841 F.2d 980 (9th Cir. 1988), 86-5620, Huber v. Standard Ins. Co.

Docket Nº:86-5620.
Citation:841 F.2d 980
Opinion Judge:PREGERSON, Circuit Judge:
Party Name:Max HUBER, Plaintiff-Appellant, v. STANDARD INSURANCE COMPANY, Defendant-Appellee.
Attorney:Matthew B.F. Biren, Los Angeles, Cal., for plaintiff-appellant. Jan E. Eakins, Los Angeles, Cal., for defendant-appellee.
Judge Panel:Before PREGERSON and NORRIS, Circuit Judges, and BURNS, [*] District Judge.
Case Date:March 11, 1988
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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841 F.2d 980 (9th Cir. 1988)

Max HUBER, Plaintiff-Appellant,

v.

STANDARD INSURANCE COMPANY, Defendant-Appellee.

No. 86-5620.

United States Court of Appeals, Ninth Circuit.

March 11, 1988

Argued and Submitted Jan. 6, 1987.

Page 981

Matthew B.F. Biren, Los Angeles, Cal., for plaintiff-appellant.

Jan E. Eakins, Los Angeles, Cal., for defendant-appellee.

Appeal from the United States District Court for the Central District of California.

Before PREGERSON and NORRIS, Circuit Judges, and BURNS, [*] District Judge.

PREGERSON, Circuit Judge:

Max Huber (" Huber") filed a complaint in state court against his former employer, Standard Insurance Company (" Standard"), seeking compensatory and punitive damages for (1) wrongful discharge, (2) breach of the covenant of good faith and fair dealing, (3) intentional infliction of emotional distress, and (4) breach of contract concerning payment of commissions. The action was removed to federal court on the basis of diversity jurisdiction. After discovery was completed, Standard filed a motion for summary judgment. The district court granted partial summary judgment dismissing the first three causes of action and striking the claim for punitive damages. The parties subsequently settled the fourth cause of action. Huber appeals the grant of summary judgment as to the second and third causes of action and as to the striking of the claim for punitive damages.

We reverse the district court's grant of summary judgment as to the second and third causes of action and as to striking the claim for punitive damages.

BACKGROUND

Huber and Standard entered into a written employment contract effective on November 20, 1973. According to this contract, Huber was employed by Standard as agency manager of Standard's Los Angeles

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agency. Huber was forced, at the threat of termination, to agree to an amended version of this contract effective April 16, 1981. The amended contract states that " either you [Huber] or Standard may terminate this Contract by sending thirty days written notice to that effect to the other at his last known address." Huber was terminated on July 22, 1982, effective August 21, 1982.

Uncontested statements made in Huber's affidavit show that Standard never informed Huber of any dissatisfaction with his performance before the day of his termination. The letter terminating Huber's employment listed as the reasons for termination (1) Huber's negative attitude and criticism of Standard's new products, which adversely affected the Los Angeles agency, (2) the Los Angeles agency's increasing expense ratio, and (3) the Los Angeles agency's unsuccessful recruiting.

Huber's affidavit opposing summary judgment contradicts the assertion that he was critical of the new products and that the Los Angeles agency had been adversely affected. Huber's affidavit states that he did not express unhappiness about the new products and actually encouraged the members of his agency concerning them. Furthermore, as stated in the affidavit, Huber's alleged critical attitude concerning the new products could not have adversely affected performance during Huber's tenure because the new products were released in the Los Angeles area only five days before Huber was informed of his termination. Huber's affidavit also states that the Los Angeles agency ranked second in performance among all of the Standard agencies for the six months ending June 30, 1982, the period immediately preceding Huber's termination on July 22. This fact was publicized in a Standard publication.

Huber's affidavit opposing summary judgment shows that the factors negatively affecting the expense ratio during 1982 were not within Huber's control, but rather were in the control of his superiors. Huber's affidavit lists as examples a decision by his superiors in 1982 to increase office space thereby doubling the rent, against Huber's recommendation, and a decision by his superiors in 1981 to decrease the commission rate on first year commissions to be paid to agents. Furthermore, Huber's affidavit states that his agency operated within the budgetary limitations set by his superiors.

Huber's affidavit shows that his recruiting was successful. Huber's affidavit states that during his tenure as agency manager for the Los Angeles agency, he had a net increase of agents under contract of 1100%, and that the company as a whole had a substantial decrease over the same period.

