Conrad v. Montgomery-Sansome LP

Filed 8/6/09 Conrad v. Montgomery-Sansome LP CA1/5

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FIVE

JEFFREY A. CONRAD,

Plaintiff and Appellant,

v. A122252

MONTGOMERY-SANSOME LP (San MateoCounty

et al., Super. Ct. No. 458286)

Defendants and Appellants.

______________________________________/

Appellant Jeffrey A. Conrad sued his former employer, Montgomery-Sansome LP (Montgomery-Sansome) and one of its partners, Leonard Nordeman (collectively, defendants) for various claims, including breach of contract, unpaid wages, fraud, and wrongful constructive termination in violation of public policy. A jury rendered a verdict for Conrad on all claims and awarded him $1,005,002, which included $450,000 in punitive damages. In an amended judgment, the court entered judgment for Conrad on the claims for breach of contract, wrongful constructive termination, and punitive damages and awarded him $705,001.

Defendants moved for judgment notwithstanding the verdict (JNOV) on Conrads wrongful constructive termination claim and on punitive damages. Defendants also moved for a new trial on punitive damages. The court denied the JNOV motion but granted the motion for new trial.

Conrad appeals the grant of new trial. Defendants cross-appeal the denial of their JNOV motion. We conclude the court should have granted defendants motion for JNOV on Conrads wrongful constructive termination claim because there is no substantial evidence defendants terminated Conrad or forced him to resign for a purpose that contravened public policy. We also conclude the court should have granted the JNOV motion on punitive damages. Accordingly, we reverse the JNOV and new trial orders. We remand with directions to grant defendants JNOV motion on the claims for wrongful constructive termination and punitive damages and to enter the resulting judgment for defendants on both claims.

FACTUAL AND PROCEDURAL BACKGROUND

We summarize only those facts that are relevant to the dispositive issues on appeal.

Montgomery-Sansome is a construction company based in Millbrae. Nordeman owns two percent of the company and runs the business. His two sisters own the remaining 98 percent of the company. Conrad began working at Montgomery-Sansome in 1998. Initially, he performed office administration [ ] work but he later became a project manager. While Conrad worked at Montgomery-Sansome, he believed he would become a partner in the company. In 1999, Montgomery-Sansome had four employees and gross revenues of around $500,000 or less. When Conrad left the company in March 2006, Montgomery-Sansome had 22 employees and gross revenues of [a] little over three million dollars.

At some point during his employment, Conrad began loaning money to Montgomery-Sansome to help the company pay for materials and employee salaries. Over the course of nine years, Conrad loaned Montgomery-Sansome approximately $75,000. This created financial strain for Conrad, particularly because Montgomery-Sansome was not paying Conrad all of his salary or commissions. Conrad complained to his wife that he had carried credit card debts . . . for Montgomery-Sansome to keep the business afloat . . . to pay the administration staff and . . . keep[ ] the business running. Nordeman promised, repeatedly, to repay Conrad. If Conrad had known Nordeman did not intend to pay him, Conrad would not have continued to work for Montgomery-Sansome.

The Termination of Conrads Employment

In late March 2006, Conrad was at home preparing to leave for vacation when he received a telephone call from Nordeman. Nordeman had just returned from his own vacation and wanted Conrad to update him on various projects. Nordeman asked Conrad to come into the office the following day; Conrad complied, but Nordeman did not come to the office.

The following day, Nordeman called Conrad at home and said, I need you to come in [to the office]. You cant just crawl into a hole over there and just disappear. You have to come in and deal with me and this job right now. Conrad reminded Nordeman he was on vacation and could not come to the office a second time. In response, Nordeman yelled a profanity at Conrad and hung up on him. When the phone call ended, Conrad told his wife, I cant believe this. I think I just got fired.

On March 23, 2006, Nordeman sent Conrad the following email: Dear Jeff, we have worked together successfully for almost nine years, but it looks like we may not be able to work together any longer. . . . Absent your sincere apology and promise to improve, we will just part friends. I will even help you with whatever you want to do next. When Conrad received the email, he believed his employment at Montgomery-Sansome had ended and that he and Nordeman were just going to part ways. Conrad felt that there were so many things that were going on. [He] hadnt been paid. And the job responsibilities were so far above [his] ability and head. And [Nordeman] wasnt there to deal with them.

