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Mathews v. Happy Valley Conference Center, Inc.

California Court of Appeals, Sixth District

December 12, 2019

Jeremiah MATHEWS, Plaintiff and Respondent,
HAPPY VALLEY CONFERENCE CENTER, INC. et al., Defendants and Appellants.

         Santa Cruz County Superior Court Superior Court No. CV179346, Hon. John M. Gallagher (Santa Cruz County Super. Ct. No. CV179346),

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         Elizabeth Mary Peck, Peck-Law, Devin Cannell Coyle, Devin Coyle Law, Oakland, Counsel for Plaintiff/Respondent JEREMIAH MATHEWS

         Michon Marie Spinelli, Ropers, Majeski, Kohn & Bentley, Redwood City, S. Thomas Todd, Horvitz & Levy, LLP, Counsel for Defendants/Appellants HAPPY VALLEY CONFERENCE CENTER, INC. and COMMUNITY OF CHRIST


         Grover, J.

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          Plaintiff Jeremiah Mathews worked as a maintenance supervisor and a cook for defendant Happy Valley Conference Center, Inc. (Happy Valley), which hosts seminars, retreats, and camps on a 30-acre property in the Santa Cruz Mountains. Happy Valley is a subordinate affiliate of defendant Community of Christ (the Church). When a younger male employee confided in plaintiff that Happy Valley’s female executive director had been sending him sexually inappropriate text messages, plaintiff reported the allegation to a member of Happy Valley’s board of directors and to the Church’s general counsel. The executive director admitted sending the messages, was reprimanded, and was allowed to continue supervising plaintiff and the younger male employee. Plaintiff was terminated less than a month after reporting the harassment. Plaintiff sued defendants, alleging retaliatory termination under several legal theories. The jury returned special verdicts in plaintiff’s favor on all causes of action. Defendants were ordered to pay almost $900,000 in damages (including punitive damages) and almost $1 million in attorney’s fees.

          Defendants contest most of the jury’s findings. Relevant to most appellate issues, defendants argue the Church cannot be held liable for Happy Valley’s actions because the two are separate entities that do not fall within the single employer doctrine. They further argue the trial court’s single employer doctrine jury instruction was prejudicially erroneous.

         Regarding liability, defendants argue that Happy Valley is not liable under title VII of the Civil Rights Act of 1964 (Title VII; 42 U.S.C. � 2000 et seq.) because [256 Cal.Rptr.3d 503] Happy Valley does not have enough full-time employees to come within that law. Defendants also contest their liability under the California Fair Employment and Housing Act (FEHA; Gov. Code, � 12900 et seq.) because they are exempt religious entities, and contend the trial court erred in finding they had waived or were estopped from claiming the religious entity exemption. Defendants assert they are not liable under the version of the whistleblower statute in effect at the time of the events at issue (rather than the amended statute reflected in the parties’ proposed jury instructions). They

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also argue the evidence was insufficient to support a finding that the Church breached an implied or actual contract with plaintiff.

          Regarding damages, defendants contend the trial court awarded damages under Title VII beyond the maximum value allowed by that statutory scheme; noneconomic and punitive damages not recoverable for breach of contract; excessive punitive damages; and attorney’s fees not recoverable as a matter of law.

          As we will explain, we find no prejudicial error regarding most of defendants’ appellate arguments, but the judgment must be modified to reflect that defendants are exempt from FEHA liability.


          The following factual summary is based on trial testimony and evidence admitted during the jury trial.


          The Church is a Missouri non-profit corporation with around 250,000 members in over 60 countries. The Church is separated geographically into Mission Centers. The Sierra Pacific Mission Center covers, among other areas, the County of Santa Cruz and the Happy Valley property.

          Happy Valley is a California non-profit corporation. According to Happy Valley’s bylaws, it is an "integral subordinate unit and part of the Community of Christ." It is "accountable to General Church Officers to include the Apostle in charge of the field, the Presiding Bishopric and the First Presidency and Sierra Pacific Mission Center officers." Happy Valley is run by a volunteer board of directors (Happy Valley Board). The bylaws state the Happy Valley Board "shall regard the Sierra Pacific Mission Center as the body to which it is initially accountable for management of the Conference Center." The Happy Valley Board consists of elected members and ex officio members. The elected members are "elected by the Conference of the Sierra Pacific Mission Center." And the ex officio members are the Sierra Pacific Mission Center president and the Mission Center’s financial officer. Ronald Smith was the Sierra Pacific Mission Center president at all relevant times. Happy Valley also has an executive committee made up of four members of the Happy Valley Board. Ronald Smith and Happy Valley Board President Jerry DeVries were members of the executive committee.

