Metropolitan News-Enterprise

 

Wednesday, December 9, 2015

 

Page 7

 

PERSPECTIVES (Column)

C.A. Permits Amended Complaint Contradicting Previous Pleadings

 

By ROGER M. GRACE

 

Los Angeles Superior Court Judge Melvin Sandvig has incurred a reversal because he failed to allow a discharged employee to make a fourth attempt to plead a cause of action against her ex-employer. What’s queer about the reversal is that the Court of Appeal is remanding the case so that the woman can concoct a complaint based on factual allegations contradicting those she previously pled.

The opinion, filed Nov. 30 and not certified for publication, is the handiwork of Presiding Justice Roger Boren of this district’s Div. Two.

It is typical of opinions that twist the law and strain logic to reach a result in favor of an ousted employee. It is demonstrative of just how far courts are willing to go to in thwarting interests of that bogeyman, as he, she, or it is regarded: the employer.

The plaintiff is Tessie Cue. Sandvig sustained a demurrer, without leave to amend, to her second amended complaint against her former employer, Ansett Aircraft Spares & Services.

She was hired by the company in 1999, participated in a management-led buy out (“MBO”) in 2003, becoming a major shareholder, and was fired in 2009.

The plaintiff sets forth in her second amended complaint (the operative pleading) that company president Gregory R. Quinlan “had Ansett terminate Ms. Cue’s employment” as controller “because Ms. Cue was exercising her rights as an Ansett shareholder and voicing concerns about his management practices, Ansett’s strategic direction and the fact that Ansett’s shareholders were not receiving dividends.”

The pleading adds that “Ansett did not have good cause to terminate Ms. Cue’s employment.”

Sandvig’s ruling notes that Cue’s sole cause of action was based on an implied term in the employment contract between the parties that she would be discharged only for good cause. But the existence of such an implied term, the ruling says, “is contradicted by the express terms of the contract.”

Sandvig points to a portion of the contract (Paragraph 20), which says:

“The company may terminate your employment by serving notice in writing. Provided the reason for termination is not due to just cause for dismissal, but is due to reasons of economics, downsizing and so on, the company will pay, in lieu of notice, an amount not less than two weeks for each full year of employment to a maximum of twelve weeks. After five years of service, this payment will increase to six weeks for the first year and two weeks for each additional year up to a maximum of 26 weeks.”

Referring to Ansett as “MP” (moving party) and Cue as “RP” (responding party), the judge provides this reasoning:

“The only reasonabl[e] interpretation of the foregoing provision is that MP could terminate RP w/ or w/o just cause, but if MP terminated RP w/o just cause, MP would have to pay her severance according to her years of service. RP is not claiming that MP failed to pay her the severance she is owed for her purported termination w/o cause. Rather, RP contends that there is an implied term of the contract (that RP would not be terminated w/o good cause) which directly contradicts the express termination clause contained in the contract. However, a contract term cannot be implied where it would directly contradict an express contractual term. [Citations.]

“RP has now had 3 opportunities to plead her claim against MP and has failed to do so. RP fails to show how she can cure the defect in her pleading. Therefore, the demurrer is sustained w/o leave to amend.”

This appears to be a reasoned and just result—though it would be “gr8” if courts would set forth rulings in traditional prose rather than mimicking texting.

Boren’s opinion finds that the demurrer was properly sustained but declares that Cue should be given another crack at pleading, explaining:

“In sustaining the demurrer, the trial court noted that paragraph 20 appeared to require that Cue receive a severance payment if she was terminated for ‘economics, downsizing and so on,’ instead of for just cause. Cue did not seek a severance payment in the SAC and did not request leave from the trial court to amend her complaint in order to assert such a claim. On appeal, however, Cue adopts the trial court’s theory and requests leave to amend in order to allege that she was not terminated for just cause and is therefore entitled to remuneration pursuant to paragraph 20.”

Let’s pause here. Sandvig put forth no “theory” of his own. Rather, he provided analysis, which included a recital that Cue was not seeking severance pay pursuant to the contractual clause.

Also, Sandvig did not note “that paragraph 20 appeared to require that Cue receive a severance payment if she was terminated for ‘economics, downsizing and so on.’” He did stated broadly, and inaccurately, that if Cue had been fired without good cause, Ansett would be obliged to provide severance pay “according to her years of service”—period, without noting the proviso. Whether through charity or oversight, Boren attributed to Sandvig a realization of his own.

Severance pay would have been owed Cue if she had been laid off for economic causes— “downsizing” or similar reasons—but by her own averments, she was not laid off, but was fired, and not for economic purposes, but because she expressed views antagonistic to the course being taken by management, including denial of dividends to investors, including herself.

Boren’s opinion now affords her an opportunity to plead facts that directly contradict the reasons she previously set forth for the termination of her employment. Assuming her earlier factual allegations were truthful, Boren is extending to her an invitation to lie.

There is ample authority for an appellate court to order that further pleading be permitted based on a post-trial showing of an ability to cure a defect through an amended pleading. However, where a plaintiff comes up with supposed facts, undisclosed in the trial court, which, if true, would surely have been known earlier, appellate court relief would denote gullibility.

Ansett’s lawyers on appeal, Calvin E. Davis and Aaron P. Rudin of Gordon & Rees, cited the 1991 case of CAMSI IV v. Hunter Technology Corp., which affirmed a trial court’s denial of leave to amend. There, the Court of Appeal says:

 “[I]t is the trial court’s discretion that is at issue; the reviewing court may only determine, as a matter of law, whether the trial court’s discretion was abused.” (The emphasis is in the opinion.)

It goes on to say—and here’s the part that spawns Boren’s discussion:

“In our view an abuse of discretion could be found, absent an effective request for leave to amend in specified ways, only if a potentially effective amendment were both apparent and consistent with the plaintiff’s theory of the case.”

