Opinion
G039684.
6-30-2009
MARIA MAGANA, Plaintiff and Respondent, v. CHARLIES FOODS, INC., et al, Defendants and Appellants.
Allen Matkins Leck Gamble Mallory & Natsis, Jason A. Weiss, Charlene J. Wilson; Edward L. Smilow for Defendants and Appellants. Rastegar & Matern, Matthew J. Matern, Rania S. Habib, Paul J. Weiner; The Blanco Law Firm, Alejandro D. Blanco; and Norman Pine for Plaintiff and Respondent.
Not to be Published in Official Reports
I. INTRODUCTION
Maria Magana experienced sexual harassment in the course of her work as a driver of a leased catering truck for Charlies Foods from her supervisor, Jorge Puelma. After her "route" was terminated, she filed this action against Puelma and Charlies. The ensuing trial resulted in a judgment against Puelma and Charlies Foods for compensatory damages of $111,800, plus punitive damages of $250,000 against Puelma and $500,000 against Charlies.
Consisting of $1,800 in economic loss, and another $110,000 in pain and suffering.
Charlies and Puelma appealed from the judgment. However, during the pendency of the appeal, Puelma filed a request for dismissal of his appeal with prejudice (as to his appeal only), which we now grant. Puelmas appeal is hereby dismissed with prejudice. We therefore consider only matters raised by Charlies.
Most of Charlies challenges to the judgment are unavailing, notably the theory that Magana was really a "customer" of Charlies and thus not within the purview of the protection of the anti-sexual harassment provisions of the Fair Employment and Housing Act (FEHA) in the first place. In substance, as we explain below, Maganas activities were so tightly controlled by Charlies that she was an employee. We will therefore affirm the compensatory damage judgment against Charlies.
There is, however, a problem with the punitive damage judgment against Charlies. The evidence which Magana put on concerning Charlies net worth — literally, nothing more than some checking account records showing large amounts of money going into and out of Charlies business checking account — was insufficient to establish Charlies net worth. (Robert L. Cloud & Associates, Inc. v. Mikesell (1999) 69 Cal.App.4th 1141, 1152; Kenly v. Ukegawa (1993) 16 Cal.App.4th 49, 56-57; Lara v. Cadag (1993) 13 Cal.App.4th 1061, 1064.) Ironically, the only substantial evidence of Charlies net worth was brought out by Charlies own counsel, but that evidence — showing net worth of $600,000 — is patently disproportionate to the jurys punitive damage award against Charlies of $500,000. Eighty-three percent of Charlies net worth is plainly beyond the bounds allowable by our states punitive damages law.
We have given some considerable thought, as adumbrated at oral argument, to the issue of whether, given the problem concerning Charlies net worth, to remand this case for a limited retrial, or simply modify the punitive damage award ourselves. A retrial would necessarily entail some wasteful duplication of effort and we are mindful of Justice Johnsons observation in Douglas v. Ostermeier (1991) 1 Cal.App.4th 729, 747, that a limited retrial for purposes of properly fixing punitive damages when evidence of net worth had been omitted the first time is highly inefficient: "It would be the rare plaintiff who would consent to a stipulation the defendant acted fraudulently, with malice or oppression and forego the opportunity to have the jury hear the precise factual details of the defendants reprehensible conduct. The practical effect of a plaintiff wanting to reestablish entitlement to punitive damages will be lengthy retrials, possibly consuming as many court days as it took to try the matter originally."
Justice Bedsworth asked Maganas counsel whether, if the evidence of net worth could not support the punitive damage award, she would prefer the matter to be remanded for a limited retrial or whether this court should simply reduce the award. Maganas counsel said he preferred the matter be remanded for a limited retrial.
Under the particular circumstances of this case, however, a limited retrial is warranted. It is for a trier of fact in the first instance to fix the punitive damages against Charlies.
In the limited retrial, the trial court is to operate under these guidelines:
(1) The amount of compensatory damages has now been established: $ 111,800 ($1,800 in economic damages and $110,000 in emotional distress damages).
