2002-8 | Management Memos | Ballard Rosenberg Golper & Savitt, LLP - BRGSLaw.Com

2002-8

U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

A. On An Independent Review of The Record, The Ninth Circuit Concludes That A $4.5 Million Award Exceeds Constitutional Limits.¾ The Ninth Circuit Court of Appeals has held that the maximum award of punitive damages consistent with due process based upon the facts of a lawsuit for trade dress infringement was $500,000, not $4.5 million.¾ Leatherman Tool Group, Inc. v. Cooper Industries, Inc., 2002 Daily Journal DJDAR 3641 (9^th Cir. April 5, 2002) (opinion by Fogel, J. joined by Canby, W. and Nelson, JJ.).

In Leatherman Tool Group, Inc. v. Cooper Industries, Inc., 199 F.3d 1010 (9^th Cir. 1999) (–Leatherman I”), the Ninth Circuit Court of Appeals previously held that Cooper Industries was entitled to copy a multipurpose pocket tool where the configuration was wholly functional.¾ In an unpublished memorandum disposition accompanying the prior opinion, the Ninth Circuit upheld an award of $4.5 million in punitive damages against Cooper for passing off photographs and drawings of Leathermanês products as its own when it first tried to enter the market.¾ The Court of Appeals had reviewed for abuse of discretion the trial courtês determination that the punitive damages award was not excessive.

In Cooper Industries, Inc. v. Leatherman Tool Group, Inc., 53 U.S. 424, 121 S.Ct. 1678, 159 L.Ed..2d 674 (2001) (–Leatherman II”), the U.S. Supreme Court, citing BMW of North America v. Gore, 517 U.S. 559 (1996), identified three criteria for courts to utilize to evaluate the Constitutionality of an award of punitive damages: (1) the degree of reprehensibility of the defendantês misconduct; (2) the disparity between the harm (or potential harm) suffered by the Plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases (the –Gore factors”).¾ The Supreme Court indicated that a de novo standard of review applied and noted that an independent review of the facts of this case might call for a result other than the Court of Appealsê prior affirmation of the punitive damages award of $4.5 million.

The Court of Appeals performed an independent review.¾ Taking the Gore factors in reverse order, the Court determined that Cooperês conduct likely would not have been subject to civil penalties in any amount approaching the punitive damages awarded by the jury.¾ The unfairness of Cooperês use of the pictures apparently had nothing to do with misleading customers but was related to its inability to obtain a –mock up” quickly and cheaply.¾

Next, the Court considered the ratio between the size of the award and the harm or potential harm that was or could have been caused by Cooperês conduct.¾ Based upon its independent review, the Court determined that there was insufficient evidence in the record with respect to the harm caused by Cooperês conduct to support the punitive damages award.¾ The Court noted that Cooperês conduct caused little actual harm and rejected the argument that anticipated gross profits were an appropriate measure of damages.¾ The wrongfulness of Cooperês conduct stemmed from the fact that it obtained a head start by using a modified photograph rather than taking the time and expense to produce its own.¾ The Court was left with the juryês finding that Leatherman suffered $50,000 in actual damages.¾ This meant that the ratio between actual damages and punitive damages was 90 to 1.¾

The Court then analyzed the final criterion, the degree of reprehensibility of the defendantês misconduct.¾ Although the district courtês application of the three criteria was reviewed de novo, it deferred to the underlying factual findings of the lower court.¾ Under these circumstances, the Court concluded that the $4.5 million punitive damages award exceeded Constitutional limits.¾ Although the Court did not condone Cooperês conduct, it viewed it as more foolish than reprehensible.¾

Having concluded that its independent application of the Gore factors did not support the prior award of punitive damages, the Court considered the constitutional maximum on the basis of the existing record.¾ Having reviewed the record and the arguments, the Court concluded that the maximum award of punitive damages consistent with due process was $500,000.¾ The Court reached this conclusion because of a belief –that the conduct at issue warrants a sanction that is not trivial, but also is not disproportionate to the harm caused or threatened.”¾

CALIFORNIA COURTS OF APPEAL

A. FEHA Imposes A Broader Duty On Employers to Accommodate Disabled Employees Than Does The ADA.¾ The Court of Appeal has reinstated a polio victimês lawsuit against the Department of Rehabilitation after a demurrer was sustained without leave to amend.¾ Bagatti v. Dept. of Rehabilitation, 2002 Daily Journal DJDAR 3555 (Cal.App. April 4, 2002) (3^rd App. Dist.) (opinion by Sims, J. joined by Callahan and Hull, JJ.).¾ The Court of Appeal held that the plaintiffês Second Amended Complaint sufficiently alleged an unlawful employment practice in violation of Government Code section 12940(m).

