Tonry v. Security Experts, Inc., 92-15505

• Decision Date: 28 March 1994
• Docket Number: No. 92-15505,92-15505
• Citation: 20 F.3d 967
• Parties: 127 Lab.Cas. P 57,660, 28 Fed.R.Serv.3d 715, 9 Indiv.Empl.Rts.Cas. (BNA) 522 Alfred F. TONRY, Plaintiff-Appellee, v. SECURITY EXPERTS, INC., Defendant-Appellant, and Robert FOGLIA, Defendant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 967

20 F.3d 967

127 Lab.Cas. P 57,660, 28 Fed.R.Serv.3d 715,

9 Indiv.Empl.Rts.Cas. (BNA) 522

Alfred F. TONRY, Plaintiff-Appellee, v. SECURITY EXPERTS, INC., Defendant-Appellant and Robert FOGLIA, Defendant.

No. 92-15505.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Nov. 3, 1993.

Decided March 28, 1994.

Randolph C. Roeder, Littler, Mendelson, Fastiff & Tichy, San Francisco, CA, for defendant-appellant.

John R. Clifford, Hyde & Drath, San Francisco, CA, for plaintiff-appellee.

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

Before: CANBY, and NOONAN, Circuit Judges, and HUFF, District Judge. ^*

OPINION

HUFF, District Judge:

Security Experts, Incorporated ("SEI") appeals the district court's judgment in favor of Alfred F. Tonry's action for breach of an implied employment contract action. SEI also appeals the district court's dismissal of its counterclaims for breach of the duty of loyalty and the implied covenant of good faith and fair dealing. Finally, it appeals the district court's award of damages. We affirm.

BACKGROUND

In July 1979, Alfred F. Tonry ended his seventeen-year police career to begin employment with SEI. SEI is a New York corporation which was founded in 1978 to provide professional security service for major commercial clients at certain United States airports. Although Tonry joined SEI at its New York facility, he relocated to open, operate and manage SEI's San Francisco facility in 1980. At that time, SEI promoted Tonry to the position of division manager and increased his annual salary from $30,000 to $40,000.

Tonry continued in the position of division manager until November 11, 1987. His annual salary during that period rose to a high of over $65,000 (plus bonuses). SEI also provided Tonry with disability insurance and health benefits for his family and a company car. Throughout the period of his employment at SEI, SEI and its clients consistently viewed Tonry's work with favor. Moreover, there were no specific criticisms of his work during the more than eight years that he worked for SEI.

James Motherway, Tonry's close friend, served as SEI's president from 1979 until June 1987, when he resigned. At that time, Robert Foglia, SEI's founder and major shareholder, assumed the position of president. One month after resigning, Motherway made a trip to California. During a portion of the trip, Motherway stayed at Tonry's home. In addition, he and Tonry had lunch with Sandy Phillips, a representative of DHL Airways ("DHL"), one of SEI's major clients. The purpose of the lunch was to announce Motherway's resignation to Phillips, a close professional colleague. ¹

In July 1987, Tonry had a conversation with fellow SEI employee Mark Cox, Manager of the Dayton and Cincinnati, Ohio facilities. Cox was concerned about his job security in light of the apparently precarious financial condition of SEI at the time and a recent, unsettling meeting with Foglia. Tonry reassured Cox that his position with SEI was secure. Tonry also discussed with Cox the steps necessary to establish a competing security business.

Among other things, Tonry mentioned his lunch with Sandy Phillips and commented that DHL would always need security at its Ohio hub. Finally, Tonry stated that, in light of the absence of a written employment contract containing any such restrictions, Cox had the option of resigning from his position at any time in order to establish a competing business. Tonry and Cox had similar discussions in August and September 1987. ²

While Tonry considered the steps necessary to establish his own security business, he took no overt step toward doing so. He never identified or spoke to specific potential investors and while he did obtain a security license in the latter part of 1987, he did so only at Foglia's behest.

In August 1987, SEI decreased Tonry's annual salary from $55,000 to $35,000. On November 11, 1987, SEI reassigned Tonry to the position of night watchman at the Oakland facility, working an 8:00 p.m. to 5:00 a.m. shift. At the time of his reassignment, Tonry lost use of a company car. On December 2, 1987, Tonry resigned from SEI. He subsequently obtained employment in the security and insurance industries.

At no point during Tonry's employment with SEI was he party to a written employment contract. In fact, in the summer of 1987, Tonry refused to enter into a written contract with SEI which provided, among other things, that he could not be terminated without good cause. Nonetheless, although never formalized in either individual employment contracts or a policy manual, the general practice at SEI was to terminate employees only for good cause.

