United States District Court, S.D. California
December 15, 2005.
STEVEN PAUL MORALES, Plaintiff,
THE HOME DEPOT U.S.A., INC., a Delaware corporation; MAINTENANCE WAREHOUSE/AME, dba MAINTENANCE WAREHOUSE, a Home Depot company and Texas corporation; and DOES 1-100, inclusive, Defendants.
The opinion of the court was delivered by: BARRY MOSKOWITZ, District Judge
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION FOR
On April 30, 2004, Plaintiff Steven Paul Morales filed suit in
California Superior Court against his former employers, Home
Depot U.S.A., Inc. and Maintenance Warehouse ("MWH"), alleging
wrongful termination. Morales's original complaint alleged six
causes of action: (1) conversion; (2) intentional
misrepresentation; (3) negligent misrepresentation; (4) breach of
implied contract; (5) breach of the covenant of good faith and
fair dealing; (6) wrongful termination in violation of public
policy; and (7) violation of Cal. Lab. Code § 2802. See Pl.'s
Mem. of P. & A. in Support of Mot. to Remand, Ex. A. Defendants
subsequently brought a motion for summary judgment or, in the
alternative, summary adjudication. The Superior Court granted
Defendants' motion in part, holding that there was no triable
issue of fact as to Plaintiff's first three causes of action,
which were for conversion, intentional misrepresentation, and
negligent misrepresentation. Exs. TT & RRR of Def.'s Notice of Removal ("NOR"). The Superior Court, however, denied Defendants'
motion as to the remaining four claims, which were for breach of
implied contract; breach of the covenant of good fair and fair
dealing; wrongful termination in violation of public policy; and
violation of Cal. Lab. Code § 2802. Id. The Court also granted
Plaintiff leave to amend his complaint to state a cause of action
for misappropriation. Ex. RRR to NOR.
In May 2005, Plaintiff filed his First Amended Complaint
("FAC") in Superior Court. The complaint alleged the following
five causes of action: (1) misappropriation in violation of Cal.
Civ. Code § 3344(a) and the Lanham Act, 15 U.S.C. 1125(a)(1)(A);
(2) breach of implied-in-fact contract; (3) breach of duty of
good faith and fair dealing; (4) wrongful termination in
violation of public policy; and (5) violation of Cal. Lab. Code §
2802(a) duty to defend and indemnify. Ex. YYY to NOR. On June
14, 2005, Defendants, based on the newly pleaded misappropriation
claim under the Lanham Act, removed the case to this Court. On
June 21, 2005, Plaintiffs filed a motion to remand. The Court
denied Plaintiff's motion to remand, finding that the FAC, on its
face, clearly pleaded a federal cause of action. See Order
Denying Pl.'s Mot. to Remand, entered Aug. 12, 2005, at 3. The
Court held that removal was therefore proper under
28 U.S.C. § 1441(b). Id.
On September 29, 2005, Defendants filed a motion for summary
judgment, or in the alternative, a motion for partial summary
judgment. For the reasons discussed below, Defendants' motion is
GRANTED IN PART and DENIED IN PART.
I. FACTUAL BACKGROUND
The following facts, pursuant to the summary judgment standard,
are presented in the light most favorable to the Plaintiff, the
non-moving party. Morales first began working for Defendant Home
Depot in 1993. Pl.'s Opp'n at 1. Beginning as a retail sales
associate, Morales eventually rose to the position of director.
Id. He received no negative reviews or warnings. Id. In early
2001, Morales obtained a contractor's license for the state of
Wyoming, becoming involved with construction projects there on
behalf of Home Depot. Id. See Ross Decl., Ex. 2. Morales's
name was listed as the Qualifying Supervisor for the Wyoming
license. Pl.'s Opp'n at 1. In February 2002, Plaintiff
transferred and relocated to accept a position with Maintenance Warehouse ("MWH"), a company
wholly owned by Home Depot. Id. After Morales's transfer, the
company informed him that it would not continue to use his name
and license to continue work in Wyoming. Morales Decl. at 2, ¶ 4.
At MWH, Morales worked with another employee named Paul
Raymond. Raymond was terminated in October 2002. Pl's Opp'n at 2.
