Walia v. Aetna, Inc.

• Decision Date: 21 November 2001
• Docket Number: No. A091221.,A091221.
• Citation: 113 Cal.Rptr.2d 737,93 Cal.App.4th 1213
• Court: California Court of Appeals Court of Appeals
• Parties: Anita WALIA, Plaintiff and Respondent, v. AETNA, INC., et al., Defendants and Appellants.

113 Cal.Rptr.2d 737

93 Cal.App.4th 1213

Anita WALIA, Plaintiff and Respondent, v. AETNA, INC., et al., Defendants and Appellants.

No. A091221.

Court of Appeal, First District, Division 2.

November 21, 2001.

Certified for Partial Publication.^* Review Granted February 27, 2002.

John J. Swenson, Marcy Shaffer, Georgiana G. Rodiger, Tanya M. Acker, Los Angeles, Gibson, Dunn & Crutcher LLP, Attorneys for Appellants.

Richard S. Weil, San Francisco, Bley & Bley, Alan B. Exelrod, Patrice L. Goldman, San Francisco, Rudy, Exelrod & Zieff LLP, Attorneys for Respondent.

HAERLE, J.

I. INTRODUCTION

Appellants Aetna, Inc., Aetna U.S. Healthcare Inc. and Aetna U.S. Healthcare of California, Inc. (Aetna) challenge a jury verdict awarding compensatory and punitive damages to Aetna's former employee, Anita Walia (Walia). Aetna contends the trial court erred in ruling the non-compete agreement it required Walia to sign violated Business and Professions Code section 16600 ¹ and instructing the jury that Aetna's decision to terminate Walia because she refused to sign the agreement was a wrongful termination in violation of public policy. Aetna also makes various challenges to the propriety of awarding Walia compensatory and punitive damages. We affirm the judgment.

II. FACTUAL AND PROCEDURAL BACKGROUND

In the summer of 1996, Aetna merged with U.S. Healthcare to form a company called Aetna U.S. Healthcare. U.S. Healthcare, a company headquartered in Pennsylvania and operating principally on the East Coast, used non-compete agreements extensively among its employees. Aetna, however, did not. Aetna U.S. Healthcare's co-president, Michael Cardillo, who came to the newly merged company from U.S. Healthcare, believed it was important to require that a significant number of Aetna's employees sign noncompete agreements.

The agreement was formally entitled "Non-Compete and Confidentiality Agreement" (the Agreement). It contained four paragraphs, each of which involved a different "covenant": a non-compete covenant, a non-solicitation covenant, a confidentiality covenant, and a cooperation covenant. The non-compete covenant prevented employees, for a period of six months after departing from Aetna, from working for a competitor in the same state in which they had been employed by Aetna. It also permitted the company to sue California employees for a perceived breach of the agreement in either Pennsylvania or Connecticut.²

The Agreement was presented to Aetna U.S. Healthcare employees all over the country. In late March or early April 1997, Aetna informed approximately 300 of its California employees that they would be required to sign the Agreement. The company also told its employees they would lose their jobs if they did not sign the Agreement and could not locate a comparable position within the company that did not require the employee to sign such an agreement.

Walia, an Account Manager in the San Francisco sales organization for Aetna, was one of the employees required to sign the Agreement. When Walia received the Agreement, she was surprised at the harshness of some of the terms. Although she has never practiced law, Walia is a law school graduate. She turned to the Internet to obtain information about non-compete agreements. There she found an article warning California employees about a California statute prohibiting these kinds of agreements. She also researched California and Pennsylvania law on this subject at a law library. She determined the Agreement was "pretty much unenforceable in California."

At this point in her career, Walia enjoyed her job, liked the people she worked with, and had been rated as having "very good" job performance. She believed she had finally found a job she really liked. She felt "blindsided" by the Agreement and was upset and angry about it. She could not understand why Aetna would ask her to sign an unlawful contract. She seemed to be in a no-win situation: she could sign the contract and "lie to herself' or refuse to sign it and lose her job.

Walia spoke to four Aetna managers at increasing levels of seniority about her view that the Agreement was not legally enforceable: her supervisor, the San Francisco district office manager, the California Regional Manager and the Western Regional Manager. The San Francisco district office manager, Richard Keane, told her California law did not matter because the Agreement would be interpreted according to Pennsylvania law. Paul Swenson, the California regional manager, repeated this point to Walia. He also said the Agreement was needed to protect trade secrets, although he admitted he was not sure if Walia had access to any trade secrets. Walia said she would sign the Agreement if Aetna removed the non-compete covenant. The company did not do so.

