Court Opinion

ID: 9542427
Source: CourtListenerOpinion
Date Created: 2023-08-07 16:34:20.162194+00
Date Added: 2024-06-11T15:07:53.367663
License: Public Domain

MOSK, J.
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.”
I
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).
In Egan, we observed that California follows the approach of the Restatement Second of Torts, which states that punitive damages can properly be *579awarded against a principal, inter alia, when “ ‘the agent was employed in a mangerial capacity and was acting in the scope of employment.’ ” (Egan, supra, 24 Cal.3d at p. 822, citing Rest.2d Torts (Tent. Draft No. 19, Mar. 30, 1973) § 909 (hereafter sometimes Restatement).) We explained that “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.)
Responding to the argument that neither employee was involved in “ ‘high-level policy making,’ ” we emphasized that “[t]he determination whether employees act in a managerial capacity . . . does not necessarily hinge on their ‘level’ in the corporate hierarchy.” (Egan, supra, 24 Cal.3d at p. 822.) Corporate liability should turn not on any official title, but rather on the extent of discretion conferred on the employee by the corporation. “ ‘Defendant should not be allowed to insulate itself from liability by giving an employee a nonmanagerial title and relegating to him crucial policy decisions.’ ” (Id. at p. 823.) We observed that the two employees possessed broad supervisory and decisionmaking authority regarding the disposition of claims: “The authority exercised by [the two employees] necessarily results in the ad hoc formulation of policy.” (Ibid.)
In Agarwal, the plaintiff was awarded punitive damages against, inter alia, his employer after he suffered mistreatment, including racial harassment, at the hands of his two supervisors. On appeal, the defendants contended that the trial court’s jury instruction on employer liability for the willful and malicious torts of its employees failed to distinguish between the employer’s compensatory and punitive damage liability. We held that any error was harmless because the authority vested in the supervisors was sufficient to support imposing punitive damages against the corporation. Specifically, they had discretion to assign the plaintiff to menial projects, evaluate his performance, change his office location, deny him permission to attend educational seminars, and fire him on a pretextual reason. It was uncontroverted that they were “ ‘employed in a managerial capacity’ ” (one was the manager of project services for the corporation, responsible for 25 to 30 employees in 3 departments, the other his assistant), were directly responsible for supervising Agarwal’s performance, and had “the most immediate control over the decision to terminate him.” (Agarwal, supra, 25 Cal.3d at p. 952.)
The rule under both Egan and Agarwal is thus that a corporation may be liable for punitive damages based on the wrongful conduct of an employee who exercises substantial discretionary authority over decisions that *580ultimately determine corporate policy over an aspect of the corporation’s business. Liability turns not on the employee’s managerial classification or title, but on the extent of his decisionmaking discretion. In some cases, such as Agarwal and the present matter, a supervisory employee with hiring and firing power will qualify as a “managing agent.” That does not, however, mean that all supervisors, or all personnel with the power to hire and fire, are ipso facto “managing agents.” Nor are all policy makers necessarily “managing agents.” Each case must be decided on its facts.1
In this matter, Lorraine Salla, the supervisor who made the initial decision to terminate plaintiff in retaliation for testifying at an unemployment compensation hearing, was a “zone manager” responsible for overseeing operations of several convenience stores in the San Diego area. As such, she was not a high-level manager or final policy maker for Ultramar, Inc. (Ultra-mar)—a large corporation that operates a chain of stores and gasoline service stations throughout California. In effect, she was a local supervisor; indeed, according to the testimony of her supervisors, she apparently lacked the authority to terminate plaintiff without the approval of Ultramar’s human resources manager and division manager. Nor did she purport to set any firm-wide or official policy concerning termination of employees for testifying at unemployment hearings. Like the employees in Egan and Agarwal, however, she exercised authority that “necessarily resulted] in the ad hoc formulation of policy” that adversely affected plaintiff. (Egan, supra, 24 Cal.3d at p. 823.) Specifically, she engaged in a local practice of retaliating against, by firing, an employee who testified at the unemployment hearing of another Ultramar employee. A corporate manager with such authority may fairly be deemed a managing agent under Civil Code section 3294, subdivision (b). That conclusion is compelled by the analysis in Egan, supra, 24 Cal.3d at pages 815-817, and Agarwal, supra, 25 Cal.3d at page 952.
*581II
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.”
What was the significance of this final change? “Principal” is simply another term for “officer” and “director.” There is no substantive difference between the terms “managing agent” and “managerial agent”; the word “managerial” means “of, relating to, or characteristic of, a manager,” and a “manager” is “one that manages: a person that conducts, directs, or supervises something.” (Webster’s New Internat. Dict. (3d ed. 1961) p. 1372.) It would thus appear that the ultimate legislative intent was to retain the test under the Restatement Second of Torts section 909—which uses almost identical language in referring to a “principal or managerial agent”—as articulated in our decisions. This conclusion is supported by contemporaneous legislative materials indicating that the bill’s sponsors, and even its opponents, including the California Trial Lawyers Association, believed that it codified rather than narrowed existing law.2
*582The 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.
Other Court of Appeal decisions have also applied the rule in Egan and Agarwal. (See, e.g., Weeks v. Baker & McKenzie (1998) 63 Cal.App.4th 1128, 1151 [74 Cal.Rptr.2d 510] [citing Egan and noting that “we have no doubt that [Civil Code section 3294, subdivision (b),] does no more than codify and refine existing law”]; Stephens v. Coldwell Banker Commercial Group, Inc. (1988) 199 Cal.App.3d 1394, 1403 [245 Cal.Rptr. 606] [citing Agarwal]; Pusateri v. E. F. Hutton & Co. (1986) 180 Cal.App.3d 247, 250 [225 Cal.Rptr. 526] [citing Egan and Agarwal]; Hobbs v. Bateman Eichler, *583Hill Richards, Inc. (1985) 164 Cal.App.3d 174, 193 [210 Cal.Rptr. 387] [citing Egan and Agarwal].) For this reason, it would appear that the Legislature’s repeated amendments of section 3294 since 1980 (in 1982, 1987, 1988, and 1992), without altering the “managing agent” language of subdivision (b), signifies approval of the judicial construction. (People v. Masbruch (1996) 13 Cal.4th 1001, 1007 [55 Cal.Rptr.2d 760, 920 P.2d 705] [“ ‘Where a statute is framed in language of an earlier enactment on the same or an analogous subject, and that enactment has been judicially construed, the Legislature is presumed to have adopted that construction.’ ”] (opn. of Chin, J.).)
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.
I also reject any implication that Ultramar could avoid future liability simply by instituting a formal policy against retaliatory firing of its employees; I doubt that is what the Legislature intended in enacting Civil Code section 3294, subdivision (b). Ultramar cites the recent United States Supreme Court decision in Kolstad v. American Dental Assn. (1999) 527 U.S. 526 [119 S.Ct. 2118, 144 L.Ed.2d 494], urging that it should guide our decision herein. In Kolstad, which involved the liability of employers for punitive damages under the federal antidiscrimination statutes, the high court adapted general common law agency concepts in light of the specific objectives of title VII of the Civil Rights Act of 1964 (42 U.S.C. § 2000e et seq.). As the majority state, we have no occasion to consider to what extent those same objectives might be relevant in this, or any hypothetical, case under Civil Code section 3294. But in no event should a corporation be permitted to shield itself from liability by the expedient of a having a pro forma official policy—issued by high-level management—while conferring broad discretion in lower-level employees to implement company policy in a discriminatory or otherwise culpable manner. It is what the company does— including through the discretionary acts of its employees—not just what it says in a stated or written policy, that matters.3
As in Egan and Agarwal, regardless of any stated or written official policy by Ultramar, Salla had sufficient discretion to take actions that necessarily *584resulted 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.
Werdegar, J., concurred.
Appellant’s petition for a rehearing was denied October 27, 1999.