(2) Because Magana had the burden of proof as to Charlies net worth, the $600,000 net worth figure is also fixed for retrial.
(3) The trier of fact on retrial will simply reassess the appropriate amount of punitive damages to be assessed against Charlies in light of Charlies established net worth of $600,000.
II. FACTS
A. Maganas Relationship with Charlies
Maria Magana went to work as a mobile catering truck operator for Charlies in the fall of 2004. Charlies provides secured, electricity-ready parking lots for both independently owned catering truck operators, and also those to whom it leases trucks and routes. In addition, Charlies maintains a food commissary from which independently-owned truck operators, using the lot, have the option to purchase their supplies. Charlies owns roughly 13 trucks which it leases to operators via a written lease agreement purporting to make an independent business operator of the lessee operator. After an initial inquiry, Magana was offered a truck and its accompanying route by one Jorge Puelma.
Puelma, along with Jack Sarkissian, served as one of Charlies only two supervisors. Puelma and Sarkissian were described as the "head and heart" of the firm and there is no dispute that the two "ran the company" when Charlie Akoboff (the Charlie in Charlies Foods) took a leave of absence, which coincided with Maganas time of employment.
Lessee operators are obligated to sign a written lease agreement and all independent drivers are required to have a sellers permit. Magana signed such an agreement.
However, the parts of the written agreement that would normally be the subject of negotiation between the company and a bona fide independent lessee route operator, namely the per diem rental rate for the truck, the amount of insurance required, and the cash bond to be posted by the lessee driver, were all left conspicuously blank. Additionally, Magana was never required to get a sellers permit.
Charlies (predominantly through Puelma) controlled all policies and decisions regarding Maganas route. Magana was not allowed to either exclude or add stops to the route or take the truck for personal use. In servicing the route, Magana was obliged to purchase all of her supplies except two (Mexican bread and donuts) from Charlies food commissary.
Charlies determined when Magana was to start and end her route, dictated where and when she was to make her stops and the prices for which the food was to be sold. Magana was further instructed (per a list of names provided by Charlies) to give certain customers credit and allow them to pay their bills on a weekly basis. Once Magana returned to Charlies lot, all sales proceeds of the route were turned over to Charlies, unlike other drivers, who did not report their sales. Magana instead received a guaranteed daily sum of $90 when she began working for Charlies.
B. Sexual Harassment by
Supervisor Puelma
Magana testified that, shortly after starting her route, she began to feel sexually harassed by Puelma. This harassment took the form of inappropriate personal questions, which escalated to innuendos that Puelma could and would like to start a sexual relationship with Magana, and, ultimately, two occasions when Puelma came up from behind and grabbed Maganas breasts. Afraid of losing her job, Magana chose to speak to one of her customers (and a close friend of Puelmas) Jose Gonzalez about Puelmas conduct.
Gonzalez reported this conversation to Puelma, making him aware of Maganas discomfort. Acting on advice from Gonzalez, Magana then attempted to speak to Sarkissian about Puelma also, but he brushed her off. Although Sarkissian was the only other supervisor to whom Magana could report Puelma without going directly to Akoboff, and would have been the supervisor charged with investigating any complaints anyone connected with Charlies may have against Puelma, he walked away, saying merely that he already knew about Puelmas tendencies. Following the lack of attention her complaint registered with Sarkissian, Magana again spoke to Gonzalez about a month later. Magana was fired within the space of two weeks.
C. Testimony Regarding
Harassment of Others
At trial, Akoboff testified that Charlies did not tolerate sexual harassment of its employees. He and Puelma also testified they personally did not ever engage in sexual harassment.
Magana presented several witnesses who had worked for Charlies and had a somewhat different view.
In particular, a woman named Maria testified Puelma had encouraged her to use sex as a method of garnering business, and had heard Puelma encourage other female workers to "dress sexy" for the same purpose. More specifically, when Akoboff expressed an interest in taking Maria to Las Vegas with him, Puelma encouraged her to go, telling her, "In order to get something, you have to give something out," which Maria was meant to understand with a sexual undertone. Despite Marias disinclination to go to Las Vegas, while in Akoboffs office, she was asked to remove her clothing, whereupon Akoboff touched her breasts, commenting, "Oh, these are real."