In January 2003, a few months after he was terminated, Raymond,
an African-American, sent a letter to MWH CEO Lew Klessel,
alleging discrimination due to color and race. Id.; Def.'s
Request for Judicial Notice, Ex. A at 4 (Raymond Compl.) Raymond
alleged that Plaintiff Morales sent him an October 2002 e-mail,
which stated "you people can never be good managers so stop
trying." Pl.'s Opp'n at 2. Raymond filed charges of
discrimination with the California DFEH and the EEOC in February
2003, and eventually filed suit in Superior Court. Opp'n at 3;
Def.'s Mot. at 6.
MWH also initiated its own internal investigation, after which
it determined that the offensive e-mail had been sent from
Plaintiff's computer. Def.'s Mot. at 6-7. Furthermore, through a
cross check of phone records, MWH determined that both Morales
and Raymond likely had been at their desks at the time the e-mail
was sent. This fact, according to Defendants, precluded the
possibility that Raymond had gone into Morales's office to send
the e-mail. Id. As a result, MWH terminated Morales on or about
May 1, 2003. Id.
Plaintiff, on the other hand, contends that he was told in
early 2003 that he would be terminated if Raymond brought suit so
that the company could avoid having to defend and indemnify him.
Morales Decl. at 3. He claims that MWH "falsely claimed it had
evidence that conclusively showed [he] sent the e-mail to Mr.
Raymond" to justify the termination. Id.
II. LEGAL STANDARD
Summary judgment is appropriate if the moving party
demonstrates that "the pleadings, depositions, answers to
interrogatories and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any
material fact." Fed.R.Civ.P. 56(c); Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986); Celotex Corp. v.
Catrett, 477 U.S. 317, 323 (1986). A fact is material when,
under the governing substantive law, it could affect the outcome
of the case. See Anderson, 477 U.S. at 248; Freeman v. Arpaio, 125 F.3d 732, 735 (9th Cir. 1997). A dispute is genuine
if a reasonable jury could return a verdict for the nonmoving
party. See Anderson, 477 U.S. at 248.
A party seeking summary judgment always bears the initial
burden of establishing the absence of a genuine issue of material
fact. See Celotex, 477 U.S. at 323. Although the nonmoving
party bears the burden of proof on a matter at trial, the moving
party need only demonstrate to the Court that there is
insufficient evidence to support the nonmoving party's case.
Id. at 325. The moving party can satisfy this burden in two
ways: (1) by presenting evidence that negates an essential
element of the nonmoving party's case; or (2) by demonstrating
that the nonmoving party failed to establish an essential element
of the nonmoving party's case on which the nonmoving party bears
the burden of proof at trial. See Id. at 322-23. "Disputes
over irrelevant or unnecessary facts will not preclude a grant of
summary judgment." T.W. Elec. Serv., Inc. v. Pacific Elec.
Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987).
Once the moving party establishes the absence of genuine issues
of material fact, the burden shifts to the nonmoving party to set
forth facts showing that a genuine issue of disputed fact
remains. See Celotex, 477 U.S. at 314. The nonmoving party
cannot rest on the mere allegations or denials of his pleading,
but must "go beyond the pleadings and by his own affidavits, or
by the `depositions, answers to interrogatories, and admissions
on file' designate `specific facts showing that there is a
genuine issue for trial.'" Id. at 324 (citing Fed.R.Civ.P.
56(c)). When making this determination, the court must view all
inferences drawn from the underlying facts in the light most
favorable to the nonmoving party. See Matsushita Elec. Indus.
Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986);
Fontana v. Haskin, 262 F.3d 871, 876 (9th Cir. 2001). The court
must not weigh the evidence or make credibility determinations in
evaluating a motion for summary judgment. See Anderson,
477 U.S. at 255.
As a preliminary matter, this Court has jurisdiction to
consider the summary judgment motion. When a federal claim (here
the Lanham Act) is joined with non-removable state claims, "the entire case may be removed." 28 U.S.C. § 1441(c).
Plaintiff argues that the Superior Court's previous denial of the
Defendants' motion for summary judgment precludes this Court's
consideration of the issues. Plaintiff claims that because his
claims for breach of implied contract, breach of the covenant of
good faith and fair dealing, wrongful termination, and violation
of Labor Code § 2802 survived summary judgment in state court,
the case is ready for trial, at least as to those causes of
action. However, the Ninth Circuit has expressly stated that a
"state court's denial of summary judgment [does] not preclude the
federal court from revisiting the issue after removal." Crane v.
