Casella v. Southwest Dealer Services Inc. (157 Cal. App. 4th 1127, 2007)

Opinion

FYBEL, J.—

INTRODUCTION

Plaintiff Zachary Casella sued his former employer, SouthWest Dealer Services, Inc. (SouthWest), and its president, Eric Hamann (collectively, defendants), for wrongful termination in violation of public policy, fraud, and fraudulent inducement of employment in violation of Labor Code section 970. Casella claimed his employment was terminated because he reported SouthWest’s participation in some of its car dealership clients’ fraudulent business practices. The parties refer to these practices as “payment packing.” The payment-packing practice in this case involved car dealership sales personnel quoting inflated monthly payment amounts for the cars to customers in order to hide the true cost of aftermarket products, thereby facilitating the sale of such products. Casella further alleged defendants wrongfully induced him to come to work for SouthWest by failing to disclose SouthWest’s involvement in these fraudulent activities.

SouthWest filed a cross-complaint against Casella for misappropriation of trade secrets and breach of the parties’ employment agreement. SouthWest dismissed its misappropriation of trade secrets claims before trial.

A jury returned a special verdict in favor of Casella on each of his claims against defendants, and awarded Casella a total of $480,003. The jury also found in favor of Casella with regard to SouthWest’s breach of the employment agreement claim.

Defendants appealed from the judgment. Casella appealed as well, contending the trial court erred by failing to award him more prevailing-party attorney fees. We affirm the judgment in full.

We reject each of defendants’ contentions of error as follows.

1. We hold the public policy underlying Casella’s wrongful termination in violation of public policy claim is tethered to Penal Code section 487 which proscribes theft by false pretense through fraudulent misrepresentations. Thus, the trial court did not err by refusing to dismiss that claim.

2. Defendants’ challenge to the trial court’s denial of their motion for judgment notwithstanding the verdict (JNOV) fails on the grounds that substantial evidence (1) showed that SouthWest required Casella to aid and abet its car dealership clients in fraudulent activities as defined in Penal Code section 487, and (2) supported the inference that at the time he hired Casella, Hamann knew Casella would be required to help track the fraudulent activities of those SouthWest clients.

3. Defendants have failed to show the trial court abused its discretion in making evidentiary rulings which prejudiced them.

4. Defendants have failed to show the trial court erred in instructing the jury.

5. The trial court properly denied defendants’ motion for a new trial after discharging its responsibilities under Code of Civil Procedure section 657.

With regard to Casella’s cross-appeal, we conclude the trial court correctly declined to award Casella the portion of attorney fees he incurred in prosecuting his tort claims against defendants because here, as in Exxess Electronixx v. Heger Realty Corp. (1998) 64 Cal.App.4th 698 [75 Cal.Rptr.2d 376] (Exxess Electronixx), the attorney fees provision contained in the employment agreement expressly limits the recovery of prevailing-party attorney fees to those incurred in seeking to enforce that agreement.

SUMMARY OF FACTS IN SUPPORT OF THE JUDGMENT

In 2002, Casella inquired about employment with SouthWest. At the time, Casella worked in New York for Toyota Financial Services as an area sales manager. SouthWest, which is headquartered in Orange County, is in the business of “sellfing] its aftermarket auto products to auto dealerships and helping] train auto dealership Finance & Insurance (‘F&I’) salespersons on how to promote and sell SouthWest’s products.”

After a telephone conversation with Hamann, SouthWest’s president, Casella traveled to California to interview for a position with SouthWest. Hamann told Casella that SouthWest had a sales representative position available, and Hamann and Casella discussed Casella’s qualifications. Hamann offered employment to Casella; he accepted and moved to California. Casella entered into a written employment agreement with SouthWest on his first day of work in November 2002.

Casella was hired to replace Jason Glass, who had been promoted, and to assume some of Glass’s job responsibilities. Glass took Casella to dealerships in his territory, including Long Beach Nissan and three dealerships owned by Greg Spreen (the Spreen dealerships), including Spreen Honda and Saturn of Loma Linda. Glass taught Casella how to create written reports for Spreen Honda.

