BF Goodrich Co. v. Naples

• Decision Date: 24 May 1954
• Docket Number: No. 15119.,15119.
• Citation: 121 F. Supp. 345
• Court: U.S. District Court — Southern District of California
• Parties: B. F. GOODRICH CO. v. NAPLES et al.

121 F. Supp. 345

B. F. GOODRICH CO. v. NAPLES et al.

No. 15119.

United States District Court S. D. California, Central Division.

May 24, 1954.

Newlin, Holley, Tackabury & Johnston, George W. Tackabury, Lyndol L. Young, Los Angeles, Cal., for plaintiff.

Glenn A. Lane, Los Angeles, Cal., for defendant Naples.

Joseph K. Coady, Bellflower, Cal., for defendant Klingelberg.

Slate & Sawtelle, Houston H. Slate, Los Angeles, Cal., for defendants Robert L. Baier, Economy Paint & Waterproofing Co., a corporation, Economy Metal Fabricating Co., a corporation.

James B. Hudson, Los Angeles, Cal., for defendants Page Noll and Associated Roof Company, a corporation.

Edmund F. Barker, Montebello, Cal., for defendants Martin Hyman, Henry B. May, Henry B. May Co., S. A. Cox and M. L. Ward, individually and Cox & Ward Machine Shop; Troy Sheet Metal Works.

Otto A. Gerth, Vista, Cal., for defendants Harry M. Lukens, and Harry M. Lukens Co. and Tom Lukens.

YANKWICH, Chief Judge.

By an amended complaint the plaintiff seeks to recover in one cause from Henry Naples and Julia Naples the sum of $69,876.52. By separate causes of action the plaintiff seeks to recover against the Naples and certain individual defendants various amounts, every one of which is not in addition to, but as a part of the whole recovery sought by the first cause of action against the Naples. The plaintiffs also attempt to make each of the defendants sued separately for various amounts liable for the whole amount.

Following discussion on a Motion to Dismiss at the conclusion of plaintiff's case, in which the Court expressed doubt as to whether the evidence was sufficient to make each of the defendants sued liable for the whole, the plaintiff, while not abandoning the first cause of action against all but the Naples, stated that it would not be pressed. As the matter is now before the Court on the merits, it is sufficient to state that, in the Court's opinion, while, as will appear, the individual defendants, other than Naples, are liable for the amounts proved in the record as to themselves, there is no evidence to show that any of them knew or participated in any dealings between Naples and the others. So that, even under the more liberal federal rules of conspiracy, the individual defendants, while guilty of specific conspiracies with Naples, were not participants in any between Naples and the others.¹

By "conspiracy" we mean "civil conspiracy" in the sense in which it is used in the law of California in order to hold persons who are in concert of action with a fiduciary liable to the principal for the acts done by the agent or employee to the detriment of the principal.

As the sole basis for federal jurisdiction is diversity arising from the fact that the plaintiff is a New York corporation and a citizen and resident of the State of New York, while the defendants are residents of California, the rights of the parties must be determined according to California law.²

As the Supreme Court put it very succinctly:

"The essence of diversity jurisdiction is that a federal court enforces State law and State policy."³ In diversity cases the federal district court becomes, in effect, "another court of the State".⁴

I The California Law of Fiduciaries

In dealing with the legal principles applicable, we advert to the facts behind the meager details of the complaint. Despite statements by the high courts of California, which deprecate the use of the common count as contrary to the requirements of the Code of Civil Procedure which California has had for over a century,⁵ the California courts have hesitated to abandon their own early recognition of the common count, as though a property right can arise in a form of pleading. And they have sanctioned its use in cases which are really actions in tort in which the principal, instead of general damages, tries to recover the moneys which the tort-feasor has obtained.⁶ This attitude has prevailed up to the present time.⁷

So, while the Complaint is cast in the form of common counts, the recovery is sought because of the secret profits received by Henry Naples during the years 1948 to 1951 while in the employ of the plaintiff.

This type of action is sanctioned by a series of decisions over the course of years.⁸ On the procedural side, these cases give effect to the common-law principle which was expressed in the verse:

"Thoughts much too deep for tears pervade the court,

When I assumpsit bring, and, godlike, waive the tort."