Later that evening, Conrad responded to Nordemans email. Conrad felt his future had been ripped out from underneath him. He explained, I was going to be a partner in this business. I had been working hard at it almost 70 hours a week. And [the business] had been growing. And it was getting to the edge of being successful. And then that had just been yanked out from under me over the fact that I wasnt going to come in on my own vacation to . . . I just dont know what.

On March 31, 2006, Conrad presented Nordeman with an invoice for $84,487.98, the amount Conrad believed Nordeman owed him for materials, reimbursements, and commissions. After discussing the invoice with Conrad, Nordeman agreed to pay Conrad $75,000. Shortly thereafter, Conrad began working as a project manager for Wesco General Contracting, a rival construction company run by Nordemans son. Nordeman did not pay Conrad $75,000.

Conrads Lawsuit

In October 2006, Conrad sued defendants for breach of contract, unpaid wages, fraud, wrongful constructive termination in violation of public policy, and intentional infliction of emotional distress. The operative first amended complaint alleged defendants failed to pay Conrad unpaid wages and reimbursements, induced him to loan money to Montgomery-Sansome, and refused and failed to pay the money owed. Conrads wrongful constructive termination cause of action alleged Nordeman fired him because he insisted defendants abide by the promise to fully compensate him for service rendered and comply with applicable law. Finally, the complaint alleged Nordeman breached a contract to repay Conrad $75,000 in commissions. Conrad sought compensatory and punitive damages.[1]

The Verdict and Post-Trial Proceedings

In February 2008, a jury rendered a verdict in favor of Conrad on all of his claims

and awarded him $1,005,002 in damages, $450,000 of which represented punitive damages.[2] In an amended judgment filed in May 2008, the court struck the damages for unpaid wages, fraud, and intentional infliction of emotional distress. The court entered judgment for Conrad on the claims for: (1) breach of contract; (2) wrongful constructive termination in violation of public policy; and (3) punitive damages and awarded Conrad a total of $705,001.

Defendants moved for JNOV on various claims, including the wrongful constructive termination claim and punitive damages. Defendants contended they were entitled to JNOV on the wrongful constructive termination claim because there was no evidence that any breach of public policy caused [Conrads] termination. . . . (Italics in original.) Regarding punitive damages, defendants argued Conrad did not adduce evidence at trial showing the [d]efendants financial condition justified imposition of substantial punitive damages. . . . Defendants pointed to evidence that: (1) Montgomery-Sansome reported a tax loss in 2006; (2) Montgomery-Sansomes principal asset was mortgaged to the hilt; and (3) Nordeman owed money to the Internal Revenue Service and had a zero net worth. The court denied the JNOV motion as to these claims.

Defendants also moved for a new trial on punitive damages.[3] They argued the

evidence of their financial condition did not permit an award of punitive damages and the award was disproportionate to their ability to pay. At a hearing on defendants new trial motion on May 23, 2008, the court addressed Nordemans claims separately from Montgomery-Sansomes. The court granted a new trial on punitive damages as to Nordeman because there was no evidence necessary to [ ] support the verdict. The court then addressed Montgomery-Sansomes motion for new trial on punitive damages. It expressed its concern over the paucity of evidence that was admitted to support [the] verdict against Montgomery-Sansome and proposed denying Montgomery-Sansomes new trial motion if Conrad accepted a substantial reduction in punitive damages. On May 27, 2008, Conrads counsel rejected the courts proposal.