Casella was trained by Glass how to prepare a document called the “F & I” (finance and insurance) managers report and the sales managers report. Finance and insurance managers “are the people after you purchase a vehicle,” who “do all the DMV [Department of Motor Vehicles] paperwork and all the registration and all that. Then they offer you extended warranties and other products that you could purchase before you sign your final contract.”

The sales managers reports contained a column labeled “P.A.” which stood for “payment assistance” or “leg.” When a dealer’s sales representative and customer struck a deal for the purchase of a car, the sales representative or sales manager would calculate the monthly payment. If and when the sales representative or sales manager quoted the customer an inaccurately high monthly payment, the difference between the true monthly payment and that quoted by the sales manager constituted “leg.” Leg was built into such transactions, a practice Casella referred to as “payment packing” for “the purpose of selling aftermarket products. It assisted] the finance manager in selling those extra products that they offer you in the finance department.” The finance and insurance managers then used that leg in order to entice customers to agree to purchase additional products offered at inaccurately low costs. The customer was not made aware that leg had been built into the deal. The sales managers reports tracked “the average amount of leg that the sales manager built into the deal for the finance manager.” Another column in the reports, entitled “Percentage P.A.,” referred to “the percentage of deals that actually came back with leg in them.”

Casella immediately questioned Glass about what he was being trained to do with regard to generating reports containing such information “[b]ecause just glancing at it knowing what I knew, I knew there was something wrong with . . . keeping track of that, the fact that they were even doing that. But then to keep track of it on top of that is unbelievable.” Casella thought the practice was illegal, “definitely unethical,” and “if nothing else, very dangerous for [SouthWest] that was keeping track of it.” He understood that, in preparing those reports for certain dealerships, “I was being asked to track the illegal payment packing or leg that [SouthWest’s] business partner was engaging in.” Glass told Casella, “it is kind of illegal, but the dealer wants it done, so that’s the way we got to do it.”

Notwithstanding his reservations about generating those reports, Casella generated and distributed copies of them at the Spreen dealerships’ sales managers meetings, attended by finance managers, sales managers and Greg Spreen. The evidence showed the reports were used for the purposes of discussing “how well the F & I managers were selling the products” and of showing “how well the sales managers were setting up the finance managers in terms of how much leg they were giving them.” Casella testified he was bothered “people are being lied to and deceived in their car purchase,” SouthWest was “doing something illegal,” and he was being asked to “participat[e] in keeping track of that.” He testified, “I felt that we were aiding it because we were encouraging it, inasmuch as you measure something when you calculate averages, and put numbers, you know, rank them 1 through 5 and essentially you are critiquing the performance in that area. And, yeah, when you do that, essentially in my mind you are endorsing that behavior, that practice.”

In January 2003, Casella attended the SouthWest finance and insurance training school conducted by SouthWest’s head trainer, Peter Velau. Casella told Velau about “what was going on at the Spreen dealerships and the reports I was being asked to prepare.” Casella told Velau that he was concerned because he thought there “was some type of payment packing going on” at the Spreen dealerships which might be illegal. Velau testified that “there are many, many ways that [payment packing] could be defined, depending on the person you are talking to, depending on the action that is happening.” He stated, “one definition” is “a payment is quoted to a customer that was incorrect” which incorporates the cost of products that have not been properly disclosed to the customer. Velau also testified that if what Casella thought might be happening was happening, “there could be a problem.” He told Casella to “just make sure our logo doesn’t appear on any dealer reports and make sure it doesn’t appear on the sales, that manager’s report that you are doing.” Velau recommended Casella speak to Hamann about his concerns.

One or two days after speaking with Velau, Casella discussed his concerns about leg with Hamann and told him what he had told Velau. Casella thought Hamann’s reaction was “a bit strange” in that “[h]e seemed to indicate that he wasn’t real . . . concerned.” Hamann said something to the effect of, “well, you know, if you are more comfortable calling it rate spread, go ahead and call it rate spread or rate spread profit. [j[] And he went on to some sort of explanation about how, you know, dealers often mark up the loan.” Casella testified that he “already knew that” and “thought it was a bit odd that [Hamann] was saying that to me, because that’s not really what I was talking about.” Hamann said, “[c]all P.A. or payment assistance, call it rate spread profit, if it makes you feel better.”

