Source: https://law.justia.com/cases/california/supreme-court/4th/21/563.html
Timestamp: 2019-04-22 20:04:02+00:00

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THOMAS M. WHITE, Plaintiff and Respondent, v. ULTRAMAR, INC., Defendant and Appellant.
Seyfarth, Shaw, Fairweather & Geraldson, William J. Dritsas, David D. Kadue and Michael J. Sears for Defendant and Appellant.
Littler Mendelson, David S. Durham, Henry D. Lederman and Arthur M. Eidelhoch for Beverly Enterprises-California, Inc., as Amicus Curiae on behalf of Defendant and Appellant.
Horvitz & Levy, Peter Abrahams, Mitchell C. Tilner and S. Thomas Todd for the American International Companies and Fire Insurance Exchange as Amici Curiae on behalf of Defendant and Appellant.
Sidley & Austin, Jeffrey A. Berman, James M. Harris and Deborah J. Muns for Employers Group as Amicus Curiae on behalf of Defendant and Appellant.
Paul, Hastings, Janofsky & Walker, Paul Grossman, George W. Abele and Christina L. McEnerney for California Employment Law Council as Amicus Curiae on behalf of Defendant and Appellant.
Larabee & Loadman and Dale R. Larabee for Plaintiff and Respondent.
Law Offices of Ian Herzog, Evan D. Marshall, Ian Herzog; Douglas Devries; Bruce Broilett; Christine Spagnoli; Roland Wrinkle; Wayne McClean; James Sturdevant; Harvey R. Levine; Leonard Sacks; Daniel Smith; Robert Steinberg; Tony Tanke; Deborah David; Thomas G. Stolpman; Lea-Ann Tratten; Lawrence Drivon; William D. Turley; Steven J. Keifield; Thor [21 Cal. 4th 566] Emblem; Mary E. Alexander; David Rosen; Rick Simons; Joseph Harbison III; Moses Lebovits; and David Casey, Jr., for Consumer Attorneys of California as Amicus Curiae on behalf of Plaintiff and Respondent.
William C. Quackenbush as Amicus Curiae on behalf of Plaintiff and Respondent.
Joseph Posner; and Norman Pine for California Employment Lawyers Association as Amicus Curiae on behalf of Plaintiff and Respondent.
We disagree with the Court of Appeal's conclusion that the mere ability to hire and fire employees renders a supervisory employee a managing agent under section 3294, subdivision (b). Instead, we conclude the Legislature intended the term "managing agent" to include only those corporate employees who exercise substantial independent authority and judgment in their [21 Cal. 4th 567] corporate decisionmaking so that their decisions ultimately determine corporate policy. The scope of a corporate employee's discretion and authority under our test is therefore a question of fact for decision on a case-by-case basis.
As noted, we disagree with the Court of Appeal to the extent its decision conflicts with our construction of "managing agent" under section 3294, subdivision (b). Nonetheless, we affirm its judgment in plaintiff's favor after concluding that Lorraine Salla, defendant's zone manager and the employee who fired plaintiff, was a managing agent under the statute.
Plaintiff Thomas M. White (plaintiff) worked in a convenience store owned by Ultramar, Inc. (Ultramar). He was promoted to assistant manager in November 1992. The store manager, Russ Gossman, who hired plaintiff, told him employees could ignore the company's written drink policy that they could have free fountain sodas and coffee, but only if they used their own cups. The policy required employees to pay for their drinks if they used company cups. The store manager who replaced Gossman, Larry Asemka, also told plaintiff that he did not follow the store's written drink policy. Asemka was later fired. He asked plaintiff to testify at his unemployment benefits hearing, and plaintiff agreed to do so.
The hearing was in the morning; plaintiff's shift at the store did not begin until the afternoon. On the morning of the hearing, plaintiff went to the store to pick up another employee, Ernest Fimbres, who had also agreed to testify at the hearing. Plaintiff, who was not on duty at the time, entered the store and drew a soda from the soda fountain; Fimbres also took a drink from the fountain. Neither plaintiff nor Fimbres paid for the sodas even though they used company cups in violation of the company's written drink policy.
Plaintiff testified at trial that the new store manager, Thomas McKinney, saw him take the soda, that he asked plaintiff to begin his shift earlier in the day, that plaintiff agreed to do so, and that he said nothing else as plaintiff and Fimbres left the store without paying for their drinks. McKinney testified that he told plaintiff and Fimbres they were supposed to pay for the drinks. He called Salla and asked her permission to fire them when they did not. According to McKinney, Salla told him she would consult with the company's human resources department before taking any action against the employees.
