Jacobus v. Krambo Corp.

• Decision Date: 03 March 2000
• Docket Number: No. A087995.,A087995.
• Citation: 78 Cal.App.4th 1096,93 Cal.Rptr.2d 425
• Parties: Russell JACOBUS, Plaintiff and Appellant, v. KRAMBO CORPORATION, Defendant and Respondent.
• Court: California Court of Appeals Court of Appeals

93 Cal.Rptr.2d 425

78 Cal.App.4th 1096

Russell JACOBUS, Plaintiff and Appellant, v. KRAMBO CORPORATION, Defendant and Respondent.

No. A087995.

Court of Appeal, First District, Division 5.

March 3, 2000.

Kyra A. Subbotin, Counsel for Plaintiff and Appellant.

Folger, Levin & Kahn, Peter M. Folger, Margaret E. Murray, Theresa I. McFarland, San Francisco, Counsel for Defendant and Respondent.

HANING, J.

The question before us is whether an employee who is sued by a coworker for sexual harassment is entitled under Labor Code section 2802 to indemnification from his employer of the legal costs incurred successfully defending the sexual harassment action. We conclude that he is, and we reverse the summary judgment in favor of the employer.

BACKGROUND

The Claim for Indemnification

Plaintiff Russell Jacobus was employed by Krambo Corporation, a six-person investment banking firm, and served as the company's treasurer and chief financial officer. In 1995 Jacobus and Krambo were sued for sexual harassment by Rosie Vera-Aviles, a secretary at the firm. Vera-Aviles alleged that Jacobus had created a hostile work environment through his unwelcome sexual communications and touching.

Jacobus asked Krambo to defend him in the action, but Krambo refused, and Krambo eventually settled with Vera-Aviles. Jacobus proceeded to trial alone and the jury found in his favor that no sexual harassment had occurred. Jacobus incurred $82,083 in attorney fees and costs in successfully defending that action, and Krambo refused to reimburse Jacobus for his expenses. Jacobus then filed the present lawsuit against Krambo for indemnification pursuant to Labor Code section 2802.¹

Jacobus and Krambo each moved for summary judgment, contending that the underlying facts were undisputed and that Krambo's liability for indemnification was a question of law. The trial court granted Krambo's motion and entered judgment in its favor. Jacobus appeals.

The Sexual Harassment Claim

Jacobus and Vera-Aviles had a friendly relationship in the office, which was marked by frequent sexual bantering. They discussed their personal lives with each other, including their sexual encounters. Vera-Aviles also had frequent conversations with other workers in the office involving sexual matters.

Jacobus and Vera-Aviles also socialized outside of work: i.e., they played softball, they had dinner together, and they played pool. Vera-Aviles frequently would jokingly invite Jacobus to take her to a strip club, and she occasionally rubbed Jacobus's shoulders at work as a friendly, nonsexual gesture.

During his employment with Krambo, Jacobus stored in his office drawer some erotic stories written with his sister-in-law. Vera-Aviles asked to see the stories, and Jacobus acquiesced. In April or May 1995, Jacobus received two faxes at work from his sister-in-law containing sexual materials, and he shared them with Vera-Aviles. In May or June 1995 Jacobus composed a sexually explicit five-paragraph story on his office computer, which he also shared with Vera-Aviles at her request. He and Vera-Aviles passed the story back and forth with handwritten post-it notes attached. A few days later, Jacobus composed another erotic story and gave it to Vera-Aviles.

One day Jacobus and Vera-Aviles played a computer golf game. When Vera-Aviles asked Jacobus to play again, he wrote her a note suggesting a "strip poker" version, and he put his hand on her thigh at one point during the game.

Jacobus was not Vera-Aviles's supervisor, although he commonly reviewed her work. In mid-July 1995 Jacobus conveyed a coworker's complaint about Vera-Aviles to Krambo's vice-president, Stephen Young. Young and Jacobus met with Vera-Aviles to discuss the complaint that she was spending too much time on the phone. Vera-Aviles became upset that her job performance was being criticized.

Later that day, Vera-Aviles met privately with Young and showed him some of Jacobus's sexually explicit notes. She asserted for the first time that Jacobus had sexually harassed her and complained that the meeting with Jacobus and Young had been a continuation of the harassment. Young and the company's president, Douglas Kramlich, met with Jacobus, and Young suggested that Jacobus should accelerate his already-formed plan to leave the firm. Jacobus resigned that day.

Four days later, Vera-Aviles quit her job at Krambo, and subsequently she filed her a sexual harassment action against Jacobus and Krambo.

DISCUSSION

Section 2802 requires an employer to indemnify an employee for all expenses and losses incurred "in direct consequence of the discharge of his duties." The statute requires the employer not only to pay any judgment entered against the employee for conduct arising out of his employment but also to defend an employee who is sued for such conduct. Unlike an insurer, the employer need not defend whenever there is a mere potential for liability. However, if the employer elects to run a risk and refuses to defend, the employer must indemnify the employee for his attorney fees and costs in defending the underlying action if the employee was sued for acts within the scope of his employment. (Douglas v. Los Angeles Herald-Examiner (1975) 50 Cal.App.3d 449, 457-465, 123 Cal.Rptr. 683 (Douglas).)

