Lead Opinion
Opinion
We granted review to resolve a conflict in the Courts of Appeal over how to define the statutory term “managing agent” for determining corporate punitive damage liability under Civil Code section 3294, subdivision (b).
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
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.
A. Facts
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.
Plaintiff, Salla, and Fimbres testified at Asemka’s unemployment hearing. When plaintiff went to work after the hearing, McKinney told him he was suspended and ordered him to wait outside the store until Salla arrived.
Plaintiff sued Ultramar, claiming, inter alia,. that he was wrongfully terminated in retaliation for testifying at the unemployment hearing, a violation of company policy
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
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).
B. Background
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.
As stated in an early case, “The entire basis of the doctrine of vindictive [punitive] damages is that the person, himself, who is sued has been guilty of recklessness or wickedness which amounts to a criminality that should be punished for the good of society, and as a warning to the individual; but to award such damages against the master for the criminality of the servant is to punish a man for that of which he is not guilty.” (Warner v. Southern Pacific Co. (1896)
In 1979, this court looked to the Restatement Second of Torts section 909 to determine when a corporate insurer might be liable for punitive damages based on its agent’s wrongful denial of policy benefits. (Egan v. Mutual of Omaha Ins. Co. (1979)
Comment b to section 909 of the Restatement Second of Torts stated the rationale behind imposing punitive damages liability on employers when their employees engaged in wrongful conduct: “The rule stated in this Section results from the reasons for awarding punitive damages, which make it improper ordinarily to award punitive damages against one who himself is personally innocent and therefore liable only vicariously. It is, however, within the general spirit of the rule to make liable an employer who has recklessly employed or retained a servant or employee who was known to be vicious, if the harm resulted from that characteristic. . . . Nor is it unjust that a person on whose account another has acted should be responsible for an outrageous act for which he otherwise would not be if, with full knowledge of the act and the way in which it was done, he ratifies it, or, in cases in which he would be liable for the act but not subject to punitive damages, he expresses approval of it. . . . In these cases, punitive damages are granted primarily because of the principal’s own wrongful conduct, [ft
Egan involved a bad faith claim against an insurer for breach of the covenant of good faith and fair dealing based on the failure of two employees to investigate adequately a claim before denying insurance coverage. The court concluded that, under the Restatement, an insurer’s liability for punitive damages should not turn on any official title, but on whether either of its two employees acted in a “managerial capacity,” depending on 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.) Egan observed that a corporate defendant should not be able to shield itself “ ‘from liability by giving an employee a nonmanagerial title and relegating to him crucial policy decisions.’ ” (Id. at p. 823.) In concluding the insurer’s employees worked in a managerial capacity, Egan emphasized that the employees exercised substantial discretionary authority over decisions that resulted in an “ad hoc formulation of policy,” and their actions could be imputed to the employer. (Id. at p. 823.)
Following Egan, supra,
C. Section 3294, Subdivision (b), and Legislative Intent
After Egan, supra,
Under general settled canons of statutory construction, we ascertain the Legislature’s intent in order to effectuate the law’s purpose. (Dyna-Med, Inc. v. Fair Employment & Housing Com. (1987)
In addition to these general principles, a specific rule of statutory interpretation is especially applicable to our task. That is, when the Legislature amends a statute, we presume it was fully aware of the prior judicial construction. (See Palos Verdes Faculty Assn. v. Palos Verdes Peninsula Unified Sch. Dist. (1978)
Our interpretation of the Legislature’s intent in adopting section 3294, subdivision (b), is shared by Kelly-Zurian, supra,
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,
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,
The Court of Appeal’s overly broad interpretation of the term “managing agent” effectively abrogates the statute’s “officer, director, or managing agent” requirement. As amicus curiae Beverly Enterprises-Califomia, Inc., appearing on Ultramar’s behalf, explains, in the overwhelming majority of employment cases, the wrongdoer, by definition, had supervisory authority over the plaintiff. A rule defining managing agent as any supervisor who can hire or fire employees, but who does not have substantial authority over decisions that ultimately determine corporate policy, effectively allows punitive damage liability without proof of anything more than simple tort liability, which we have long recognized is insufficient. (Neal v. Farmers Ins. Exchange (1978)
Other Court of Appeal cases have also rejected a broad interpretation of the managing agent term. Like Kelly-Zurian, supra,