Three other women testified to other instances of harassment, including Puelma ogling women and using offensive language in conjunction with sexually loaded statements such as "What a rack, what boobs, such big boobs."
III. DISCUSSION
A. The Status of Magana
Charlies relies primarily on the lease agreement to argue that Magana was an independent business operator and a "customer" rather than an employee.
No. First, those items in the lease agreement that might indeed indicate a legal relationship between independent contractor and "customer," like the lease amount and the insurance, were conspicuously blank.
Given the all-encompassing nature of Charlies control over Maganas route, her food, her sales, her truck and her cooks, any reasonable jury could easily surmise that the omissions in the lease were nothing but intentional, and the lease was a sham.
But even if the lease agreement had not been a sham (despite leaving key terms blank), the facts established at trial concerning the degree of commercial control Charlies exercised over Magana readily support the finding that she was an employee. Charlies made all the relevant decisions regarding Maganas route, from what she sold to where she sold it, when she sold it, and at what price. Magana was bound to purchase from Charlies food commissary and turned over all profits to Charlies at the end of the day. Even the cooks working on Maganas leased truck had to be paid an amount which Charlies set. Such a smothering degree of control could not be more divergent from the independence that the independent drivers — true customers — enjoyed. Those drivers chose where and what to purchase and set their own prices, and, most significantly, the proceeds of sale at the end of the day remained in their hands, as would be expected of an independent business owner.
Ironically, the high level of control over Magana by Charlies is the strongest reason not to classify her as a true "independent contractor" under the sexual harassment statute. Government Code section 12940, subdivision (j)(5) defines independent contractor for purposes of the harassment law as: "`a person providing services pursuant to a contract means a person who meets all of the following criteria: [¶] (A) The person has the right to control the performance of the contract for services and discretion as to the manner of performance. [¶] (B) The person is customarily engaged in an independently established business. [¶] (C) The person has control over the time and place the work is performed, supplies the tools and instruments used in the work, and performs work that requires a particular skill not ordinarily used in the course of the employers work."
The interesting aspect of this definition is that in every particular — right to control, independently established business, control over time and ownership of the tools — it shows Magana to be closer to being an employee than a true independent contractor.
Besides relying on the lease itself, Charlies also makes an argument based on the ostensible flow of money. Relying on an excerpt from footnote 56 in Alch v. Superior Court (2004) 122 Cal.App.4th 339, 393, it asserts that the "flow of money," ostensibly from Magana to Charlies, requires the conclusion that she is a customer, not an employee.
The theory fails for two reasons. First, the Alch footnote does not say that simple monetary hydraulics is dispositive of employee status. Here is the entirety of Alch footnote 56: "Another way of illustrating the difference between employment discrimination claims not covered by the Act and claims that are covered by the Act is to follow the flow of money. In an employer-employee or any comparable relationship, the money flows from the employer or comparable entity to the employee or independent contractor. In the relationship between a business establishment and its `clients, patrons or customers, the money flows in the opposite direction, from the client to the business establishment. The latter is the case here. The writers pay the talent agencies, not the reverse." (Italics added.)
That is, in context, Alch merely stands for the common sense proposition that a genuine flow of money may indeed reveal who is an employee and who is not. The flow of money here, though, was Maganas $90 remittance from the money she — like any employee of a shopkeeper — had to turn in at the end of the day. Unlike the other drivers who actually kept the profits of their daily sales and paid Charlies whatever fees they owed for food or use of Charlies lot, Magana purchased all her food from Charlies on credit and then returned each days takings to Charlies.
There is also the linguistic fit between Maganas situation and the regulatory definition of an employee. Under title 2 of the California Code of Regulations, section 7286.5 (b), an employee is: "Any individual under the direction and control of an employer under any appointment or contract of hire or apprenticeship, express or implied, oral or written." Given the degree of control Charlies exercised over Magana and the performance of her job after she signed the written lease agreement for the truck and route she operated, it is clear that Magana was such an individual. Maganas principle responsibilities consisted of performing the duties as they were laid out to her for the route she operated, nothing more.