On March 29, 1988, Tonry filed suit against SEI and Foglia in the Superior Court for the State of California. The complaint stated causes of action for breach of contract, breach of the covenant of good faith and fair dealing, intentional infliction of emotional distress, and inducement of breach of contract. On May 23, 1988, SEI and Foglia filed their answer and a cross-complaint against Tonry which stated causes of action for breach of the duty of good faith and fair dealing and the duty of loyalty. On December 1, 1988, SEI and Foglia removed the action to the United States District Court for the Northern District of California, based on diversity of citizenship.

On July 18, 1989, the district court granted SEI and Foglia's motion for summary judgment with respect to Tonry's claims alleging breach of the covenant of good faith and fair dealing, intentional infliction of emotional distress, and inducement of breach of contract. The district court then referred the parties to court-annexed arbitration. After hearing evidence, the arbitrator dismissed Tonry's remaining breach of contract action and SEI and Foglia's cross-complaint. Tonry then exercised his right to request a trial de novo. A seven-day bench trial on Tonry's remaining breach of contract claim and SEI and Foglia's cross-complaint commenced on April 1, 1991.

On September 12, 1991, the trial court issued its preliminary findings of fact and conclusions of law finding in favor of Tonry and directed the parties to submit memoranda concerning damages. On February 28, 1992, the trial court issued its final findings of fact and conclusions of law, finding in favor of Tonry and entering judgment in the amount of $33,701. The trial court also dismissed SEI and Foglia's cross-complaint.

DISCUSSION

I. STANDARDS OF REVIEW

In reviewing a judgment following a bench trial, we review the district court's findings of fact for clear error and its legal conclusions de novo. Stone v. Millstein, 804 F.2d 1434, 1437 (9th Cir.1986); Cooling Sys. and Flexibles, Inc. v. Stuart Radiator, Inc., 777 F.2d 485, 487 (9th Cir.1985); Fed.R.Civ.P. 52(a). We apply the same standard to the district court's involuntary dismissal of SEI's cross-complaint. Stone, 804 F.2d at 1437. Finally, we review the district court's computation of damages for clear error. Stephens v. City of Vista, 994 F.2d 650, 655 (9th Cir.1993).

II. EXISTENCE AND BREACH OF IMPLIED EMPLOYMENT CONTRACT

SEI argues the district court erred in finding: 1) Tonry had an implied-in-fact employment contract that required "good cause" for his termination; 2) SEI constructively discharged Tonry; 3) SEI lacked "good cause" to do so; and on the same grounds, 4) SEI failed to satisfy the elements of its counterclaim.

A. Existence of Implied Employment Contract

SEI first argues the district court erred by concluding that Tonry had an implied contract of employment that required "good cause" for his termination. Under California law, ³ courts must interpret contracts "to effectuate the mutual intention of the parties at the time of contracting, so far as that intention is ascertainable and lawful." Miller, 885 F.2d at 507; see also Schneider v. TRW, Inc., 938 F.2d 986, 990 (9th Cir.1991). Hence, the existence of an implied contract of employment turns on the intent of the parties. " ' "[I]t must be determined, as a question of fact, whether the parties acted in such a manner as to provide the necessary foundation for [an implied contract], and evidence may be introduced to rebut the inference and show that there is another explanation for the conduct." ' " Miller, 885 F.2d at 508 (quoting Foley v. Interactive Data Corp., 47 Cal.3d 654, 677, 254 Cal.Rptr. 211, 223, 765 P.2d 373, 385 (1988)) (alterations in original). In determining the parties' intent, the trial court should consider such factors as:

Personnel policies or practices of the employer, the employee's longevity of service, actions or communications by the employer reflecting assurances of continued employment, and the practices of the industry in which the employee is engaged....

Foley, 47 Cal.3d at 680, 254 Cal.Rptr. at 225, 765 P.2d at 387 (quoting Pugh v. See's Candies, Inc., 116 Cal.App.3d 311, 327, 171 Cal.Rptr. 917, 925-26 (1981)).

In the present case, the district court properly admitted extrinsic evidence regarding the circumstances of Tonry's employment to ascertain the intent of the parties. See Miller, 885 F.2d at 508. Based on that evidence, the court determined the totality of the circumstances demonstrated the intent to form an implied employment contract. The court found "particularly persuasive" the following factors:

(1) Tonry's more than 8 years of employment at SEI; (2) his early promotion to Division Manager of SEI's San Francisco facility; (3) Tonry and his family's relocation to San Francisco at SEI's request; (4) the series of increases in his annual salary; (4) [sic] the benefits provided, including the use of a company car; (5) the lack of criticism by SEI or its clients regarding Tonry's work; (6) the fact of and increase in his ownership interest in SEI during his employment; and (7) SEI's custom of not terminating employees except for good cause.

Excerpt of Record ("ER") at 55.

The...