The legislative history of section 3294, subdivision (b), is also consistent with our construction of “managing agent” and our view that the Legislature intended to limit application of section 3294 to employees who in fact exercise substantial authority over decisions that ultimately determine corporate policy. The bill amending section 3294 was revised several times before the Legislature settled on its final version. (Stats. 1980, ch. 1242, § 1, p. 4217.) As amended by the Senate, the bill provided that “. . . the advance knowledge, ratification, or act of oppression, fraud, or malice must be on the part of a senior executive officer or officers of the corporation in order for it to be liable for [punitive] damages.” (Sen. Amend, to Sen. Bill No. 1989 (1979-1980 Reg. Sess.) May 6, 1980.) The Legislature also inserted the term “conscious disregard” in place of the Restatement’s “reckless,” so that an employer could not be found liable merely for recklessly failing to research a potential employee’s background. (See Conf. Amend, to Sen. Bill No. 1989 (1979-1980 Reg. Sess.) Aug. 31, 1980 (Sen.), Aug. 27, 1980 (Assem.); Rest.2d Torts, § 909, p. 467.) The Assembly amended the bill, changing the phrase “senior executive officer or officers” to “agent . . . employed in a managerial capacity,” potentially allowing a plaintiff to impute punitive damages to the corporation if the corporate employee “was employed in a managerial capacity” or “[t]he principal or a managerial agent of the principal ratified or approved the act.” (Assem. Amend, to Sen. Bill. No. 1989 (1979-1980 Reg. Sess.) July 2, 1980.) But the Legislature rejected the Assembly’s attempt to return to the Restatement language. Before the Legislature enacted Senate Bill No. 1989 in late August 1980, a joint conference committee amended the bill to substitute “officer, director, or managing agent” for “agent. . . employed in a managerial capacity.” (Conf. Amend, to Sen. Bill No. 1989 (1979-1980 Reg. Sess.), supra.)
We therefore conclude that in amending section 3294, subdivision (b), the Legislature intended that principal liability for punitive damages not depend
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.
The supervision of eight retail stores and sixty-five employees is a significant aspect of Ultramar’s business. The testimony of Salla’s superiors establishes that they delegated most, if not all, of the responsibility for running these stores to her. The fact that Salla spoke with other employees and consulted the human resources department before firing plaintiff does not detract from her admitted ability to act independently of those sources. In sum, Salla exercised substantial discretionary authority over vital aspects of Ultramar’s business that included managing numerous stores on a daily basis and making significant decisions affecting both store and company policy. In firing White for testifying at an unemployment hearing, Salla exercised substantial discretionary authority over decisions that ultimately determined corporate policy in a most crucial aspect of Ultramar’s business.
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.
Notes
A11 statutory references are to the Civil Code unless otherwise noted.
Section 3294 allows a plaintiff to seek punitive damages (as exemplary damages) “for the breach of an obligation not arising from contract” when the plaintiff can show by “clear and convincing evidence” that a defendant “has been guilty of oppression, fraud, or malice.” (§ 3294, subd. (a).)
In 1980, the Legislature added subdivision (b) to section 3294, to add a special qualification for employer liability for those damages. Subdivision (b) states, in relevant part, that an employer shall not be liable for punitive damages based on an employee’s acts unless “the employer had advance knowledge of the unfitness of the employee and employed him or her with a conscious disregard of the 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.” The statute includes an additional qualification for corporate employers, who may not be liable for punitive damages unless “the advance knowledge and conscious disregard, authorization, ratification or act of oppression, fraud, or malice [is] on the part of an officer, director, or managing agent of the corporation.” (§ 3294, subd. (b).)
ltramar 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.
Although the issue is not presented here, and we do not address it or offer our view on its merits, in future cases, if a company has a written policy that specifically forbids retaliation against employees who testify at unemployment hearings, it may operate to limit corporate liability for punitive damages, as long as the employer implements the written policy in good faith. (See Kolstad v. American Dental Assn. (1999)
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.
We disapprove Stephens, supra,
Concurrence Opinion
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)
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,
In Egan, we observed that California follows the approach of the Restatement Second of Torts, which states that punitive damages can properly be
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,
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
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,
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.
Siva v. General Tire & Rubber Co. (1983)
Other Court of Appeal decisions have also applied the rule in Egan and Agarwal. (See, e.g., Weeks v. Baker & McKenzie (1998)
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)
As in Egan and Agarwal, regardless of any stated or written official policy by Ultramar, Salla had sufficient discretion to take actions that necessarily
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)
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
Indeed, the record indicates that it was a violation of Ultramar’s “company policy” to retaliate against employees who testified at unemployment compensation hearings.