On April 3, 2003, Hamann informed Casella his employment with SouthWest was terminated effective immediately. Hamann told Casella that his employment was being terminated because of complaints he had received about Casella, including complaints from Mishel Jolly, AutoNation’s regional finance director for Southern California. AutoNation is a very large dealership and one of SouthWest’s larger customers.

PROCEDURAL BACKGROUND

In September 2003, Casella sued Southwest and Hamann contending, inter alia, that his employment had been terminated because of his “reluctance and unwillingness to aid and abet the Spreen group in facilitating its illegal payment-packing scheme.”

In April 2004, Casella filed a second amended verified complaint, which is the operative complaint in this action, alleging claims for fraud and violation of Labor Code section 970 against defendants and wrongful termination in violation of public policy against SouthWest only. The second amended verified complaint alleged Casella’s employment was terminated because he reported his belief that SouthWest was participating in certain of its clients’ illegal payment-packing schemes. The second amended verified complaint alleged SouthWest’s conduct was illegal, citing several state and federal statutes. It also alleged defendants fraudulently concealed the fact Casella would be required to participate in unlawful activities to maintain employment with SouthWest, in order to induce him to come to work for SouthWest.

The trial court overruled defendants’ demurrer challenging the claims in the second amended verified complaint, stating, “in prior complaints, the plaintiff did not identify the specific statutory authority for violations. That has been corrected. Plaintiff now pleads that the various statutes were violated by the clients and that he was compelled, illegally, to facilitate”; and “[t]he [second] cause of action for fraud states sufficient facts. It states the material facts concealed, who said what and when. Overruled.” SouthWest filed a cross-complaint against Casella for breach of the parties’ employment agreement and for misappropriation of trade secrets in violation of both statute and common law.

The trial court denied defendants’ motion for summary adjudication in which they argued, inter alia, “there is no admissible evidence of an illegal practice” or that “SouthWest engaged or aided and abetted an illegal practice.” The trial court stated, “[t]here is a triable issue of material fact as to whether the Spreen Group reports analyze and track ‘payment packing!,’] and whether SouthWest had any knowledge of any ‘payment packing!.’]”

In September 2004, SouthWest voluntarily requested that the clerk of the court dismiss without prejudice its misappropriation of trade secrets claims contained in the cross-complaint; dismissal of those claims was entered accordingly.

After 23 days of trial, including 19 days of testimony, the jury returned its special verdict in favor of Casella, awarding him the following: (1) $224,003 for wrongful termination in violation of public policy; (2) $10,000 for fraud; and (3) $6,000 for violation of Labor Code section 970. The jury, finding malice, oppression or fraud, awarded Casella $240,000 in punitive damages. The jury found for Casella as to the remaining claim for breach of the parties’ employment agreement contained in SouthWest’s cross-complaint.

The special verdict form asked the jury various questions. With regard to Casella’s wrongful termination in violation of public policy claim, the jury found (1) Casella had a reasonably based suspicion that “Southwest and/or the Spreen dealerships were engaged in fraudulent activities”; (2) Casella’s reporting of his reasonably based suspicion was a motivating reason for SouthWest’s decision to discharge Casella; and (3) Casella was harmed as a result.

As to Casella’s fraud claim, the jury found (1) Casella proved “Southwest and/or the Spreen dealerships were engaged in fraudulent activities”; (2) at the time Casella was offered the position with SouthWest, Hamann knew and failed to disclose to Casella that one of his job responsibilities would be to aid and abet the Spreen dealerships in fraudulent activities; (3) SouthWest actually required Casella “to aid and abet the Spreen dealerships in fraudulent activities”; and (4) Casella was damaged as a result of Hamann’s failure to disclose that a condition of Casella’s employment would include aiding and abetting the Spreen dealerships in fraudulent activities.

