FLEMING v. IMPERIAL CORPORATION OF AMERICA (1995)

The lawsuit filed by Terrence L. Fleming (Fleming) alleged claims for wrongful termination and defamation against three defendants:  Imperial Savings Association (ISA), Imperial Corporation of America (ICA) and Demetri Brizolis (Brizolis).

While the lawsuit was pending, the Resolution Trust Corporation (RTC) was appointed receiver for ISA.   RTC's motion to dismiss Fleming's action against RTC was denied.   The matter proceeded to trial before a jury, which awarded Fleming (1) compensatory damages for wrongful termination, (2) general damages for defamation, and (3) punitive damages for defamation.

In part I of this opinion we evaluate RTC's claim that Fleming's lawsuit should have been dismissed for failure to comply with the claims procedure.   In part II we evaluate the separate appeal brought by ICA and Brizolis (collectively “appellants”), which asserts that the award of general and punitive damages in connection with the defamation count must be reversed.

I

RTC'S APPEAL*

II

THE ICA/BRIZOLIS APPEALA. Factual Background

We recite the facts in the light most favorable to Fleming.

 The Fleming/Brizolis Conflict

Fleming was hired by ISA as a senior vice president in November 1987.   His principal role was to oversee the development of a “conduit.” ⁶  His immediate supervisor was Brizolis.

Friction between Brizolis and Fleming developed almost immediately.   For example, in the first few months of Fleming's tenure, Mr. Thygerson (President of ISA and Brizolis' boss) asked Fleming how things were going in the department.   Fleming indicated there were some problems.⁷  When Brizolis heard of this meeting, he met with Fleming and told him that if he ever had another conversation with Thygerson without Brizolis being present, Brizolis would terminate Fleming.

Another source of friction involved a subordinate of Fleming, Ms. Ehrenreich.   Ehrenreich was a close social friend of Brizolis and his wife.   Ehrenreich had coveted the position which Fleming had filled and was angry at being passed over for the job.   Ehrenreich had difficulty working under Fleming, often bypassing him to report directly to Brizolis.   Brizolis would side with his friend without listening to Fleming's side of the conflict.   In April 1988 Fleming, at Brizolis' direction, prepared Ehrenreich's performance review.   When Brizolis saw Fleming's appraisal of Ehrenreich, he blanched, told Fleming it was unacceptable, and ordered him to change it to a more favorable review.   Fleming told Brizolis that his interference in the appraisal process was inappropriate.   Shortly after this confrontation over Ehrenreich's review, Brizolis prepared an unfavorable performance review of Fleming and extended Fleming's probationary period an additional 90 days.⁸

 Brizolis Terminates and Defames Fleming

In late November 1988, Fleming went to New York to close a loan.   He also arranged several business meetings in New York relating to development of the conduit.   While in New York, he learned from Mr. Cunningham (an ISA attorney who had been working on the conduit project) that new regulations were going into effect which would substantially hinder development of the conduit project.

Fleming met with a Mr. Walker in New York on December 2, and they discussed Fleming's concerns over the new regulations.   During their meeting, Walker suggested that a possible solution to the regulatory problems was to involve Merrill Lynch in the conduit.   Thinking the idea might have merit, Fleming called Mr. Annen and Mr. Thomas (ISA personnel in San Diego who were working on the project) and informed them of the possible solution.   Fleming asked Thomas to begin work on models and documentation to test the economic feasibility of the Merrill Lynch idea.   However, when Fleming called Mr. Annen later that day, Fleming learned that Brizolis was furious and had accused Fleming of trying to sell the conduit to Merrill Lynch.

Brizolis met that Friday with Donna Davies (personnel director for ICA) and told her that Fleming was trying to sell the conduit behind Brizolis' back.   Davies understood this would be unethical and potentially a form of “self-dealing.”   When Brizolis stated he wanted to fire Fleming, Davies arranged to meet with Brizolis and Thygerson.   At that meeting, Brizolis repeated the accusation and Thygerson asked if this was criminal behavior by Fleming.

Fleming tried to call Brizolis but was told he was unavailable, and Fleming decided to fly back from New York immediately.   On arriving, he met with Brizolis, who fired him for going behind his back to try to sell the conduit.   Fleming denied the allegation and told Brizolis to check his information.

At trial Fleming testified the accusation was false.   He explained it would have been impossible for anyone to try to sell the conduit because there was nothing to sell, and he thought Brizolis would have known enough about the conduit to have realized it could not be sold.   Indeed, when Brizolis asked Annen and Cunningham that Friday whether they knew Fleming was trying to sell the conduit, both had told Brizolis the notion was absurd.

A second false accusation was made several days after Fleming had been terminated.   At that time Brizolis told Davies that Fleming had been caught smoking marijuana in New York.   Fleming testified this accusation was false.

