Opinion
D038763.
7-21-2003
STUART J. DEUTSCH, Plaintiff and Respondent, v. VECTRON, INC., Defendant and Appellant.
Respondent Stuart Deutsch sued his former employer Vectron, Inc. (Vectron) and other individuals including Vectrons president and chief executive officer, Joseph Vilella, for breach of contract, breach of the covenant of good faith and fair dealing, fraud and defamation after Vectron terminated Deutschs employment. A jury returned a verdict in Deutschs favor against Vectron and Vilella on his causes of action for breach of contract and breach of the covenant of good faith and fair dealing; the court denied Vectrons motions for judgment notwithstanding the verdict (JNOV) and for new trial. Vectron contends (1) the jurys verdict is not supported by substantial evidence because there is no evidence Vectron terminated Deutsch for arbitrary, pretextual reasons or did not adequately investigate Deutschs conduct for which he was terminated; (2) the court prejudicially erred by failing to exercise its discretion in denying Vectrons motion for new trial; and (3) the court prejudicially erred by refusing to give certain requested special jury instructions. We agree there is no substantial evidence to support the jurys findings that Vectron breached Deutschs employment contract or the covenant of good faith and fair dealing. Accordingly, we reverse the judgment and the order denying JNOV.
FACTUAL AND PROCEDURAL BACKGROUND
In April 1999, Deutsch began discussions with Vectron, a start up company seeking to market and sell automated optical inspection machines, to explore working for the company. Vilella, Vectrons president and chief executive officer, told Deutsch Vectron wanted someone with his experience and technical background to help facilitate the sale of its first machine. Deutsch was told he would be expected to respond to imminent U.S. Patent Office deadlines for Vectrons pending patent application so as to keep the patent process going. Also, Deutsch understood Vilella expected him to assist in raising funds for the company. Deutsch was aware Vectron faced a tight market for additional funding in the spring of 1999, and indeed the company was actively looking for additional investment at the time.
As Deutsch put it at trial, Vilella never told him that one of his specific job duties was to raise money for Vectron, although they talked about Deutsch assisting Vilella in doing so.
At the time, Vectron was a party to various agreements with another company, Omegatek, to exclusively use in Vectrons optical inspection system certain equipment, hardware and software designed and manufactured by Omegatek (the Omegatek technology). Omegateks principal, Sheldon Smilo, had agreed to sell the Omegatek technology exclusively to Vectron for the visual inspection of electronic circuit boards. Deutsch was aware of these agreements and knew they were important to Vectrons future success.
On May 10, 1999, still negotiating with Vectron, Deutsch signed a letter of intent with another company, Integrated Management Solutions (IMS), in which he agreed to act as a consultant and assist that company with raising asset, startup and reserve funding, developing a business plan and qualifying suitable investors. IMS was in the business of radio mobile communications. The letter provided Deutsch was to (1) "direct and assist the development of a target profile (what is IMS) suitable for financial investment"; (2) "direct and assist the development of a financially strong business Presentation suitable for potential investors"; (3) seek and qualify suitable investors for IMS"; (4) "team with John Wiggins and Jim Moore to develop a day to day working strategy that will secure the necessary funding in the required timeframes"; (5) "participate and, or, lead in negotiations for investment placement details." The IMS principles told Deutsch their time frame was short and they needed money right away. Among other things, Deutsch spoke with potential investors on IMSs behalf and for these efforts he earned compensation from IMS from April to June 1999. Vilella never asked Deutsch whether he was doing such work, and Deutsch never told Vilella about it.
Deutsch began working for Vectron on May 14, 1999, as its senior vice president and chief technical officer. Through near the end of June 1999, Deutsch completed the required response to the patent office. Vilella was happy with Deutschs work on the patent, and Deutsch otherwise never received any criticism or negative feedback about his work at Vectron. At some point, Vilella asked Deutsch to work closely with Smilo in order to gain his respect and confidence, with an eye toward Vectron possibly buying out the Omegatek technology or to learn more about it, as it was encoded and completely unknown to Vectron. Vilella asked Deutsch to help Smilo improve the software in ways that would permit Smilo to retain control over it. Toward that goal, Deutsch met with Smilo several times in mid to late June 1999 and discussed proposals for improving the relationship between Vectron and Omegatek.
