Palenick v. City of Rio Rancho

IN THE SUPREME COURT OF THE STATE OF NEW MEXICO
Opinion Number: __________
Filing Date: June 27, 2013
Docket No. 33,380
JAMES M. PALENICK,
Plaintiff-Respondent,
v.
CITY OF RIO RANCHO,
Defendant-Petitioner.
ORIGINAL PROCEEDING ON CERTIORARI
George P. Eichwald, District Judge
Montgomery & Andrews, P.A.
Randy S. Bartell
Holly Agajanian
Andrew S. Montgomery
Santa Fe, NM
for Petitioner
Law Office of Daniel Faber
Daniel M. Faber
Santa Fe, NM
for Respondent
Peifer, Hanson & Mullins, P.A.
Gregory P. Williams
Albuquerque, NM
for Amicus Curiae New Mexico Foundation for Open Government
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OPINION
MAES, Chief Justice.
{1} This appeal stems from the termination of Rio Rancho’s City Manager, James
Palenick (Palenick), and requires us to address the narrow issue of whether Palenick is
estopped from pursuing a breach of contract claim against the City of Rio Rancho (the City)
based on an alleged violation of the Open Meetings Act (OMA), NMSA 1978, Sections 10-
15-1 to -4 (1974, as amended through 2009). We conclude that there is substantial evidence
to support the district court’s finding that Palenick waived his right to pursue a breach of
contract claim against the City based on an alleged violation of the OMA. Because we
conclude that Palenick waived his right to pursue a breach of contract claim, we need not
decide whether there was in fact a violation of the OMA.
I. FACTS AND PROCEDURAL HISTORY
{2} Palenick was hired by the City to serve as City Manager in November 2006.
Palenick and the City entered into an employment agreement which provided that Palenick
would be employed for an indefinite period of time and would serve at the pleasure of the
City Council, the City’s Governing Body. More specifically, the agreement provided that
if Palenick was terminated without cause the City was required “to pay [Palenick] a lump
sum cash severance payment equal to six (6) months [of Palenick’s] aggregate salary and
benefits, plus one month for each year in service as City Manager.” Palenick was also
entitled to compensation for all vacation time earned, holidays, personal annual leave, and
all other benefits that he had accrued up until the date of termination. In the event that
Palenick was terminated for cause, he was not entitled to any of the aforementioned benefits.
According to the terms of the agreement, Palenick was to be exclusively employed by the
City and was therefore prohibited from having additional employment unless he obtained
prior approval from the City Council.
{3} On December 13, 2006, the City Council held a meeting and voted to terminate
Palenick’s employment. On December 14, 2006, Palenick hand-delivered a letter to the
City’s Human Resources Department requesting his severance package as provided for in
the employment agreement. The letter made no mention of the circumstances surrounding
his termination. On December 21, 2006, Palenick sent a revised letter to the City’s Human
Resources Department in which he modified his original severance calculations, but did not
mention anything about an OMA violation. Human Resources responded to the letters and
informed Palenick that as of December 13, 2006, he was no longer considered a City
employee. Palenick did not object to the statements contained in this letter. The City then,
pursuant to the employment agreement, paid Palenick his severance payment and all of the
other benefits to which he was entitled. After December 13, 2006, Palenick did not perform
any work for the City, and the City appointed a new City Manager. In August 2007,
Palenick was hired to serve as City Manager for the City of Gastonia, North Carolina.
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{4} Shortly thereafter Jim Owen, the former Mayor of Rio Rancho, filed a complaint with
the Attorney General’s Office alleging that the City had violated the OMA when it
terminated Palenick on December 13, 2006. The Attorney General’s Office informed the
City that the manner in which it terminated Palenick’s employment violated the OMA and
that the violation invalidated Palenick’s termination. The Attorney General informed the
City that, because of discussions regarding Respondent's employment status that predated
the meeting on December 13, 2006, the City violated the OMA in terminating Respondent's
employment at that meeting and that the violation invalidated the City Council's action
terminating Respondent. The City Council held a meeting on November 14, 2007, and
adopted a resolution to address the Attorney General’s concerns. The resolution stated that
“[i]f at all relevant, any and all prior actions undertaken in terminating [Palenick’s]
employment with the City and set forth in writing are hereby ratified and approved.” By this
resolution, the City Council intended to ratify and approve its prior action terminating
Palenick’s employment effective December 13, 2006.