B. Trial and Judgment

The matter was tried before a jury in a bifurcated proceeding, with the issues of liability tried prior to the punitive damage phase.   The jury concluded that ICA and ISA had wrongfully terminated Fleming and awarded damages of $137,830.⁹  The jury also concluded that Brizolis had defamed Fleming with statements which were per se defamatory, and it awarded noneconomic damages of $100,000.   The jury further concluded the defamatory statement was made with malice, oppression or fraud.   Based on the latter finding, evidence in the punitive damage phase was heard and the jury awarded $117,000 against appellants for punitive damages.   Appellants moved for a new trial based on, among other things, the claim of excessiveness of punitive damages.   The court refused to entertain the new trial motion.

Appellants raise several claims on appeal.   In the unpublished portion of part II, we evaluate appellants' contentions (1) that there was instructional error as to the defamation count, and (2) that the trial court abused its discretion in refusing to permit appellants to depose an out-of-state witness in midtrial.   We will conclude there is no basis for reversing the judgment insofar as it awarded Fleming compensatory damages for defamation.

In the published portion of part II, however, we conclude that the trial court erred in refusing to entertain the new trial motion, and that this error denied appellants their due process right to post-trial review of the punitive damage award.   Having determined the punitive damage award must be reversed, we now must decide the difficult issue of the appropriate disposition.   We also conclude that because the statute mandates that punitive damages be assessed by the same jury that determines the defendant's substantive liability for the underlying tort, we cannot sever the punitive damage aspect for retrial, but instead must afford Fleming the option of choosing either to accept affirmance of the judgment subject to remittitur of the punitive damage award or to elect a retrial of all aspects of the defamation claim.

C.–E.**

F. The Punitive Damage Award Must Be Reversed Because the Trial Court Denied Appellants' Due Process Protections Against Excessive Punitive Damages When It Erroneously Refused to Hear Their New Trial Motion

 Appellants' final complaint—that the trial court erred in refusing to entertain their new trial motion—is meritorious.   In March 1993 appellants moved for a new trial, arguing the punitive damage award was excessive.   However, the court believed it lacked jurisdiction to hear the motion due to Brizolis' prior action of filing a notice of appeal.¹⁴  For that reason the court refused to hear the new trial motion.

On appeal, appellants point out, and Fleming effectively concedes, that the trial court did have jurisdiction to hear the new trial motion despite the notice of appeal.  (Neff v. Ernst (1957) 48 Cal.2d 628, 634, 311 P.2d 849;  Foggy v. Ralph F. Clark & Associates, Inc. (1987) 192 Cal.App.3d 1204, 1210, 238 Cal.Rptr. 130.)   Accordingly, the court erred in refusing to hear the motion for lack of jurisdiction.¹⁵

We must assess the effect of the trial court's error.   In a series of recent cases, the United States Supreme Court has ruled that punitive damage awards are permissible when meaningful post-trial review is afforded as a protection against excessive awards.   In Pacific Mutual Life Insurance Co. v. Haslip (1991) 499 U.S. 1, 111 S.Ct. 1032, 113 L.Ed.2d 1 (hereafter Haslip ), and again in TXO Production Corp. v. Alliance Resources Corp. (1993) 509 U.S. 443, 113 S.Ct. 2711, 125 L.Ed.2d 366, the Supreme Court upheld punitive damage awards against due process challenges, because the court concluded the available procedural protections (including post-trial review for excessiveness by both the trial judge and the appellate court) provided a meaningful and an adequate restraint on excessive awards.  (Haslip, supra, 499 U.S. at pp. 20–23, 111 S.Ct. at pp. 1044–1046;  TXO Production Corp., supra, 509 U.S. at pp. –––– – ––––, 113 S.Ct. at pp. 2723–2724.)

However, the Supreme Court recently concluded that when the system denies the defendant meaningful post-trial review of an allegedly excessive award, the Due Process Clause is offended and the resulting punitive damage award is constitutionally infirm.   In Honda Motor Co., Ltd. v. Oberg (1994) 512 U.S. 415, 114 S.Ct. 2331, 129 L.Ed.2d 336 (hereafter Oberg ), the court summarized the issue before it as follows:

“․ [W]hat procedures are necessary to ensure that punitive damages are not imposed in an arbitrary manner[?]  More specifically, the question is whether the Due Process Clause requires judicial review of the amount of punitive damages.”  (––– U.S. at p. ––––, 114 S.Ct. at p. 2335.)