Boren says that the correctness of that “holding has been questioned.” Actually, it’s dictum; a different aspect of CAMSI IV was questioned in the case he cites; the dictum was applied in yet another case as part of its holding. The “apparent/consistent” test has not been questioned by any subsequent case, but is questionable. The California Supreme Court’s 1985 decision in Blank v. Kirwan, which Boren cites then ignores, declares that the burden “is squarely on the plaintiff” to show that a proposed amendment would cure a defect in the pleading. The Sixth District conjured up an exception to that rule, relieving a plaintiff of the burden where two particular factors are present. It’s obviously not within the province of an intermediate appellate court to engraft exceptions on high court pronouncements.

Boren undertakes to show that Cue’s alleged entitlement to severance pay is an “apparent” subject of an amendment. What’s puzzling is why he would embark upon the analysis. Even if he views CAMSI IV as having precedential value, such an analysis takes place, under that case, only where “an effective request for leave to amend in specified ways” has not been made. Boren tells us that Cue “requests leave to amend in order to allege that she was not terminated for just cause and is therefore entitled to remuneration pursuant to paragraph 20.”

Anyway, he writes:

 “First, Cue’s proposed amendment is apparent. The employment contract specifies that, under certain conditions, Cue would be entitled to a severance payment in the event of termination. Assuming that Cue can truthfully allege that the conditions for payment were met, then a cause of action can be stated. The fact that the trial court, without prompting, called attention to this potential basis for a claim illustrates how apparent the claim is.”

What is apparent is that Cue forewent suing under the contractual severance clause because that provision applies only where the company needs to lay off employees for economic reasons such as downsizing. That was not the reason she was fired, according to her.

The opinion goes on to consider whether the proposed allegations are “consistent” with the old ones. That inquiry, unlike whether an amendment is “apparent,” does need to be made in light of Cue’s desire to amend (though iy would appear part of her burden to show the consistency. The California Supreme Court says in its 1988 decision in Foley v. Interactive Data Corp. that “[i]n reviewing a judgment following the sustaining of a demurrer without leave to amend…, we must…take into account the possibility of amendment consistent with that pleading.” Emphasis is added.

Boren says:

“Second, the proposed amendment is consistent with Cue’s theory of the case. Cue has alleged that she was not terminated for good cause and is therefore owed money by Ansett. Under Cue’s original claim, she was owed unspecified damages, presumably tied to lost wages, due to Ansett’s breach of its alleged agreement to fire her only for good cause. Under the proposed amendment, if Cue proves she is entitled to damages, those damages can be calculated pursuant to the terms of paragraph 20, based on her years of service.”

Viewed realistically, Cue’s proposed amendment is based on a wholly different theory of the case. The original theory is that she was fired for bucking management, and the firing contravened an implied condition of the contract that her employment be terminated only for just cause. The new theory is that the company faced financial adversity, resulting in her discharge, and, with just cause lacking, she is entitled to severance pay based on an express contractual provision. If there were a legal doctrine of “different kettle of fish,” it would apply.

Indeed, what is proposed is an entirely new cause of action, which Sandvig could not have been faulted for disallowing, had it been proposed, after three ineffective efforts to plead. In the trial court, Cue’s cause of action was founded on her supposed primary right not to be fired in the absence of good cause. Damages were sought on the basis of all economic harm to her based on that firing, subject to proof. Now, Cue wants to sue based on her primary right to enforcement of a contractual provision for severance pay. This does not implicate a challenge to Ansett’s right to fire her—only whether, having fired her, it must provide severance pay. Damages can be deduced from calculations, with no showing of post-firing financial detriment required.

Boren declares that the proposed amendment is not time-barred because it relates back to the filing of the initial complaint. But relation-back, he acknowledges, requires that the amended pleading arise from the same “injury” as that complained of earlier. He writes:

“The alleged injury under both the original complaint and proposed amendment arose from termination of employment.”

Yes, the injury under the pleadings in the trial court, as well as the one proposed in the Court of Appeal, all “arose” from the firing. That means that the firing was the precipitating event. It was not, itself, the injury.

The injury, under the pleading to which Sandvig sustained a demurrer without leave to amend, was stated simply that the termination of employment “caused harm to Ms. Cue.” There was a claim for “compensatory damages.” Apparently, this encompassed her loss of income from employment by Ansett, unmitigated by income from new employment. The injury under her proposed pleading is non-payment of severance pay, as required by contract (under her new theory), which would be due (if due) even if she landed a job, at a substanially higher rate, the day after Ansett fired her.

What isn’t discussed is that “[u]nder the sham pleading doctrine, a pleader cannot circumvent prior admissions by the easy device of amending a pleading without explanation.” That comes from Womack v. Lovell, decided by the Court of Appeal earlier this year.

Cue pled that she was fired for being an annoyance, and stating that reason for her termination is an admission that the severance pay provision is inapplicable.

Boren relates no explanation by Cue as to why she is changing her story from “I was fired because I offended the company president” to “I was laid off because the company couldn’t afford to keep me on the payroll.”

The true explanation is most likely that Cue’s lawyer, Miles Carlsen, came to a realization that the original legal theory—that an implied condition in a contract trumps an express one—was doomed, and a whole new approach was needed. Of course, a forthright explanation of that sort wouldn’t suffice. The Court of Appeal for this district said in a 1984 opinion in American Advertising & Sales Co. v. Mid-Western Transport:

“The well-established rule is that a proposed amendment which contradicts allegations in an earlier pleading will not be allowed in the absence of ‘very satisfactory evidence’ upon which it is ‘clearly shown that the earlier pleading is the result of mistake or inadvertence.’ ”

Boren apparently wanted to reach a result, shouldn’t have, but did.

 

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