Unpublished Disposition, 857 F.2d 1478 (9th Cir. 1987)

MEMORANDUM^* 

Moore appeals from the district court's grant of summary judgment to Mallinckrodt and Urschel dismissing Moore's claims for fraud and violation of an implied covenant of good faith and fair dealing. We affirm.

FACTS

The undisputed facts before the district court were as follows. Forma Scientific, a division of Mallinckrodt, sells capital equipment to medical research laboratories, universities and hospitals. In July 1983, Forma contracted with Moore to serve as an Exclusive Manufacturer's Representative (EMR) for Forma. The next spring, Forma's Western Regional Sales Manager (WRSM) unexpectedly resigned. Moore expressed interest in the position, and in April 1984 became the new WRSM.

Moore's territory as WRSM encompassed most of the western United States and western Canada. He was charged with overseeing and assisting several EMRs in Southern California as well as independent distributors. He was also responsible for setting up and staffing sales booths at selected trade shows in his territory. The performance of Forma Regional Managers was gauged in part by sales quotas, established by adding to the previous year's sales a certain percentage of expected growth. Moore admitted in his deposition that he had been allowed to participate in setting his quotas, and that he had considered them "fair and achievable."

Moore failed to achieve his quota in any of the four quarters in which he was the WRSM. At a Las Vegas trade show in March 1985, a number of Forma executives in attendance were angered by Moore's performance. Moore was criticized by his superior and instructed to apologize to the executives, which he admits he did. He was also subjected to criticism, at least once in writing, for including improper items in his expense reports. In one incident, Moore submitted a credit card receipt and a duplicate of the receipt as two different expense items. He also acknowledged that he had submitted personal expenses as business expenses.

In May 1985, Moore resigned as WRSM and the next month returned to being an EMR. In December 1985, he was notified that Forma would not renew his distributor contract, which subsequently expired according to its own terms.

What remains in dispute are the circumstances surrounding Moore's resignation as WRSM. Moore contends that from late 1984 into early 1985, appellee Ned Urschel, the National Sales Manager for Forma, repeatedly told Moore that Forma was exerting great pressure on Urschel to eliminate the position of WRSM, and that Moore would be well-advised to return to being an EMR. According to Moore, Urschel also told him that the WRSM position would not be filled by anyone else. These statements cast Moore into such doubt about his future with the company that he suffered great emotional stress, he asserts. Convinced that his position was on the verge of being eliminated, Moore says he chose to resign as WRSM even though he would have preferred not to. After Moore resigned, the WRSM post was not, in fact, eliminated, but was taken over by a transferee from within the Forma division.

Although Mallinckrodt disputes Moore's version of the resignation, for the purposes of this appeal we accept Moore's contentions.

In May 1986, Moore filed suit in California state court alleging several causes of action against Mallinckrodt. The case was removed to federal court. Mallinckrodt filed a motion for summary judgment, which was granted in part and denied in part. Moore did not appeal from any part of the order granting summary judgment, but instead filed a second amended complaint.

In his second amended complaint, Moore alleged two causes of action grounded in: (1) breach of the implied covenant of good faith and fair dealing by Mallinckrodt; and (2) fraud and deceit by Urschel. Appellees filed motions for summary judgment, which the district court granted. Moore timely appealed.

DISCUSSION

We assert jurisdiction pursuant to 28 U.S.C. § 1291. We review a grant of summary judgment de novo. Ashton v. Cory, 780 F.2d 816, 818 (9th Cir. 1986). Viewing the evidence in the light most favorable to the nonmoving party, we determine whether any genuine issues of material fact remain, and whether the district court correctly applied the relevant substantive law. Id.

A. Implied Covenant of Good Faith and Fair Dealing

In its first grant of partial summary judgment, the district court found that Moore was an "at-will" employee under California law. Moore did not appeal this order, and concedes that his employment was at will, but argues that he was nonetheless protected by California's implied covenant of good faith and fair dealing. Specifically, he argues that even though Mallinckrodt had the right to terminate him at any time, it violated the implied covenant by misleading him in order to induce him to resign.

Under California Labor Code Sec. 2922, an employment having no specified term "may be terminated at the will of either party on notice to the other." In recent years California courts "have greatly circumscribed the traditional notion of at-will employment." Gianaculas v. TWA, Inc., 761 F.2d 1391, 1394 (9th Cir. 1985). Pursuant to judicially created doctrines, "an employer does not enjoy an absolute or totally unfettered right to discharge even an at-will employee." Khanna v. Microdata Corp., 215 Cal. Rptr. 860, 865 (Ct.App.1985). Within the past decade, three distinct theories have developed that limit an employer's right to fire an at-will employee with impunity: (1) a tort action for wrongful discharge in violation of public policy; (2) a cause of action for employer's breach of the implied covenant of good faith and fair dealing; (3) an action based on employer's breach of an implied-in-fact covenant to terminate only for good cause. Id.; Shapiro v. Wells Fargo Realty Advisors, 199 Cal. Rptr. 613, 617 (Ct.App.1984).

Since Moore concedes that he was terminable at will, and has disavowed any reliance on a wrongful discharge theory, we need only consider the implied covenant of good faith and fair dealing.