See footnote 3 above. Theres a saying in tax law, "if its too good to be true, it aint true." Charlies attempted to craft an arrangement that, ironically, gave Magana less control over her work than an independent contractor would have, and yet have her still not be an employee. Thats the equivalent of tax laws "its too good to be true."
B. Admissibility of Evidence of
Prior Sexual Harassment of Others
Magana called both Akoboff and Puelma as hostile witnesses in her case in chief. Each was asked, with no objection, a question that elicited whether he had ever sexually harassed anyone at Charlies. Each answered no. However, there was an Evidence Code section 352 objection as to whether Akoboff might have witnessed or engaged in sexual harassment. After the trial court overruled the objection, Akoboff was asked about allegations that a former driver named Maria had been asked to take her shirt and bra off in front of him. Later, the witness Maria, as well as women named Sofia, Lourdes and Anna, testified to various "offensive" remarks by Puelma or Akoboff. To be sure, the defense presented even more witnesses to the effect that neither man ever made sexually inappropriate remarks or acted inappropriately, but the jury obviously believed the rebuttal witnesses presented by Magana. On appeal Charlies now claims that the testimony of the rebuttal witnesses was so unduly prejudicial that it was an abuse of discretion to admit it under Evidence Code section 352.
Puelma was asked by Maganas trial counsel: "Q. Did you — you would not tolerate sexual harassing behavior if its done around you, true? A. Thats correct."
Akoboff was asked by Maganas trial counsel: "What Im getting at is, do you have a policy — well, is your sexual harassment policy a zero tolerance policy? A. They know the kind of person I am. They know I wouldnt tolerate it."
Lets confront the core of Charlies argument. Essentially, the company asserts it was unfair to pillory it for unrelated (that is, unrelated to Maganas case) acts of sexual harassment because Akoboff and Puelma were "forced" to take the stand to head off an inevitable attack focusing on the companys internal policies concerning sexual harassment. (Cf. Regents of University of California v. Superior Court (1995) 33 Cal.App.4th 1710, 1714, fn. 1 [hostile workplace claim could not be substantiated by other than direct victim of harassment].)
No. The flaw in the logic here is that Akoboff and Puelma had to testify that they had not condoned sexual harassment in the past. That is, it was a dilemma of their own making. The case might have been different if Akoboff and Puelma had testified they had engaged in sexual harassment in the past, just not in regard to, say, Magana. That is, they made the tactical decision to hope that the jury believed them when they disavowed any past instances of harassment; the ensuing impeachment was simply the rough with the smooth.
In the present case, the impeachment testimony was clearly relevant to rebut Akoboffs and Puelmas denials of sexual harassment. As the trial court said, evidence of credibility is "paramount" in "he said she said" cases. Also, the testimony went directly to whether the company had a real anti-sexual harassment policy. Under such circumstances, the trial judge did not act unreasonably in allowing a number of witnesses to rebut Akoboffs and Puelmas attestations of a sexual harassment-free workplace.
There is a fallback argument that the trial court erred in not giving limiting instructions in regard to the rebuttal witnesses. But that argument was effectively waived at trial because the single instruction submitted on the defendants behalf only referred, in a euphemism of almost Victorian proportions, to "certain evidence," without ever clarifying what precisely that "certain evidence" was. Given the open-ended vagueness of the proposed limiting instruction, it was properly rejected. (See Harris v. Oaks Shopping Center (1999) 70 Cal.App.4th 206, 209 ["Irrelevant, confusing, incomplete or misleading instructions need not be given."].)
C. Substantial Evidence Issue
Charlies maintains that the jurys verdict finding Charlies liable for hostile work environment, failure to prevent harassment and retaliation is not supported by substantial evidence. The basic focus is on the retaliation claim; Charlies makes no attempt to argue that Puelmas grabbing of Maganas breasts and other comments taken as a whole, did not constitute sexual harassment.