According to plaintiff, when Salla arrived, she told him he "kn[e]w better than to do something like that against [her]." Plaintiff told her she could not fire him for testifying at Asemka's hearing; she replied she was firing him for stealing soda. Fimbres was also fired. Salla testified at trial that she fired plaintiff for refusing to pay for a drink. The store was equipped with a videotaping system designed to operate 24 hours a day. On the day Salla fired plaintiff, however, there was a gap of several minutes in the tape; the missing tape covered the time period when plaintiff and Fimbres got drinks in the store and McKinney, the manager, purportedly told them they had to pay.
Plaintiff sued Ultramar, claiming, inter alia, that he was wrongfully terminated in retaliation for testifying at the unemployment hearing, a violation of company policy fn. 2 and public policy under Tameny v. Atlantic Richfield Co. (1980) 27 Cal. 3d 167 [164 Cal. Rptr. 839, 610 P.2d 1330, 9 A.L.R.4th 314] (Tameny). The jury awarded him $42,000 in compensatory damages and $300,000 in punitive damages.
As to the punitive damages question, the jury was instructed under BAJI No. 14.74, which provides that "[a]n employee acts in a managerial capacity where the degree of discretion permitted the employee in making decisions is such that the employee's decisions will ultimately determine the business policy of the employer." The jury awarded plaintiff punitive damages after finding "by clear and convincing evidence that [Ultramar] was guilty of malice, oppression or fraud" for firing plaintiff. However, the jury was not asked to specify which Ultramar employee it found to be a managing agent. After trial, the judge granted plaintiff's motion for prevailing-party attorney [21 Cal. 4th 569] fees under Labor Code section 218.5 and awarded him approximately $70,000 in addition to the compensatory and punitive damages awards.
Ultramar appealed. The Court of Appeal reversed the attorney fee award, but otherwise affirmed the judgment in plaintiff's favor on his Tameny claim. The court also upheld the punitive damages award against Ultramar on the ground that Salla was a managing agent under section 3294, subdivision (b), because she was the supervisor who ultimately fired him. We granted Ultramar's petition for review, and limited our review to the punitive damages question and the construction of "managing agent" under section 3294, subdivision (b).
Before its 1980 amendment, section 3294 provided: "In an action for the breach of an obligation not arising from contract, where the defendant has been guilty of oppression, fraud, or malice, express or implied, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant." (Stats. 1905, ch. 463, § 1, p. 621.) The statute was originally enacted in 1872, with minor amendments in 1901 and 1905.
Courts interpreted section 3294 to mean that a California corporation was liable for punitive damages only if the corporation itself, acting through those who managed its general affairs, engaged in the requisite oppression, fraud, or malice. Although a corporation could be liable for compensatory damages for an employee's tort under the respondeat superior doctrine, the corporation was not responsible for punitive damages where it neither personally directed nor ratified the wrongful act.
After Egan, supra, 24 Cal. 3d 809, and Agarwal, supra, 25 Cal. 3d 932, the Legislature drafted Senate Bill No. 1989 (1979-1980 Reg. Sess.) to codify and refine further the requirements for employer punitive damages liability. The new amendment added subdivision (b) to section 3294. (Stats. 1980, ch. 1242, § 1, p. 4217.) Following subsequent minor amendments, the statute now states in pertinent part: "An employer shall not be liable for [punitive] damages pursuant to subdivision (a), based upon acts of an employee of the employer, unless the employer had advance knowledge of the unfitness of the employee and employed him or her with a conscious disregard of the [21 Cal. 4th 572] rights or safety of others or authorized or ratified the wrongful conduct for which the damages are awarded or was personally guilty of oppression, fraud, or malice. With respect to a corporate employer, the advance knowledge and conscious disregard, authorization, ratification or act of oppression, fraud, or malice must be on the part of an officer, director, or managing agent of the corporation." (§ 3294, subd. (b), italics added.) The drafters' goals were to avoid imposing punitive damages on employers who were merely negligent or reckless and to distinguish ordinary respondeat superior liability from corporate liability for punitive damages. (See Weeks v. Baker & McKenzie (1998) 63 Cal. App. 4th 1128, 1150-1151 [74 Cal. Rptr. 2d 510]; see also College Hospital, Inc. v. Superior Court (1994) 8 Cal. 4th 704, 712-713 [34 Cal. Rptr. 2d 898, 882 P.2d 894] [noting that, after 1979, the Legislature limited circumstances under which an employer could be held liable for punitive damages].) Section 3294 is no longer silent on who may be responsible for imputing punitive damages to a corporate employer. For corporate punitive damages liability, section 3294, subdivision (b), requires that the wrongful act giving rise to the exemplary damages be committed by an "officer, director, or managing agent."
