Haley v. Dow Lewis Motors, Inc.

• Decision Date: 24 May 1999
• Docket Number: No. C029377,C029377
• Citation: 72 Cal.App.4th 497,85 Cal.Rptr.2d 352
• Court: California Court of Appeals Court of Appeals
• Parties: , 15 IER Cases 471, 99 Cal. Daily Op. Serv. 3918, 1999 Daily Journal D.A.R. 4977 Ozella Faye HALEY et al., Plaintiffs and Appellants, v. DON LEWIS MOTORS, INC., et al., Defendants and Respondents.

Page 352

85 Cal.Rptr.2d 352

72 Cal.App.4th 497, 15 IER Cases 471,

99 Cal. Daily Op. Serv. 3918,

1999 Daily Journal D.A.R. 4977

Ozella Faye HALEY et al., Plaintiffs and Appellants, v. DON LEWIS MOTORS, INC., et al., Defendants and Respondents.

No. C029377.

Court of Appeal, Third District, California.

May 24, 1999.

Review Denied Aug. 18, 1999.

Anthony J. Poidmore, Sacramento, for Plaintiffs and Appellants.

Lewis, D'Amato, Brisbois & Bisgaard and Claudia J. Robinson, Sacramento, for Defendants and Respondents.

MORRISON, J.

Plaintiffs Phillip Haley and Ozella Faye Haley brought suit against defendants Dow Lewis Motors, Inc. and Larry Dow Lewis on a variety of causes of action arising out of the termination of their employment with Dow Lewis Motors. During Ozella's deposition, it came out that the Haleys had filed for chapter 7 bankruptcy. ¹ Defendants moved for judgment on the pleadings, contending plaintiffs' causes of action belonged to the bankruptcy estate. Plaintiffs sought to amend their complaint, to substitute the bankruptcy trustee as party plaintiff. The trial court granted the motion for judgment on the pleadings and denied the motion to amend. Plaintiffs appeal. They contend the causes of action that accrued after their filing of the petition in bankruptcy are not property of the bankruptcy estate and that the trial court erred in refusing to allow the amendment to the complaint. We agree as to both points. Accordingly, we reverse.

FACTUAL AND PROCEDURAL BACKGROUND

On January 29, 1996, plaintiffs filed a complaint for damages against defendants. They alleged causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, wrongful termination, breach of Labor Code section 1102.5, refusal to pay wages under Labor Code sections 201 and 203, inducing them to move by false representations (Lab.Code, §§ 970, 972), fraud and misrepresentation, defamation, loss of consortium, intentional infliction of emotional distress, and negligent infliction of emotional distress.

The complaint alleged plaintiffs were living in Redding in early 1994. Defendants induced Ozella to come to work for them in Yuba City. Defendants and Ozella entered into an oral employment contract, under which she would be their finance manager and make commissions equal to her predecessor. Defendants told her the previous finance manager made approximately $9,500 per month. Ozella accepted the position and commuted to work from Redding from March until August 1994.

In August 1994, defendants entered into an employment contract with Phillip, Ozella's husband. He would work as general manager for defendant's automobile dealership at a salary of $7,000 a month. In reliance on defendants' promises, plaintiffs moved to Yuba City. Just after plaintiffs made a down payment on a house in Yuba City, defendants reduced Phillip's salary to $5,000 per month. Ozella never made the promised commissions; she averaged only $2,622.62 per month.

In September 1994, Ozella undertook additional responsibilities for which she was to receive an additional $1,750 per month. Instead, she was paid only $1,500 in September and October and nothing thereafter. In mid-October 1994, plaintiffs did not receive regular paychecks, but checks for $0. They were told this reflected withholdings for income taxes that had not been made earlier. In December 1994, their checks were again short. They were told this reflected "draws" on their salary, as well as unpaid income taxes.

In early 1995, knowing the plaintiffs' dire financial situation due to the minimal paychecks, defendants induced plaintiffs to sign a promissory note for $4,000. In early February, defendants announced $1,500 would be withheld from Ozella's paycheck because a customer had not made a down payment. Ozella found the working conditions intolerable When Phillip went to pick up Ozella's last paycheck, he was told she still owed $3,000 on the promissory note and that amount was deducted from her paycheck, leaving zero. Once again, defendants induced Phillip to sign a promissory note for $3,000. When Ozella sought work in Yuba City, defendants told prospective employers that she had embezzled funds and had a gambling problem. These statements were false. Defendants made the same false statements to other business people. On November 30, 1995, defendants terminated Phillip. They cited financial reasons, but hired another general manager.

and was forced to leave employment with defendants.

Defendants moved to compel arbitration under an arbitration agreement Ozella had signed. The court ordered arbitration.