Although Vilella and Deutsch had agreed on all details of his employment contract as of his first day of work at Vectron, Deutsch was not provided with his written employment agreement until June 28, 1999. Deutsch had to remind Vilella several times that he had neither seen nor signed the final employment contract; on the morning of June 28, 1999, Deutsch finally told Vilella he needed a written contract in order to continue his work for the company. Vilella gave it to him; Deutsch reviewed the agreement to ensure it contained all agreed upon provisions and signed it that day. At that time, Vilella told Deutsch Vectron had received a verbal commitment to obtain $ 100,000 from an investor who was happy with the progress the company had made with Deutsch there.
Under the employment agreement, Deutsch was granted a salary of $ 95,000 per year to be "deferred pending additional financing of the corporation." Until the company received additional financing, Deutsch was to be paid $ 4,000 per month "credited to [Deutschs] salary account and balanced out accordingly at the time of back pay reimbursement." Deutsch was also given an option for 125,000 shares of Vectrons common stock at the price of $ 1.10; his contract provided "these shares are fully vested and will be transferred to [Deutsch] on the day of approval of the Companys starting date of its qualified option program." According to Deutsch, Vilella told him during his employment negotiations that Vectrons Board had already approved a qualified stock option plan and it was awaiting Vilellas and an attorneys signature. The employment agreement permitted Deutsch to engage in outside activities as long as they did not materially interfere with his primary duties, but prohibited him from engaging in direct or indirect competition with Vectron in the development, manufacture or marketing of "products which are in the same field of use or which otherwise compete with" Vectrons products or proposed products. The agreement allowed Vectron to terminate Deutsch for cause including for (1) material breach of any provision of the employment agreement and (2) "engaging or in any manner participating in any activity which is competitive with or intentionally injurious to" Vectron.
Paragraph 2.2 of the contract provides: "During the term of this Agreement, Executive shall not engage in competition with the Company, either directly or indirectly, in any manner or capacity, as adviser, principal, agent, partner, officer, director, employee, member of any association or otherwise, in any phase of the business of developing, manufacturing and marketing of products which are in the same field of use or which otherwise compete with the products or proposed products of the Company."
On the same day Deutsch signed his employment agreement, Blake Bowling, Vectrons vice president of sales and marketing, became concerned that Deutsch was considering taking certain actions with Smilo that appeared to Bowling to constitute a conflict of interest for Deutsch. According to Bowling, his concerns arose during a lunch meeting with Deutsch in which Deutsch tried to undermine his confidence in Vilella and sought to recruit Bowling for a new company that would create certain computer programs (algorithms) that would compete with Vectrons programs.
On June 30, 1999, Deutsch received his third paycheck in the sum of $ 2,000. Expecting to recoup approximately $ 6,000 of deferred compensation he was owed under his employment agreement because of the incoming investment, Deutsch asked Vilella the next day why he had not received his deferred payments. Vilella advised him Vectron had not yet received the money. The money was deposited in Vectrons bank account at some point that day.
Meanwhile, Bowling advised Vectrons controller, Doug Skiff, of his concerns about Deutsch and recommended he (Bowling) meet with Smilo to hear his side of the story. On July 1, 1999, Bowling met with Smilo, who confirmed the information. Smilo told Bowling of conversations he had had with Deutsch in which Deutsch proposed forming a company unrelated to Vectron or Omegatek with Deutsch its president, which would then take advantage of the Omegatek technology. Smilo denied participating in the plan; according to Bowling, Smilo did not trust Deutsch and felt the proposal was a serious conflict of interest.