{5} Palenick sued the City alleging a violation of the OMA and for breach of contract
seeking unpaid salary and benefits dating back to December 13, 2006, when Palenick was
last paid by the City. After the bench trial on July 1, 2009, the district court issued its
findings of facts and conclusions of law in which it concluded that the City’s actions at the
December 13, 2006 meeting had violated the OMA, but the resolution adopted by the City
Council on November 14, 2007 retroactively cured the OMA violation, and that Palenick’s
election to proceed with his demand for severance payments amounted to a waiver of his
right to pursue a breach of contract action based on the City’s OMA violation. Palenick
subsequently filed a motion for a new trial which the district court denied. [RP 378]
Palenick appealed to the Court of Appeals
{6} The Court of Appeals held that “the district court erred in determining that the City’s
November 14, 2007, resolution retroactively rectified, ratified, and approved the invalid
December 13, 2006, action taken in violation of the [OMA] thereby making the termination
valid and effective as of December 13, 2006.” Palenick v. City of Rio Rancho, 2012-
NMCA-018,¶ 9, 270 P.3d 1281. The Court further held that “[u]nder these circumstances,
[there was] no basis upon which [Palenick] should be barred on a waiver or estoppel ground”
from pursuing a breach of contract claim; and that the City’s failure to file a cross-appeal
precluded the Court from addressing the issue regarding whether Palenick had established
that there was in fact a violation of the OMA. Palenick, 2012-NMCA-018, ¶¶ 11-12.
{7} We granted certiorari to address the following issues: 1) whether the Court of
Appeals’ holding that a public entity cannot give retroactive effect to the ratification of a
prior act taken in violation of the OMA is inconsistent with controlling precedent and
statutory law; 2) whether the Court of Appeals’ requirement that a prevailing party must file
a notice of cross-appeal in order to raise alternative arguments in favor of affirming the
district court is contrary to NMSA 1978, Section 39-3-2 (1966), Rule 12-201 (C) NMRA,
and New Mexico case law; and, 3) whether the Court of Appeals misapprehended the City’s
waiver by estoppel defense and further erred by applying the incorrect standard of review
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when determining whether the district court erred in its application of waiver by estoppel to
Palenick’s breach of contract claim. Accordingly, for the reasons that follow we reverse the
Court of Appeals and hold that Palenick’s demand and acceptance of the severance package
from the City amounted to a waiver of Palenick’s right to pursue claims against the City for
its alleged violation of the OMA, as well as his right to bring a breach of contract claim for
additional wages. Therefore, we need not address whether the OMA allows for a public
entity to ratify prior actions, or whether Section 39-3-2, and Rule 12-201 (C) require a
prevailing party to file a notice of cross-appeal in order to raise alternative arguments in
favor of affirming the district court.
II. STANDARD OF REVIEW
{8} Unless the facts are undisputed or clearly established, the question regarding whether
a party intended to waive a right is ordinarily a question of fact. See Chavez v. Gomez, 77
N.M. 341, 345, 423 P.2d 31, 33 (1967). The City asserts that because the issue of waiver is
a question of fact, and the facts in this case are in dispute, the Court of Appeals erred in
reviewing this issue de novo. Palenick asserts that regardless of what standard of review
applies, the Court of Appeals was correct in reversing the district court’s order.
