Unpublished Disposition, 900 F.2d 262 (9th Cir. 1989)

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U.S. Court of Appeals for the Ninth Circuit - 900 F.2d 262 (9th Cir. 1989)

Marsha CONNER, Plaintiff-Appellee-Cross-Appellant,v.MARILYN MIGLIN, INC., a corporation,Defendant-Appellant-Cross-Appellee.

Nos. 89-15077, 89-15114.

United States Court of Appeals, Ninth Circuit.

Argued March 15, 1990.Submitted March 22, 1990.Decided April 20, 1990.

Before SNEED, FARRIS and FERNANDEZ, Circuit Judges.


MEMORANDUM* 

Marilyn Miglin, Inc. ("Miglin") appeals the district court's judgment in favor of Marsha Conner ("Conner"). The judgment requires Miglin to pay Conner both compensatory and punitive damages for breach of contract and breach of the implied covenant of good faith and fair dealing. Miglin argues that the punitive damage award must be set aside because the district court erred as a matter of law when it allowed the jury to award those damages in a case which only involved a breach of a sales representative contract. Miglin also appeals the district court's order denying Miglin's motion for a judgment notwithstanding the verdict and Miglin's motion for a directed verdict or new trial. Miglin argues that there was insufficient evidence from which the jury could have concluded that the employment contract was anything but an "at will" contract. Conner cross appeals from the district court's sua sponte dismissal of her claim for bad faith denial of a contract.

We reverse the award of punitive damages but affirm the remainder of the judgment.

BACKGROUND FACTS

Miglin is a perfume and cosmetics company based in Illinois. Miglin distributes its products throughout the United States via a network of independent sales contractors and also via its own "in-house" sales representatives. In 1980, Conner began selling Miglin products as an assistant to one of Miglin's independent contractors. Conner gradually assumed a position as an independent contractor (called an "account manager"). By the beginning of 1984, Conner was responsible for a sales territory that included the Southwestern United States and Northern California. Around the time that Conner fully took on the responsibilities of an account manager, she asked Miglin's president, Joseph Walsh, whether her territories would remain intact as long as she "did a good job." He responded "yes." Walsh also later sent a letter to Conner's attorney in which he said that his understanding with Conner was that she "would have a job for as long as she wanted" if she performed properly.

In the Spring of 1985, Miglin hired a new president, Dennis McFarlane, and in December of 1986, McFarlane notified Conner that Miglin had reduced her sales territory and that Conner would no longer be responsible for the Southwest. Conner protested the decision and even called Marilyn Miglin personally. Miglin did not alter its decision. In January of 1987, Conner's attorney sent Miglin a letter requesting that Miglin reconsider its decision to take away some of Conner's sales territory or that Miglin compensate Conner for her lost territory. Miglin responded by terminating Conner.

Conner filed suit in the Superior Court of the State of California. She alleged that Miglin had breached a term of Conner's oral employment contract that she would not be terminated except for cause. Conner also claimed that Miglin breached the implied covenant of good faith and fair dealing, that Miglin denied in bad faith the fact that Conner had an oral employment contract, and that Miglin had committed fraud and negligent misrepresentation. Miglin removed the case to federal district court on the basis of diversity jurisdiction. The district court dismissed sua sponte Conner's claim for bad faith denial that a contract existed but let the remainder of the claims proceed to a jury trial. The jury returned a special verdict. It found that Conner did have an employment contract with Miglin and that she could only be terminated for cause. The jury also found that Miglin breached the implied covenant of good faith and fair dealing and that Miglin's conduct was malicious. The jury found that Miglin had not committed fraud or misrepresentation. Finally, the jury awarded Conner compensatory damages in the sum of $66,000 and punitive damages in the sum of $150,000.

JURISDICTION AND STANDARDS OF REVIEW

The district court had jurisdiction pursuant to 28 U.S.C. § 1441. We have jurisdiction pursuant to 28 U.S.C. § 1291.

This court reviews de novo any question of law. United States v. McConney, 728 F.2d 1195, 1201 (9th Cir.) (en banc), cert. denied, 469 U.S. 824, 105 S. Ct. 101, 83 L. Ed. 2d 46 (1984). That de novo standard includes a review of questions of state law. Matter of McLinn, 739 F.2d 1395, 1397 (9th Cir. 1984). This court reviews for abuse of discretion a district court's denial of a motion for new trial. Roy v. Volkswagen of Am., Inc., 896 F.2d 1174, 1176 (9th Cir. 1990); Hard v. Burlington No. R.R., 812 F.2d 482, 483 (9th Cir. 1987).

Finally, a district court's sua sponte dismissal of a claim is functionally equivalent to a grant of summary judgment on that issue. Therefore, the proper standard of review for the district court's decision is de novo--the standard applied when this court reviews a grant of summary judgment. See Kruso v. International Tel. & Tel. Corp., 872 F.2d 1416, 1421 (9th Cir. 1989).

