Gianaculas v. Trans World Airlines, Inc., 84-1589

• Decision Date: 24 May 1985
• Docket Number: No. 84-1589,84-1589
• Citation: 761 F.2d 1391
• Parties: 119 L.R.R.M. (BNA) 3246, 104 Lab.Cas. P 55,585, 1 Indiv.Empl.Rts.Cas. 938 Angelo GIANACULAS; Ernest Buck and James Gregg, Plaintiffs-Appellants, v. TRANS WORLD AIRLINES, INC., a corporation, aka TWA, et al., Defendants- Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1391

761 F.2d 1391

119 L.R.R.M. (BNA) 3246, 104 Lab.Cas. P 55,585,

1 Indiv.Empl.Rts.Cas. 938

Angelo GIANACULAS; Ernest Buck and James Gregg, Plaintiffs-Appellants, v. TRANS WORLD AIRLINES, INC., a corporation, aka TWA, et al Defendants- Appellees.

No. 84-1589.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Dec. 12, 1984.

Decided May 24, 1985.

Frank R. Ubhaus, Pitto, Ubhaus, Waite, & Fedeli, San Jose, Cal., for plaintiffs-appellants.

Michael A. Katz, New York City, for defendants-appellees.

On Appeal from a Judgment of the United States District Court for the Northern District of California.

Before MERRILL, CANBY and NORRIS, Circuit Judges.

MERRILL, Circuit Judge:

Angelo Gianaculus, James Gregg, and Ernest Buck, discharged employees of Trans World Airlines (TWA), appeal pursuant to 28 U.S.C. Sec. 1291 from a grant of summary judgment in their suit against TWA for breach of contract and breach of an implied covenant of good faith and fair dealing. Appellants claim that as management employees they were protected by TWA's Management Policy and Procedure Manual (MP & P) from discharge without the opportunity to displace into certain other positions.

I

TWA is an interstate and international air carrier with its executive offices in New York. Angelo Gianaculus was hired by TWA on April 17, 1956 at San Francisco. Ernest Buck was hired by TWA on March 2, 1967 at St. Louis, Missouri. James Gregg was hired by TWA on June 8, 1964 at Dayton, Ohio. Each appellant completed an employment application which set forth several conditions of employment. The fourth condition stated, "[i]f given employment, I hereby agree that such employment may be terminated by the company at any time without advance notice and without liability to me for wages or salary...." Other than the conditions stated in the employment application, there was no written employment contract.

In November 1981, appellants, then employed by TWA in management capacities in California, were notified that due to economic circumstances and reductions in operations and staffing levels, their positions would be abolished. Each appellant was offered continued employment in a specified non-management position. Appellants declined the positions offered and were furloughed in December 1981.

On September 20, 1982, appellants brought suit against TWA in Santa Clara County Superior Court. TWA was alleged to have breached its employment agreement with the appellants by failing to follow the terms of the MP & P. In particular, the appellants contended that section 10.49C4(a) of the MP & P permitted the use of seniority to displace to jobs reporting directly or functionally to the management position held at the time of furlough, that section 10.49C4(c) of the MP & P prevented the arbitrary and capricious choice of employees to be furloughed and that section 10.49D permitted the use of seniority to displace junior employees systemwide. The complaint asserted that the failure to follow these procedures constituted breach of the employment agreements and breach of the implied covenant of good faith and fair dealing existing in the employment agreements.

Pursuant to the diversity of citizenship provisions of 28 U.S.C. Sec. 1441(b), TWA removed the action to the United States District Court for the Northern District of California and, following discovery, TWA moved for summary judgment.

The district court granted TWA's motion as to each of the claims made by Gianaculus, Buck and Gregg. The court found that New York law governed the contract under California conflict of laws principles and that New York did not provide for recovery in this case. The court added that the appellants were also barred from recovery under California law.

We need not decide whether the case is governed by New York or California law, because recovery is precluded by the laws of both states. See Comment, False Conflicts, 55 Calif.L.Rev. 74, 76-77 (1967); Cavers, The Choice of Law Process (1965), p. 89 (where the laws of two states yield identical results, at most a "false conflict" is presented).

II

The New York Court of Appeals has explicitly rejected the existence of implied covenants of good faith and fair dealing in at-will employment contracts. Murphy v. American Home Products, 58 N.Y.2d 293, 304-305, 461 N.Y.S.2d 232, 237, 448 N.E.2d 86, 91 (1983). In Murphy, the court of appeals stated:

[U]nder New York law as it now stands, absent a constitutionally impermissible purpose, a statutory proscription, or an express limitation in the individual contract of employment, an employer's right at any time to terminate an employment at will remains unimpaired.

