Francis v. Lee Enterprises, Inc.
89 Haw. 234, 14 I.E.R. Cas. (BNA) 1294, 971 P.2d 707 (1999)
Rule of Law:
Hawai'i law does not recognize a cause of action for tortious breach of contract in the employment context, and generally will not allow tort recovery for a contract breach unless the conduct independently violates a tort duty that transcends the breach of contract itself.
Facts:
- KGMB is a local television network affiliate.
- Russ Francis is a well-known local sports figure who played professional football.
- On January 18, 1996, Russ Francis and KGMB entered into a written employment contract.
- KGMB employed Russ Francis as its sports director.
- On January 20, 1997, KGMB terminated Russ Francis from his employment.
- Russ Francis alleged that KGMB acted “wilfully, wantonly, recklessly and/or in bad faith” in breaching the employment contract.
Procedural Posture:
- Russ Francis filed a complaint in the first circuit court against KGMB, including claims for breach of contract and tortious breach of contract.
- KGMB removed the action to the United States District Court for the District of Hawai'i.
- KGMB moved to dismiss Russ Francis’s tortious breach of contract claim (Count II), arguing Hawai'i law did not recognize such a claim in the employment context.
- The federal district court initially granted KGMB’s motion to dismiss Count II.
- Russ Francis filed a motion for reconsideration or, in the alternative, for certification of the question to the Hawai'i Supreme Court.
- The federal district court withdrew its order dismissing Count II and certified the question to the Hawai'i Supreme Court pursuant to HRAP 13(a).
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Issue:
Does Hawai'i law recognize a tortious breach of contract cause of action in the employment context?
Opinions:
Majority - MOON, C. J.
No, Hawai'i law does not recognize tortious breach of contract actions in the employment context. The court reexamines and abolishes its prior rule from Dold v. Outrigger Hotel and Chung v. Kaonohi Center Co. (the Dold-Chung rule), which allowed tort recovery when a contract was breached in a wanton or reckless manner. The court reasons that the Dold-Chung rule unnecessarily blurs the fundamental distinctions and discrete theories of recovery between tort and contract law. Contract law aims to ascertain and effectuate the parties' intentions and ensure predictability in commercial relations, typically limiting damages to those foreseeable by the parties and meant to compensate for loss, not punish. Tort law, in contrast, aims to vindicate social policy and allows for damages like emotional distress and punitive damages. While emotional distress damages may still be recoverable in certain contract actions, it will only be in two exceptional situations: 1) where emotional distress accompanies a bodily injury, making the action essentially a tort, or 2) where the nature of the contract itself clearly indicates that serious emotional disturbance is a particularly foreseeable result of a breach (e.g., contracts for marriage, burial services). Employment contracts are primarily economic, and damages for emotional distress are rarely, if ever, within the contemplation or expectation of the parties. Punitive damages will never be recoverable for a mere breach of contract, even if willful or malicious, unless the conduct constituting the breach independently violates a duty recognized by tort law. The court emphasizes that allowing tort remedies for contract breaches would undermine predictability in contractual relations, especially in the employment context where contracts primarily serve an economic purpose. Furthermore, drawing lines between 'intentional' and 'wilful, wanton, or reckless' breaches is impractical and would consume judicial resources. The court explicitly distinguishes this from the tort of bad faith, which is recognized in the atypical first-party insurance context due to the unique relationship between insured and insurer, fiduciary responsibilities, and adhesionary aspects of insurance contracts. Therefore, Hawai'i law now requires conduct that (1) violates a duty independently recognized by principles of tort law and (2) transcends the breach of the contract for tort recovery. This decision ensures that contract damages remain compensatory and predictable, aligning Hawai'i law with the majority of jurisdictions.
Analysis:
This case fundamentally reshapes contract law in Hawai'i by abolishing the longstanding Dold-Chung rule, which previously allowed tort-like damages for wanton or reckless breaches of contract. The ruling clarifies the critical distinction between contract and tort remedies, emphasizing the compensatory nature of contract damages and the social policy objectives of tort law. This will likely lead to fewer claims for emotional distress and punitive damages in breach of contract cases, particularly in employment disputes, unless there is an independent tort. The decision promotes predictability in commercial transactions but may prompt plaintiffs to more carefully craft their complaints to allege independent torts where applicable, rather than relying on the manner of breach to elevate contract claims to tort claims.