{9} Here, the parties were in disagreement about the date of Palenick’s termination, the
effect that the termination had on Palenick’s ability to collect wages from the City, and
whether the City’s November 14, 2007 actions cured the alleged OMA violation. The facts
underlying the waiver by estoppel issue, however, are not in dispute. Therefore, we agree
with the Court of Appeals that, in this case, the issue of waiver is a question of law subject
to de novo review. Crutchfield v. New Mexico Dep’t of Taxation and Revenue, 2005-
NMCA-022, ¶ 28, 137 N.M. 26, 106 P.3d 1273 (providing that “[w]hen a party is
challenging a legal conclusion, the standard for review is whether the law correctly was
applied to the facts” (quoting Golden Cone Concepts, Inc., v. Villa Linda Mall, Ltd., 113
N.M. 9, 12, 820 P.2d 1323, 1326 (1991)). Accordingly, we review de novo the issue
regarding whether Palenick waived his right to challenge his termination.
III. DISCUSSION
{10} The district court concluded that Palenick’s demand for and acceptance of a
severance payment waived his right to pursue a breach of contract claim against the City.
The Court of Appeals reversed the district court’s finding that Palenick had waived his right
to any salary and benefits because he had demanded and received the severance payment
when he was initially terminated. Palenick, 2012-NMCA-018, ¶ 11. In so doing, the Court
held that “the circumstances [did] not permit a determination of waiver or relinquishment
of a known right or waiver by estoppel.” Id. The Court reasoned that because Palenick
would have been entitled to severance benefits regardless of when he was fired there [was]
no basis to deny him his right to pursue a breach of contract claim. Id.{11} The City asserts that the crux of its waiver by estoppel argument is that Palenick’s
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demand and acceptance of a severance payment is inconsistent with his assertion that he was
still an employee after December 13, 2006, and that the Court of Appeals misunderstood its
waiver by estoppel argument and that based on that misunderstanding it improperly reversed
the district court. The City’s argument, therefore, is that because Palenick’s actions
following the December 13, 2006 termination amounted to waiver by estoppel, it is not
required to pay Palenick the salary and benefits that Palenick would have received had he
been an employee during the period between December 13, 2006 and November 14, 2007.
{12} Palenick appears to interpret the City’s waiver argument as an attempt to prevent him
from getting severance payments under the employment agreement. Palenick asserts that
by making a demand for the severance payments he was alerting the City to his right to
severance payments, not waiving it. Palenick further asserts that the City did not
demonstrate that Palenick intended to waive his right to severance payments, and therefore
the City’s argument regarding waiver would require this Court to engage in unsupported
guesswork.
{13} Palenick has not accurately represented the City’s assertions. The City has not
asserted that Palenick waived all rights to severance payments. Rather, the City has asserted
that Palenick waived his right to challenge his termination date by demanding and accepting
his severance benefits. Palenick directs this Court’s attention to the City’s counterclaim to
support his assertion that the City is attempting to prevent him from getting his severance
package. In the City’s counterclaim, however, the City asserts that Palenick is only able to
receive severance payments upon termination, and that if the district court concludes that
Palenick was not fired until November 14, 2007, then Palenick should be required to
reimburse the City for the severance package, plus interest, that was paid to Palenick in
December 2006. The City’s counterclaim does not state that Palenick is not entitled to
severance payments, but rather states that Palenick is not entitled to collect the severance
payments in addition to a salary for the period spanning December 14, 2007 through
November 14, 2007. Thus, the City’s waiver by estoppel argument is based on the fact that
Palenick demanded his severance payment at a time when he did not believe he was lawfully
terminated. The City asserts that this claim amounted to a misleading representation on
which the City relied to its detriment.
{14} “Waiver is the intentional abandonment or relinquishment of a known right.” Gomez,
77 N.M. at 345, 423 P.2d at 33 (internal citation omitted). “[E]stoppel depends only upon
what one’s conduct has caused another party to do[,]” and “is justified because the estopped
party reasonably could expect that his actions would induce the reliance of the other party.”