In Oberg the Oregon courts were barred from post-trial review of whether an award was excessive because the Oregon Constitution prohibited re-examination of any factual matter decided by a jury “unless the court can affirmatively say there is no evidence to support the verdict.”  (Oberg, supra, 512 U.S. at p. ––––, fn. 5, 114 S.Ct. at p. 2338, fn. 5.)   The Supreme Court concluded that this provision deprived the defendant of the common law right of post-trial review of whether the amount of the award was excessive, and that such post-trial review of an “excessiveness” claim was an essential component of due process protections against arbitrary deprivation of property.   (Id. at pp. –––– – ––––, 114 S.Ct. at pp. 2335–2341.)   Because this procedural protection was denied the defendant, the court concluded the defendant had been denied due process and reversed the judgment.  (Id. at p. ––––, 114 S.Ct. at p. 2342.)

Here, appellants sought post-trial review in the trial court of their claim that the amount of the award was excessive.   The trial court declined to rule on the motion, thereby depriving appellants of an indispensable level of review.   Fleming argues, however, that Oberg does not require trial court review but instead requires only some form of judicial review, and that appellate review would suffice.   However, Oberg evaluated the requisite level of procedural due process protections by examining the protections afforded by common law procedures.  Oberg specifically noted that when the Haslip court upheld the sufficiency of the procedural protections against a due process challenge, “the [Haslip ] Court stressed the availability of both ‘meaningful and adequate review by the trial court’ and subsequent appellate review.  [Haslip, supra,] 499 U.S. at p. 20, 111 S.Ct. at p. 1044.”  (Oberg, supra, 512 U.S. at p. ––––, 114 S.Ct. at p. 2335, italics added.)   Thus, we reject Fleming's characterization of Oberg as permitting due process to be satisfied by de novo appellate review.

Moreover, Fleming's argument that Oberg is satisfied because this court may conduct de novo review of the amount of the award ignores long-standing California strictures against review of a claim of excessiveness not previously evaluated by the trial court.  (See, e.g., Schroeder v. Auto Driveaway Co. (1974) 11 Cal.3d 908, 918–919, 114 Cal.Rptr. 622, 523 P.2d 662 [appellate court may not review claim of excessiveness raised for the first time on appeal].)  Indeed, even absent this prohibition we are convinced our level of review would be too truncated to provide a sufficient remedy for the harm from the trial court's refusal to hear the motion.   Our review is circumscribed, in that we examine only whether a verdict is supported by substantial evidence.   The trial court, however, is entitled to weigh the evidence and resolve issues of credibility, and is in a much better position to decide whether the jury was influenced by “passion or prejudice” (id. at p. 919, 114 Cal.Rptr. 622, 523 P.2d 662);  hence, it may grant a new trial based on factors which we may not consider.   For this reason we do not believe our review, standing alone, provides the “meaningful and adequate review” (Haslip, supra, 499 U.S. at p. 20, 111 S.Ct. at p. 1044) envisioned by Oberg as providing due process protection against an excessive award.

We therefore conclude the trial court erred in refusing to entertain the motion for a new trial and this error denied appellants due process, requiring reversal of the punitive damage award.

G. Because Punitive Damages Must Be Tried to the Same Jury That Determined Liability for the Tort, Brizolis Is Entitled to a New Trial on All Issues Relating to the Defamation Unless Fleming Consents to a Remittitur of the Punitive Damage Award

 Reversal of the punitive damage award requires us to evaluate the proper disposition.   If the only issue had been appellants' liability for compensatory damages for defamation, we would have affirmed the judgment.   We are presented with a different issue, however, since reversal of the punitive damage award requires retrial of that issue.¹⁶  Civil Code section 3295, subdivision (d), which governs trials involving claims for punitive damages, provides:

“The court shall, on application of any defendant, preclude the admission of evidence of that defendant's profits or financial condition until after the trier of fact returns a verdict for plaintiff awarding actual damages and finds that a defendant is guilty of malice, oppression, or fraud in accordance with Section 3294.   Evidence of profit and financial condition shall be admissible only as to the defendant or defendants found to be liable to the plaintiff and to be guilty of malice, oppression, or fraud.   Evidence of profit and financial condition shall be presented to the same trier of fact that found for the plaintiff and found one or more defendants guilty of malice, oppression, or fraud.”  (Italics added.)

Two courts have considered the impact of the highlighted “same trier of fact” clause, and have concluded the legislative intent was to require the same jury to decide both liability and punitive damage issues.  (Medo v. Superior Court (1988) 205 Cal.App.3d 64, 68, 251 Cal.Rptr. 924;  Abelson v. National Union Fire Ins. Co. (1994) 28 Cal.App.4th 776, 790, 35 Cal.Rptr.2d 13.)   Here the only method of presenting both issues to the same jury is to begin anew by retrying the tort claim as well as the punitive damage claim, thereby tendering the package of issues to the jury as required by Civil Code section 3295, subdivision (d).