That same day, the court entered a minute order describing its oral pronouncement on May 23, 2008 and Conrads rejection of its proposal to reduce the punitive damages award on May 27, 2008. The minute order provided:

Counsel argue as to Punitive damages as to Mr. Nordeman. The motion is granted as to Punitive damages as to Mr. Nordeman. Court and counsel discuss the date of May 27, 2008 as the day the Court loses jurisdiction [to rule on the new trial motion]. . . . Court and counsel discuss Punitive damages as to Montgomery-Sansome. The Court stated Punitive damages as to Montgomery-Sansome will be reduced in lieu of a new trial [to] $5,000. [Conrad] shall contact the Court on Tuesday, May 27, 2008 if his client agrees. If [Conrad] agrees then [ ] the new trial shall be waived against Mr. Nordeman individually. If [Conrad] does not agree[,] then a new trial against Mr. Nordem[a]n and Montgomery-Sansome as to Punitive damages will be granted. . . .

[At] 3:30 p.m. [on March 27, 2008], [Conrads counsel] notified the Court and indicated that he has not heard from his client. Therefore, he has no authority. Motion for new trial as to Mr. Nordeman and Montgomery[-]Sansome as to punitive damages granted.

DISCUSSION

We turn first to the courts denial of defendants JNOV motion on Conrads claim for wrongful constructive termination in violation of public policy. Defendants argue they were entitled to JNOV on this claim because there was no evidence showing that any violation of public policy by [defendants] caused Conrads firing. The tort of wrongful termination in violation of public policy prohibits an employer from terminating an employee for an unlawful reason or a purpose that contravenes fundamental public policy. (Casella v. SouthWest Dealer Services, Inc. (2007)157 Cal.App.4th 1127, 1138-1139, quoting Gantt v. Sentry Insurance (1992) 1 Cal.4th 1083, 1094, overruled on another ground in Green v. Ralee Engineering Co. (1998) 19 Cal.4th 66, 80, fn. 6.)

Not every dispute between an employer and employee implicates public policy; the public policy allegedly implicated must satisfy four criteria. First, [t]he public policy that is violated must be one that is delineated by constitutional, statutory, or regulatory provisions. [Citations.] (Jersey v. JohnMuirMedicalCenter (2002) 97 Cal.App.4th 814, 821.) Second, the policy must be public in the sense that it inures to the benefit of the public rather than serving merely the interests of the individual. Third, the policy must have been articulated at the time of the discharge. Fourth, the policy must be fundamental and substantial. (Stevenson v. Superior Court (1997) 16 Cal.4th 880, 890, fn. omitted.) Defendants do not contend the public policies at issue here various provisions of the Labor Code requiring prompt payment of wages do not meet the criteria set forth above. (See Gould v. Maryland Sound Industries, Inc. (1995) 31 Cal.App.4th 1137, 1147 (Gould) [prompt payment of wages due an employee is a fundamental public policy of this state, citing Labor Code section 201]; Phillips v. Gemini Moving Specialists (1998) 63 Cal.App.4th 563, 571.)

Rather, they contend there was no nexus between the public policies and the termination of Conrads employment. Proof of an employers violation of a legislatively based, well established, fundamental and substantial public policy alone is insufficient to support a valid claim for wrongful termination in violation of public policy. The employee must also show that a nexus existed between the policy violation and the adverse action taken against him. . . . (3 Witkin, Summary of Cal. Law (10th ed. 2005) IV, Agency and Employment,  250, pp. 325-326.) Accordingly, to prevail on his wrongful termination claim, Conrad was required to establish defendants discharged him or forced him to resign to avoid paying him commissions, salary, and other amounts he earned. (See Gould, supra, 31 Cal.App.4th at p. 1148 & fn. 3 [[t]he tort of wrongful discharge is committed if the employee is terminated for a purpose that contravenes fundamental public policy, original italics & citation omitted].)

Defendants contend the evidence at trial established Nordeman fired Conrad not to avoid paying him but because the two men disagreed about whether Conrad had to come into work while he was on vacation. In a one-paragraph response, Conrad contends the judgment for wrongful termination in violation of public policy must be affirmed because his trial testimony established clearly that he was forced to resign for non-payment of wages, in violation of the substantial public policies of this state.