Walia also spoke to Tom Williams, Aetna's Western Regional Manager. She told him she had done legal research about the non-compete and had "grave concerns about the agreement." She told Williams she would sign the Agreement if the covenant not to compete were removed. Walia also had a lawyer, Michael Connell, write to Michael Cardillo, Aetna's president. In a letter dated June 11, 1997, Connell informed Cardillo that, under section 16600, covenants not to compete are unenforceable in California and terminations or demotions of employees for their refusal to sign such covenants would expose Aetna to liability for wrongful termination in violation of public policy and punitive damages.

Aetna responded that it believed the Agreement complied with California law. Aetna also discussed with Walia the possibility of becoming an underwriter, a position Walia was not interested in because she did not like working with numbers and was not confident about her ability to do financial analysis. Underwriters also did not have sufficient interaction with people, something she particularly liked about her sales job.

On June 27, 1997, Aetna fired Walia for "failure to meet the requirements of your position." A letter to this effect was placed in Walia's personnel file. When Walia read this letter she felt betrayed: she had been consistently told she was doing a good job and the letter implied this was not true.

The Agreement was discussed and approved by Aetna, Inc.'s Chairman and, within Aetna U.S. Healthcare, by its copresidents. Aetna U.S. Healthcare employees, including the company's president, Michael Cardillo, testified they believed they were in compliance with California law because they had been assured this was the case by their legal counsel.

Donald Liu, an attorney who, before the merger, had been employed by U.S. Healthcare, had the lead role in providing legal advice on the Agreement. Liu was aware that employees in California had objected to the Agreement and believed it was not enforceable in California. He was also aware of section 16600, possibly prior to receiving the letter from Connell objecting to the Agreement. There were also lawyers in U.S. Healthcare's legal department who were familiar with California law. Liu testified that how long a person had worked at Aetna and the quality of that person's performance was not relevant to a decision to terminate the employee if the employee refused to sign the noncompete. Apparently in response to an email asking whether the non-compete interfered with an employee's livelihood, Liu conceded that he had most likely drafted this reply: "`Livelihood' means what it says. It means they starve to death with the non-compete. No human being could possibly lose their livelihood with a noncompete."

Wayne Slitt, an Aetna attorney familiar with employment law, testified that he had some discussions with lawyers about "some of the legal issues related to non-competes, but my role was quite limited." Prior to June 30, 1997, Slitt performed no research on the subject of non-competes and most of the questions he received on this subject were of a general nature. He testified that he was aware different states had different rules regarding various employment laws. Slitt saw the June 11, 1997, letter from Michael Connell, Walia's attorney, to Michael Cardillo. Slitt prepared the response to Connell, which stated "Aetna certainly believes in the validity and enforceability of all of its contractual terms, including paragraphs one and two (limited and qualified association with a competitor)."

Slitt also wrote an e-mail dated February 12, 1996, in which he responded to a suggestion that the company have a broader group of employees sign non-competes. In this e-mail, he wrote: "While non-competes are not permitted in some states, generally they are enforceable if they are reasonable." He also wrote, "In short, non-compete agreements have some benefit, but they are not a panacea and they can create other problems." At the time he wrote this e-mail, he was aware that a non-compete agreement that was enforceable in one state might not be enforceable in another.

Other than Liu and Slitt, no other attorney testified on Aetna's behalf.

Aetna witnesses testified they believed the Agreement would prevent former employees from disclosing confidential information. Aetna had not, however, previously had any problems with former employees disclosing confidential or proprietary information to competitors, disclosing trade secrets or soliciting employees to work for a competitor. In addition, Aetna employees had been required to sign a "Code of Conduct" before the merger which, among other things, prohibited employees from disclosing confidential information. Aetna also anticipated employee turnover after the merger and, through the non-compete agreements, wanted to send a message to competitors that they could not "raid" or "cherry-pick" Aetna employees.

The trial court ruled that, as a matter of law, the Agreement violated section 16600. The court also instructed the jury that the defendants would be liable for wrongful termination if the principal reason for Walla's...