 Using these interpretive rules to guide us, we believe that in amending section 3294, the Legislature intended (like Egan, supra, 24 Cal.3d at p. 823) to limit corporate punitive damage liability to those employees who exercise substantial independent authority and judgment over decisions that ultimately determine corporate policy. Our view finds support in a principle which "seeks to ascertain common characteristics among things of the same kind, class, or nature when they are cataloged in legislative enactments." (Harris v. Capital Growth Investors XIV (1991) 52 Cal. 3d 1142, 1159 [278 Cal. Rptr. 614, 805 P.2d 873] [describing the ejusdem generis principle].) The principle requires that when we interpret general statutory terms following the listing of specific classes of persons or things, we must construe the terms as applying to persons or things of the same general nature or class as those listed. The rule " ' "is based on the obvious reason that if the [writer] had intended the general words to be used in their unrestricted sense, [he or she] would not have mentioned the particular things or classes of things which would in that event become mere surplusage." ' " (Id. at p. 1160.) Using the doctrine to aid our interpretation of "managing agent," we note that section 3294, subdivision (b), placed that term next to the terms "officer" and "director," intending that a managing agent be more than a mere supervisory employee. The managing agent must be someone who exercises substantial discretionary authority over decisions that ultimately determine corporate policy. Thus, by selecting the term "managing agent," and placing it in the same category as "officer" and "director," the Legislature intended to limit the class of employees whose exercise of discretion could result in a corporate employer's liability for punitive damages.
Kelly-Zurian based its decision on the plaintiff's failure to present evidence showing her supervisor was engaged in policymaking, whereas the defendant corporation presented substantial evidence to the contrary. (Kelly-Zurian, supra, 22 Cal.App.4th at p. 422.) For its reasoning, Kelly-Zurian [21 Cal. 4th 574] relied on Egan's observation that " '[t]he determination whether employees act in a managerial capacity [i.e., are managing agents] does not necessarily hinge on their "level" in the corporate hierarchy. Rather, the critical inquiry is the degree of discretion the employees possess in making decisions that will ultimately determine corporate policy.' (Egan[,] supra, 24 Cal.3d at pp. 822-823.)" (Kelly-Zurian, supra, 22 Cal.App.4th at p. 421.) Kelly-Zurian specifically observed that the evidence showed the supervisor "had immediate and direct control over [the plaintiff] with the responsibility for supervising her performance. However, the fact [the plaintiff] reported to [her supervisor] and that he had the authority to terminate her merely reflect[ed] [he] was [her] supervisor, not that he was a managing agent." (Id. at pp. 421-422, original italics.) The court emphasized that the supervisor had no authority to establish or change the company's business policies. That authority rested in the parent company in another state. (Id. at p. 422.) The court also considered that the main office was in charge of business operations; it set business policies and guidelines and performed employee reviews. Moreover, the supervisor could not set the plaintiff's salary or approve a raise for her without the main office's authorization. (Ibid.) All of the factors considered in Kelly-Zurian were part of the managing agent equation, although not an exclusive list. They were important in determining whether the supervisor was a managing agent whose conduct could justify awarding punitive damages against his employer.
The Court of Appeal rejected Kelly-Zurian's approach to the "managing agent" question, erroneously concluding that "Egan expressly rejected a narrow construction of the term 'managing agent' for purposes of determining liability for punitive damages." Instead, the Court of Appeal followed the more recent Stephens decision (Stephens, supra, 199 Cal.App.3d 1394). Stephens concluded that a district supervisor of a national property management firm was a managing agent within the meaning of section 3294, subdivision (b), because he "had immediate and direct control over the decision to demote plaintiff, and he was directly responsible for evaluating plaintiff's performance." (Stephens, supra, 199 Cal.App.3d at p. 1404.) fn. 4 In rejecting Kelly-Zurian's reasoning, and defining managing agent to include essentially all supervisory employees who possess the ability to hire and fire workers, the Court of Appeal concluded that Salla was a managing agent for section 3294 purposes because she "had supervisory control over [plaintiff's] employment and had the most immediate control over the decision to [21 Cal. 4th 575] fire him." In so doing, the Court of Appeal implicitly held that the language of section 3294, subdivision (b), is broad enough to render all corporate agents potentially responsible for punitive damage liability. Of note, however, is the fact that the court specifically did not address whether Salla exercised substantial discretionary authority over decisions that ultimately determine corporate policy.
