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June 19, 1989


The opinion of the court was delivered by: MCKINNEY


 This cause comes before the Court on the plaintiff's motion for partial summary judgment and the defendant's response thereto. The issues raised have been thoroughly briefed and are ready for resolution. For the reasons set forth below, the Court GRANTS the plaintiff's motion for partial summary judgment on Count One and DENIES the plaintiff's motion for a separate trial on the issue of damages. The Court orders further briefing on the issue of damages, as set forth below in the opinion, and GRANTS summary judgment to defendant on plaintiff's claim for punitive damages in Count One.

 Plaintiff Edgar Spearman, an Indiana resident, filed this diversity action against Delco Remy alleging two separate but related causes of action. *fn1" In Count One plaintiff charges that Delco wrongfully discharged him, and in Count Two alleges that Delco defamed him. Spearman seeks damages of $ 850,000 in Count One plus punitive damages of one million dollars, as well as $ 500,000 of compensatory damages in Count Two plus one million dollars of punitive damages.

 Plaintiff has filed a motion for summary judgment as to the wrongful discharge allegations of Count One, arguing that Delco Remy is collaterally estopped from relitigating the issue of whether Spearman was discharged for cause. Spearman bases this argument on the administrative finding made by the Review Board of the Indiana Employment Security Division that he was not discharged for cause.

 The material facts surrounding this issue are, as defendant concedes, undisputed, and can be summarized as follows:

 Delco Remy operates a manufacturing facility in Anderson, Indiana. In 1954, plaintiff Spearman commenced employment with Delco Remy in an hourly, non-supervisory position. After 23 years with Delco, Spearman was promoted to a supervisory position. Specifically, on June 16, 1977, Delco and Spearman entered into a written "Employment Agreement" under which Spearman agreed to devote his time and service to Delco in consideration of a monthly salary. The Employment Agreement also contained the following provisions:

2. The Employee acknowledges that his employment under this agreement is from month to month only on a calendar month basis.
3. In consideration of the services to be performed . . ., the Employer agrees to pay the Employee . . . as long as the employment under this agreement continues, compensation at the monthly rate set forth on the 'Compensation Statement', signed by the Employee, accepted by the Employer, and on filed in the Payroll Records of the Employer . . . .
6. The Employer and the Employee acknowledge that there are no other arrangements, agreements, or understandings, verbal or in writing, regarding same and that any modification or amendment hereof, or other than a cancellation and replacement hereof by another written form of agreement, must be endorsed hereon in writing and initialed by both the Employee and Employer.

 See "Employment Agreement." A copy of the "Compensation Statement" for 1985 has been produced by plaintiff and recites that plaintiff's compensation rate was $ 3,140.28 per month.

 On Friday, March 29, 1985, Spearman was verbally discharged by Delco Remy. Delco cited Spearman's involvement in Delco Remy's purchase of packaging crates from S & T Specialties, a company with which Spearman's stepson was affiliated. Delco Remy charged Spearman with improperly using a position of trust and confidence for personal benefit or the benefit of others.

 Spearman thereafter filed an application for unemployment benefits with the Indiana Employment Security Division, and was initially granted benefits on July 17, 1985. Delco Remy appealed to an Appeals Referee, and a hearing was held on September 18 and October 4, 1985. Plaintiff was present at the hearing and was represented by counsel, and plaintiff called three witnesses to testify on his behalf. Delco Remy was represented by counsel and called five witnesses to testify. On October 21, 1985, the Appeals Referee reversed the award of benefits in a four page written opinion. The Referee concluded that under Ind.Code Ann. ยง 22-4-15-1(d)(8), which defines discharge for just cause to include "any breach of duty in connection with work which is reasonably owed an employer by an employee," Spearman's discharge for violating a duty of loyalty was for just cause. Thus, the Referee concluded, Spearman was not entitled to unemployment benefits.

 Spearman thereafter appealed to the Review Board, and a hearing was held on May 22, 1986, before three Board members. Plaintiff appeared in person with his attorney and Delco Remy was represented by its attorney and two employees. The three-person Review Board reversed the Referee and determined in a two page written opinion that Spearman's discharge was not for just cause. Delco Remy appealed the matter to the Indiana Court of Appeals, which unanimously affirmed the Review Board's conclusion. See Delco Remy v. Indiana Employment Security Division, 503 N.E.2d 1251 (Ind.App. 1987). Delco Remy's petition to transfer was later denied as well.


 Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Further, Rule 56(e) provides:

When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party.

 Fed.R.Civ.Proc. 56(e).

 While these rules were formerly viewed with some hostility by the federal courts and were sparingly used in disposing of insufficient claims or defenses, see, e.g., Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 82 S. Ct. 486, 7 L. Ed. 2d 458 (1962), the Supreme Court has more recently instructed the district courts to follow the mandatory aspects of Rule 56 and enter summary judgment where appropriate. See Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986); Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986). The Celotex Court wrote:

Rule 56 must be construed with due regard not only for the rights of persons asserting claims and defenses tried to a jury, but also for the rights of persons opposing such claims and defenses to demonstrate in the manner provided by the rule, prior to trial, that the claims and defenses have no factual basis.

 Celotex, 477 U.S. at 327, 106 S. Ct. at 2555. The Seventh Circuit has noted and readily embraced the change in attitude towards Rule 56. See e.g., Spellman v. Commissioner, 845 F.2d 148, 152 (7th Cir. 1988); Collins v. Associated Pathologists, Ltd., 844 F.2d 473 (7th Cir. 1988). Morgan v. Harris Trust and Savings Bank, 867 F.2d 1023, 1026 (7th Cir. 1989) ("When a rational trier of fact ...

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