All three of Huber's superiors whose names appear on his termination letter, Canfield, Halverson, and Johnson, have admitted in deposition testimony that they had not considered terminating Huber until June 1982. Two of them, Canfield and Johnson, testified that Huber's termination had not been considered until July 1982, the month Huber was terminated.

In 1981 Huber was informed that Johnson, who was then Canfield's immediate superior, wished to terminate Canfield, who was Huber's immediate superior. When Johnson asked Huber to evaluate Canfield, Huber decided to put his comments about Canfield in writing and to send copies of the evaluation to other Standard officers. Huber contends in his affidavit that his letter positively evaluating Canfield made it impossible to terminate Canfield. Instead, Johnson had Canfield moved to another position. Huber also contends in his affidavit that as a result of these events leading to Canfield's transfer on January 1, 1982, Johnson sought in 1982 to retaliate and terminate Huber.

According to Huber's affidavit, Standard has a practice of allowing terminated agency managers to continue as agents until their pensions vest. Huber, who was 50 at the time of his termination, requested such a demotion when he was informed of his termination as agency manager. His superiors did not grant this request. In addition, Huber was informed of his termination on a Thursday and was asked to

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vacate his office before the following Monday.

STANDARD OF REVIEW

This court reviews a grant of summary judgment de novo. Our determination is governed by the standard found in Fed.R.Civ.P. 56(c) governing summary judgment in the trial court. Darring v. Kincheloe, 783 F.2d 874, 876 (9th Cir.1986). We must view the evidence in the light most favorable to the nonmoving party and determine whether there are any genuine issues of material fact and whether the district court properly applied the substantive law. Ashton v. Cory, 780 F.2d 816, 818 (9th Cir.1986). " [A]t the summary judgment stage the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986).

DISCUSSION

I. The Covenant of Good Faith and Fair Dealing

a. Elements of the Tort

In order to review the district court's grant of summary judgment against Huber's claim that Standard committed a tort by breaching the implied covenant of good faith and fair dealing, we must decide what the elements of such a tort are in the context of an employment contract under California law.

The California Supreme Court has recognized that " in California, the law implies in every contract a covenant of good faith and fair dealing, " but has also stated that " the proposition that ... breach of the covenant always gives rise to an action in tort ... is not so clear." Seaman's Direct Buying Serv., Inc. v. Standard Oil Co., 36 Cal.3d 752, 768, 686 P.2d 1158, 1166, 206 Cal.Rptr. 354, 362 (1984) (emphasis in original). The California Supreme Court stated that a breach of the implied covenant in the context of an employment contract " might" give rise to a tort action, 36 Cal.3d at 769 n. 6, 686 P.2d at 1166 n. 6, 206 Cal.Rptr. at 362 n. 6, but has given no more guidance than that.

Because the California Supreme Court has not directly addressed the issue, we look to decisions of the California courts of appeal for guidance. Miller v. Fairchild Indus., 797 F.2d 727, 735 (9th Cir.1986). The courts of appeal are divided as to what are the elements of the tortious breach of the implied covenant of good faith and fair dealing in employment contracts that, like the one in the instant case, contain no fixed term of employment.

One line of court of appeal opinions holds fast to the language of Cleary v. American Airlines, 111 Cal.App.3d 443, 168 Cal.Rptr. 722 (1980). In Cleary, the court stated that

[t]wo factors are of paramount importance in reaching our result that plaintiff has pleaded a viable cause of action. One is the longevity of service by plaintiff....

The second factor of considerable significance is the expressed policy of the employer.... [I]ts existence compels the conclusion that this employer had recognized its responsibility to engage in good faith and fair dealing rather than in arbitrary conduct with respect to all of its employees.... [These factors preclude] any discharge of such an employee by the employer without good cause.

111 Cal.App.3d at 455-56, 168 Cal.Rptr. at 729. One case has turned this statement into a rigid two-pronged requirement for the availability of a tort action for violation of the implied covenant in the context of an employment contract containing no term of employment. See Foley v. Interactive Data Corp., 193 Cal.App. 3d 28, 36, 219 Cal.Rptr. 866, 871 (1985), rev. granted, 222 Cal.Rptr. 740, 712 P.2d 891 (1986); see also Newfield v. Insurance Co., 156 Cal.App.3d 440, 445-46, 203 Cal.Rptr. 9, 12 (1984) (Holdings of violation of the covenant " were always predicated upon other public policy grounds, statutory violations, or express (or clearly implied) contract grounds, or upon a combination of elements (e.g. especially longevity of service together with some added element ( Cleary ) 18

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years and company policies....)" (emphasis in original)); Gianaculas v. Trans...

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