It is now well established that California law implies in every contract, including contracts of employment, a covenant of good faith and fair dealing. Koehrer v. Superior Court, 226 Cal. Rptr. 820, 828; Khanna v. Microdata Corp., 215 Cal. Rptr. at 864. A breach of the good faith covenant is established "whenever the employer engages in 'bad faith action extraneous to the contract, combined with the obligor's intent to frustrate the [employee's] enjoyment of contract rights.' " Khanna, 215 Cal. Rptr. at 867, quoting Shapiro, 199 Cal. Rptr. at 619. See also Gray v. Superior Court, 226 Cal. Rptr. 570, 574 (Ct.App.1986). Although the covenant imposes obligations on the parties separate from those agreed to, its essence is that neither party will do anything to injure the right of the other to receive the benefits of the agreement. Koehrer, 226 Cal. Rptr. at 828. Thus, the nature of the obligation imposed depends "upon the nature and purpose of the underlying contract and the legitimate expectations of the parties arising from the contract." Id. It is, in essence, a protection against actions taken in bad faith to deprive the other party of the benefit of its bargain.

California cases suggest that an employer can breach the covenant either by the manner in which it discharges an employee or by its motivation in doing so. In Cleary v. American Airlines, 168 Cal. Rptr. 722 (Ct.App.1980), the appeals court reversed a dismissal of the employee's claim upon finding that the airline had failed to abide by its own procedures in discharging him. In Gray, the plaintiff was fired for insubordination, but not in accordance with company procedures and for a transgression that did not, according to the company's code of conduct, amount to insubordination. As in Cleary, the appellate court reversed a summary dismissal on the grounds that the employer's manner of firing the plaintiff violated the plaintiff's legitimate expectations.

An employer's motivation was at issue in Khanna, which held that firing an employee in retaliation for his pressing a lawsuit against the employer violated the good faith covenant. The court found substantial evidence that the employer had discharged Khanna "for the purpose of denying him the benefits of his employment." Khanna, 215 Cal. Rptr. at 868.

Moore has failed to furnish material facts that could support a claim under either theory. He is plainly not contesting Mallinckrodt's motivation; at no point has he contended that the employer harbored an improper purpose in inducing him to resign. His complaint lies instead with the manner of his termination. Moore argues that embodied in the implied covenant is a promise not to mislead an employee to induce him to forfeit his position. While he concedes that Mallinckrodt was free to terminate him at any moment, he maintains that it did not have the right to achieve this end through deception.

His argument is unpersuasive. California has not construed the good faith covenant as a comprehensive guarantee of virtuous conduct in every employment relationship. The covenant is, rather, to be implied in context as preventing each side from injuring the right of the other to receive benefits that arise from the contract and the relationship. Moore cannot sustain such a claim. Although he is correct that he does not have to show that Mallinckrodt violated its internal procedures,¹  he has failed to show that it prevented him in any other way from receiving any benefit arising from his contract in this context. Nothing in the record suggests that Mallinckrodt promised Moore it would only fire him in a straightforward fashion, or that it was Mallinckrodt's usual practice to do so. Nor could Moore claim a legitimate expectation that he would be fully informed about the future of the WRSM position he held before being removed or resigning from it.

Under Moore's contract, Mallinckrodt could have fired him outright without notice, without explanation, and without offering the option of resignation. That it may have chosen to cushion reality somewhat by giving him a face-saving alternative does not constitute an act of bad faith. If anything, the method Mallinckrodt allegedly used was less draconian than outright firing; its only vice was that it misrepresented its future plans for the WRSM post and declined to tell Moore to his face that his work was inadequate. While honesty is a laudable policy in the abstract, it has not yet been identified by the California courts as an indispensable element of the implied good faith covenant. Moore had no implied right either to be told immaterial truths directly or to be accurately apprised of the company's organizational plans.

Moore's cause of action against Urschel alleged that he made fraudulent and deceitful representations causing Moore to suffer damages in the form of lost income and benefits, as well as emotional distress. The district court entered summary judgment on the grounds that Moore had failed to adduce evidence showing the existence of recoverable damages. The court stated:

It is not enough for plaintiff to claim as damages the loss of his job. Plaintiff is a terminable at will employee who has been unable to demonstrate an implied promise of continued employment, has no legally protected interest in keeping the job for purposes of damages or fraud. [P]laintiff alleges he may have been damaged through the loss of unemployment benefits or severance pay. However, [he] has produced no evidence that would indicate his entitlement to unemployment benefits or severance pay had he been fired.

R.T. 7/13/87 at 17-18.

In his appeal, Moore contests this finding only by stating that a plaintiff who proves an action for fraud in California may recover damages for mental pain and suffering. This is correct as a statement of law, see Sprague v. Frank J. Sanders Lincoln Mercury, 174 Cal. Rptr. 608, 610 (Ct.App.1981), but it fails to explicate how, if at all, the district court erred in its grant of summary judgment since he has not proved his cause of action for fraud. Since Moore had no legally cognizable right to continued employment, he cannot assert that he suffered compensable damages, either pecuniary or emotional, by resigning his job. As for unemployment compensation, he has failed to show in the district court or on appeal what benefits he lost to which he otherwise would have been entitled.

CONCLUSION

Since none of the facts remaining in dispute is material, and since the district court correctly applied the controlling law, its order granting summary judgment to both appellees is AFFIRMED.