Arizona Republic, 972 F.2d 1511, 1516 n. 3 (9th Cir. 1992).
Thus, the Court may proceed to the merits of the summary judgment
A. Cause of Action Under Lanham Act and Cal. Civil Code §
Plaintiff's first cause of action claims misappropriation under
Cal. Civil Code § 3344(a) and the Lanham Act, 15 U.S.C. § 1125. §
3344(a) provides that "[a]ny person who knowingly uses another's
name . . . in any manner, on or in products, merchandise, or
goods, or for purposes of advertising or selling, or soliciting
purchases of, products, merchandise, goods or services, without
such person's prior consent . . . shall be liable for any damages
sustained by the person or persons injured as a result thereof."
To establish a claim for misappropriation under this section, a
plaintiff must prove "(1) the defendant's use of the plaintiff's
identity; (2) the appropriation of plaintiff's name or likeness
to defendant's advantage, commercially or otherwise; (3) lack of
consent; and (4) resulting injury." Downing v. Abercrombie &
Fitch, 265 F.3d 994, 1001 (9th Cir. 2001). In addition,
plaintiff must allege "a knowing use by the defendant as well as
a direct connection between the alleged purpose and the
commercial use." Id.
Here Morales alleges that his name was used on the Wyoming
contractor license's after he was transferred to a position with
MWH without his permission. Decl. of Morales, ¶ 12. To dispute
Morales's allegation, defendants point to the declaration of
Randy Lutostanski, who oversaw Home Depot's installed sales
program in Wyoming and other western states. Lutostanski Decl., ¶
2. He states that Home Depot never used Morales's name for the purpose of advertising, selling, or soliciting the
purchase of installed sales, nor did the company ever use his
name "in any manner on or in products, merchandise or goods sold
in Wyoming or elsewhere." Id. at ¶ 3.
However, Plaintiff presents testimony which raises a triable
issue of fact regarding the use of Morales's name on the license.
Specifically, the deposition of Julia Afflick, Home Depot's
manager of corporate compliance, suggests that Home Depot may
well have used this license to promote and advertise its
installation services. Afflick testified that they placed the
license "in a conspicuous place . . . usually on a bulletin board
in installed sales." Damiani Decl., Ex. 1 at 11:11-25, 12:20-21.
She admitted that display of the license was "something that we
would like to provide to our customers, that we as a company hold
a class A contractor's license." Id. at 11:22-23. Furthermore,
Afflick testified that the qualified supervisor operating under
the license from March through September 2003 was Steven Morales.
Id. at 13:15-16. By 2003, however, Morales had already
transferred to work at MWH, a position from which he was
terminated in May 2003. Morales Decl. at ¶ 4, 10.
Given this testimony, summary judgment as to the
misappropriation claims is inappropriate. Morales's evidence, at
a minimum, shows that Home Depot knowingly used his license
without permission for advertising purposes and did so to promote
its installation services. Lutostanski's conclusory statements
that Home Depot did not use Morales's name can not be accepted at
this summary judgment stage. Summary judgment as to the
misappropriation claim is therefore DENIED.
The Lanham Act imposes liability on any party who places "in
commerce" a good or service which "is likely to cause confusion,
or to cause mistake, or to deceive as to the affiliation,
connection, or association of such person with another person, or
as to origin, sponsorship, or approval of his or her goods,
services, or commercial activities by another person."
15 U.S.C. 1125(a)(1)(a). The accused shall be liable in a civil action to
any person who establishes that he or she has been damaged by
such act. Id. 15 U.S.C. § 1127 defines the word "commerce," for
purposes of the Lanham Act, as including "all commerce which may
lawfully be regulated by Congress." The Ninth Circuit has stated
"that so defined `commerce' includes intrastate commerce which `affects'
interstate commerce." Thompson Tank & Mrf. Co., Inc. v.
Thompson, 693 F.2d 991, 993 (9th Cir. 1982). In Arrow
United Indus., Inc. v. Hugh Richards, Inc., 678 F.2d 410, 413 n.