We therefore conclude that in amending section 3294, subdivision (b), the Legislature intended that principal liability for punitive damages not depend [21 Cal. 4th 577] on employees' managerial level, but on the extent to which they exercise substantial discretionary authority over decisions that ultimately determine corporate policy. Thus, supervisors who have broad discretionary powers and exercise substantial discretionary authority in the corporation could be managing agents. Conversely, supervisors who have no discretionary authority over decisions that ultimately determine corporate policy would not be considered managing agents even though they may have the ability to hire or fire other employees. In order to demonstrate that an employee is a true managing agent under section 3294, subdivision (b), a plaintiff seeking punitive damages would have to show that the employee exercised substantial discretionary authority over significant aspects of a corporation's business.
D. Was Salla a "Managing Agent"?
Although the Court of Appeal did not review her job functions in detail, it concluded that Salla, the zone manager who fired plaintiff, was his supervisor, and was therefore a managing agent under section 3294, subdivision (b). Under our construction of the term, however, and contrary to the Court of Appeal, Salla's supervision of plaintiff and her ability to fire him alone were insufficient to make her a managing agent. Nonetheless, viewing all the facts in favor of the trial court judgment, we conclude that Salla was a managing agent as we construe the term.
As the zone manager for Ultramar, Salla was responsible for managing eight stores, including two stores in the San Diego area, and at least sixty-five employees. The individual store managers reported to her, and Salla reported to department heads in the corporation's retail management department.
Salla was a managing agent under section 3294, subdivision (b), whose conduct could lead to imposing punitive damages on Ultramar. For this reason alone, we affirm the Court of Appeal judgment.
George, C. J., Kennard, J., Baxter, J., Werdegar, J., and Brown, J., concurred.
I concur in the result but write separately to clarify what I understand to be the correct test under Civil Code section 3294, subdivision (b), for determining corporate liability for the acts of a "managing agent."
Civil Code section 3294, subdivision (b), in relevant part provides that a corporate employer may be liable for punitive damages based on the wrongful acts of an employee if, with regard to the wrongful conduct, there was "advance knowledge and conscious disregard, authorization, ratification or act of oppression, fraud, or malice ... on the part of an officer, director, or managing agent of the corporation."
What is meant by the term "managing agent" under the statute?
As the majority state, we have previously addressed the scope of corporate liability for punitive damages based on the wrongdoing of their employees in Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal. 3d 809 [169 Cal. Rptr. 691, 620 P.2d 141] (Egan) and Agarwal v. Johnson (1979) 25 Cal. 3d 932 [160 Cal. Rptr. 141, 603 P.2d 58] (Agarwal). I agree that, in construing the term "managing agent" under Civil Code section 3294, we can and should be guided by those precedents.
Egan involved a claim against an insurer for breach of an insurance contract based on the failure of two of its employees, a claims manager and a claims analyst, adequately to investigate a claim before denying coverage. We determined that the insurance company might be liable for punitive damages based on the employees' wrongdoing, under the earlier version of Civil Code section 3294, which, like the present version, was enacted with the principal purpose of "discourag[ing] the perpetuation of objectionable corporate policies" (Egan, supra, 24 Cal.3d at p. 820).
As the majority explain, the Legislature, by referring to wrongful acts by an "officer, director, or managing agent" intended to codify Egan and Agarwal. The Senate bill to amend Civil Code section 3294 had limited corporate liability for punitive damages to wrongdoing of "senior executive officer or officers." The Assembly version substituted the Restatement's phrase, "principal or a managerial agent." The final conference committee version, however, substituted the words "officer" and "director" for the word "principal," and used the term "managing agent."