Finally, with regard to Casella’s claim for fraudulent inducement in violation of Labor Code section 970, the jury found (1) SouthWest influenced Casella to move from New York to California for the purpose of working at SouthWest by knowingly failing to disclose that a condition of Casella’s employment would include his participation in aiding and abetting the Spreen dealerships and/or SouthWest in fraudulent activities, and (2) Casella was damaged as a result.

The trial court denied defendants’ motion for JNOV and motion for a new trial, and awarded Casella $12,500 in reasonable attorney fees for prevailing on the cross-complaint pursuant to a prevailing-party attorney fees provision contained in Casella’s employment agreement with SouthWest.

Judgment was entered on January 9, 2006. An amended judgment was entered on February 6, 2006, pursuant to the parties’ stipulation regarding an undisputed error in the original judgment. Casella and defendants filed notices of appeal.

DISCUSSION

I.

Requests for Judicial Notice

Defendants filed two requests for judicial notice during the pendency of this appeal. The first requested, pursuant to Evidence Code sections 459 and 452, subdivision (c), that this court take judicial notice of records of the California Legislature pertaining to (1) Senate Bill No. 1721 (2003-2004 Reg. Sess.), which addressed payment packing, but was not passed; (2) Assembly Bill No. 1839 (2003-2004 Reg. Sess.), which similarly addressed payment packing, but was vetoed by the Governor; and (3) Assembly Bill No. 68 (2005-2006 Reg. Sess.), which was passed and signed by the Governor in 2005, and effectively “outlawed] ‘payment packing.’ ”

In their second request for judicial notice, defendants requested, pursuant to Evidence Code sections 459 and 452, subdivision (h), that this court take judicial notice of an article, issued on June 29, 2006, by the California Department of Motor Vehicles, regarding the passage of Assembly Bill No. 68 (2005-2006 Reg. Sess.) and the new written disclosure requirements the new law imposed on car dealers.

Casella has not filed an opposition to either of defendants’ requests. Evidence Code section 459, subdivision (a) provides, in part, “[t]he reviewing court may take judicial notice of any matter specified in Section 452.” Section 452, subdivision (c) provides that judicial notice may be taken of “[ojfficial acts of the legislative, executive, and judicial departments.” Defendants’ requests for judicial notice of the legislative history documents and the article by the California Department of Motor Vehicles are granted. (Soukup v. Law Offices of Herbert Hafif(2006) 39 Cal.4th 260, 279, fn. 9 [46 Cal.Rptr.3d 638, 139 P.3d 30] [“The legislative history in this case is relatively brief and our citation to it is limited to various versions of the legislation and committee reports, all of which are indisputably proper subjects of judicial notice”]; Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 842, fn. 3 [107 Cal.Rptr.2d 841, 24 P.3d 493] [judicial notice of Attorney General’s report on gasoline pricing proper as an official act of executive department].)

II.

Defendants’ Issues on Appeal

A.

Casella’s Wrongful Termination in Violation of Public Policy Claim Was Properly Tethered to Penal Code Section 487 Proscribing Theft.

1. Summary of defendants’ contentions and our analysis.

Casella’s wrongful termination in violation of public policy claim was based on the allegation his employment was wrongfully terminated because he complained to Hamann about SouthWest’s participation in what Casella referred to as a payment-packing scheme. Defendants contend that although legislation, which addresses the fraudulent conduct at issue in this case and imposes on car dealers new disclosure requirements, was passed after the trial in this case, payment packing was not against the law at the time Casella’s employment was terminated. Therefore, defendants contend, Casella’s claim fails because the public policy at issue was not tethered to a constitutional or statutory provision.

As discussed in detail post, in determining whether Casella’s claim is based on a public policy tethered to a constitutional or statutory provision, we focus not on the label attached to the alleged wrongful conduct, for example, payment packing, but on the conduct itself in question. Here, evidence at trial showed Casella complained to Hamann that the Spreen dealerships were engaged in a practice of misrepresenting to the customer the calculated monthly payment that he or she would pay in a deal. The customer would be quoted an inflated monthly payment amount which would assist the finance and insurance managers in presenting and selling aftermarket products based on artificially low, false numbers. This conduct, as found true by the jury, certainly falls within the prohibition of Penal Code section 487 which proscribes making false or fraudulent representation or pretense to defraud another of money. The public policy underlying Casella’s claim, therefore, is sufficiently tethered to statutory authority.