5 (2d Cir. 1982), the Second Circuit noted that "Congress's
expressed intent in passing the Lanham Act was, inter alia, `to
regulate commerce within the control of Congress by making
actionable the deceptive and misleading use of marks in such
In United States v. Lopez, 514 U.S. 549, 559 (1995), the
Supreme Court stated that the "proper test [for determining the
constitutionality of Congressional regulation under the Commerce
Clause] requires an analysis of whether the regulated activity
`substantially affects' interstate commerce." (emphasis added).
However, purely intrastate disputes do not fall under Lanham Act.
Jellibeans, Inc. v. Skating Clubs of Georgia, Inc.,
716 F.2d 833, 838 (11th Cir. 1983); Mother Waddles Perpetual Mission,
Inc. v. Frazier, 904 F. Supp. 603, 611 (E.D. Mich. 1995).
Morales contends that Home Depot's use of his name on the
contractor license creates confusion or mistake which is
actionable under the Lanham Act. However, Defendants argue that
because Morales's name and license were used exclusively for
projects undertaken within Wyoming, their alleged conduct, even
if true, would not implicate interstate commerce. Defs.' Mot. At
10-11. In response, Plaintiff argues that while his license was
used to perform installment work exclusively within Wyoming,
Defendants' use of the license substantially affected interstate
commerce. Morales points to the size and breath of Home Depot's
interstate business generally, as well as to the fact that almost
all of the material installed came from outside Wyoming, to
establish a substantial effect on interstate commerce. See
Opp'n at 10-11.
Normally, a plaintiff can satisfy the Lanham Act's "in
commerce" requirement by showing that its business is interstate.
See, e.g., Boustany v. Boston Dental Group, Inc.,
42 F. Supp. 2d 100, 107 (D. Mass. 1999) (holding that doctor's service of
out-of-state patients satisfied interstate commerce requirement);
Mother Waddles, 904 F.Supp. at 611 (interstate commerce
requirement met because plaintiffs' business "extends beyond the
borders of Michigan"). However, purely intrastate use of the false statement
can be within the reach of the Lanham Act if the statement's use
has a substantial effect on interstate commerce. See Summit
Technology, Inc. v. High-Line Medical Instruments Co.,
933 F. Supp. 918, 934 n. 10 (C.D. Cal. 1996) ("under § 1127, a Lanham
Act claim may be brought with regard to any statement used in
such a way as to `substantially affect' interstate commerce.")
(citations omitted); Mother Waddles, 904 F. Supp. at 610-11
("In a trademark case, the interstate commerce jurisdictional
requirement may be met by showing that the infringing mark was
used in connection with goods in commerce, or that the
defendant's use, while intrastate, substantially affected
Here, Plaintiff does not allege that the false statement was
disseminated beyond Wyoming nor can he show that the installation
services performed using his license took place outside Wyoming.
See Lutostanski Decl. at ¶ 4. His contentions, however, are
that Defendants' business in Wyoming affects interstate commerce
and that the installed goods themselves were transported in
interstate commerce. The Court concludes that the evidence
presented in this motion satisfies the interstate commerce
requirement of the Lanham Act. Morales's declaration establishes
for this motion that the goods installed pursuant to his license
came from other states. Morales Decl., ¶ 14 ("almost all the
products that were installed under my license in Wyoming were
manufactured in other States throughout the U.S. and shipped to
Wyoming"). Presumably, if Home Depot had ceased performing
installation work when Morales accepted employment with MWH (or
at least performing work using his license), the delivery of
these out-of-state products to Wyoming for use in projects
performed under Morales's contractor's license would have slowed. Clearly, this consequence, though it may only have been temporary
(until Home Depot could have procured another license with
someone else's name), would substantially affect interstate
commerce in building materials. The alleged false use of
Morales's name in order to obtain home improvement projects in
Wyoming using out of state materials is sufficient to create
Lanham Act jurisdiction. Berghoff Restaurant Co., Inc. v.
Berghoff, 357 F. Supp. 127, 130 (N.D. Ill. 1973). See also
Daniel v. Paul, 395 U.S. 298, 305 (1969).