          Happy Valley had three full-time employees: an executive director, a food services manager, and a maintenance supervisor. For the time period preceding plaintiff’s termination, the executive director was Melinda Gunnerud, the

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food services manager was Amanda McKnight, and plaintiff was the maintenance supervisor. Happy Valley also employed part-time and seasonal employees, especially during the summer months.


          Plaintiff was hired by Happy Valley as a cook in 2009. He received periodic raises [256 Cal.Rptr.3d 504] based on his performance. His performance reviews were generally positive, but plaintiff received lower scores for his communication skills and attitude. At trial plaintiff acknowledged he sometimes lost his temper at work, and also acknowledged receiving at least three disciplinary write-ups during his time working for Happy Valley. All were related to plaintiff losing his temper with other employees. Plaintiff changed positions from part-time cook to full-time maintenance supervisor in late 2010. Both executive director Gunnerud and food services supervisor McKnight acknowledged at trial that Gunnerud frequently praised plaintiff for his hard work and cooking skills.

          Dianne Barnett, a former bookkeeper for Happy Valley, testified that she worked there while Gunnerud was the executive director. Barnett stated that several employees complained to her about Gunnerud being unfair and treating employees poorly. Barnett related that employees would inform Happy Valley Board President Jerry DeVries about Gunnerud’s conduct, but that DeVries did not take the concerns seriously. According to Barnett, when employees brought their concerns about Gunnerud to DeVries, he would report that information back to Gunnerud and then Gunnerud would discipline the employees in retaliation.

          Food services supervisor McKnight testified that Gunnerud frequently flirted with younger male employees and commented on their physical appearance. (We refer to two of the former employees by their first names in the interest of their privacy.) McKnight testified Gunnerud seemed a "little delusional" about the nature of her relationship with a dishwasher named Eli. Gunnerud told McKnight she had gone to Eli’s house to see him without his permission. McKnight did not think Gunnerud understood that Eli was uncomfortable with the interaction. McKnight testified that even after Eli resigned, Gunnerud continued trying to spend time with him including going to see him at his new job. Gunnerud also sent Eli text messages, which we will discuss in greater detail.

          Brett began working at Happy Valley after Eli left. McKnight testified that Gunnerud took Brett on shopping errands offsite, which was a task she used to do without assistance from others. Brett testified that at first he felt welcomed and comfortable, but that he started to feel like he was receiving

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special treatment from Gunnerud. The treatment made him feel "kind of strangely." Brett testified that Gunnerud began sending him personal text messages after work hours, which eventually focused on "more and more suggestive" topics. Brett stated he confided in plaintiff about inappropriate text messages received from Gunnerud when he reached a point where he no longer felt comfortable at work. Brett went to plaintiff because he looked up to plaintiff and plaintiff was the person at Happy Valley with whom Brett was most comfortable talking.

          Plaintiff confirmed in his trial testimony that Brett showed him text messages from Gunnerud in mid-April 2012. Among the text messages Brett showed plaintiff were the following: "Not such a great night. Currently driving around looking for a place to get a stiff one after getting in a fight with the hubby"; "I’m glad red didnt give u trouble getting in the house....i did tell him to guard my underwear drawer though!" (Errors in original.) Gunnerud admitted in her trial testimony that she sent those and other text messages to Brett.

          Brett and plaintiff took the text messages to McKnight. According to McKnight, she was uncomfortable reporting the text messages to Gunnerud or DeVries for fear of retaliation, so she decided [256 Cal.Rptr.3d 505] to ask a Happy Valley Board member, Karen Ardito, for help. Ardito testified that once she learned about the text messages, she asked her friends in the Church for advice and those friends recommended that she contact Karen Minton, the Church’s general counsel. Minton testified that plaintiff and Brett reported the messages to her, and that they told her they feared retaliation by Gunnerud.