After meeting with Smilo, Bowling advised Vilella of his concerns. Vilella was shocked and upset, but believed Smilo and Bowling because he had known them for many years and considered them to be men of character. Bowling told Vilella he was documenting his interactions with Deutsch and Vilella asked him to provide him with a copy. Vilella, in turn, discussed the matter with Smilo and asked him to record his interactions with Deutsch. Eventually, both Bowling and Smilo presented Vilella with letters documenting their interactions with Deutsch; both letters were dated July 6, 1999. Vilella showed the letters to Vectrons board chairman Vernon Yates, who initially felt there had to be some misunderstanding. The information led Vilella and Yates to set up a meeting with Deutsch to discuss the matter.
In part, Bowling wrote: "A serious situation has arisen at Vectron and I feel it is inparative [sic] that I disclose the following information as I believe it threatens the viability of Vectron. [P] Mr. Stu Deutsch (Senior V.P./CEO of Vectron) has instigated several inappropriate actions that I believe undermine and contradict the responsibilities of his position at Vectron. The following is a documentation of events that occurred over the past several weeks. [P] June 28, 1999 - Lunch meeting with Stu Deutsch. [P] Mr. Deutsch suggested joining him for lunch to discuss Vectron future strategies. I was very uncomfortable in conversations that again expanded on previous conversations that can be best described as subterfuge[.][] His statements that the Vectron Board of Directors was displeased with your leadership and that he had the support of the Board as a replacement. [sic] I could not verify these comments. Another very serious matter in this conversation was the relationship between Stu Deutsch and Sheldon Smilo (President of Omegatek). Stu communicated to me that he was forming a business relationship with Sheldon in order to market the technology to other companies besides Vectron. He did not state specifics and nothing was given to me in writing. My understanding of this proposed relationship with Omegatek was an outright conflict of interest in his duties as Senior V.P. of Vectron. I was offered to be part of this business relationship but did not comment. [P] After this lunch meeting with Stu, I was convinced he had a hidden agenda that I felt was in direct conflict with his duties and contributions to Vectron. I did not come to you immediately because I wanted to verify with Sheldon the nature of the relationship between him and Stu. I trust Sheldon and knew he would divulge any improprieties regarding a relationship with Stu.
In part, Smilo wrote: "The last discussion that I had with [Deutsch] on 6/24 or 6/25, outlined a proposal that involved starting a new company. As I understand it, I would disclose Omegatek software to the company, calling it Version 1. Then we would start working on Version 2. There would be a freeze in development on Version 1 and Version 2 would not be covered in the Vectron sell agreement. This would allow us to sell the new Version 2 to Vectron, in addition to Version 1. Attached is a copy of the draft proposal [Deutsch] gave me. [P] In this proposal, [Deutsch] would head up the new company and I would be a VP. I told [Deutsch] that there were problems with ownership of Version 1 and that the new company did not make any improvement in my situation unless there was the addition of a significant amount of cash. [P] [Deutsch] wanted to me [sic] to make a decision very quickly and wanted to know why I would not move faster. I told him that after the last contract with Vectron was misrepresented to me, I would not be interested in any further changes, unless they had significant benefits to Omegatek." (Bold in original.)
Before this time, Vilella had a positive attitude about Deutsch and had never indicated to Yates that he wanted to get rid of Deutsch or had a plan to hire him only to accomplish certain tasks and then fire him. He had been happy with Deutschs work on the patent, and by all accounts, his relationship with Deutsch was very good up until July 1, 1999.
On July 8, 1999, Smilo met with Deutsch over lunch. According to Deutsch, the purpose of the meeting was to have Smilo review and give feedback on a document Deutsch had prepared (the framework document) that reflected their previous discussions about the Omegatek technology and a possible joint venture between Vectron and Omegatek. The framework document was Deutschs effort to integrate both Vectron and Omegateks desires and contract arrangements "to get everyone happy to move forward so the software wasnt a black box that was unknown." At the meeting they discussed the details of the written copy. According to Smilo, he met with Deutsch that day over lunch to make sure he had no misunderstanding of what Deutsch was proposing. Smilo repeated his understanding of the deal, asking Deutsch if he meant they would start a new company, freeze the development of Version 1, begin new development on Version 2 and sell it back to Vectron. According to Smilo, Deutsch confirmed that was the agreement. Smilo shared this information with Vilella.