Marilyn Bagatti worked for more than 12 years as a supervising accounting clerk at the State Department of Rehabilitation.¾ She alleged that polio left her disabled and unable to walk long distances.¾ She asked for some motorized transportation to help her get around the office and to and from her car, and for hand railings and chairs in the hallways.¾ Her supervisors refused, forcing Bagatti¾ to walk further than she was able.¾ As a result, she fell and broke her leg and ankle.¾ She then sued the department and its chief officer of civil rights, claiming that their failure to accommodate her disability caused her injuries.

Bagatti appeals from the judgment of dismissal entered following the sustaining of a demurrer without leave to amend.¾ With respect to her cause of action for unlawful employment practice in violation of Government Code ó 12940(m), the Court of Appeal found that Bagatti had adequately alleged that the employer engaged in an unlawful employment practice under Government Code ó 12940(m) and that she suffered damages as a result of the unlawful employment practice.

Plaintiff appealed from a judgment dismissing her action after a demurrer to her second amended complaint was sustained without leave to amend.¾ With respect to her cause of action for –unlawful employment practice under the FEHA,” the Court agreed with plaintiff that the allegations sufficiently alleged a physiological condition that affected her musculoskelatal system and limited a major life activity.¾ The Court also agreed that plaintiff adequately alleged a request for accommodation of her disability, that the request was reasonable and that the physical disability was known to her employer.¾ The Court held that –plaintiff has adequately pleaded that the Department engaged in an unlawful employment practice under subdivision (m) of section 12940 and that she suffered injury and damages as a result of the unlawful employment practice.”¾ Therefore, as to this cause of action, the Court held that –the trial court erred in sustaining the Departmentês demurrer without leave to amend.”

The Department cited an interpretive statement of the EEOC, construing the ADA to define the scope of reasonable accommodation under the FEHA.¾ The interpretive statement identified three categories of reasonable accommodation:¾ (1) accommodations that are required to ensure equal opportunity in the application process; (2) accommodations that enable the employerês employees with disabilities to perform the essential functions of the position held or desired; and (3) accommodations that enable the employerês employees with disabilities to enjoy equal benefits and privileges of employment as are enjoyed by employees without disabilities.¾ The Department argued that plaintiffês complaint did not allege that she was denied equal opportunity in the application process, that she could not perform the essential functions of the position held or desired or that she failed to enjoy equal benefits and privileges of employment enjoyed by employees without disabilities.

The Court held that this interpretive statement of the EEOC should not be applied to the FEHA.¾ The applicable FEHA statute was not sufficiently modeled on the ADA statute to allow the EEOC regulation to control the meaning given to the FEHA.¾ As an example, the interpretive statement makes it clear that the categories of reasonable accommodation are derived from a federal ADA statute defining –a qualified individual with a disability.” The FEHA statute requiring reasonable accommodation is different from the ADA.¾ Section 12940(m) applies to an –applicant or employee” and does not link the failure to make reasonable accommodation to discrimination in the terms and conditions of employment, as does the ADA.¾ Unlike the ADA, Section 12940(m) does not require that reasonable accommodation for disability be made only where the person is a –qualified individual” able to perform the essential functions of the job.¾ Nor is there any requirement in subdivision (m) that the employee has a right to assert the duty of reasonable accommodation only where some kind of adverse employment action is taken against the employee.¾

Thus, the interpretive statement relied upon by the Department was derived from federal statutes that contained restrictions and qualifications on the duty to make reasonable accommodation that are not found in the FEHA.¾ For this reason, the Court disagreed with Brundage v. Hahn, 57 Cal.App.4th 228 (1997) to the extent that it adopted the interpretive EEOC statement to define reasonable accommodation under the FEHA.¾ The Court identified the distinction between the duty of an employer to provide reasonable accommodation under federal and state law:

–This means that the duty of an employer to provide reasonable accommodation for an employee with a disability is broader under the FEHA than under the ADA.¾ This is entirely consistent with the Legislature.”¾

The Court acknowledged the confusion which would result from this decision and called on the Fair Employment and Housing Commission, which has the authority to adopt rules and regulations interpreting the code, to clarify the laws:

–We think that this solution À calling upon the agency designated by the Legislature to clarify the FEHA À is a better one than importing into the FEHA provisions from the ADA that the Legislature has not seen fit to put in there.”

The Court further held that the Workersê Compensation Act does not bar employee lawsuits based on a failure to accommodate a disability.¾ In concluding that Bagattiês lawsuit was not barred by the exclusive remedies provision of the Workersê Compensation Act, the Court reasoned that an employerês failure to accommodate a disability –falls outside the compensation bargain.”¾ Therefore, plaintiff is not limited to Workersê Compensation as an exclusive remedy.