DISCUSSION

The California Supreme Court has stated that, in general, a plaintiff only has contract remedies available when seeking to recover for a breach of the implied covenant of good faith and fair dealing in an employment context. Foley v. Interactive Data Corp., 47 Cal. 3d 654, 682-700, 765 P.2d 373, 254 Cal. Rptr. 211 (1988). That court has also ruled that its decision in Foley is retroactive and will apply to any case that was not yet final as of January 30, 1989--the date Foley became final. Newman v. Emerson Radio Corp., 48 Cal. 3d 973, 976, 772 P.2d 1059, 258 Cal. Rptr. 592 (1989) (en banc). Therefore, Foley will bar an award of punitive damages in this case if the case was not final as of January 30, 1989.

District court judgments do have res judicata effect until they are actually overturned on appeal. However, it would be strange to call the district court's judgment "final" before the appellate process had run its course. See, e.g., 18 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure Sec. 4433 (1981). It would also misconstrue the actual holding of the Newman court which was that Foley simply follows the usual common law rule of retroactivity. Clearly, since the appeal in this case is still pending, the case is not final and Foley applies. Therefore, we must set aside the jury's award of punitive damages.

Conner's argument that Foley applies only to direct employer-employee relationships and does not extend to independent contractor relationships is without merit. The Foley court discussed its ruling in general terms such as "employment contracts" and "the employment context." 47 Cal. 3d at 663, 685. The court never indicated that its holding was limited to the direct employer-employee relationship. It would be a peculiar interpretation of Foley to say that the court would have found that an independent contractor relationship was a "special relationship" when the court refused to find that the more intimate relationship of employer-employee would not qualify as a "special relationship." The Foley court's forceful language when discussing whether the "special relationship" test was even useful makes it clear that the court would not agree that an independent contractor relationship was a "special relationship." 47 Cal. 3d at 690-93.

Conner argues that the jury's award of punitive damages must be upheld because the district court found as a matter of fact that there was a special relationship in this case. However, Conner misconceives Foley 's animating principle. Were Conner's position correct, a plaintiff could raise a claim of tortious breach of the implied covenant of good faith and fair dealing in every contract setting. That includes the contract between an employer and employee as long as the plaintiff simply asserted that, as a matter of fact, the particular employment contract at issue involved a special relationship. But Foley, in both its precise and in its general language, made it clear that it spoke categorically and in terms of abstract relationships. Thus, Foley held that a plaintiff could not seek tort remedies for breach of the implied covenant of good faith and fair dealing in any "employment contract." 47 Cal. 3d at 700. As we have already noted, it is not likely that the California Supreme Court would hold differently when faced with the relationship that existed between Conner and Miglin.

It cannot be doubted that punitive damages are still available for breach of the covenant of good faith and fair dealing when the case involves the unique insurance context. Foley, 47 Cal. 3d at 684-85 (discussing Egan v. Mutual of Omaha Ins. Co., 24 Cal. 3d 809, 620 P.2d 141, 169 Cal. Rptr. 691 (1979)). However, the Foley court indicated throughout its opinion that it would be reluctant to extend tort remedies for breach of the covenant of good faith and fair dealing beyond the insurer-insured context. 47 Cal. 3d at 689-90. The court certainly left little doubt about its feeling that it would be dangerous to extend tort liability theories in the contract setting and that such an extension should be limited to the most unusual types of cases. Nothing in the record before us indicates that the abstract position of sales representative is the kind of case that deserves special protection. See generally Foley, 47 Cal. 3d at 690-94.

Furthermore, we cannot uphold the jury's award of punitive damages on the ground that Miglin's actions constituted some other kind of tort such as intentional infliction of emotional distress or intentional interference with prospective economic advantage or a violation of public policy. The district court did not instruct the jury on any of those causes of action. As such, the jury did not make the findings of fact necessary to fix liability upon Miglin for any of those torts. While we may affirm a district court's correct legal results even if the court's reasoning was mistaken, we cannot infer specific findings of fact from a jury verdict that did not address those specific facts. See, e.g., Alcaraz v. Block, 746 F.2d 593, 602 (9th Cir. 1984).

Miglin appeals the district court's order denying Miglin's motion for a new trial.1  Miglin claims that the weight of the evidence did not support the jury's verdict that Conner could only be terminated for cause. We will not disturb a jury's verdict "unless, viewing the evidence in the manner most favorable to the prevailing party, [we] can say that the [district] court abused its discretion" in denying the motion. Hard, 812 F.2d at 486.

California courts have recognized that employment contracts may contain "good cause" clauses either by the contract's express terms or by its implied terms. Foley, 47 Cal.3d at 676-78; Pugh v. See's Candies, Inc., 116 Cal. App. 3d 311, 171 Cal. Rptr. 917 (1981). In order to determine whether an employment contract contains an implied agreement to discharge only for cause, the trier of fact may look to such things as "the 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." Pugh, 116 Cal. App. 3d at 327. As discussed in footnote 1, there was evidence from which the jury could infer that Conner and Miglin had agreed that Conner would be terminated only if she were not doing a good job. The district court did not abuse its discretion when it found that the jury's verdict was not against the weight of the evidence and, therefore, that a new trial was unwarranted.