Both Jacobus and Krambo mistakenly assert that indemnification under section 2802 is required only if the underlying action was unfounded, citing Douglas, supra, 50 Cal.App.3d at pages 461-462, 465, 123 Cal.Rptr. 683. (See also Devereaux v. Latham & Watkins (1995) 32 Cal. App.4th 1571, 1583, 38 Cal.Rptr.2d 849 (Devereaux); Los Angeles Police Protective League v. City of Los Angeles (1994) 27 Cal.App.4th 168, 177, 32 Cal.Rptr.2d 574.) Both parties seem to accept that because the jury found Jacobus not liable for sexual harassment, the underlying action was unfounded.

Yet, section 2802 imposes no such requirement, and the Douglas opinion refers to a requirement mentioned in the Restatement Second of Agency. (Douglas, supra, 50 Cal.App.3d at p. 461, 123 Cal. Rptr. 683.) In Douglas, the merits of the underlying action came into play only because the lawsuit did not culminate in a judgment. It was settled with a dismissal, in exchange for the employee's agreement to give a deposition for the plaintiff and waive the news reporter's privilege. The question before the Douglas court was whether the employer has a duty to indemnify when the underlying lawsuit is successfully defended, and the court held that the employer has a duty to pay the defense costs when the employee prevails. Nothing in the court's analysis suggests that an employer's duty to indemnify arises only if the underlying charges are unfounded. The Douglas court expressly rejected the notion that the underlying lawsuit must have been brought by the third party in good faith. (Id. at p. 462, 123 Cal.Rptr. 683.)

The test for recovery under section 2802 is whether the conduct defended against was within the course and scope of employment. (Douglas, supra, 50 Cal.App.3d at pp. 463-465, 123 Cal.Rptr. 683.) In determining whether for purposes of indemnification an employee's acts were performed within the course and scope of employment, the courts have looked to the doctrine of respondeat superior. (E.g., Devereaux, supra, 32 Cal.App.4th at p. 1583, 38 Cal.Rptr.2d 849 [indemnification under § 2802]; see Farmers Ins. Group v. County of Santa Clara (1995) 11 Cal.4th 992, 1003, 47 Cal.Rptr .2d 478, 906 P.2d 440 (Farmers Ins. Group) [defense and indemnity of public employees under Tort Claims Act (Gov.Code, §§ 825, 995) ].)

Under that doctrine, an employer is vicariously liable for risks broadly incidental to the enterprise undertaken by the employer—that is, for an employee's conduct that, in the context of the employer's enterprise, is "not so unusual or startling that it would seem unfair to include the loss resulting from it among other costs of the employer's business. [Citations.]" (Rodgers v. Kemper Constr. Co. (1975) 50 Cal.App.3d 608, 619, 124 Cal. Rptr. 143; accord Mary M. v. City of Los Angeles (1991) 54 Cal.3d 202, 209, 285 Cal. Rptr. 99, 814 P.2d 1341 (Mary M.); Perez v. Van Groningen & Sons, Inc. (1986) 41 Cal.3d 962, 968, 227 Cal.Rptr. 106, 719 P.2d 676.) An employer is not vicariously liable for an employee's conduct if the employee substantially deviates from his or her course of duty so as to amount to a complete departure. (Farmers Ins. Group, supra, 11 Cal.4th at p. 1005, 47 Cal.Rptr.2d 478, 906 P.2d 440; DeMirjian v. Ideal Heating Corp. (1954) 129 Cal. App.2d 758, 766, 278 P.2d 114 (DeMirjian).) However, acts that are necessary to the comfort, convenience, health, and welfare of the employee while at work, though personal and not acts of service, do not take the employee outside the scope of his employment. (Alma W. v. Oakland Unified School Dist. (1981) 123 Cal.App.3d 133, 139, 176 Cal.Rptr. 287 (Alma W.); DeMirjian, supra, 129 Cal.App.2d at p. 765, 278 P.2d 114.) Moreover, an employee's conduct may fall within the scope of his employment even though the act does not benefit the employer, even though the act is willful or malicious, and even though the act may violate the employer's direct orders or policies. (Mary M., supra, at p. 209, 285 Cal.Rptr. 99, 814 P.2d 1341.)

The cases have consistently held that under the doctrine of respondeat superior, sexual misconduct falls outside the course and scope of employment. (Lisa M. v. Henry Mayo Newhall Memorial Hospital (1995) 12 Cal.4th 291, 48 Cal.Rptr.2d 510, 907 P.2d 358 [hospital not liable for sexual battery on patient by technician]; Jeffrey E. v. Central Baptist Church (1988) 197 Cal.App.3d 718, 722, 243 Cal.Rptr. 128 [church not liable for child molesting by Sunday school teacher]; Alma W., supra, 123 Cal.App.3d at pp. 140-142, 176 Cal. Rptr. 287 [school district not liable for rape of student by janitor].) In line with that authority, the California Supreme Court has held that an employer...