That afternoon, Deutsch was called into a meeting with Vilella, Yates, and Vectron controller and board member Doug Skiff. Deutsch had not been told the meetings topic; he had only been told Yates would be around and wanted to talk to him. At the meeting, Deutsch was accused of approaching other employees and Smilo in an effort to create a new company that would compete with Vectron. The men confronted Deutsch with the framework document he had given to Smilo as well as the letters written by Bowling and Smilo. Although Vilella refused to show Deutsch the letters, he read the letters to him and questioned Deutsch about their contents. For two and a half to four hours, Deutsch discussed the allegations and denied them in their entirety. At the close of the meeting, Skiff asked Deutsch to leave his computer and cell phone. Notes of that meeting do not mention the July 6, 1999 letters.
The next day, Deutsch called Vilella who told him not to worry; that everything would be okay and Yates wanted to touch base with Smilo about the situation. Several days later, Vilella, Bowling, Smilo, Skiff and another employee met to further discuss Deutschs conduct. That meeting was tape recorded and eventually transcribed. At the meeting, Smilo recounted his lunch conversation with Deutsch:
"[Smilo]: Yes we talked about two hours and he put the [Vectron/Omegatek] contracts on the table as we were eating lunch and told me about some of the discrepancies in the contracts and that certain things were not well defined and that it was not in my best interest. He said that we could work together to improve the contracts to make it more specific what Vectron is supposed to get. He said he would support me on this. Then he said we could start version two which would be beyond that and then sell that to Vectron additionally. At the time we were having lunch, I knew that you had intentions of terminating him and I did not feel comfortable going to lunch with him, but he made it sound very important and I was wondering if he would disclose some new information and at this time I asked him point blank again a few questions that I just wanted to make very clear . . . because maybe I felt prior to that point I did not understand his intentions and basically I wanted to give him another chance. But I did not tell him that you were waiting to have a meeting with him at 2:00. So we went through the contracts and he presents the same scenario again about the new company and then just before we came into the building, I asked him again, you mean we would freeze version one and he said somehow we would do something with the contract so that so that they would buy that technology, but he was not clear on how I would convince you to buy something that is not being used, but he said that I could still get the money for that. Then I said, we would develop a version two and sell it to Vectron again, and he said yes. He was very specific about that.
Vilella shared the transcript of the recorded meeting with Yates. At some point, Yates spoke with both Bowling and Smilo about their respective July 6, 1999 letters. Both confirmed the information in the letters, and Yates questioned Smilo extensively to ensure he fully understood what had happened. At that point, having compared the information and talked to Bowling and Smilo with whom he had worked for at least three and a half years, Yates concluded they were telling the truth and agreed Vectron should proceed to terminate Deutsch for violating his employment agreement. He believed Deutschs conduct was clearly detrimental and potentially damaging to Vectron.
On July 14, 1999, Yates and Vilella met with Deutsch. They advised him Vectron had no alternative but to terminate him for cause, and that he could either resign or they would fire him. According to Deutsch, Vilella told him Yates was experienced in these matters and it was in Deutschs best interests to resign. Deutsch took notes without responding. Following that meeting, Vilella formally terminated Deutsch. The termination letter, authored by Vilella, provided: "As weve discussed, and I have explained in further detail herein, I have reason to believe that you have violated the provisions of your employment agreement which prohibits you from engaging in competitive actions with [Vectron] during your employment with [Vectron]." The letter continued in part by advising Deutsch he would receive prorated accrued base salary and benefits, but that his right to receive stock options, including unvested stock options, was terminated as of July 22, 1999. Vilella did not further describe the actions for which Deutschs employment was terminated.