On the substantive law side, they are grounded upon the principle that an agent or employee is not permitted to make any secret profit out of his agency, and that beyond his agreed compensation, the agent is not entitled to any of the benefits of a transaction in which he engages for the principal. If he makes any unbeknown to the principal, the principal is entitled to recover them as a fraud upon the relationship. And all who participate in it are liable to the principal along with the agent, despite the fact that the participant, other than the agent, may not have benefited from the transaction. Their participation is a civil wrong resulting in damage, and the doctrine of civil conspiracy is resorted to merely in order to fasten joint liability on all participants, whether they gain anything from the transaction or not.⁹

As the Supreme Court of California has put it:

"The advantage gained in charging a conspiracy is that the act of one during the conspiracy is the act of all if done in furtherance thereof, and thus defendants may be held liable who in fact committed no overt act whatsoever and gained no benefit therefrom."¹⁰

But, notwithstanding the waiver of the tort, the three-year statute of limitations applies.¹¹ And the strict rules relating to proof of circumstances of discovery to begin the running of the statute applicable to ordinary fraud cases do not apply to this type of fraud which has its inception in a fiduciary relation.¹²

II The Relationship of the Parties

The principles just declared spell out the liability on the part of all the defendants sued herein, unless one believes the facts narrated by Naples and some of the defendants at the trial, — most of which are contradicted by contemporaneous evidence, including statements by Naples and some of the contractors before the controversy reached the courts.

The controversy, of course, turns around the actions of Naples. Naples was a minor employee of the plaintiff by whom he was employed first as a draftsman beginning some time in 1943. His classification was changed as of January 2, 1951, to that of engineer. He did not have an engineering degree from any university. However, in two years at a naval academy, and later a year at California institutions, and through home courses, he acquired engineering knowledge sufficient to qualify him as a licensed engineer in the State of California. He was a subaltern under the supervision of another engineer in the drafting room. One of his tasks was to initiate inquiries of contractors as to construction jobs to be done at the plant. Upon the basis of these inquiries, a contract was let by the Purchasing Department to the best bidder and approved by the plant manager.

After an inquiry reached him, Naples discussed the price with the contractor who was to do the work. To the quoted price he added a profit which was to be paid to him individually, or under the name of Gregg Engineering Company, or Lance Engineering Company. There were no such entities as Gregg Engineering Company or Lance Engineering Company. Neither had complied with the law of California relating to registering a business under a fictitious name.¹³ They were, as Naples admits, non-existent. Their identity was not only concealed from Naples' employers, but from at least one bank with whom Naples was doing business, to whose representatives he introduced himself as George M. Gregg, and explained the fact that the mailing address was at the motel where he was living, by stating falsely that he was a recent arrival from San Francisco, and was using that address until he acquired a permanent business address.

The contract was let by the Company to one of the bidders. But the evidence shows that Naples, in most of the instances with which we are concerned, had arrangements as to additional profits to be paid to him with more than one bidder as to each job, so that he would receive these profits no matter who received the contract.

At the trial, Naples claimed that these profits were received by him pursuant to an understanding had between him and L. R. Keltner, the Manager of the Goodrich plant at Los Angeles, whereby he was permitted to receive these moneys from the contractors for performing additional engineering services after hours, in order to compensate him for the loss of overtime, which he claimed Keltner had abolished.

This reason taxes credulity. At no time did Naples' alleged overtime exceed an average of $100 per month. And it is certain that the executive of a large industrial plant would not allow an employee, no matter how underpaid, to receive profits running into more than $50,000 over a period of about three years to compensate for loss of a small amount of monthly overtime.

Indeed, there is not one phase of the story told by Naples to explain these profits that is worthy of belief. It is incredible than a man of Naples' limited experience should have been allowed by the manager of the plant or by his immediate superior, the plant engineer Edwin S. Park, to perform for contractors the type of engineering services he claims to have performed, or to have supervised for the contractors on the various installations, after hours and over week ends, and then also been allowed to accept the work for his employer when completed.

More, this extensive engineering work that ran into tens of thousands of dollars is not exemplified by a working paper, diagram or drawing, much less a blue print, that...