Given the definition of commerce as encompassing activities
that can be subject to Congressional regulation, Home Depot's
installation activities in Wyoming affect interstate commerce,
despite the local nature of the projects. Home Depot's purchase
of goods shipped through interstate commerce satisfy the Lanham
Act's "sweeping reach." Steele v. Bulova Watch Co.,
344 U.S. 280, 287 (1952). Defendants' use of Plaintiffs' license did
implicate interstate commerce. This fact is enough to meet the
Lanham Act jurisdictional requirements at this stage of the
proceedings. See Arrow United, 678 F.2d at 413 n. 5 (2d Cir.
1982) (finding jurisdictional requirement satisfied where both
parties were New York corporations and all of activities relating
to subcontract at issue took place in New York because the false
designation of origin claims asserted against defendants could
adversely affect its interstate business). Morales must, of
course, prove at trial that his name was actively used in
"commerce" as defined in 15 U.S.C. § 1127. Summary judgment as to
the Lanham Act claim is therefore DENIED.
B. Cause of Action for Breach of Implied Contract
Defendants argue that summary judgment is appropriate on the
breach of contract claim because it is undisputed that Morales
was an at-will employee. They argue that an at-will relationship
precludes any implied contract requiring good cause for
termination. California law provides that any employee contract
with no specified term is at-will and can therefore be terminated
by either party at any time without cause. Cal. Lab. Code § 2922.
The statutory presumption of at-will employment is strong. Guz
v. Bechtel Nat'l., Inc., 24 Cal. 4th 317, 336 (2000).
Additionally, "an express at-will agreement precludes the
existence of an implied contract requiring good cause for
termination." Halvorsen v. Aramark Uniform Servs. 65 Cal. App. 4th 1383, 1388 (1998). See also
Guz, 24 Cal. 4th at 340 n. 10.
Defendants argue that Morales signed written express agreements
acknowledging the at-will nature of his employment on four
separate occasions. The first time was in June 1993, when he
signed an "Employment Application."*fn2 Ross Decl, Ex. G.
Second, Morales signed an "Acknowledgment Form" in July 1993 in
connection with the start of his employment which included the
same language. Id. at Ex. F. Third, Morales signed a letter
agreement in February 2002 when he transferred to a position at
MWH from a position at Home Depot. Id. at Ex. D. This letter
agreement stated that it was confirming several items regarding
Morales's employment, including its at-will nature. Morales
signed a statement that he read and agreed to the terms of the
letter agreement. The fourth and final time that Defendants claim
that Morales acknowledged his status as an at-will employee was
in January 2003, when he signed a qualifier agreement that
provided that "[n]othing in this Agreement changes the status of
Qualifier [Morales] as an `at-will' employee of Maintenance
Warehouse." Id. at Ex. E. Morales does not deny signing these
Based on the language of these documents, it is clear that
Morales had an express at-will employment contract with the
Defendants. Despite these agreements, Plaintiff attempts to argue
that the Defendants' policies and practices gave rise to an
implied contract that he could only be discharged for good cause.
Morales essentially argues that the documents are not employment
contracts and that his long service substantially changed the
nature of his contract. The Court finds that the evidence
submitted by Morales does not rebut the statutory presumption of
at-will employment. See Hawkins v. Home Depot USA, Inc.,
294 F. Supp. 2d 1119, 1124 (N.D. Cal. 2003) (holding that Home Depot
employment application with language similar to Morales's
confirmed at-will agreement). As for Morales's arguments regarding length of service and seniority, these
factors "have no relevance when there is an express contract of
employment which states the terms of employment." Halvorsen,
65 Cal. App. 4th at 1388.
Morales also contends that he was shown a video by Home Depot
in 1993 that promised all employees a job for life as long as
they adhered to certain principals. However, Morales thereafter
signed his most recent employment agreement on April 12, 2002,
wherein he acknowledged at will employment. To the degree that
any prior promises of employment for life on good behavior were
in fact made, they were superceded by the subsequent employment
agreement for Morales' new position at MWH. Morales also relies
on the "Employee Manual." Ex. BB of Defs.' NOR at 792. However,
this manual expressly provides that the employment between "all
employees and Maintenance Warehouse is an `at-will'
relationship. . . . employment may be terminated, either by the
employee or the employer, at any time, with or without
cause. . . . [this] relationship can not be modified by any oral
or implied agreement or conduct." Morales signed agreements on
four separate occasions which stated the at-will nature of his
employment. Because these express provisions control and there is
no evidence of an implied contract requiring good cause for his
termination, the Defendants were free to terminate Morales at any
time without cause. The Court therefore GRANTS Defendants'
motion for summary judgment as to this claim.
