Opinion ID: 521021
Heading Depth: 3
Heading Rank: 1

Heading: Whether Aramco Had a Valid Reason for Terminating McGhee and Rudh

Text: 16 With certain narrow exceptions not relevant here, California courts honor choice-of-law provisions in private contracts. See S.A. Empresa De Viacao Aerea Rio Grandense v. Boeing Co., 641 F.2d 746, 749 (9th Cir.1981); see also Northrop Corp. v. Triad Int'l Mktg. S.A., 811 F.2d 1265, 1270 (9th Cir.1987). The district court therefore determined that Texas law, the law of decision identified in the plaintiffs' employment contracts, governed. The district court further determined that the employment contracts incorporated an Aramco document which provides for the application of certain tenets of Saudi employment law to the relationship between Aramco and its employees in Saudi Arabia. This document, which Aramco was required to develop and submit for review by Saudi authorities by Article 9 of the Saudi Labor Law, contains two sections, General Rules for the Organization of Work and Workmen and Standard Rules of Penalty and Reward. The general rules include provisions that restate Section 73 of the Saudi Labor Law, which provides a remedy for workers terminated without valid cause. The district court found that these protections supplanted language in the contract calling for at-will termination. Thus, the district court found that its task was to apply Texas law to a contract incorporating protections against discharge except for valid cause borrowed from Saudi Law. Neither party raises any serious challenge to the district court's reasoning to this point in the analysis. 1 17 Aramco's expert on Saudi labor law testified that the valid reason requirement prohibits employers from abusing their right to discharge employees. As the district court summarized this standard in its instruction to the jury, the employer must not act in an unlawful or an arbitrary or whimsical or unreasonable manner. RT Vol. 3 at 1462. In applying this standard at the judgment nov stage, the district court found that a reasonable jury could not have denied that Aramco had a valid reason in light of the plaintiffs' operation of commercial enterprise[s] in violation of Saudi law and the instructions of their employer and the threat of prosecution by the Saudis if the company had not acted. 2 ER Vol. II, CR 222 at 4-5. 18 The district court erred in concluding that the evidence unequivocally showed that plaintiffs had violated company instructions. The 1981 and 1982 Aramco notices upon which the district court relied as statements of Aramco policy did not list videotape rentals as a prohibited activity. In fact, the first notice did not list any service enterprises among the examples of prohibited activities. (This omission was consistent with testimony that company officials originally believed services to be outside the Saudis' conception of business enterprises.) The second notice mentioned services, but it limited the prohibition to services which may be available in the local market place. While both notices admonished Aramco personnel to contact the Aramco personnel office with any questions they might have about the scope of the restrictions, there was ample evidence to support the plaintiffs' claim that it was reasonable for them not to call the office even after the second directive was issued. 19 Plaintiffs presented evidence that they drew no income from their videotape rentals (though their conversion claims suggest that they accumulated substantial assets paid for in part by reinvested rental fees), that videotape rentals out of the homes of Aramco employees were widespread and entirely above board within the compounds, and that several Aramco employees in positions of apparent authority had indicated to the plaintiffs that their enterprises did not violate Aramco policy. The plaintiffs testified to discussions about the status of their club with employees of the Personnel Department who were members of their clubs; with Fred Drucker, an Aramco lawyer, consulted by the personnel department on Saudi law issues; with George Ryan, head of Aramco's Internal Security Department; and with Willis McGhee's and David Rudh's supervisors. Several of these people were club members with direct knowledge of the size of plaintiffs' tape collections. Plaintiffs testified that the only concerns expressed to them related to the Saudis' strong aversion to pornography. In sum, a reasonable jury could have determined that Aramco did not have a policy against videotape rentals, even on the scale of the plaintiffs' operations, before it received the anonymous complaint about McGhee and Rudh. 20 The judgment nov also suggests that the threat of Saudi prosecution provided a valid basis for terminating the plaintiffs. The district court's brief reference to this threat seems to refer to language in the jury instructions on valid cause, which were based on the testimony of an Aramco employment law expert, indicating that an employer could validly discharge an employee if directed to do so by the Saudi government and suggesting that violation of Saudi law could also constitute a valid reason. 3 21 We conclude, however, that neither the orders of Saudi officials nor the plaintiffs' violation of Saudi law foreclosed the jury from finding that Aramco lacked a valid reason for terminating McGhee and Rudh. Although compliance with a government directive was listed as one example of a valid reason for termination in the jury instruction, nothing in those instructions (or in the expert testimony upon which the district court based its construction of the valid reason requirement) precluded consideration by the jury of the circumstances that gave rise to the Saudis' direction, including the company's failure to pass along a specific Saudi directive concerning videotape rentals and its deliberate decision to involve Saudi authorities upon receiving the anonymous letter. The emphasis on the reasonableness and fairness of the employer's action in the jury instruction encouraged consideration of the circumstances that triggered the terms of General Othman's consent to Aramco to deal with the problem internally. Moreover, the jury could also have doubted that General Othman's decision precluded Aramco from transferring the plaintiff to Aramco facilities outside Saudi Arabia, or to one of Aramco's subsidiaries or affiliates. 22 The plaintiffs concede that they violated Saudi law, if not the general commercial law against unlicensed business, then, at least, the 1983 unpublished directive, against videotape rentals which they concede carried the force of law. The jury instruction, however, stops short of stating that a worker's violation of Saudi law automatically provides a valid reason for termination. Moreover, the expert testimony upon which the district court relied in interpreting the valid reason requirement would not appear to support such a per se rule. We therefore conclude that the jury was properly instructed and based on the instructions could have reasonably rejected Aramco's argument that the company had a valid reason for terminating the plaintiffs. 23