J.R. Hale Contracting Co. v. United N.M. Bank, 110 N.M. 712, 716-17, 799 P.2d 581, 585-
86 (1990). Our case law has explained waiver by estoppel as being “based upon either an
actual wavier or certain ‘expressions or conduct’ where the reliance of the opposite party and
his change of position justifies the inhibition to assert the obligation or condition.” Id. at
717, 799 P.2d at 586. For a party “[t]o prove waiver by estoppel[,] the party need only show
that he [or she] was misled to his [or her] prejudice by the conduct of the other party into the
honest and reasonable belief that such waiver was intended.” Id. Therefore, the
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following facts must be established to support a claim of waiver by estoppel:
(1) the party to be estopped made a misleading representation by conduct; (2)
the party claiming estoppel had an honest and reasonable belief based on the
conduct that the party to be estopped would not assert a certain right under
the contract; and (3) the party claiming estoppel acted in reliance on the
conduct to its detriment or prejudice.
Brown v. Taylor, 120 N.M. 302, 305-06, 901 P.2d 720, 723-24 (1995).
{15} There is substantial evidence to support the district court’s finding that Palenick
made a misleading representation when he demanded, and received, his severance benefits
despite his belief that he had not actually been terminated. Following the City Council’s
action on December 13, 2006, Palenick demanded and received the severance benefits to
which he was entitled under his employment contract in the event he was fired without
cause. At the time that Palenick demanded his severance benefits he believed that the OMA
had been violated and that he was still an employee of the City. Despite these beliefs,
Palenick’s severance demand made no mention of the OMA, his concerns that the OMA had
been violated, or that he was not properly terminated. Palenick did not object to the Human
Resources Department’s December 27, 2006, letter which stated that effective December 13,
2006, he was no longer an employee of the City. Moreover, on the documentation in which
Palenick elected to get COBRA’s continuation of coverage for his health insurance, Palenick
checked “end of employment” as the basis for continuing the coverage further representing
to the City that he believed he had been terminated. Had Palenick believed that the City had
violated the OMA, he should have complied with NMSA 1978, Section 10-15-3(B) (1997)
and alerted the City to the alleged OMA violation. Section 10-15-3(B) provides that
[a]ll provisions of the [OMA] shall be enforced by the attorney general or by
the district attorney in the county of jurisdiction. However, nothing in that
act shall prevent an individual from independently applying for enforcement
through the district courts, provided that the individual first provides written
notice of the claimed violation to the public body and that the public body has
denied or not acted on the claim within fifteen days of receiving it. A public
meeting held to address a claimed violation of the [OMA] shall include a
summary of comments made at the meeting at which the claimed violation
occurred.
(Emphasis added.) Palenick failed to comply with Section 10-15-3(B) and alert the City
Council of the alleged OMA violation. Based on Palenick’s actions it was reasonable for
the City to believe that Palenick felt he had been terminated as of December 13, 2006, was
no longer an employee, and was no longer entitled to his salary. Palenick even testified that
the City had every reason to rely on his representations that he was requesting his severance
package on the grounds that his employment had been terminated. The City did in fact rely
on Palenick’s representations and dispensed the severance package to which Palenick was
entitled only in the event he had been terminated without cause. Therefore, Palenick’s
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failure to notify the City of the potential OMA violation, Palenick’s failure to object to his
termination and his demand and acceptance of his severance package amounted to waiver
by estoppel. We, therefore, reverse the Court of Appeals.
{16} Accordingly, because we conclude that Palenick’s actions amounted to waiver by
estoppel we need not address whether the OMA was violated in this case, or the associated
issues.
III. CONCLUSION
{17} For the reasons outlined above we conclude that Palenick waived his right to pursue
a breach of contract claim and reverse the Court of Appeals.
{18} IT IS SO ORDERED.
______________________________________
PETRA JIMENEZ MAES, Chief Justice
WE CONCUR:
____________________________________
RICHARD C. BOSSON, Justice
___________________________________
EDWARD L. CHÁVEZ, Justice
___________________________________
CHARLES W. DANIELS, Justice
___________________________________
BARBARA J. VIGIL, Justice
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