C. Breach of Implied Covenant of Good Faith and Fair Dealing
Morales's third cause of action is for the breach of the
implied covenant of good faith and fair dealing. "Every contract
imposes upon each party a duty of good faith and fair dealing in
its performance and its enforcement." Foley, 47 Cal. 3d at 683
(quoting Restatement (Second) of Contracts, § 205). Morales's
claim largely fails as a matter of law for many of the same
reasons relating to his claim for breach of the implied contract.
Morales argues that this implied covenant was breached because
assurances of continued employment and length of service gave
rise to an implied contract. However, as discussed, Plaintiff and
Defendants had an express at-will employment relationship. By
definition, an at-will employee may be terminated at any time by
the employer without cause. Cal Lab. Code § 2922. As the California Supreme Court stated in Guz "in
an at-will relationship, there is no agreement to terminate only
for good cause, [and] the implied covenant standing alone cannot
be read to impose such a duty." 24 Cal.4th at 350. Because the
implied covenant of good faith and fair dealing "cannot impose
substantive duties or limits on the contracting parties beyond
those incorporated in the specific terms of their agreement,"
Morales's claim for breach of the covenant necessarily fails as a
matter of law. Id. at 349-50. See also Hawkins,
294 F. Supp. at 1124 (finding that at-will employee's failure to show
implied contract resulted in failure to show breach of implied
covenant of fair dealing and good faith).
While this implied covenant cannot be read to impose a good
cause termination requirement, it does prevent "a party from
acting in bad faith to frustrate the contract's actual
benefits. . . . [such as] if termination of an at-will employee
was a mere pretext to cheat the worker out of another contract
benefit to which the employee was clearly entitled." Guz,
24 Cal. 4th at 353 n. 18. Morales, in his declaration,
asserts that a member of the Human Resources department told him
that he would be fired if Raymond brought suit so that the company
could avoid having to indemnify him. Morales Decl. ¶ 9. He
claims that MWH "falsely claimed" that it had e-mail evidence of
his racially charged statements to "justify its termination." Id.
at ¶ 10. The right to indemnification is a contract benefit to
which Morales is clearly entitled. See infra Part
III.D. If Defendants falsely used an alleged ethics violation as
a pretext to avoid having to indemnify him for his legal costs,
they would have breached the covenant of good faith and fair
dealing. Therefore, Defendants' motion for summary judgment as to
this claim is GRANTED IN PART and DENIED IN PART.
Morales may proceed on his claim for breach of the implied
covenant, but it is limited to his claim for termination to deny
him the benefit of indemnification.
D. Wrongful Termination in Violation of Public Policy
Morales's fourth cause of action alleges that Defendants
wrongfully terminated him in violation of public policy.
Defendants argue that this cause of action fails because
termination for the purpose of avoiding a duty to indemnify under
Lab. Code § 2802 does not implicate public policy. Instead, they
assert that the alleged termination to avoid § 2802 is a private dispute between Morales and them. They also argue that
Morales cannot demonstrate he was terminated because of
Defendants' desire to avoid this duty. Cal Lab. Code § 2802
provides that an "employer shall indemnify his or her employee
for all necessary expenditures or losses incurred by the employee
in direct consequence of the discharge of his or her
duties. . . ."
An employer's right to discharge an at-will employee is still
subject to limits imposed by public policy. Foley v. Interactive
Data Corp., 47 Cal. 3d 654, 665. The policy in question must
involve a matter that affects society at large rather than a
purely personal or proprietary interest of the plaintiff or
employer. The policy must also be fundamental and substantial,
but also well established at the time of the discharge.
Stevenson v. Superior Ct., 16 Cal. 4th 880, 889 (1997)
(internal quotations omitted). Additionally, the policy must be
supported by constitutional or statutory provisions. Id. at
889-90. This last requirement "ensure[s] that employers have
adequate notice of the conduct that will subject them to tort
liability to the employees they discharge." Id. at 889.
