the
jurisdiction to claims based on a “written contract.” The legislature, therefore, “took away” the
Commission’s jurisdiction to hear claims based upon an implied contract. Since the covenant of
good faith and fair dealing was implied and not written, the Commissioner concluded the
Commission did not have jurisdiction. The Commissioner also concluded it was:
the intention of the legislature that this Commission not hear claims
for breach of contract when formal consideration of [Plaintiff’s]
rights admittedly has been given and the issue is whether meaningful
consideration has been given in terms of Board of Regents’ policies;
this kind of issue in Tennessee is to be heard in a different forum, in
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“contested case” hearings under the Uniform Administrative
Procedures Act.
The Commissioner granted Defendant’s motion to dismiss. Plaintiff appeals, arguing
the implied covenant of good faith and fair dealing is part of his written contract, and the
Commission does have jurisdiction over Plaintiff’s breach of contract claim.
Discussion
A motion to dismiss for failure to state a claim upon which relief can be granted tests
only the legal sufficiency of the complaint, not the strength of the petitioner's proof. Cook v.
Spinnaker's of Rivergate, Inc., 878 S.W.2d 934, 938 (Tenn. 1994). The basis of such a motion is that
the allegations contained within the complaint, considered alone and taken as true, are insufficient
to constitute a cause of action. Id. On appeal, we are required to construe the complaint liberally
in Plaintiff's favor and take the allegations of the complaint as true. Bell v. Icard, Merrill, Cullis,
Timm, Furen and Ginsburg, P.A., 986 S.W.2d 550, 554 (Tenn. 1999). Our standard of review on
appeal from a ruling on a motion to dismiss is de novo, with no presumption of correctness as to the
Commission’s legal conclusions. See, e.g., Stein v. Davidson Hotel Co., 945 S.W.2d 714, 716
(Tenn. 1997).
We believe the Commission erred when it concluded an implied covenant of good
faith and fair dealing cannot be enforced against the State because it is not in writing. In Tennessee,
each party to a contract bears a duty of good faith and fair dealing in its performance and
enforcement of the contract. See Davidson & Jones Development Co. v. Elmore Development Co.,
921 F.3d 1343, 1350 (6th Cir. 1991)(citing TSC Industries, Inc. v. Tomlin, 743 S.W.2d 169, 173
(Tenn. Ct. App. 1987); Covington v. Robinson, 723 S.W.2d 643 (Tenn. Ct. App. 1986)). While a
breach of contract claim against the State must be based on a written contract, we hold the implied
covenant of good faith and fair dealing, while not itself in writing, is a part of the written contract.
The contract sued upon, therefore, is a written contract and not an implied contract. We hold the
Commission erred when it concluded the covenant of good faith and fair dealing cannot be enforced
against the State because it is not part of a written contract.
Next, we discuss the Commission’s conclusion that Plaintiff’s claim should have been
brought pursuant to the provisions of the Uniform Administrative Procedures Act (“UAPA”), as
opposed to being filed in the Claims Commission. We agree with the Commission that Plaintiff
should have proceeded according to the terms of the UAPA and the Claims Commission lacked
jurisdiction over the claim for that reason.
In the State University and Community College System, the Board of Regents is
granted authority to promulgate policies addressing the granting of tenure. Specifically, Tenn. Code
Ann. § 49-8-301 provides:
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49-8-301. Authority of board. – (a) The board of regents
shall promulgate a tenure policy or policies for faculty at institutions
within the state university and community college system, which
policy or policies shall ensure academic freedom and provide
sufficient professional security to attract the best qualified faculty
available for the institutions.
(b) Pursuant to this part, the board shall:
(1) Define the nature of tenure at institutions, and the rights
and responsibilities of faculty with tenure;
(2) Determine the minimum qualifications and requirements
for eligibility of faculty for tenure, and the conditions precedent to the
award of tenure by the board;
(3) Provide for the termination of faculty with tenure by
institutions for adequate cause, for retirement or disability, and for
financial reasons or curricular reasons in an institution in the
discretion of the board or its designee; and
(4) Provide for all other matters relating to tenure deemed
necessary by the board.
(c)(1) Tenure shall only be acquired by a faculty member in
an institution upon positive approval by the board, and no other type
of tenure or right similar thereto shall be acquired by a faculty
member.
(2) Faculty with tenure shall be subject to all reasonable
changes in the tenure policy adopted by the board; provided, that
faculty who have previously been awarded tenure shall retain their
tenured status under any new policy. Present faculty in probationary
employment shall be given credit for service in an institution toward
completion of any new probationary period.