Finally, the district court did not err when it dismissed Conner's claim for bad faith denial of the existence of a contract. Seaman's Direct Buying Serv., Inc. v. Standard Oil Co., 36 Cal. 3d 752, 686 P.2d 1158, 206 Cal. Rptr. 354 (1984). In dismissing the claim, the court functionally granted summary judgment on that issue in favor of Miglin. Summary judgment would have been proper if Conner failed to establish that there was sufficient evidence to reasonably create a dispute about whether Miglin had denied the existence of a contract. See, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 106 S. Ct. 2505, 2511, 91 L. Ed. 2d 202 (1986).

The district court noted that the real dispute in this case appeared to be over the terms of the agreement and that any harm Conner had suffered as a result of the dispute would be compensable in her claim for breach of the implied covenant of good faith and fair dealing. The district court correctly recognized that the California tort of bad faith denial of the existence of a contract is not a tort that extends to denial of liability. See Foley, 47 Cal.3d at 688-89; see also Quigley v. Pet, Inc., 162 Cal. App. 3d 877, 891, 208 Cal. Rptr. 394 (1984); Air-Sea Forwarders, Inc. v. Air Asia Co., Ltd., 880 F.2d 176, 184 (9th Cir. 1989), cert. denied, --- U.S. ----, 110 S. Ct. 868 (1990); Oki America, Inc. v. Microtech Int'l, Inc., 872 F.2d 312, 313 (9th Cir. 1989) ("Mere denial of liability under a contract does not suffice; the defendant must deny the existence of the contract."); Elixsi v. Kukje Am. Corp., 672 F. Supp. 1294, 1298 (N.D. Cal. 1987) (tort available only in those cases where existence of contract denied). By the same token, as the California Supreme Court strongly suggested in Foley, it would be error to hold that merely disputing "the necessity of good cause as a basis for termination" amounted to a denial of the existence of a contract. 47 Cal. 3d at 689.

One need only look at the parties' joint pretrial statement to see that Miglin did not dispute the existence of a contract. For example, the parties state that the first issue to be decided was "the duration and territorial scope of the plaintiff's agreement with defendant." If Miglin had disputed the existence of a contract then presumably the first issue to be decided would have been whether a contract even existed. Only after that question was answered would the parties need to address what the scope of that contract was. Furthermore, the parties state that one of the disputed factual issues is whether Miglin "made any binding representations regarding the duration of plaintiff's agency or the territorial scope thereof." Again, the parties concede that some sort of agreement existed but dispute the terms of that agreement. The only evidence that Conner is able to marshal is some statements made by Miglin's counsel during the trial. During questioning, counsel referred to the agreement as "the alleged contract" and during closing argument counsel said that plaintiff had the burden of proving that there was, in fact, an agreement and that the contract was breached. However, the above statements must be analyzed in their proper context. The fact that counsel told the jury that Conner had the burden of proving all of the elements of her cause of action, including the existence of a contract, does not mean that Miglin denied the existence of the contract. A defendant is entitled to tell the jury on what issues the plaintiff bears the burden of proof. Similarly, the fact that Miglin's counsel stated once during trial that the agreement was "alleged" does not mean that Miglin was denying the existence of the contract in bad faith. Therefore, the district court properly dismissed Conner's claim.

CONCLUSION

After this case was tried, the California Supreme Court decided Foley. Foley made it quite clear that California will only import tort remedies into the area of contract disputes in very unique circumstances. The court did not find that the intimate employer-employee relationship upon which most people depend for their wellbeing constituted the type of relationship that deserved unique treatment. We are doubtful that the court would have felt otherwise about the sales representative position held by Conner.

Therefore, the district court's judgment awarding punitive damages is REVERSED. In all other respects the judgment is AFFIRMED.

 *

This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.R. 36-3

 1

Miglin had also requested that the district court grant a JNOV. However, Federal Rule of Civil Procedure 50(b) permits a party to move for a JNOV only if that party has previously moved for a directed verdict at the close of all of the evidence. Fed. R. Civ. P. 50(b). This circuit strictly adheres to the requirements of Rule 50(b) and will not allow a party to bring a motion for JNOV unless that party had previously moved for a directed verdict at the close of all of the evidence. Cabrales v. County of Los Angeles, 864 F.2d 1454, 1459 (9th Cir. 1988). Miglin did not move for a directed verdict at the close of all of the evidence. Therefore, Miglin's motion for a JNOV was invalid and we will not entertain Miglin's appeal on that issue. The only exception to the above rule is when the trier of fact has plainly erred. Id. at 1459. However, the plain error doctrine is an extremely deferential standard and is only when "there is an absolute absence of evidence to support the jury's verdict." Id. Miglin cannot show that the jury's verdict was plainly in error. The jury was entitled to believe Conner's testimony that she believed that Miglin had agreed not to terminate her unless she did not do a good job. The jury was also entitled to consider the information the parties' joint pretrial statement that Miglin's president had told Conner that her territories would remain intact as long as she did a good job. Finally, the jury could rely on Mr. Walsh's letter in which he stated that he understood his agreement with Conner to be that her territories would remain intact as long as she did a good job