          Minton believed the messages constituted sexual harassment, and she asked Sierra Pacific Mission Center President (and ex officio Happy Valley Board and executive committee member) Smith to investigate them. Minton testified that she looked to Smith because she had worked with him before on Church business. The plan was for Smith to investigate, confer with Minton, and then provide a recommendation to Happy Valley President DeVries.

          Smith testified that he reviewed the text messages Gunnerud sent Brett and thought they were "joke[s] in poor taste" rather than sexual harassment. Soon after beginning the investigation, Smith learned from plaintiff about text messages Gunnerud had sent to Eli, the former employee. Eli sent Smith an e-mail with copies of the text messages, which included the following: "Did i ever tell u that the night u stayed at my house i hardly slept a wink? I confess that i snuck in and watched you sleeping, naked and surrounded by pillows and totally adorable. One of lifes precious moments. Hope i get to see u tomorrow. Good night and sleep tight. Love u eli."; "Did he tell thats only after long bouts of exausting, hot nasty ***?! Speaking of which, my boss is

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coming to take me to ‘lunch’ tomorrow ... olitas and football baby! Last time we had a little too much to drink but we had a great time! ; ) im so bad ..."; "Im off! How about a really loooong quikie...or...we could just go to a movie." (Errors in original.) Gunnerud confirmed at trial that she sent those text messages to Eli.

          Smith and another Happy Valley Board member interviewed Brett, Eli, and Gunnerud. Smith testified that he thought Gunnerud attempted to sugarcoat the severity of the texts by arguing that they were all jokes. He testified that Gunnerud reported feeling betrayed by the other employees’ decision to disclose her text messages. Smith thought Eli seemed cavalier, and appeared to be treating the matter like a game.

          Smith recorded notes during the investigation, which were admitted into evidence at trial. In those notes he stated his belief that plaintiff was trying to stir the pot and make trouble by reporting Gunnerud. He accepted Gunnerud’s statement that she was merely trying to make jokes, and he did not think she harbored any "malicious or lascivious" intent. He thought Eli was "trying to paint it as worse than it really was (for whatever reason; collusion with [plaintiff]?)."

          Smith ultimately recommended to DeVries that Gunnerud be reprimanded, with directions to undergo management training about maintaining appropriate boundaries with employees. DeVries followed Smith’s recommendation and reprimanded Gunnerud. DeVries testified that he thought the texts were, at most, "borderline" harassment. Gunnerud was allowed to maintain her executive director position with supervisory authority over plaintiff and Brett.

          About a week after reporting the text messages to Minton, plaintiff informed Smith via e-mail that Brett was "terrified" that Gunnerud had found out about the sexual harassment report. Plaintiff warned that Gunnerud was vindictive and retaliatory. Smith stated in an e-mail to DeVries that Brett denied being terrified about losing his job. Plaintiff testified at trial that [256 Cal.Rptr.3d 506] Brett had indeed expressed being terrified. Plaintiff stated Brett was not comfortable talking to people affiliated with Happy Valley or the Church about the harassment, and suggested that was the reason Brett might not have appeared terrified to Smith. In a separate e-mail to Minton, plaintiff expressed his dissatisfaction with the plan to allow Gunnerud to continue supervising him and Brett. He informed Minton in that e-mail that he felt his only option was to explore legal action.

          The Happy Valley Board met in late April 2012. Gunnerud updated the Board about Happy Valley operations and— according to testimony by multiple Board members at trial— Gunnerud also praised plaintiff’s hard work. In

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a closed session without Gunnerud present, DeVries informed the Board that plaintiff was the person who had reported the text messages sent to Eli and Brett.

          Minton, Smith, and DeVries exchanged several e-mails in the days before and after the Happy Valley Board meeting regarding both the harassment investigation and plaintiff’s claims of retaliation. Smith and DeVries were skeptical of plaintiff’s motives. DeVries speculated in an e-mail about what plaintiff might stand to gain from reporting Gunnerud. He suggested it might be a way for him to avoid discipline for other misconduct, as there had been allegations that plaintiff had used a Happy Valley work computer to access pornography. DeVries also mentioned that a few months earlier he had talked to Gunnerud about replacing plaintiff because of plaintiff’s anger issues, and speculated that plaintiff may have learned about that discussion. DeVries concluded his e-mail as follows: "I really do not want to fire him without legal or HR advice, because I don’t want to open the possibility of paying him a dime in any kind of settlement ... He is a liability." Smith responded that he thought DeVries was giving plaintiff too much credit for doing anything more than "picking a fight." Smith speculated plaintiff could be motivated by "revenge, could be simple anger (we know he flies off the handle too easily), could be hatred for [Gunnerud] or for the world at large."