2. General legal principles governing the scope of the wrongful termination in violation of public policy claim.

“[Wjhile an at-will employee may be terminated for no reason, or for an arbitrary or irrational reason, there can be no right to terminate for an unlawful reason or a purpose that contravenes fundamental public policy. Any other conclusion would sanction lawlessness, which courts by their very nature are bound to oppose.” (Gantt v. Sentry Insurance (1992) 1 Cal.4th 1083, 1094 [4 Cal.Rptr.2d 874, 824 P.2d 680], overruled on another ground in Green v. Ralee Engineering Co. (1998) 19 Cal.4th 66, 80, fn. 6 [78 Cal.Rptr.2d 16, 960 P.2d 1046].) In Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 172 [164 Cal.Rptr. 839, 610 P.2d 1330], the California Supreme Court held that “at-will employees may recover tort damages from their employers if they can show they were discharged in contravention of fundamental public policy.” (Green v. Ralee Engineering Co., supra, 19 Cal.4th at p. 71.)

In Gantt v. Sentry Insurance, supra, 1 Cal.4th 1083, the Supreme Court described “four categories of employee conduct subject to protection under a claim of wrongful discharge in violation of fundamental public policy: ‘(1) refusing to violate a statute [citations]; (2) performing a statutory obligation [citation]; (3) exercising a statutory right or privilege [citation]; and (4) reporting an alleged violation of a statute of public importance [citations].’ ” (Stevenson v. Superior Court (1997) 16 Cal.4th 880, 889 [66 Cal.Rptr.2d 888, 941 P.2d 1157].) The Supreme Court cautioned that “courts in wrongful discharge actions may not declare public policy without a basis in either constitutional or statutory provisions. A public policy exception carefully tethered to fundamental policies that are delineated in constitutional or statutory provisions strikes the proper balance among the interests of employers, employees and the public. The employer is bound, at a minimum, to know the fundamental public policies of the state and nation as expressed in their constitutions and statutes; so limited, the public policy exception presents no impediment to employers that operate within the bounds of law.” (Gantt v. Sentry Insurance, supra, 1 Cal.4th at p. 1095; see Green v. Ralee Engineering Co., supra, 19 Cal.4th at p. 71 [“aside from constitutional policy, the Legislature, and not the courts, is vested with the responsibility to declare the public policy of the state”]; Stevenson v. Superior Court, supra, 16 Cal.4th at p. 889 [“tethering public policy to specific constitutional or statutory provisions serves not only to avoid judicial interference with the legislative domain, but also to ensure that employers have adequate notice of the conduct that will subject them to tort liability to the employees they discharge”].)

With regard to the requisite policy underlying a wrongful termination in violation of public policy claim, the Supreme Court “established a set of requirements that a policy must satisfy to support a tortious discharge claim. First, the policy must be supported by either constitutional or statutory provisions. 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, supra, 16 Cal.4th at pp. 889-890.)

“Whether the policy upon which a wrongful termination claim is based is sufficiently fundamental, well-established and tethered to a statutory or constitutional provision to support liability is a legal question that we review de novo.” (Carter v. Escondido Union High School Dist. (2007) 148 Cal.App.4th 922, 929 [56 Cal.Rptr.3d 262].)

3. Casella’s wrongful termination in violation of public policy claim is tethered to Penal Code section 487.

The special verdict form required the jury to determine whether Casella had a reasonably based suspicion that SouthWest and/or the Spreen dealerships were engaged in “fraudulent activities” and whether Casella’s reporting of his reasonably based suspicion was a motivating reason for SouthWest’s decision to terminate his employment. The term “fraudulent activities” was defined for the jury based on Penal Code section 487 and its then corresponding jury instruction, CALJIC No. 14.05, as follows: “Every person who knowingly and designedly by any false or fraudulent representation or pretense, defrauds another person of money, is guilty of the crime of theft by false pretense. [