Opinion ID: 1250721
Heading Depth: 3
Heading Rank: 3

Heading: Foley

Text: Rykoff suggests our recognition, in Foley, supra, 47 Cal.3d 654, that the employment relationship is fundamentally contractual ( Foley, supra, at p. 696), coupled with references in Hunter to economic policy considerations we invoked in Foley (see Hunter, supra, 6 Cal.4th at pp. 1180-1182), implies employees should generally be limited to contract damages for employment terminations. Rykoff argues that permitting tort remedies in the employment context is unnecessary and extraordinarily costly, and the policy reasons for which we declined to extend tort relief in Foley apply with equal force against Lazar's claim for fraudulent inducement of employment contract. (See 47 Cal.3d at p. 693.) Foley addressed whether tort remedies should be available for employment terminations that allegedly breach the implied covenant of good faith and fair dealing. At issue was whether the employment relationship was sufficiently similar to that of insurer and insured to warrant judicial extension of the proposed additional tort remedies for breach of the implied covenant of good faith and fair dealing in an employment contract. ( Foley, supra, 47 Cal.3d at p. 693.) We declined to make that extension, in view of the countervailing concerns about economic policy and stability, the traditional separation of tort and contract law, and finally, the numerous protections against improper terminations already afforded employees. ( Ibid. ) Thus, the issue in Foley was whether to acknowledge the existence of a previously unrecognized cause of action (i.e., tortious breach of the implied covenant of good faith and fair dealing in the employment context). (5c) The issue in this case is whether we should restrict the availability of traditional tort remedies when they are sought in the employment context. In Foley, we recognized the extension of ... [available] tort remedies proposed by plaintiffs had the potential to alter profoundly the nature of employment, the cost of products and services, and the availability of jobs. ( Foley, supra, 47 Cal.3d at p. 694.) We concluded any such extension is better suited for legislative decisionmaking. ( Ibid. ) Here, by contrast, defendant's suggestion this court, in order to optimize California's business climate for employers generally, should restrict the application of tort remedies traditionally available in the employment context, would seem to urge upon us a quasi-legislative enterprise such as we refused in Foley. In declining judicially to expand tort remedies for breaches of the implied covenant in Foley, we alluded to the need for courts to practice restraint when asked to fashion new remedies in areas of the law already governed by numerous legislative provisions and subject to a diversity of possible solutions. ( Foley, supra, 47 Cal.3d at p. 700.) Similarly, in this case, we should be mindful that our Legislature more than a century ago codified the common law cause of action for promissory fraud in inducing a contract, along with actions for promissory fraud and fraud, generally. (See Civ. Code, §§ 1572, subd. 4, 1709, 1710.) These statutes provide no express exception for employers or employees. Accordingly, judicial restraint such as we exercised in Foley counsels against disallowing the traditional fraud claim pled in this case. Our concern in Foley not to create potential tort recovery in every [discharge] case (47 Cal.3d at p. 696) does not weigh as heavily here, where plaintiff alleges a traditional fraud cause of action. (2b) In California, fraud must be pled specifically; general and conclusory allegations do not suffice. ( Stansfield v. Starkey (1990) 220 Cal. App.3d 59, 74 [269 Cal. Rptr. 337]; Nagy v. Nagy (1989) 210 Cal. App.3d 1262, 1268 [258 Cal. Rptr. 787]; 5 Witkin, Cal. Procedure (3d ed. 1985) Pleading, § 662, pp. 111-112.) Thus `the policy of liberal construction of the pleadings ... will not ordinarily be invoked to sustain a pleading defective in any material respect.' [Citation.] [¶] This particularity requirement necessitates pleading facts which `show how, when, where, to whom, and by what means the representations were tendered.' ( Stansfield, supra, 220 Cal. App.3d at p. 73, italics in original.) A plaintiff's burden in asserting a fraud claim against a corporate employer is even greater. In such a case, the plaintiff must allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written. ( Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal. App.4th 153, 157 [2 Cal. Rptr.2d 861].) Our decision in Foley does not provide authority for exempting employers from ordinary fraud rules that apply to Californians generally. In fact, Foley 's entire thrust