          Gunnerud met with plaintiff later that month to discuss plaintiff’s work assignments. Plaintiff was upset that Gunnerud was still his supervisor. Gunnerud asked DeVries to join the meeting. Plaintiff testified that the first thing DeVries said to plaintiff when he arrived was "[w]hat’s your problem?" Plaintiff, DeVries, and Gunnerud argued about what plaintiff viewed as deficiencies in Happy Valley’s investigation of the harassment complaint, and plaintiff acknowledged at trial that during the meeting he referred to Gunnerud as a "lying, cheating whore." Plaintiff asked for a new supervisor, and the parties eventually agreed that Happy Valley Board member Bob Thomas would take over. Plaintiff testified that Thomas told him at their initial meeting that had Thomas already been plaintiff’s supervisor he would have fired plaintiff on the spot.

          Plaintiff alleged in an e-mail to DeVries sent the day after Thomas took over as plaintiff’s supervisor that Gunnerud was on a "witch hunt" and was trying to convince Happy Valley employees to "retro-write" complaints against plaintiff to create evidence to support his termination. McKnight testified at trial that Gunnerud had asked her around that time to write a complaint about plaintiff for something that had happened in the past and McKnight refused to do so. Plaintiff testified at trial that his e-mail was referring to Gunnerud’s request to McKnight. DeVries forwarded the "witch hunt" e-mail to Smith, who in turn forwarded it to Minton a few days later

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and told her: "It’s all crap; nothing of this is happening." Smith acknowledged [256 Cal.Rptr.3d 507] at trial that he never independently investigated whether there was truth to plaintiff’s allegations. Plaintiff also e-mailed Minton to inform her he was "pursuing state and federal complaints" due to what he perceived as an unsatisfactory response to the harassing text message investigation. (Capitalization omitted.) Plaintiff e-mailed the United States Equal Employment Opportunity Commission that day, stating he had been "retaliated against in relation to another employee[’]s sexual harassment complaints." (Capitalization omitted.)

          Plaintiff met with Thomas five days after notifying Minton of his intention to pursue state and federal complaints. Thomas was dissatisfied with the amount of work plaintiff had completed the day before. Plaintiff testified that Thomas complained the cabins were not clean and there was debris in a causeway, and that plaintiff told him those tasks were not part of his job description as there was a separate cleaning crew assigned to those tasks. A heated argument ensued and Thomas terminated plaintiff. DeVries testified that the stated reasons for plaintiff’s termination were insubordination and failure to timely complete assigned tasks. During a portion of his deposition played for the jury, Thomas testified that he did not know plaintiff was the person who had reported Gunnerud when he chose to terminate plaintiff. But the Happy Valley Board meeting minutes indicate Thomas was at the meeting where DeVries described plaintiff’s allegations against Gunnerud. And Happy Valley Board member Barnett testified both that DeVries mentioned plaintiff by name at the meeting’s closed session and that Thomas was in attendance.


          Plaintiff filed a form Charge of Discrimination complaint with the United States Equal Employment Opportunity Commission some eight months after his termination, alleging he was retaliated against in violation of Title VII and FEHA. Happy Valley and the Church filed a joint response, which was signed by Minton as counsel. The California Department of Fair Employment and Housing issued a right to sue letter in response to plaintiff’s administrative complaint.

         Plaintiff’s operative first amended complaint (Complaint) alleged eleven causes of action against Happy Valley and the Church: (1) retaliatory termination violating Title VII; (2) retaliatory termination violating FEHA; (3) failing to prevent retaliation (Gov. Code, � 12940, subd. (k)); (4) declaratory relief as to the scope of FEHA’s religious entity exemption and the interpretation of the Happy Valley employee handbook; (5) breach of contract (related to the employee handbook); (6) breach of the implied covenant of good faith and fair ...

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