Opinion
H050478
04-24-2024
FRANK HAN, Plaintiff and Appellant, v. ESHARES, INC., Defendant and Appellant.
NOT TO BE PUBLISHED
Santa Clara County Super. Ct. No. 19CV360737
Greenwood, P. J.
This appeal following a jury trial arises out of the termination of Frank Han's employment at Eshares, Inc. doing business as Carta (Carta). Carta appeals from the judgment in which the jury found in favor of Han on his implied covenant of good faith and fair dealing claim. Carta argues that Han had an at-will employment contract that provided his employment could be terminated at any time. Because the implied covenant of good faith and fair dealing cannot contradict the express terms of an employment agreement, Carta asserts that the verdict was invalid as a matter of law and the judgment must be reversed.
Han filed a cross-appeal, contending that the trial court erred in declining to give a jury instruction on fraudulent concealment (Judicial Council of California Civil Instructions (CACI) No. 1901). He argues that the instructions for intentional misrepresentation and false promise provided to the jury were materially different from an instruction for fraudulent concealment and were therefore insufficient based on the facts elicited at trial.
Because we conclude that any oral statements made by Carta's chief executive officer could not limit Carta from discharging Han under the express at-will provision in the written employment agreement, we reverse the judgment as to the cause of action for breach of the duty of good faith and fair dealing. On the cross-appeal, we conclude Han suffered no prejudice from the omission of the requested jury instruction. Accordingly, we reverse in part and otherwise affirm the judgment.
I. Background
We take the facts from the evidence adduced at trial. In so doing, we view the evidence in the light most favorable to the jury's verdict and the judgment.
In 2018, Han began searching for a new opportunity after more than six years at his job. In September 2018, a recruiter contacted Han and told him about Carta. In a later call with the recruiter, she told Han that there was a new business within Carta called Fund Administration and that they were looking for a general manager. Around the same time, Han was negotiating with Wal-Mart for a position.
In the process of his job search, Han met with Henry Ward, Carta's chief executive officer (CEO). During the initial meeting with Ward, Han asked where the Fund Administration position would report and Ward pointed to a person on the organization chart "a couple of layers into the organization." Han told Ward, "I'm not interested in that." Han thought Ward seemed surprised; Ward said something to the effect of, "Why do you care? If you're getting on a rocketship, why do you care what seat you're in?" Han responded that, given his experience, he would not feel comfortable having a role so far down in the organization. Following that meeting, Han told the recruiter he was not interested in the role at Carta.
Carta's internal recruiter, Ashley Davis, reached out to Han about a week later and told him that she wanted to talk to him about a different role definition. Han met with Ward again, and they spoke about the revised role, which was to manage the Fund Administration directors and take over a ten-person sales team.
After those first two meetings with Ward, Han received an offer from Wal-Mart to be president of a Wal-Mart operation called Hayneedle, a 600-million dollar business with a couple hundred employees. The offer included a salary of $360,000 a year with a target bonus, in addition to a signing bonus of $300,000 and a few million dollars of Wal-Mart stock in restricted stock units. Han told Wal-Mart he was likely to accept the offer.
The following day, Han and Ward met a third time. Prior to that meeting, Ward became aware that Han had received a "pretty amazing offer" from another company. Ward also saw an email from the outside recruiter to Davis, in which the recruiter stated that Ward needed to "genuinely convey to Frank you're our guy and we won't stop until you realize it."
At the third meeting, Ward showed Han a new organization chart in which he would report to Ward as head of delivery. When Han expressed concern about the stability of the position due to the fact that Carta had an active chief operating officer (COO) search, Ward told Han that he would never let someone come in to his company and bring their own people and get rid of the people he hired. According to Han, Ward stated: "Effectively, we're not going to hire a COO. We're going to stop the process of looking for a COO." Ward stated further: "You're the guy. You run this." Han testified at trial that Ward's statements led Han to believe that he would hold the position for the "foreseeable future."
Han accepted the offer and began working at Carta on December 3, 2018. At trial, Han testified that at the time he accepted the offer of employment at Carta, he understood that his employment could be terminated at will. Han's offer letter, which he signed in acceptance, included the following language: "Your employment is at-will and [Carta] can terminate the employment relationship at any time." The at-will provision in the offer letter provided eligibility for a severance payment equivalent to three months of Han's base salary "[i]n the event of such termination without cause within the first twelve (12) months of your employment."
