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June 30, 1994



Rehearing Denied August 4, 1994. Petition for Leave to Appeal Denied December 6, 1994.

Cousins, Jr., Gordon, McNULTY

The opinion of the court was delivered by: Cousins

JUSTICE COUSINS, JR. delivered the opinion of the court:

Defendant, Zack Company (Zack), appeals from the circuit court judgment entered against it in a retaliatory discharge action brought by plaintiffs, Albert T. Howard (Howard) and Sharon L. Marello (Marello). The circuit court, sitting without a jury, found that Zack discharged Howard and Marello in retaliation for reporting violations of Federal laws and regulations governing quality assurance and document control for nuclear power plants. The court awarded Howard $27,960 in compensatory damages and $300,000 in punitive damages; Marello was awarded $11,960 in compensatory damages and $75,000 in punitive damages. On appeal, Zack contends that the circuit court's findings with regard to both liability and damages are against the manifest weight of the evidence.

We affirm.


At all relevant times, Zack was in the business of fabricating and installing heating, ventilating, and air-conditioning (HVAC) systems in nuclear power plants. HVAC work, like all other construction work at nuclear power plants, is highly regulated.

Title 10, Part 50 of the Code of Federal Regulations establishes mandatory quality assurance criteria for the construction of nuclear power plants and their component systems and parts. (10 C.F.R. Part 50, App. B (1981).) Among other things, Federal regulations require that the subcontractors working at nuclear power plants, such as Zack, be able to verify that the materials used in construction meet the nuclear standards promulgated by the American Society of Mechanical Engineers. Compliance with these standards is normally insured through stringent record-keeping procedures. Federal regulations dictate that procedures exist for storage and retrieval of documents which verify the origins and specifications of materials used in the construction of nuclear power plants. Among other things, these procedures enable engineers to predict the serviceability and/or failure rate of these materials.

In the Fall of 1976, Zack contracted with Consumer Power to do HVAC work at their nuclear power plant in Midland, Michigan. That work continued until the spring of 1980, when Zack came under investigation by the Nuclear Regulatory Commission (NRC). The NRC had received allegations about a quality assurance breakdown at Zack which included falsified records, discrepancies in material traceability, inadequate procedures, and unqualified quality control personnel.

During its investigation, the NRC determined that quality assurancedeficiencies did exist at Zack and the deficiencies were caused by noncompliance with approved record keeping and control procedures. The NRC issued a report disclosing its findings, and in January 1981, it assessed civil penalties in the amount of $38,000 against the licensee, Consumer Power, for those quality assurance deficiencies. In response, Bechtel Power Corporation, the general contractor at the Consumer Power's Midland nuclear power plant, issued a stop work order to Zack.

At this time, it became clear to Christine Zack (Christine), the president and CEO of Zack, that an all-encompassing quality assurance program with a centralized document control function was needed. She hired the NUS company to review the existing quality functions at Zack and recommend improvements. NUS sent David Calkins (Calkins) to Zack to perform the quality control audit, and eventually, Christine hired Calkins away from NUS and made him the Quality Assurance Manager of Zack.

In August 1981, Calkins informed Christine that he had discovered that an employee named Carl Eichstaedt had forged someone else's signature on an original Certified Material Test Report (CMTR). The CMTR identifies the physical and chemical composition of metal, and is provided by the suppliers from whom Zack acquires material. Upon confrontation, Eichstaedt admitted that he forged the certificate. After further investigation, Calkins determined that the problem was potentially reportable under applicable Federal regulations. Within a month, he also determined that Zack's document problems did not pertain solely to one plant, but instead could potentially impact all of the nuclear plants at which Zack was working. Christine instructed Calkins to notify the utilities, identify the scope of the problem and take corrective action.

In response, Calkins generated a document entitled Corrective Action Request No. 14 (CAR 14) which contained a written description of the discrepancies, the corrective action to be taken and the steps to prevent recurrence. CAR 14 identified generic categories of pervasive, recurring problems.

Calkins advised Christine that Zack needed to hire additional employees because he anticipated that implementation of the corrective action under CAR 14 would require a lengthy program. He proposed creating a document control department which would consist of three quality assurance engineers, one document control supervisor, and three document control clerks. In October 1981, Calkins recommended Howard, who was an old friend, for one of the document control clerk positions, and in November 1981, Howard was promoted to supervisor of the document control department. Prior to his employment with Zack, Howard had been a grammar school teacher for twenty-five years and had been unemployed for a long period of time. Marello was also hired as a document control clerk; she had been a waitress prior to coming to Zack. In addition to Howard and Marello, three individuals with technical expertise, including Ronald Perry, were brought in on a temporary basis from Quantech to fill the quality assurance engineer positions. Finally, a representative of Consumer Power, Howard McGrane, assisted in the implementation of CAR 14.

As document control clerks, Howard and Marello were to gather CMTRs and match them with purchase orders. Clerks were to check the CMTRs for alterations, such as whiteout or stickers appearing on the face of the document, incorrect referencing of chemical and physical standards, typographical errors, crossouts, or written additions to the face of the document. When an altered CMTR was discovered, clerks were to contact the manufacturer to acquire a new, corrected CMTR. If they were unable to acquire a corrected version, the altered CMTR was submitted to the quality assurance department and that department would determine whether materials listed in the altered CMTR needed to undergo testing by Zack's engineers. The quality assurance department would also determine whether the problem CMTR needed to be reported to the utilities.

The clerks also scrutinized the purchase orders to verify that the supplier listed therein was included on the approved vendor list. Approved vendors were vendors who met certain criteria established by Title 10 of the Code of Federal Regulations. As with altered CMTRs, the clerks reported problem purchase orders to the quality assurance department and that department would determine whether the utilities should be notified.

Although CAR 14 was implemented in response to existing problems with inadequate or falsified CMTRs and purchase orders at Zack, Howard and Marello observed ongoing compliance problems. Plaintiffs were disturbed by the continuing nature ofZack's quality assurance problems, and Perry shared their concerns. Perry testified that in his opinion, CAR 14 did not accurately describe the problem. He stated that the description of Zacks's problems was "watered down" and the situation at Zack was much more serious than documented. Perry also stated that he observed ongoing problems at Zack, and he opined that CAR 14 was not being complied with while he was there.

In January 1982, Perry and Howard met with Calkins to inform him of their concerns about the inaccuracy of interim reports issued to utilities and to discuss their dissatisfaction with the progress of Zack's quality assurance program. At this time, Perry and Howard requested that a more accurate report be prepared. Perry testified that although Calkins initially resisted their request, eventually the report was completed to Perry and Howard's satisfaction.

Due to his continuing concern about the gravity of the document control problem, Perry contacted Walter Shewski, Commonwealth Edison's Corporate Manager of Quality Assurance, and advised him that control over documents at Zack was inadequate and that CAR 14 had downplayed the seriousness of the problem. The next day, Raymond Basiaga, a quality assurance engineer at Zack, told Perry that he had made a mistake in contacting Commonwealth Edison about his concerns. Also the next day, two auditors from Commonwealth Edison came to Zack and performed an audit. Shortly thereafter, Perry left Zack's employ. Zack had hired Perry for a three to six month period in order to correct the document control deficiencies; six months had elapsed from the time that he had been hired and Zack informed him that his services were no longer needed.

Howard believed that serious compliance problems continued to exist in the document control procedures. For instance, he discovered that Eichstaedt had written to one of Zack's vendors and requested that it issue a letter of conformance with certain technical specifications for certain materials the vendor had supplied. Eichstaedt had enclosed an unsigned copy of the conformance letter for the vendor to use as "an example." Howard considered this procedure ...

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