"The cases in which California courts have recognized a
separate tort cause of action for wrongful termination in
violation of public policy generally fall into four categories,
where the employee is discharged for: (1) refusal to violate a
statute . . .; (2) performing a statutory obligation . . .; (3)
exercising (or refusing to waive) a statutory or constitutional
right or privilege . . .; or (4) reporting an alleged violation
of a statute of public importance. . . ." Lagatree v. Luce,
Forward, Hamilton & Scripps, 74 Cal.App.4th 1105, 1112 (1999)
(internal citations and quotations omitted). However, "the
principle underlying the public policy exception is more easily
stated than applied. The difficulty, of course, lies in
determining where and how to draw the line between claims that
genuinely involve matters of public policy, and those that
concern merely ordinary disputes between employer and employee."
Stevenson, 16 Cal. 4th at 889. Because defining `public policy'
precisely proves difficult, courts should "should proceed
cautiously if called upon to declare public policy absent some
prior legislative expression on the subject." Lagatree,
74 Cal. App. 4th at 1112.
The Court believes that an employee's right to indemnification
for expenses and losses does implicate a fundamental public policy. A review of
the case law shows that there are many provisions of the Labor
Code which do implicate public policy. See, e.g., Freund v.
Nycomed Amersham, 347 F.3d 752, 758-760 (9th Cir. 2003)
("public policy behind § 6310 [prohibiting discrimination or
discharge for complaining about unsafe work conditions or
practices] . . . is to prevent retaliation against those who in
good faith report working conditions they believe to be unsafe");
Green v. Ralee Eng. Co., 19 Cal. 4th 66, 76-77 (1998) (Labor
Code § 1102.5 prohibiting retaliation against employees for
disclosing employer violation of state or federal regulations to
a government agency protects public at large from illegal,
unethical, or unsafe practices); Ali v. L.A. Focus Publication,
112 Cal. App. 4th 1477, 1487-88 (2002) (Labor Code §§ 1101
and 1102 protecting an employee from retaliation for political
activity); Grant-Burton v. Covenant Care, Inc.,
99 Cal. App. 4th 1361, 1376-77 (2002) (Labor Code § 232 protecting right to
engage in `concerted activities'); Gould v. Maryland Sound
Industries, Inc., 31 Cal. App. 4th 1137, 1147 (1995) (Labor Code
§ 216(a) requiring prompt payment of earned wages for
discharged employee). Such a policy does seem to be implicated
here, and is closely related to the fundamental public policy
requiring prompt payment of wages discussed in Gould.
In Gould, the court pointed to the statutory authority
requiring prompt payment of wages following discharge and stated
that "[w]ages are not ordinary debts . . . because of the
economic position of the average worker, and in particular, his
family, it is essential to the public welfare that he receive his
pay promptly." Id. (citing Pressler v. Donald L. Bren Co.,
32 Cal 3d 831, 837 (1982). The Court continued: "[t]hus, the prompt
payment of wages serves society's interests . . . through a more
stable job market, in which its most important policies are
safeguarded." Id. (internal quotations and citations omitted).
Just as employers must promptly pay wages owed, they are required
by § 2802 to indemnify employees for the "necessary expenditures
or losses incurred by the employee in direct consequence of the
discharge of his or her duties." An employee's right to be repaid
for ordinary costs like travel expenses or other necessary
expenditures or losses serves the same interests as prompt
payment of wages. Therefore, the right of indemnification
implicates a fundamental public policy.
Furthermore, in determining whether a substantial public policy
has been violated, courts look to see whether an employee or
employer could circumvent the policy by way of agreement without
violating public policy. See Foley, 47 Cal. 3d at 671 n. 12;
Lagatree, 74 Cal. App. 4th at 1112. Cal Labor Code § 2804
expressly provides that any "contract or agreement, express or
implied, made by any employee to waive the benefit of this
article [Art. 2: Obligations of Employer] or any part thereof, is
null and void. . . ." See also Desimon v. Allstate Ins., Co.,
No. C 96-036606, WL 33226248 at *10 (N.D. Cal. Sept. 14, 1999);
Liberio v. Vidal, 240 Cal. App. 2d 273, 276 n. 1 (1996) ("Labor
Code, section 2804 makes all contracts waiving the benefits of
section 2802 null and void"). This statutory provision's refusal
to permit waiver of § 2802's indemnification provision
underscores its essential fundamental public function. In fact,
Cal Civ. Code § 3513 recognizes the importance of non-waivable
rights by providing that "[a]ny one may waive the advantage of a
law intended solely for his benefit. . . . [b]ut a law
established for a public reason cannot be contravened by a
private agreement." Thus, § 2802 implicates a fundamental public
policy and termination to avoid compliance can support a claim
for wrongful termination in violation of public policy. As
Morales alleges that he was told he "would be terminated in order
for the company to avoid having to defend and indemnify me in the
even [of suit]," Morales Decl. ¶ 9, Defendants' motion for
summary judgment on Plaintiff's claim of wrongful termination in
violation of public policy is DENIED.