About five weeks after Han started, Ward expressed some concerns to Charly Kevers, the chief financial officer, regarding Ward's ability to work with and manage Han. At trial, Ward testified that his concerns related to Han's "lack of engagement, his not understanding the business, his not being able to answer basic questions, his not coming to me with here are the goals that I need to meet, here are the goals that my team needs to meet, here are the metrics that we should be measured on, things you would expect from an executive at that stage."
In February, Ward met with Han and offered him either demotion or termination. Earlier that month, Ward had already offered Han's position to the former chief operating officer of Carta, David Kim. Before Han made a decision about the demotion, Ward fired him. Han received approximately $1,000,000 in stock for his time at Carta.
B. Procedural History
Han filed a complaint in December 2019. At the time of trial, the operative first amended complaint included the following causes of action: (1) breach of contract; (2) wrongful termination/tortious discharge; (3) retaliation; (4) wrongful demotion; (5) intentional misrepresentation; (6) promissory fraud; (7) negligent misrepresentation; (8) fraudulent concealment; and (9) breach of the duty of good faith and fair dealing. In July 2022, prior to the commencement of the trial, Han dismissed with prejudice his second and third causes of action.
Relevant to the issues on appeal, Han sought to have the jury instructed on fraudulent concealment (CACI No. 1901), but the court declined. The court did, however, give instructions CACI No. 1900 and CACI No. 1902, for intentional misrepresentation and false promise, respectively.
After Han rested at trial, Carta moved for nonsuit as to the fourth cause of action for wrongful demotion and the ninth cause of action for breach of the duty of good faith and fair dealing. With regard to the ninth cause of action, Carta argued that Han had an at-will employment contract, and that Han therefore could not maintain a claim for breach of the implied covenant of good faith and fair dealing that would require Carta to give Han a reasonable amount of time to prove himself because that would be "an implied promise that's contrary to the express promise." The court denied the motion as to both causes of action.
Carta also objected on the same grounds to element four of the jury instruction concerning the implied covenant of good faith and fair dealing (CACI No. 2423), which stated that Han needed to prove "[t]hat Carta Inc. attempted to demote and then discharged Frank Han prior to Frank Han having a reasonable opportunity to prove that he could satisfy the job requirements of Senior Vice President of Operations." The court overruled the objection.
Question No. nine on the amended special verdict form used almost identical language and Carta's attorney noted this as part of the objection.
The jury submitted a question to the court: "Can a verbal or 'handshake' agreement negate the 'at-will' clause in an employment contract[?]" The court responded that "[i]t depends" and gave jury instructions CACI No. 304 ["Contracts may be partly written and partly oral. Oral contracts are just as valid as written contracts."] and 305 ["In deciding whether a contract was created, you should consider the conduct and relationship of the parties as well as all the circumstances of the case. Contracts can be created by the conduct of the parties, without spoken or written words. Contracts created by conduct are just as valid as contracts formed with words. Conduct will create a contract if the conduct of both parties is intentional and each knows, or has reason to know, that the other party will interpret the conduct as an agreement to enter into a contract."].
The jury found against Han on the fraud claims and further concluded that Carta did not breach the employment contract, but found in favor of Han on the breach of the implied covenant of good faith and fair dealing cause of action.
Carta timely appealed. Han then timely cross-appealed.
II. Discussion
A. Implied Covenant of Good Faith and Fair Dealing and At-Will Employment
Carta argues that the judgment must be reversed because "[t]he trial court improperly allowed a verdict which violated the rule on implied covenant claims." Specifically, Carta contends that the trial court erred by denying Carta's motion for nonsuit and by "allow[ing] the jury to answer whether Carta violated the covenant of good faith and fair dealing by 'attempt[ing] to demote and then discharge Frank Han prior to Frank Han having a reasonable opportunity to prove that he could satisfy the job requirements of Senior Vice President of Operations[.]'" Carta asserts that as a matter of law, the express at-will provision in Han's written employment agreement could not be overcome by any implied contrary understanding between Han and Carta's CEO. Han responds that Carta's discretionary right to terminate him at will was limited by an express oral agreement that he would be employed for the "foreseeable future," as well as by the implied covenant of good faith and fair dealing.