B. There is no Public Policy That Bars Private Employers from Reacting Adversely to Lawsuits Filed by their Employees.¾ The Court of Appeal has held that a hospitalês termination of a seven-year at-will employee for prosecuting a lawsuit against a former patient who had assaulted the employee did not violate a fundamental public policy.¾ Jersey v. John Muir Medical Center, 2002 Daily Journal DJDAR 4119 (Cal.App. April 18, 2002) (1^st App. Dist., Div. 3) (opinion by Pollak, J., joined by McGuiness, P.J. and Corrigan, J.)⁽¹⁾

The plaintiff was assaulted by a patient in the rehabilitation unit who was suffering from head trauma.¾ She went on a Workerês Compensation leave and filed a personal injury action against the former patient for battery, assault and sexual battery.¾ The hospital informed her that she must dismiss her lawsuit against the former patient or be considered to have resigned her position.¾ In a letter to plaintiff, the hospital explained that the mission of the hospital was to improve the health of the community it served.¾ Suing a patient who could not be held accountable for his actions because of a medical or psychological condition was in conflict with the hospitalês mission and values.¾ When the plaintiff declined to dismiss her lawsuit, she was deemed to have resigned.¾

Plaintiffês complaint alleged five causes of action.¾ The hospitalês motion for summary judgment was granted.¾ In granting summary judgment as to the cause of action for wrongful termination in violation of public policy, the trial court held that it was not a violation of public policy for the hospital to terminate plaintiff for refusing to dismiss her lawsuit against a former patient.¾ There is no public policy that bars private employers from reacting adversely to lawsuits filed by their employees.¾ In addition, plaintiff was an at-will employee.¾ The trial court also denied a motion for leave to file an amended complaint and granted the hospitalês award of attorneysê fees in favor of the hospital.

With respect to the cause of action for wrongful termination in violation of public policy, the Plaintiff grounded her claim on the theory that the termination violated a fundamental public policy because she was terminated for exercising her legal right to bring a lawsuit.¾ She further argued that she was terminated in retaliation for having exercised a right created by Civil Code section 1708.5 which defines sexual battery and provided a statutory basis for one of her claims against the former patient.¾

The Court of Appeal noted a distinction between cases which genuinely involve matters of public policy, and those that concern ordinary disputes between employers and employees.¾ In determining whether discharging an employee for exercising a right violates a fundamental public policy, the Court stated that the focus is not simply on the importance of the right that was exercised:

–The issue is whether permitting an employer to discharge an employee for exercising that right would undermine a •clearly mandated policyê embodied in the provision from which that right emanates.¾ It must be clear from the provision itself or from some other legislative or regulatory enactment that employers are not free to disregard or limit that right.¾ Although one should not assume that the employerês precise act (e.g., discharging an employee for refusing to commit a crime) must be specifically prohibited for the public policy exception to apply, a constitutional or statutory provision must sufficiently describe the type of prohibited conduct to enable an employer to know the fundamental public policies that are expressed in that law.”¾

The Court affirmed the grant of summary judgment as to the wrongful termination claim:

–None of the broad constitutional and statutory provisions plaintiff relies upon reflect a legislative determination that it is against public policy for an employer to insist that its employees not sue its customers, clients or patients.¾ Defendant considered that permitting its staff to file claims against a patient whose conduct may have been affected by the very injuries for which the patient was being treated was contrary to the mission of the hospital and should not be permitted. . . . Even if defendantês decision was misguided or based on an erroneous factual premise, that would not eliminate the need for a clear expression of legislative policy disfavoring a discharge for this reason to support a wrongful discharge claim.¾ While there are policy arguments to be made as to why an employer should be discouraged from preventing its employees from seeking recovery against third parties who injure them during the course of their employment, there are defensible reasons for which an employer may consider such suits contrary to the best interests of the business.”

The Court of Appeal also affirmed the grant of summary judgment as to plaintiffês remaining claims for sex discrimination, breach of contract and intentional and negligent infliction of emotional distress.¾

The Court reversed the trial courtês award of attorneysê fees to the hospital. The trial court had explained that it had –previously determined by summary judgment that the action was without merit.”¾ The Court of Appeal disagreed with this standard, noting that attorneysê fees should be awarded to the prevailing defendant –only where the action brought is found to be unreasonable, frivolous, meritless or vexatious.”¾ The Court also reversed the award of attorneysê fees because the trial court neglected to make the non-waivable express written findings necessary to support an award under the FEHA.¾¾ Although the plaintiffês action was unsuccessful, it could not be considered frivolous.

1. The Court cited City of Moorpark v. Superior Court, 18 Cal.4th 1143 (1998) for the proposition that a Labor Code section 132(a) violation can form the basis for a public policy claim.¾ This may be an overstatement of the Courtês holding in Moorpark.