Retaliation, however, was readily established by this:
(a) Maganas testimony that she confided in Jose Gonzalez about Puelmas sexual misconduct combined with Gonzalez testimony that he tried to tell the other supervisor, Jack Sarkissian, about Puelma, but Sarkissian walked away, acknowledging that he already knew about Puelmas untoward tendencies; combined with
(b) testimony of several witnesses that after the complaint, Maganas route was changed to be less lucrative, and Puelma would show up at stops on her route and tell customers that certain food was free.
In short, retaliation followed complaint with transparent speed.
The idea that Charlies had a legitimate business reason for terminating Maganas employment, namely that the route was losing money, was simply a factual issue to be argued to the jury.
D. The Punitive Damage Issues
1. Passion-Prejudice?
Charlies maintains that the punitive damages award against it was the product of passion or prejudice based on statements made by Maganas counsel during closing arguments that suggested Charlies was a hotbed of sexual harassment. (To wit: "Sexual harassment is not only tolerated, its encouraged, its nurtured, its incited by the owner,""sexual harassment is company policy at Charlies Foods" and there was "rampant sexual harassment" at Charlies.)
The issue is waived because counsel did not object to these statements at trial.
2. General Principles Governing
Punitive Damages
Before threading through the punitive damages issues in this case, it is useful to review two basic sets of distinctions that govern our review.
First, federal constitutional law puts limits on punitive damages, typically as they are assessed in relation to compensatory damages. (See generally Textron Financial Corp. v. National Union Fire Ins. Co. (2004) 118 Cal.App.4th 1061 [case was remanded from United States Supreme Court with instructions to reduce punitive damages to a constitutional level]; e.g., Johnson v. Ford Motor Co. (2005) 135 Cal.App.4th 137, 150 [noting original award was too high in relation to the compensatory damages].) The federal limit is the familiar restraint on "multipliers" of compensatory damages. (See generally State Farm Mut. Auto. Ins. Co. v. Campbell (2003) 538 U.S. 408, 425 ["Single-digit multipliers are more likely to comport with due process. . . ."].)
However, state statutory law, as construed by our state Supreme Court, imposes its own requirement that the plaintiff carry the burden of presenting sufficient evidence of the defendants "financial condition." (See generally Adams v. Murakami (1991) 54 Cal.3d 105.) The idea is that the "`function of punitive damages is not served by an award which, in light of defendants wealth and the gravity of the particular act, exceeds the level necessary to properly punish and deter." (Id. at p. 110, quoting Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 928.) One should note that in Adams our high court expressly declined to say that the requirement of evidence of a defendants financial condition is constitutionally imposed. Rather, the court said it is simply a matter of state law. (See id. at p. 118 ["We need not decide, and do not decide, whether evidence of a defendants financial condition is a constitutional prerequisite. . . ."].)
3. Applied to Charlies
Maganas evidence of Charlies financial condition was skimpy, to say the least. She called only one witness, Anna Poladian, who was Charlies operations manager. Most of Poladians testimony consisted of establishing that Charlies owns a number of trucks, ranging in value from $15,000 to $45,000, but did not establish Charlies equity in them. (See Baxter v. Peterson (2007) 150 Cal.App.4th 673, 681 ["There is no evidence regarding whether or to what extent the house is mortgaged or otherwise encumbered, or to what extent, if any, the rental income generates net profit."].) Maganas counsel also tried to get Poladian to admit that Charlies has goodwill as an ongoing business, but in vain.
The main import of Poladians testimony was to authenticate a series of exhibits, which literally consist of nothing more than a voluminous series of checking account entries. Magana offered no testimony from a forensic accountant or expert to give any meaningful income figure. Poladian did testify that Charlies made a profit of $480,000 in 2005, but sustained a loss of about $204,000 in 2006.
Magana argues that this evidence was sufficient because it managed to establish a discrepancy between Charlies reported income on its tax returns, particularly in 2005, because the banking statements reflected monthly deposits of about $750,000 to $1 million (about $11 million in deposits), even though Charlies reported gross receipts or sales of just over $7 million. Therefore, says Magana, the jury could reasonably infer that Charlies is skimming $4 million (or at least skimmed $4 million in 2005) in "pure profit."