Carta raises a pure question of law, which we review de novo. (Foster v. Snyder (1999) 76 Cal.App.4th 264, 267; see also Saunders v. Taylor (1996) 42 Cal.App.4th 1538, 1541-1542 ["Since motions for nonsuit raise issues of law [citation], we review the rulings on those motions de novo...."]; see also Garrabrants v. Erhart (2023) 98 Cal.App.5th 486, 496 ["We review purported instructional errors de novo."].)
" 'Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.'" (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 683 (Foley).) "It is universally recognized the scope of conduct prohibited by the covenant of good faith is circumscribed by the purposes and express terms of the contract." (Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 373.) This is because its purpose is "to protect the express covenants or promises of the contract, not to protect some general public policy interest not directly tied to the contract's purposes." (Foley, at p. 690.) But the covenant cannot "impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of their agreement." (Guz v. Bechtel Nat. Inc. (2000) 24 Cal.4th 317, 350 (Guz).) Likewise, the "implied covenant of good faith and fair dealing cannot contradict the express terms of a contract." (Barroso v. Ocwen Loan Servicing, LLC (2012) 208 Cal.App.4th 1001, 1014; see also Halvorsen v. Aramark Uniform Services, Inc. (1998) 65 Cal.App.4th 1383, 1390 (Halvorsen) ["the covenant of good faith and fair dealing 'cannot be used to imply an obligation which would completely obliterate a right expressly provided by a written contract.' "].) We conclude that, to the extent Han relies on an alleged implied understanding protected by the covenant of good faith and fair dealing that he would be given a reasonable amount of time to prove himself, any such understanding imposed an obligation inconsistent with the at-will provision of the written employment contract.
"An employment, having no specified term, may be terminated at the will of either party on notice to the other." (Lab. Code, § 2922.) "This presumption may be superseded by a contract, express or implied, limiting the employer's right to discharge the employee." (Foley, supra, 47 Cal.3d at p. 665.) We need not rely on any such presumption in this case, however, as it is undisputed that Han's offer letter stated: "Your employment is at-will and [Carta] can terminate the employment relationship at any time." Han testified at trial that he understood that his employment could be terminated at will at the time he accepted the position. Further supporting the at-will nature of Han's employment, and consequently Carta's ability to terminate Han's employment without cause, the at-will provision in the offer letter provided for a severance payment "[i]n the event of such termination without cause within the first twelve (12) months of your employment." In other words, the letter anticipated the possibility that Han could be terminated in the first year of his employment without cause.
Han argues that "one could have a written agreement providing that the employee is at will and at the same time have an enforceable oral agreement that the right to discharge at will is limited for a specific period of time or until a specific event may occur." He cites Pugh v. See's Candies, Inc. (1981) 116 Cal.App.3d 311, 324, in which the court stated: "The presumption that an employment contract is intended to be terminable at will is subject, like any presumption, to contrary evidence. This may take the form of an agreement, express or implied, that the relationship will continue for some fixed period of time." But in Pugh, the discussion was made in the context of the at-will presumption; it did not consider an express at-will provision in the employment agreement. (See Halvorsen, supra, 65 Cal.App.4th at p. 1388 ["the factors cited in Pugh have no relevance when there is an express contract of employment which states the term of employment."].) It is therefore inapposite. (People v. Hatt (2018) 20 Cal.App.5th 321, 326 ["A case is not authority for a proposition not considered."].) Further, the California Supreme Court disapproved of Pugh to the extent it "suggest[s] that the implied covenant may impose limits on an employer's termination rights beyond those either expressed or implied in fact in the employment contract itself." (Guz, supra, 24 Cal.4th at p. 351.)
Guz is instructive: "[W]hile the implied covenant requires mutual fairness in applying a contract's actual terms, it cannot substantively alter those terms. If an employment is at will, and thus allows either party to terminate for any or no reason, the implied covenant cannot decree otherwise.... [W]here an implied covenant claim alleges a breach of obligations beyond the agreement's actual terms, it is invalid." (Guz, supra, 24 Cal.4th at p. 327, italics omitted.)
At trial, the court gave jury instruction CACI No. 304, stating that "[c]ontracts may be partly written and partly oral." While this is true as a general matter, any argument that a representation by Ward created an additional term altering the at-will provision in the written agreement is unavailing.