However, we recognize one alternative which accommodates both appellants' rights (i.e., to be assured they will not be obligated to pay punitive damages until they are accorded the full panoply of due process protections) and Fleming's interests (i.e., to retain the fruits of his defamation judgment) without offending Civil Code section 3295, subdivision (d).   That alternative is the issuance of an order affirming the compensatory damage award if Fleming consents to an order modifying the judgment to delete the punitive damage award.  (Brooks v. Allard (1966) 244 Cal.App.2d 283, 291, 53 Cal.Rptr. 82.)   This resolution permits Fleming an election.   He may (by filing his consent to the remittitur) retain the untainted part of the judgment, or he may elect to undergo a retrial of the defamation claim if he desires to pursue both compensatory and punitive damages.

DISPOSITION

Insofar as the judgment awards relief against the Resolution Trust Corporation, as receiver for Imperial Savings Association, it is reversed, with directions to enter judgment in favor of the Resolution Trust Corporation.   Insofar as the judgment awarded Fleming damages for breach of his employment contract, it is affirmed.   Insofar as the judgment awarded Fleming compensatory and punitive damages on his defamation claim, it is reversed and remanded for a new trial unless Fleming agrees (pursuant to Cal. Rules of Court, rule 24(c)) to an order modifying the judgment to delete punitive damages therefrom.   If Fleming accepts the order modifying the judgment, the trial court shall take such further action consistent with an order modifying the judgment to delete punitive damages.   Each party shall bear his or its own costs on appeal.

FOOTNOTES

FOOTNOTE.   See footnote 1, ante.

6.   A “conduit” is the term used in the financial industry for a set of procedures and methodologies by which an institution can acquire mortgage loans originated by third party institutions, “securitize” those loans, and then sell them on the secondary markets.

7.   Fleming voiced his disagreement with Brizolis on a number of Brizolis' decisions to approve loans which Fleming viewed as being wrong for ISA.   Fleming also was concerned that Brizolis, by expressing interest in leasing space for his wife's business in one of the developer's projects while negotiating a loan on ISA's behalf for another of that developer's projects, created the appearance of a conflict of interest.   Fleming also was concerned about the difficulty in reaching Brizolis, who was frequently unavailable while supervising construction of his new house.

8.   In another confrontation later that year, Brizolis called Fleming and yelled at him for requiring Ehrenreich to come in for work on a day which Brizolis had previously permitted her to take off.   In that conversation Brizolis threatened to give Fleming another unfavorable review and to again extend his probationary status.

9.   There is no contention this portion of the judgment is subject to reversal.

FOOTNOTE.   See footnote 1, ante.

14.   Within days of entry of the judgment, Fleming had begun levying on Brizolis' assets.   Brizolis complained he needed these assets to live on, and hence sought a trial court order to stay enforcement pending Brizolis' post-trial motions and appeal.   When the court denied the motion, Brizolis immediately filed a notice of appeal and posted the appeal bond in order to obtain a release of his assets.

15.   Fleming raises an alternative basis for affirming the judgment:  that appellants' new trial motion was untimely.   A new trial motion must be filed within 15 days of service of notice of entry of judgment (Fleming failed to serve such notice) or 180 days after entry of judgment.  (Code Civ.Proc., § 659.)   Relying on ancient authority, Fleming argues the clock on a new trial motion can start even without service of a notice if the appellant has actual notice of entry of judgment.   However, this argument was not mentioned in Fleming's appellate brief, and was not raised until oral argument;  therefore we deem the contention waived.  (Estate of Davis (1940) 38 Cal.App.2d 579, 587, 102 P.2d 545.)   We find it particularly appropriate and necessary to treat the issue as waived because Fleming relies on cases of doubtful validity.   He relies on cases decided under a statute which started the clock “after notice of the decision” (as in Gardner v. Stare (1901) 135 Cal. 118, 67 P. 5), while the current clock is triggered by “service ․ by any party of written notice of entry of judgment.”  (Code Civ.Proc., § 659, subd. (2).)  Since “service” (rather than “notice”) starts the present clock, the older authorities may be outdated.   Fleming's failure to timely assert his contention deprived appellants of the chance to brief the issue, and thus we are convinced the contention should be deemed waived.

16.   One avenue we explored was that of remanding the new trial motion to the trial court with instructions that it consider the motion on its merits.   Unfortunately, that is not an available option because the trial court's jurisdiction to act on a new trial motion has lapsed.  (See Delos v. Farmers Group, Inc. (1979) 93 Cal.App.3d 642, 667–668, 155 Cal.Rptr. 843.)

FROEHLICH, Associate Justice.

WORK, Acting P.J., and NARES, J., concur.