The Restatement’s approach to corporate liability for punitive damages, which we followed in Egan and Agarwal, has also been adopted in several other jurisdictions. It is viewed as representing the more “conservative” approach as compared with the other rule of vicarious liability for all acts of employees under the doctrine of respondeat superior. (See, e.g., Matter of P & E Boat Rentals, Inc. (5th Cir. 1989) 872 F.2d 642, 650 [observing that a majority of the courts impose vicarious liability for punitive damages resulting from the acts of employees, but a number of courts follow the Restatement view]; Smith’s Food & Drug Cntrs. v. Bellegarde (1998) 114 Nev. 602 [958 P.2d 1208, 1214] [adopting the “more conservative” Restatement approach, and finding that a temporary retail store manager who directed the actions of security guard was a “managing agent” whose actions could be imputed to the corporation]; Dahl v. Sittner (S.D. 1991) 474 N.W.2d 897, 902 [adopting the Restatement approach, noting that the states are almost evenly divided on whether to follow the vicarious liability rule or the more conservative Restatement view].)

Thus, a member of the conference committee, with the knowledge of the committee, requested that a letter be published in the Senate Journal regarding the significance of the adoption, in the final version of the bill, of the term “principal or managerial agent.” The letter states that its purpose is “to clarify the intent of the Conference Committee and to set forth the representations that were made to [the member] during the Conference Committee by the proponents of the legislation, [f] The intent of [the bill] as amended in conference . . . with respect to the term ‘managing agent’ is not to alter the rule of corporate liability for punitive damages as it related to that term in the case of Egan . . . .” (Sen. David A. Roberti, letter to Sen. President Pro Tern. James R. Mills (Aug. 28, 1980) 8 Sen. J. (1979-1980 Reg. Sess.) p. 14548.) In letters to individual legislators urging them to vote for the bill, the measure’s sponsors represented that the bill “would codify existing case law establishing the liability of employers for the acts of their employees . . . .” (See, e.g., Letter from Association for California Tort Reform, June 23, 1980.) The same understanding is reflected in the Governor’s enrolled bill report: “Although the bill is opposed in concept by the California Trial Lawyers Association, they concede that it does little more than codify existing caselaw. This was also the clear understanding of the final conference committee.” (Governor’s Office, Dept. Legal Affairs, Enrolled Bill Rep., Sen. Bill 1989 (1979-1980 Reg. Sess.) p. 1, italics added.)
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 *582represent 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.

Indeed, the record indicates that it was a violation of Ultramar’s “company policy” to retaliate against employees who testified at unemployment compensation hearings.