" 'There cannot be a valid express contract and an implied contract, each embracing the same subject, but requiring different results.' [Citations.] The express term is controlling even if it is not contained in an integrated employment contract." (Camp v. Jeffer, Mangels, Butler &Marmaro (1995) 35 Cal.App.4th 620, 630; see also Guz, supra, 24 Cal.4th at p. 340, fn. 10 ["most cases applying California law . . . have held that an at-will provision in an express written agreement, signed by the employee, cannot be overcome by proof of an implied contrary understanding"].)
In Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 393, the plaintiff asserted that he had been induced to leave his long-standing, secure employment and relocate by false promises that his employment with the new employer would "continue indefinitely so long as he performed in a proper and competent manner, that he would not be demoted or discharged except for good cause, and that he would be given notice and a meaningful opportunity to respond to any unfavorable evaluations of his performance." The California Supreme Court noted that the plaintiff conceded in his deposition that no one at the new employer "specifically told him he would be employed there so long as his work was satisfactory or that he could be fired only for good cause," and that the letter with his terms of employment expressly and unambiguously stated that his employment was at will. (Id. at pp. 393-394.) The court concluded therefore that the plaintiff's "admission he signed [the] letter stating his employment was at will and terminable at any time as a matter of law defeat[ed] any contention that he reasonably understood [the new employer] to have promised him long-term employment." (Id. at p. 394.)
Based on these authorities, we determine that any prior representation on which Han relies to attempt to establish an implied agreement that would give him "time to demonstrate whether he could perform the job"-such as statements by Ward that led Han to believe he would be the senior operations executive for the "foreseeable future"- could not create an implied agreement at odds with the express at-will provision in the employment agreement to which Han subsequently agreed.
Han argues that he suffered detriment when he chose to work for Carta instead of Wal-Mart and that this constituted "good consideration" to support Carta's purported promise to employ him for the foreseeable future. The case of Sheppard v. Morgan Keegan &Co. (1990) 218 Cal.App.3d 61 (Sheppard), cited by Han in support of this contention, is distinguishable. There the plaintiff was fired before his first day of work. (Id. at p. 65.) The Sheppard court noted that "implicit within the implied covenant of good faith and fair dealing, is the understanding that an employer cannot expect a new employee to sever his former employment and move across the country only to be terminated before the ink dries on his new lease." (Id. at p. 67.) It therefore applied promissory estoppel to the employer's conduct. (Ibid.) In contrast to the plaintiff in Sheppard, Han actually worked at his new job, starting at Carta on December 3, 2018, and continuing until the end of February 2019. Further, while the plaintiff in Sheppard was paid no salary (Id. at p. 65), Han received approximately $1,000,000 in stock for his time at Carta.
There is no basis to apply promissory estoppel under the circumstances of this case. Han had two job opportunities; he chose one and commenced work. To hold that he could assert reliance on his acceptance of the job at Carta to transform an at-will contract into one for cause would mean that in all instances where a job applicant chooses to accept employment at one employer over another that would be the case. Such a conclusion does not find support in the law. The other California cases Han cites do not involve termination of employment under an agreement with an at-will clause and are likewise inapposite.
For these reasons, we conclude that the trial court erred in denying Carta's motion for nonsuit of the cause of action for breach of the covenant of good faith and fair dealing, and thereafter wrongly instructed the jury. As a result, we will reverse the judgment as to the ninth cause of action.
B. Jury Instruction for Fraudulent Concealment
In Han's cross-appeal, he argues that the trial court committed prejudicial error when it refused to give the requested instruction on concealment, which was supported by the pleadings and the evidence. Carta responds that the evidence did not support the instruction for concealment, which was based on the contention that Ward did not actually want to hire Han, as the evidence demonstrates that Han already knew that Ward did not want to hire him. Carta argues further that Han cannot show prejudice.
"[T]here is no rule of automatic reversal or 'inherent' prejudice applicable to any category of civil instructional error, whether of commission or omission. A judgment may not be reversed for instructional error in a civil case 'unless, after an examination of the entire cause, including the evidence, the court shall be of the opinion that the error complained of has resulted in a miscarriage of justice.'" (Cal. Const., art. VI, § 13.)" (Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 580.) "Generally, instructional error is prejudicial only if it is 'reasonably probable defendant would have obtained a more favorable result in its absence. [Citations.]' [Citation.]' "[P]robability" in this context does not mean more likely than not, but merely a reasonable chance, more than an abstract possibility.'" (Little v. Amber Hotel Co. (2011) 202 Cal.App.4th 280, 298.) "[W]hen deciding whether an error of instructional omission was prejudicial, the court must also evaluate (1) the state of the evidence, (2) the effect of other instructions, (3) the effect of counsel's arguments, and (4) any indications by the jury itself that it was misled." (Soule, at pp. 580-581, fn. omitted.)