The argument fails for this reason. Cash flow cannot be automatically equated with gross receipts or sales. Not everything that goes into a checking account is necessarily gross receipts or sales. Everyone knows that if you are reimbursed with a check for the lunch you put on your credit card the amount of the check does not have to be reported on your tax return. Also, when an owner of a company puts money into a checking account to keep a business running (say, to make payroll or pay vendors), that money doesnt count as gross receipts or sales either. Under Adams, Magana had the burden of proof of showing Charlies financial condition, so it was it was her burden to present evidence that would allow the trier of fact to conclude that all the money that went into the checking account was gross receipts or sales. Absent that crucial link, the evidence was meaningless.
Moreover, even if Charlies were not reporting what it should to the IRS, the fact remains that simple cash flow absent evidence of liabilities is not sufficient to establish net worth. (Baxter v. Peterson, supra, 150 Cal.App.4th at p. 681 ["In sum, although the record shows that Peterson owns substantial assets, it is silent with respect to her liabilities. The record is thus insufficient for a reviewing court to evaluate Petersons ability to pay $75,000 in punitive damages."]; Kenly v. Ukegawa, supra, 16 Cal.App.4th at pp. 56-57 [evidence of the profits wrongfully gained by the defendant is inadequate as it gives only the assets without the liabilities]; Lara v. Cadag, supra, 13 Cal.App.4th at p. 1063 ["We do not have a clue about his assets or liabilities . . . ."].)
If all we had in this record was the evidence that Magana proffered as to Charlies financial condition, we would have to reverse and there would be no possibility of punitive damages on retrial, which is what happened in Baxter. (See Baxter v. Peterson, supra, 150 Cal.App.4th at p. 679 [subheading entitled: The Punitive Damages Award Is Not Supported by Substantial Evidence and May Not Be Retried].)
But sometimes litigants get a break. After Magana finished examining Poladian, Charlies counsel asked her a few questions, one of which established that Charlies had a net worth of approximately $600,000. Of course, given what Adams said about the state law purpose of punitive damages being to punish and deter, not destroy, there is no way the existing award against Charlies — 83 percent of its net worth — can be sustained in this appeal.
We are not concerned in this sexual harassment case with the relatively exotic question of whether punitive damages may be assessed against the ill-gotten profits of a fraud. (Cf. Cummings Medical Corp. v. Occupational Medical Corp. (1992) 10 Cal.App.4th 1291, 1294 [basing punitive damages on the total profit in the fraudulent transaction].)
Which brings up the final problem we face: To remand, or not to remand, for reconsideration of punitive damages according to the $600,000 net worth figure.
There is precedent for this court simply to reduce the award on our own, effectively modifying the judgment at the appellate level based on its non-conformity with state law. (E.g., Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1256 ["When required by justice, a reviewing court should modify a punitive damage award to ensure that the public policies behind its making are served."].)
But there is also precedent contemplating retrial. (See Kenly v. Ukegawa, supra, 16 Cal.App.4th at pp. 58-59 [while reversing one party of all punitive damages, sending case back for retrial as to compensatory and punitive damages of two other parties].) In this case, we see no reason the trier of fact should not assess the appropriate punitive damages in the first instance. (See Adams, supra, 54 Cal.3d at p. 127 (dis. opn. of Mosk, J.) ["punitive damages issues must be decided in the first instance by the jury"].)
IV. DISPOSITIONS
The judgment is affirmed insofar as it provides that plaintiff Maria Magana shall recover $118,000 against Charlies Foods.
The judgment is reversed insofar as it provides that plaintiff Magana shall recover $500,000 in punitive damages against Charlies Foods, and the case is remanded for the trier of fact to fix appropriate punitive damages in light of the established fact that Charlies Foods net worth is $600,000.
Retrial shall be in conformity with the views expressed in this opinion. In the interest of justice, each party will bear its own costs on appeal.
WE CONCUR:
BEDSWORTH, J.
ARONSON, J.