is to the contrary insofar as we held employers to ordinary, rather than special, standards. ( Foley, supra, 47 Cal.3d at p. 693 [holding employers are not governed by the special relationship standard applicable to insurers].) Moreover, while any lawsuit that names an employer as defendant theoretically implicates the same general range of economic policy considerations we discussed in Foley, those policy considerations do not necessarily apply with the same force in a fraud case. (6a) Contrary to defendant's arguments, fraudulent inducement of contract  as the very phrase suggests  is not a context where the traditional separation of tort and contract law ( Foley, supra, 47 Cal.3d at p. 693; Hunter, supra, 6 Cal.4th at p. 1181) obtains. To the contrary, this area of the law traditionally has involved both contract and tort principles and procedures. For example, it has long been the rule that where a contract is secured by fraudulent representations, the injured party may elect to affirm the contract and sue for the fraud. ( Campbell v. Birch (1942) 19 Cal.2d 778, 791 [122 P.2d 902]; see generally, 5 Witkin, Summary of Cal. Law, supra, Torts, § 726, pp. 825-826.) (5d) Defendant opines that barring claims for fraudulent inducement of employment contract, in light of existing protections against improper terminations (see Hunter, supra, 6 Cal.4th at p. 1182, citing Foley, supra, 47 Cal.3d at pp. 692-693), would leave employees well protected. But the resolution proposed here involves affirming, not inventing, the cause of action for promissory fraud. Thus the existing protections we invoked in Hunter necessarily included the availability of promissory fraud actions like this one. (6b) More fundamentally, it is a truism that contract remedies alone do not address the full range of policy objectives underlying the action for fraudulent inducement of contract. In pursuing a valid fraud action, a plaintiff advances the public interest in punishing intentional misrepresentations and in deterring such misrepresentations in the future. (Cf. Foley, supra, 47 Cal.3d at p. 683 [recognizing tort law is designed to vindicate social policy].) Because of the extra measure of blameworthiness inhering in fraud, and because in fraud cases we are not concerned about the need for predictability about the cost of contractual relationships ( ibid. ), fraud plaintiffs may recover out-of-pocket damages in addition to benefit-of-the-bargain damages. ( Tavaglione v. Billings, supra, 4 Cal.4th at p. 1159, citing with approval Pat Rose Associates v. Coombe (1990) 225 Cal. App.3d 9, 20 [275 Cal. Rptr. 1]; see also Freeman & Mills, Inc. v. Belcher Oil Co. (1995) 11 Cal.4th 85, 97 [44 Cal. Rptr.2d 420, 900 P.2d 669] [discussing [t]he distinction between tort and contract actions, and their purposefully different measure of damages].) For example, a fraudulently hired employee, as Lazar has alleged himself to be, may incur a variety of damages separate from the termination itself, such as the expense and disruption of moving or loss of security and income associated with former employment. It is true that in Hunter we buttressed our fraud analysis with references to some of the economic policy considerations reviewed in Foley. (See Hunter, supra, 6 Cal.4th at pp. 1180-1182 [reviewing the grounds for Foley 's conclusion the employment relationship is fundamentally contractual]; id. at p. 1183 [reviewing restrictions on tort recovery for injuries covered by workers compensation].) Our Hunter opinion does contain some broad language suggestive of Rykoff's position. (See, e.g., Hunter, supra, 6 Cal.4th at p. 1185 [Recognition of a fraud cause of action in the context of wrongful termination of employment not only would contravene the logic of Foley, but also potentially would cause adverse consequences for industry in general.]) Nevertheless, we reject Rykoff's contention that, by citing Foley in Hunter, we restricted or abandoned traditional tort remedies in the employment context. Instead, our reference in Hunter to the logic of Foley  ( Hunter, supra, 6 Cal.4th at p. 1185) merely invoked Foley 's holding that tort damages should not be judicially extended in order to fashion remedies for breach of a contract provision. ( Foley, supra, 47 Cal.3d at p. 700.) In Hunter, we had concluded that a misrepresentation to effect termination of employment did not rise to the level of a separately actionable fraud. ( Hunter, supra, 6 Cal.4th at p. 1185.) Since the result of Up-Right's misrepresentation [was] indistinguishable from an ordinary wrongful termination ( id. at p. 1184), Foley 's logic (that, in light of potentially enormous [economic] consequences, tort remedies ought not be judicially extended beyond