At trial, Howard Hartenbaum, a venture capitalist who had worked with Han and had met with Ward between five and 10 times, testified that Ward stated that "he didn't want to hire Mr. Han, but his team would revolt against him if he didn't hire him, and now things weren't working out." Ward admitted at trial that he had hired Han because his team said they would revolt if he didn't, but he denied saying that he did not want to hire Han.
Based on this record, Han contends that although the court gave the jury instructions for intentional misrepresentation and false promise, the court should have given the instruction for concealment (CACI No. 1901) because it is materially different from the other instructions. Han asserts that, even though the jury found that the disclosures and promises made to Han were not false, that does not suggest or support a finding that Ward did not conceal facts that were material to Han." Han argues that "Ward's personal commitment to hiring Han was key to convincing Han to give up the offer by Walmart and to instead accept Carta's offer."
The record evidence does not support Han's contention that the alleged concealed fact was material and affected his decision to accept the job at Carta. A cause of action for fraudulent concealment includes an element that the plaintiff was unaware of a concealed material fact and would not have acted as he or she did if he or she had known of the concealed fact. (Graham v. Bank of America, N.A. (2014) 226 Cal.App.4th 594, 606.) This is reflected in CACI No. 1901, which includes elements stating that the plaintiff did not know of the concealed fact, and that had the omitted information been disclosed, the plaintiff reasonably would have behaved differently. (CACI No. 1901) Han testified at trial, however, that Ward "wasn't really in it through the first two meetings" and was being talked into the third meeting. This testimony was made in response to questions regarding an audiotape recording made by Han of a conversation with Nolan Church, the chief people officer at Carta, in which Han stated: "Because I knew. Like, I - my calculus on the side was, he's not going to be a good boss. . . .I can tell he's being talked into this one, but I'm good enough that it's not going to matter."
The audio recording was played to the jury, but the written transcript of the recording was not admitted to evidence.
Han contends that the phrase "this one" is ambiguous and could refer to the third interview, not to the decision to hire Han. We perceive no such ambiguity. Han's statement that he was "good enough that it's not going to matter" refers to his self-assessment that his superior skills and anticipated job performance would overcome Ward's apparent negative assessment of Han. The statement demonstrates that Han knew that Ward was unenthusiastic about Han as a candidate, but was persuaded to hire Han anyway. While he perceived that Ward would not be a "good boss" for these reasons, Han also believed that his job performance would render Ward's opinion irrelevant.
The other instructions given, and the arguments of Han's counsel at trial, also demonstrate that Han suffered no prejudice from the denial of his request for CACI No. 1901. The instructions for intentional misrepresentation and false promise required the jury to decide if Ward made representations to Han at the third interview that were not true. This included statements from Ward that Han was "the guy" and would be working for Carta "for the foreseeable future." The jury concluded Ward made no misrepresentations or false promises. The nature of these purported misrepresentations was such that arguments regarding those misrepresentations would be essentially the same as those made in connection with a concealment theory under which Ward did not in fact want to hire Han.
Moreover, the lack of an instruction on concealment did not prevent Han's counsel from making the argument that Ward did not want to hire Han. Han's attorney stated in his closing argument: "Those representations were false, because at the time . . . Mr. Ward made them, he did not want Mr. Han. He did not want to hire him. He wanted David Kim." The jury heard both evidence and argument regarding whether Ward actually wanted to hire Han and nonetheless failed to return a verdict in his favor. There is no indication the jury was misled.
On this record, we conclude it is not reasonably probable Han would have obtained a more favorable result if the jury instruction regarding concealment (CACI No. 1901) were given and, therefore, Han experienced no prejudice from its omission.
III. Disposition
The judgment is reversed as to the ninth cause of action for breach of the duty of good faith and fair dealing and is otherwise affirmed. Costs on appeal are awarded to Carta.
WE CONCUR: Bamattre-Manoukian, J. Danner, J.