The Uniform Administrative Procedures Act is codified at Tenn. Code Ann. § 4-5-
101, et seq., and defines an “agency” as “each state board, commission, committee, department,
officer, or any other unit of state government authorized or required by any statute or constitutional
provision to make rules or to determine contested cases.” Tenn. Code Ann § 4-5-102(2). A
“contested case” is defined to include a “proceeding, including a declaratory proceeding, in which
the legal rights, duties, or privileges of a party are required by any statute or constitutional provision
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to be determined by an agency after an opportunity for a hearing.… ” Tenn. Code Ann. § 4-5-
102(3).
In State Board of Regents v. Gray, 561 S.W.2d 140, 142-43 (Tenn. 1978), our
Supreme Court held the Board of Regents was an “agency” as defined in the UAPA. The question
then becomes whether Plaintiff’s claim for denial of tenure is a “contested case” within the meaning
of the UAPA. In Dishmon v. Shelby State Community College, 15 S.W.3d 477 (Tenn. Ct. App.
1999), the plaintiff, Mr. Dishmon, sued seeking back pay after he was terminated and then
subsequently reinstated three years later. The trial court awarded back pay, and the defendant
appealed. On appeal, this Court stated:
Mr. Dishmon's petition sought judicial review under the
Tennessee Uniform Administrative Procedures Act. The Act,
however, is inapplicable to proceedings that do not fit within its
adjudicatory definitions. See National Health Corp. v. Snodgrass,
555 S.W.2d 403, 405-06 (Tenn. 1977); Mid-South Indoor Horse
Racing, Inc. v. Tennessee State Racing Comm'n, 798 S.W.2d 531, 536
(Tenn. Ct. App. 1990). Judicial review under the Act is limited to
final decisions in contested cases. See Tenn. Code Ann. §
4-5-322(a)(1) (1998); Ben H. Cantrell, Judicial Review under the
Tennessee Uniform Administrative Procedures Act--An Update, 13
Mem. St. U. L. Rev. 589, 595 (1983). Thus, judicial review under
Tenn. Code Ann. § 4-5-322 is not available if the proceeding to be
reviewed is not a contested case. See Mid-South Indoor Horse
Racing, Inc. v. Tennessee State Racing Comm'n, 798 S.W.2d at 536.
According to Tenn. Code Ann. § 4-5-102(3) (1998), a
"contested case" is a proceeding in which the legal rights, duties or
privileges of a party are required by any statute or constitutional
provision to be determined by an agency after an opportunity for a
hearing. To determine whether any particular dispute is a contested
case under the Uniform Administrative Procedures Act, we must
examine the applicable statutes and constitutional provisions to see
if any of them provide that a complainant's rights must only be
determined after an opportunity for a hearing. See William P.
Kratzke, A Review of Contested Case Provisions of the Tennessee
Uniform Administrative Procedures Act, 13 Mem. St. U. L. Rev. 551,
554 (1983). We have found no provision in the United States
Constitution, the Constitution of Tennessee, or the applicable statutes
that requires Shelby State to provide its deans with a hearing in
employment disputes.
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Dishmon, 15 S.W.3d at 480, 481. Because the plaintiff’s claim in Dishmon was not a “contested
case” within the meaning of the UAPA, this Court concluded the plaintiff should have pursued his
lawsuit as a breach of contract claim with the Tennessee Claims Commission. Since the plaintiff
was seeking judicial review of his claim for back pay pursuant to the UAPA, the courts lacked
subject matter jurisdiction and his claim was dismissed.
Based on Dishmon, we must determine if “the legal rights, duties or privileges of
[Plaintiff … were] required by any statute or constitutional provision to be determined by an agency
after an opportunity for a hearing.” Dishmon, 15 S.W.3d at 481. If so, Plaintiff’s claim is a
“contested case.” See Tenn. Code Ann. § 4-5-102(3). The answer to this question can be found in
Purisch v. Tennessee Technological University, 76 F.3d 1414 (6th Cir. 1996). In Purisch, the
plaintiff sued after being denied tenure. One of the various claims asserted by the plaintiff in that
case was brought pursuant to 42 U.S.C. §1983, and was based on alleged lack of due process under
the Fourteenth Amendment to the United States Constitution. The university’s policies provided a
tenure-track faculty member must be considered for tenure during the fifth year of residency, and a
recommendation shall be based on the faculty member’s performance. In affirming the grant of
summary judgment to the defendant on this claim, the United States Court of Appeal for the Sixth
Circuit held that Tennessee Technological University had developed “rules and fostered mutual
understandings regarding entitlement to a merit-based tenure review.… Consequently, the university
may not deny a candidate tenure without some degree of impartial inquiry into his or her
qualifications.” 76 F.3d at 1423. The Sixth Circuit went on to observe as follows:
Violation of a state's formal procedure, however, does not in and of
itself implicate constitutional due process concerns. See Levine v.