The court assumed jurisdiction over the practice of plaintiffs' attorney based on unrelated state bar disciplinary proceedings. Plaintiffs substituted another attorney.

On April 2, 1997, plaintiffs filed a first amended complaint, adding a cause of action on behalf of Phillip for defamation. The amended complaint alleged that from December 1, 1995 through January 2, 1996, defendants made defamatory statements about Phillip. These statements included that he was fired for sleeping during work hours, failing to attend meetings, and refusing to train employees.

On July 16, 1997, during the deposition of Ozella in preparation for arbitration, she revealed that plaintiffs had filed a chapter 7 bankruptcy petition on or about May 3, 1995. She claimed the bankruptcy had been precipitated by the events occurring during plaintiffs' employment with defendants.

Defendants moved for judgment on the pleadings, contending that plaintiffs lacked standing to sue due to the bankruptcy. They requested the court take judicial notice of the bankruptcy file pursuant to Evidence Code section 452. ² Defendants argued that all of plaintiffs' causes of action belonged to the bankruptcy estate. They contended that all of the material facts and events giving rise to the causes of action, with the possible exception of Phillip's slander action, occurred prior to the filing of the bankruptcy petition on May 3, 1995. As to the slander claim, and any other causes of action arguably accruing subsequent to the petition, defendants argued they would be considered part of the bankruptcy estate.

Plaintiffs opposed the motion, urging they were taking steps to cure the deficiency in standing. They had contacted the bankruptcy trustee, who agreed to help preserve the lawsuit as an asset of the bankruptcy estate. He successfully petitioned to reopen the bankruptcy case. The trustee had submitted a petition to have plaintiffs' counsel employed to prosecute the lawsuit on behalf of the estate. Plaintiffs claimed in their memorandum of points and authorities that they had asked their bankruptcy attorney if they should include the amounts withheld by defendants as assets. Plaintiffs had no documentation that they were owed these amounts, so their bankruptcy attorney concluded it was not worth pursuing and could get Phillip fired. Plaintiffs believed they had no claim, so they did not list any claims against defendants as assets. They later provided declarations to this effect.

Plaintiffs further asserted that the causes of action related to Phillip's wrongful termination and defamation accrued after the filing of the bankruptcy petition and even after the discharge of their debts; these causes of action belong to plaintiffs, not the bankruptcy estate. They provided documentation to show their debts were discharged August 6, 1995.

Plaintiffs moved pursuant to Code of Civil Procedure section 473 to amend the complaint to name the bankruptcy trustee as party plaintiff. The proposed amendment sought to include as plaintiff in the caption "Trustee Hank Spacone Real Party in Interest" and to add to the allegations "Plaintiff HANK SPACONE is the real party in interest as to all causes of action accruing prior to May 3, 1995."

The trial court granted the motion on the pleadings. Relying on Bostanian v. Liberty Savings Bank (1997) 52 Cal.App.4th 1075, 61 Cal.Rptr.2d 68, it found all causes of action belonging to plaintiffs when the bankruptcy petition was filed and those accruing thereafter became a part of the bankruptcy estate. The court took judicial notice of the bankruptcy matters. Since the trustee had not abandoned the causes of action, plaintiffs had no standing to assert them.

The court denied the motion to amend the complaint. It noted this case was not the traditional "relation back" case. It found plaintiffs were fully aware they had filed a chapter 7 petition, failed to list these causes of action as assets, and then proceeded to prosecute this action in contravention of bankruptcy law. The court declined to apply the rule of Jensen v. Royal Pools (1975) 48 Cal.App.3d 717, 121 Cal.Rptr. 805, and instead relied upon Coats v. K-Mart Corp. (1989) 215 Cal.App.3d 961, 264 Cal.Rptr. 12. The court found plaintiffs did not act in good faith in prosecuting either the bankruptcy action or this action. Further, the court found plaintiffs' proposed amendment inadequate as it did not explain who Hank Spacone was or the history of the bankruptcy proceeding. The court found the amendment would be subject to an instant demurrer.

DISCUSSION

I

Plaintiffs contend that only the causes of action that had accrued as of May 3, 1995, the date they filed the petition in bankruptcy, belong to the bankruptcy estate. They contend causes of action accruing thereafter belong to them and they have standing to prosecute them. They assert that Phillip's wrongful termination occurred in November 1995, well after the petition was filed. The alleged defamatory remarks by defendants about him were made in December 1995 and January 1996. Plaintiffs contend the causes of action based on Phillip Haley's wrongful termination and defendants' defamation of Phillip Haley, as well as related causes of action for loss of consortium and infliction of emotional distress, remain theirs. As to these causes of action, plaintiffs conte...