their traditional limits) became pertinent. (47 Cal.3d at p. 699.) (5e) This case is different. Here we are not dealing with allegations of breach of a contract provision, but with allegations of fraud. Foley was a contract case in which we declined to expand the availability of tort remedies for breach of contract; this is a tort case in which we are being asked by defendant to constrict traditional tort remedies. Defendants fix upon our reference in Hunter to  Foley 's conception of the employment relation as fundamentally contractual, giving rise only to contractual damages in the event of [a] breach in the absence of some violation of a fundamental public policy. ( Hunter, supra, 6 Cal.4th at p. 1182.) While in Hunter we noted we have continuously adhered to that view ( id. at p. 1178), we were referring there to our consistent refusal to validate tort remedies for breach of contract, not to any erosion of traditional fraud remedies. Nevertheless, defendant argues that in Hunter we impliedly extended Foley to preclude recovery of tort damages in any case where the plaintiff fails to allege the discharge violated a fundamental public policy. Defendant points to Hine v. Dittrich (1991) 228 Cal. App.3d 59 [278 Cal. Rptr. 330], Soules v. Cadam, Inc. (1991) 2 Cal. App.4th 390 [3 Cal. Rptr.2d 6] and American Guar. & Liability v. Vista Medical Supply (N.D.Cal. 1988) 699 F. Supp. 787 as instances where courts have recognized and applied such a principle to defeat the plaintiff's tort claims. In Hunter, we cited Hine and Soules as examples of Court of Appeal cases following Foley, and suggested the conclusion in American Guar. & Liability, (that an employee's negligent misrepresentation claim, which arose out the employer's intentional act of discharging her, was part and parcel of her wrongful discharge claim), was correct and pertinent to the issue before us. ( Hunter, supra, 6 Cal.4th at p. 1182.) Defendant argues that, in referring to Hine and Soules in Hunter, we impliedly endorsed the proposition that an employee can never state a tort claim arising from employment termination, other than wrongful termination in violation of public policy. Defendant makes too much of our mention of these cases. Our references in Hunter simply buttressed, in general terms, our recognition that California courts have adhered to Foley 's conception of the employment relation. ( Hunter, supra, 6 Cal.4th at p. 1182, citing Hine, Soules and American Guar. & Liability. ) Nothing in Hunter 's language or reasoning committed us to wholesale adoption of the sometimes sweeping analyses or conclusions contained in Hine, Soules and American Guar. & Liability. Hine v. Dittrich, supra, 228 Cal. App.3d 59, was a negligent supervision case in which the plaintiff specifically alleged he suffered no injury until he was discharged. ( Hine v. Dittrich, supra, 228 Cal. App.3d at p. 64.) In a portion of the opinion we did not quote in Hunter, the Court of Appeal expansively opined: As long as the alleged injury would not have occurred but for the employment termination, Foley indicates that the employee is generally limited to a contractual remedy. (228 Cal. App.3d at p. 65.) By contrast, Lazar alleges injuries from intentionally tortious behavior which occurred before, during and after the actual termination. In Soules, the Court of Appeal disapproved the use of pleading artifice to relabel a deficient breach of contract claim. ( Soules v. Cadam, Inc., supra, 2 Cal. App.4th at pp. 403-404.) By contrast, even defendant does not contend this case is one of artful pleading; as discussed, Lazar has alleged the traditional elements of promissory fraud. More importantly, the plaintiff in Soules founded his tort claims entirely upon conduct alleged to have breached the employment contract. ( Id. at p. 404.) Lazar alleges fraudulent inducement. While in Hunter we also approved in dictum the court's conclusion in American Guar. & Liability v. Vista Medical Supply, supra, 699 F. Supp. 787, that the employee's negligent supervision claim was subsumed in her wrongful termination claim ( Hunter, supra, 6 Cal.4th at p. 1182), we did not intend thereby to usurp the legislative function and create any new across-the-board tort immunity for employers who wrongfully terminate employees. We agree with plaintiff there is no Foley doctrine stating or implying that employers who terminate employees do or should enjoy broad special immunities from tort liability. In short, nothing in the logic of Foley, or our subsequent discussion in Hunter of the policy considerations underlying Foley, suggests California fraud doctrine should be revised judicially in the manner defendant advocates. Thus, Foley does not bar Lazar's fraud claim.