The Court of Appeal cases in point have uniformly reached a similar conclusion. In particular, Kelly-Zurian v. Wohl Shoe Co. (1994) 22 Cal. App. 4th 397, 419-422 [27 Cal. Rptr. 2d 457], states that Agarwal is consistent with Civil Code section 3294, and recites the Restatement section 909 rule that a corporation may be liable for punitive damages for acts of an agent employed in a "managerial capacity." The Court of Appeal in the present case similarly characterized Kelly-Zurian, observing that "Egan did not hold that an employee must actually be in a position to directly make policy to be deemed a managing agent," and that Agarwal held that supervisors with managerial authority may be managing agents under the statute.
Siva v. General Tire & Rubber Co. (1983) 146 Cal. App. 3d 152, 158-159 [194 Cal. Rptr. 51], is also consistent with our decisions in Egan and Agarwal. There, an employee brought a products liability claim against his employer arising from a defectively repaired tire. Siva explains that a managing agent, as the term is used in section 3294, subdivision (b), "is an individual who has the discretion to act in '... a managerial capacity ... [by] making decisions that will ultimately determine corporate policy.' [Citing Egan.]" (146 Cal.App.3d at p. 159.) It determined that the workers who repaired the tire were not acting in a managerial capacity, because there was no evidence they "had the discretion to exceed [the employer's] written standards for repairs of this nature." It then concluded that the plant manager did clearly act in a managerial capacity, because he knew the extent of damage to the tire but failed to follow the company's written standards to correct it, thus creating an "implicit local policy" to disregard the standards. (Ibid.) It appears that the plant manager had no authority to create express corporate policy, but he made ad hoc policy by violating those standards.
Ultramar urges that the term "managing agent" should be construed to mean only someone with final policymaking authority akin to that of a very high-ranking corporate director or officer. Like the majority, I reject such a standard as too narrow and too vague; strictly applied, it would appear to absolve a corporate employer of liability in almost every case, particularly a large corporation with many levels of hierarchy.
As in Egan and Agarwal, regardless of any stated or written official policy by Ultramar, Salla had sufficient discretion to take actions that necessarily [21 Cal. 4th 584] resulted in the ad hoc formulation of policy over the aspect of the corporation's business giving rise to plaintiff's cause of action. For that reason, in my view she may fairly be treated as a managing agent for Ultramar. On this basis, I would affirm the judgment against Ultramar.
Appellant's petition for a rehearing was denied October 27, 1999.
FN 1. All statutory references are to the Civil Code unless otherwise noted.
FN 2. Ultramar included a copy of its "Employment Policies and Standards" in an appendix to its Court of Appeal opening brief. This document specifically informs all employees that the corporation "will not tolerate discriminatory, unequal or improper treatment of others." The company's "policy against discrimination and harassment" also forbids employees from discriminating against other employees "in any form," and "in both employment, action and in every day personal interactions." We could find no direct reference to unemployment hearings in the manual itself. Moreover, Ultramar does not argue, and the record does not show, that Salla acted in violation of a specific written policy forbidding retaliation against employees under the circumstances here. We note, however, that Ultramar admitted that it was company policy to contest their terminated employees' rights to collect unemployment compensation.
FN 3. On May 26, 1999, we granted Ultramar's request that we take judicial notice of certain materials from the legislative history of section 3294, subdivision (b), including committee reports and individual legislators' (including co-authors') comments from the Assembly and Senate committee bill files.
FN 4. We disapprove Stephens, supra, 199 Cal.App.3d at page 1404, to the extent it conflicts with our construction of the "managing agent" term. We also note that the Court of Appeal relied on language in Agarwal, supra, 25 Cal.3d at page 952, that arguably implied mere supervisors could be managing agents as long as they have the ability to hire and fire employees. To the extent language in Agarwal could be so construed, we disapprove it.
The only contrary intent is indicated in identical letters authored by two individual legislators, one from the Assembly Speaker Pro Tempore addressed to the Speaker, and another from the bill's author to the Governor urging him to sign the bill. These letters represent that the bill repudiated the Restatement standard by eliminating the term "managerial capacity" and using "managing agent" instead. Because these letters apparently were not made available to the entire Legislature (see Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal. 4th 26, 45, fn. 9 [77 Cal. Rptr. 2d 709, 960 P.2d 513]), were contradicted by the letter in the Senate Journal representing the intent of the conference committee, and indicate a purpose different from that reflected in the Governor's enrolled bill report, they are entitled to no weight.
FN 3. Indeed, the record indicates that it was a violation of Ultramar's "company policy" to retaliate against employees who testified at unemployment compensation hearings.

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