Id.

The court noted, however, that an employment handbook might constitute an express limitation which would be given effect even though the employment contract was of indefinite duration. Murphy, 58 N.Y.2d at 304-305, 461 N.Y.S.2d at 237, 448 N.E.2d at 91. Whether a handbook could constitute such an express limitation depended, the court continued, upon the ability of the plaintiff to make the "appropriate evidentiary showing" required by Weiner v. McGraw-Hill, Inc., 57 N.Y.2d 458, 457 N.Y.S.2d 193, 443 N.E.2d 441 (1982). Id.

Weiner rests upon equitable principles of estoppel and includes the following elements: (1) Weiner was induced to leave his prior employer with the assurance that McGraw-Hill would not discharge him without cause; (2) the employment application referred to the personnel handbook, which included the assurance that discharge would be for cause; (3) Weiner rejected other offers of employment in reliance on the assurance; and (4) Weiner alleged that he had been instructed not to dismiss his own subordinates except in strict compliance with the handbook. Weiner, 457 N.Y.S.2d at 197, 443 N.E.2d at 445.

These four factors are largely absent from this case. Appellants have failed to allege any reliance, either in joining TWA or in rejecting other offers, on the limitations on discharge in the handbook. They have failed to allege that the policies of the handbook were explicitly incorporated in their applications or contracts. Indeed, the employment application expressly provided that employment was to be at will.

III

California courts, motivated by the idea that the right to job security is necessary to ensure social stability, have greatly circumscribed the traditional notion of at-will employment. A right of action for wrongful termination has emerged from sources in both contract and tort law. See Tameny v. Atlantic Richfield Co., 27 Cal.3d 167, 174-76, 164 Cal.Rptr. 839, 843, 610 P.2d 1330, 1334-35 (1980); Shapiro v. Wells Fargo Realty Advisors, 152 Cal.App.3d 467, 199 Cal.Rptr. 613 (1984).

In a case such as this, California courts have recognized two theories of recovery. First, the employer's conduct, often as evidenced by an employment manual, may give rise "to an implied promise that it would not act arbitrarily in dealing with its employees." Pugh v. See's Candies, Inc., 116 Cal.App.3d 311, 329, 171 Cal.Rptr. 917, 927 (1981). See Shapiro, 152 Cal.App.3d at 480, 199 Cal.Rptr. at 622. The emphasis in this approach is, in traditional contract terms, see Pugh, 116 Cal.App.3d at 329, 171 Cal.Rptr. at 927, on whether the parties have reached an implied meeting of the minds regarding certain aspects of their employment relationship. Here, however, the MP & P cannot be viewed as a manifestation of the intent of the parties. The employment application completed by the appellants expressly states that employment is terminable at will. This term contradicts the notion that the parties agreed to limitations upon at-will employment. As a California appellate court recently held in a case where an employee, who had signed a stock option agreement stating that employment was at will, sought to imply a contract for continuing employment, "[t]here cannot be a valid express contract and an implied contract each embracing the same subject, but requiring different results." Shapiro, 152 Cal.App.3d at 482, 199 Cal.Rptr. at 622. See Balzer/Wolf Associates, Inc. v. Parlex Corp., 753 F.2d 771, 775 (9th Cir.1985); Brimmer v. Union Oil of California, 81 F.2d 437, 440 (10th Cir.), cert. denied, 298 U.S. 668, 56 S.Ct. 833, 80 L.Ed. 1391 (1936); Wal-Noon Corp. v. Hill, 45 Cal.App.3d 605, 613, 119 Cal.Rptr. 646, 650-51 (1975). An implied contract to allow the appellants to displace into other management positions is similarly precluded here.

A second theory of recovery, sounding in both contract and tort, recognized by California courts is predicated upon an implied covenant of good faith and fair dealing. Cleary v. American Airlines, Inc., 111 Cal.App.3d 443, 455, 168 Cal.Rptr. 722, 729 (1980). The Cleary court held that "the longevity of the employee's service, together with the expressed policy of the employer [of adjudicating disputes], operate as a form of estoppel, precluding any discharge of such an employee by the employer without good cause." Cleary, 111 Cal.App.3d at 456, 168 Cal.Rptr. at 729. See Shapiro, 152 Cal.App.3d at 478-79, 199 Cal.Rptr. at 619.

Existing management procedures in conjunction with longevity of employment, therefore, preclude discharge without good cause. They create an environment where societal standards of good faith and fair dealing will be given...