To support this argument, Conrad refers to nine pages of his trial testimony. This evidence, however, does not support his argument. At trial, Conrad testified Nordeman called him while he was on vacation and demanded he come into the office to answer questions about a construction job Montgomery-Sansome was performing. Nordeman told Conrad, You have to come in and deal with me and this job right now and when Conrad refused, Nordeman yelled at Conrad and hung up on him. In response, Conrad told his wife, I think I just got fired. Conrad testified that when he received Nordemans email after their telephone conversation, he believed his employment at Montgomery-Sansome had ended and that he and Nordeman were just going to part ways. He explained that there were so many things that were going on. [He] hadnt been paid. And the job responsibilities were so far above [his] ability and head. And [Nordeman] wasnt there to deal with them. Finally, he acknowledged his future had had just been yanked out from under [him] over the fact that [he] wasnt going to come in on [his] own vacation[.] It was not until after this conversation that Conrad presented Nordeman with a demand to be paid for materials, reimbursements, and commissions. Moreover, Conrad testified he stayed at Montgomery-Sansome despite not getting paid in a timely fashion because he believed he would become a partner in the company.

From this evidence, we must even after drawing all inferences in favor of Conrad conclude there is no substantial evidence to support the jurys verdict on Conrads wrongful termination claim. There is simply no evidence defendants terminated Conrad or forced him to resign for a purpose that contravened fundamental public policy, i.e., to avoid paying Conrad commissions and other amounts due. (See, e.g., Turner v. Anheuser-Busch, Inc. (1994) 7 Cal.4th 1238, 1258, overruled on other grounds in Romano v. Rockwell Internat., Inc. (1996) 14 Cal.4th 479, 498 [plaintiff could not demonstrate the required nexus between his reporting of alleged statutory violations and his allegedly adverse treatment]; Read v. City of Lynwood (1985) 173 Cal.App.3d 437, 444 [discharged employee failed to connect her termination with a public policy against bribery].) As a result, we conclude the court should have granted defendants JNOV motion on Conrads wrongful constructive termination claim.

And, having reached this result, we must reverse the award of punitive damages. As stated above, the judgment below included findings of liability based on breach of contract and wrongful constructive termination. Had the court properly granted defendants JNOV motion on the wrongful constructive termination claim, the judgment would have included only a finding of liability based on breach of contract. It is well settled that punitive damages are not available for breach of contract. (Civ. Code, 3294, subd. (a); City of Hope National Medical Center v. Genentech, Inc. (2008) 43 Cal.4th 375, 392 [reversing punitive damages award where the only ground for liability was breach of contract]; Cates Construction, Inc. v. Talbot Partners (1999) 21 Cal.4th 28, 61 [[i]n the absence of an independent tort, punitive damages may not be awarded for breach of contract even where the defendants conduct in breaching the contract was wilful, fraudulent, or malicious].)

Accordingly, we need not consider defendants remaining claims, nor the only issue raised in Conrads appeal: that the order which purported to grant defendants new trial motion must be reversed because it contained neither a statement of the ground upon which the new trial was granted, nor any specification of the courts reasons[.]

DISPOSITION

The orders denying the JNOV motion and granting a new trial are reversed and remanded with directions to the court to: (1) grant defendants JNOV motion on the claims for wrongful constructive termination and punitive damages; and (2) enter the resulting judgment for defendants on the claims for wrongful constructive termination and punitive damages. Defendants are awarded costs on appeal.

_________________________

Jones, P.J.

We concur:

_________________________

Simons, J.

_________________________

Bruiniers, J.

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[1] Defendants filed a cross-complaint against Conrad seeking damages for breach of contract and fraud. The jury returned a verdict against defendants and for Conrad. The judgment on that action is not before us.

[2] During the punitive damages phase of the trial, Nordeman and his bookkeeper testified. Conrad urged the jury to award punitive damages against defendants because they failed to comply with the notice to produce documents (Code Civ. Proc., 1987, subds. (b), (c)) and because an individual had apparently offered to buy a property owned by Montgomery-Sansome for $2.8 million in late 2005 or early 2006.

[3] In their notice of motion for new trial, defendants indicated they were moving for a new trial on all seven grounds set forth in Code of Civil Procedure section 657, but the memorandum of points and authorities in support of their motion addressed only one ground: the purported excessiveness of the punitive damages.