The Court notes, however, that Defendants could not have
avoided their duty to indemnify Morales even if they had fired
him. The issue here though is not whether or not Defendants would
have had to indemnify Morales as a former employee, but rather
whether, operating on a misunderstanding of the law, they did
believe that firing Morales would allow them to avoid
E. Violation of Labor Code § 2802
Plaintiff's fifth and final cause of action alleges violation
of Cal. Labor Code § 2802, which provides that an "employer shall
indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct
consequence of the discharge of his or her duties. . . ." "The
test for recovery under section 2802 is whether the conduct
defended against was within the course and scope of employment."
Jacobus v. Krambo Corp., 78 Cal. App. 4th 1096 (2000).
Defendants argue that because Morales's alleged racial harassment
was not within the scope of his duties as an employee, they are
not required to indemnify him. Though Morales admits that racial
harassment of Raymond was not within the scope of his duties,
Ross Decl. Ex. A 70:4-12 (Morales Depo), he denies that such
conduct occurred. Opp'n at 19 (quoting Morales depo.) In fact,
Morales has submitted evidence that he was ultimately vindicated
on the charges of harassment when the Superior Court entered
judgment in his favor on July 22, 2005. Damiani Decl., ¶ 20.
Both parties point to the Jacobus case to support their
respective arguments. In Jacobus, an employee who had been sued
for sexual harassment brought a suit seeking indemnification for
legal costs incurred in successively defending against the claim.
While the court admitted that such conduct fell outside the
course and scope of employment, it noted that the jury in the
harassment suit had found the employee not guilty of harassment.
Id. at 1102-03. It also explicitly stated that the "question
whether an employee's acts are within the scope of employment is
ordinarily a question of fact, but the issues may be determined
as a question of law when the material facts are undisputed and
no conflicting inferences are possible." Id. at 1103. Here the
parties dispute the material facts; Morales insists he did not
harass Raymond, while Defendants insist that he did. Accordingly,
there is a triable issue of fact as to whether Morales even
committed the alleged acts. The Court therefore DENIES summary
judgment as to the indemnification claim.
IV. CONCLUSION AND ORDER
For the reasons discussed, Defendants' motion for summary
judgment is GRANTED in part and DENIED in part. The Court
concludes that there are no triable issues as to Defendants'
breach of implied contract. Summary judgment is therefore
GRANTED as to this claim. Summary judgment as to Plaintiff's
claim for breach of the implied covenant of good faith and fair
dealing is GRANTED IN PART and DENIED IN PART. This cause of action, however, is limited to Plaintiff's claim that he was
fired to deny him the benefit of indemnification. The Court
DENIES the motion for summary judgment as to Plaintiff's causes
of action for (1) misappropriation; (2) wrongful termination in
violation of public policy; and (3) violation of Cal. Lab. Code §
The Court declines to strike the Plaintiff's opposition because
it was several days late. Defendants have made no showing of
actual prejudice resulting from Plaintiff's untimely service. The
Court warns the parties to be timely in filing in the future. The
Court would have to consider the merits of Defendants' motion on
the record even if Plaintiff failed to file an opposition. See
Henry v. Gill Indus., Inc., 983 F.2d 943, 950 (9th Cir.
Finally, Defendants filed objections to evidence offered by the
Plaintiff. The vast majority of the evidence objected to is not
relied upon by the Court. Furthermore, the evidence submitted on
a motion for summary judgment need not be in its admissible form
so long as it is clear that it will ultimately be admissible at
trial. See Fraser v. Goodale, 342 F.3d 1032, 1036-37 (9th
Cir. 2003). For these reasons, the objections are overruled.
IT IS SO ORDERED.
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