Torvik, 986 F.2d 1506, 1515 (6th Cir.) ("A state cannot be said to
have a federal due process obligation to follow all of its procedures;
such a system would result in the constitutionalizing of every state
rule, and would not be administrable."), cert. denied, – U.S. –, 113 S.
Ct. 3001, 125 L. Ed. 2d 694 (1993). In other words, the issue before
us is not whether Volpe and Quattlebaum conformed to Tennessee
Tech's official grievance procedure in reviewing the tenure decision.
Rather, the issue is whether Purisch was afforded the process due to
protect his property right to a fair tenure review process.
Purisch, 75 F.3d at 1423. The Sixth Circuit then noted the “root requirement” of due process is an
opportunity for a hearing, and the plaintiff in that case had received due process. Id. at 1423-24.
In the present case, Plaintiff alleges Defendant acted arbitrarily, capriciously, and
unlawfully “by failing to entertain [Plaintiff’s] tenure and promotion bid fairly and in good faith, and
in a manner consistent with the policies and procedures of the State Board of Regents and/or Roane
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State.”1 Unfortunately, we have not been provided a copy of the policies and procedures of Roane
State or the Board of Regents which Plaintiff claims were not followed. Likewise, we have not been
provided a copy of the transcript of the hearing on Defendant’s motion to dismiss. The
Commissioner held this was a contested case and, by implication, that Plaintiff was entitled to an
opportunity for a hearing during the tenure process. Plaintiff had the responsibility to provide this
Court with a record sufficient to enable us to determine if the policies and procedures which he
claims were violated entitled him to a due process hearing consistent with Purisch. Plaintiff had the
duty "to prepare a record which conveys a fair, accurate and complete account of what transpired in
the trial court with respect to the issues which form the basis of the appeal." Nickas v. Capadalis,
954 S.W.2d 735, 742 (Tenn. Ct. App. 1997). In the absence of an adequate record on appeal, this
Court will presume the Commission’s rulings were supported by sufficient evidence. See, e.g., State
v. Oody, 823 S.W.2d 554, 559 (Tenn. Crim. App. 1991). In light of the foregoing, we affirm the
Commissioner’s conclusion that Plaintiff’s claim was a “contested case” for purposes of the UAPA,
Tenn. Code Ann. § 4-5-102(3).2
Plaintiff challenges the alleged failure of Roane State to follow the proper policies
and procedures during the course of his denial of tenure. We acknowledge the Claims Commission
is the proper forum for a claim against the State based upon breach of a written contract executed
by one or more State officers with authority to execute the contract. Tenn. Code Ann. § 9-8-
307(a)(1)(L). We do not believe Plaintiff’s characterization of his claim as a breach of contract
somehow alters the true nature of this case thereby negating the UAPA and vesting the Claims
Commission with subject matter jurisdiction. See, e.g., Baptist Hospital v. Tennessee Department
of Health, 982 S.W.2d 339, 340-41 (Tenn. 1998) (“The hospitals argue that this Medicaid
reimbursement challenge is merely a breach of contract action. The claims commission generally
has exclusive subject matter jurisdiction over all monetary claims against the State. Tenn. Code
Ann. § 9-8-307. Accordingly, the hospitals argue that the claims commission had subject matter
jurisdiction in the case now before us. We disagree.… We have reviewed the hospitals' complaint
and the entire record on appeal. The hospitals' case is premised upon the contention that Tenn.
Comp. R. & Regs. ch. 1200-13-5-.08 is invalid because the rule violates OBRA '90. Accordingly,
the hospitals' claim is properly classified as a challenge to the validity of Rule 1200-13-5-.08.
Claims challenging the validity of or applicability of a statute, rule, or order must be brought
pursuant to the UAPA.”). Since Plaintiff’s claim is a “contested case”, Plaintiff should have pursued
his claim pursuant to the provisions of the UAPA despite Plaintiff’s characterization of his claim as
a breach of contract.
1
Plaintiff does not assert a claim th at his due process rights were vio lated.
2
There are due process and statutory procedural requirements found in Tenn. Code Ann. § 49 -8-3 03, b ut this
statute only applies to certain actions against tenured employees. Because Plaintiff was not tenured, the procedural
requirements found in this statute do not apply.
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We hold the proper avenue of relief for Plaintiff to pursue his “contested case” was
through the provisions of the UAPA. We, therefore, affirm the judgment of the Claims Commission
dismissing the complaint on the basis the Commission was without subject matter jurisdiction.
Conclusion
The judgment of the Claims Commission is affirmed, as modified, and this cause is
remanded to the Commission for such further proceedings as may be required, if any, consistent with
this Opinion, and for collection of the costs below. The costs on appeal are assessed against the
Appellant, Roy R. Ferguson, and his surety.
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D. MICHAEL SWINEY, JUDGE
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