Deutsch filed suit against Smilo and separately against Vectron, Vilella and Bowling. As to Vectron and Vilella, the matter proceeded to trial on Deutschs causes of action for breach of contract and breach of the covenant of good faith and fair dealing against Vectron and fraud against both Vectron and Vilella. Deutsch proceeded on the contract theory that Vectron did not have good cause to terminate him; that it did not act in good faith or make its termination decision with substantial evidence, and it did not conduct an appropriate investigation with proper notice of the allegations against him or give him a reasonable opportunity to respond.
The court consolidated Deutschs complaints against Smilo and Vectron, Vilella and Bowling. Thereafter, Deutsch dismissed without prejudice his causes of action against Vectron, Vilella and Bowling but refiled identical claims against those parties several months later. The court again consolidated the cases. Vectron later obtained summary judgment on Deutschs causes of action for defamation against Vectron and Vilella and his causes of action against Bowling in their entirety.
At trial, Deutsch denied making statements to Smilo or anyone else about starting a new company in which Deutsch would be president and Smilo vice president. He testified his conversation with Bowling during the June 29, 1999 lunch involved office space rearrangements; Deutsch assured Bowling, who was unhappy with the changes, that he was unconcerned about the location of his office and that Bowling could have any part of the office he liked. He also told Bowling that Vilella had asked him to get closer to Smilo to learn more about his software. Going line by line through Bowlings letter, Deutsch maintained the statements in it about him were false; he had never made any negative statements about Vilella to Bowling, never proposed forming a business relationship with Smilo, and never asked Bowling to be part of it. Deutsch also testified that in the July 8, 1999 meeting, Vilella only mentioned generally, and refused to show Deutsch when he asked to see them, the letters prepared by Bowling and Smilo. Had he seen the letters or knew their contents, Deutsch testified, he would have wanted to explain them or defend himself. Rather, according to Deutsch, the only document discussed was the framework document. He explained what the framework document was intended to accomplish and pointed out he had talked to Yates about it and obtained his input on the document.
Vectron presented a defense in part based on the after-acquired evidence doctrine. It sought to prove that, had Vilella known of either (1) Deutschs true employment history or (2) his consulting work on behalf of IMS, he would never have hired him in the first place or he would have terminated him had he learned of these matters after Deutschs hire. Vectron also pointed out Deutsch had contradicted his trial testimony in several respects in an earlier deposition. For example, Deutsch had testified in his deposition that he never had discussions with Bowling about Omegatek and Vectron. Deutsch had denied having any documents with him when he had lunch with Smilo on July 8, 1999. Deutsch had testified in his deposition that Bowlings and Smilos letters were discussed during the July 9, 1999 meeting.
The jury returned a special verdict. It unanimously found Vectron and Vilella did not defraud Deutsch. However, by a nine to three vote, the jury found Vectron breached Deutschs employment contract and also, by a nine to two vote, breached the implied covenant of good faith and fair dealing. By a ten to two vote, the jury found Deutsch suffered resulting damage. The jury rejected Vectrons after-acquired evidence defense.
After the court read the verdict, Vectrons counsel raised the possibility of ambiguity in the jurys finding that Vectron breached Deutschs employment contract. The court obtained the jurys clarification on the matter as follows:
"The Court: Ladies and Gentlemen, there has been a question regarding what might be an ambiguity and I just wanted to ask if your understanding was as follows.
"With regard to the question number four, did Vectron breach Stuart Deutschs employment agreement, the vote was nine to three yes. The assumption is that Mr. Deutsch was not terminated for cause. Is that the jurors understanding of the question? The employment contract that was admitted into evidence allows Vectron to terminate, to do it with cause and without cause. And the question I think assumes that Vectron terminated him without cause.
* * *
"[Juror]: Well you tell us what the question was supposed to mean. What was the question supposed to mean?
"The Court: Whether 20 or not Vectron terminated him without cause. In other words, another way
"[Juror]: And yes would have been he was terminated without cause.
"The Court: He was - thats right. If he was terminated with cause, in other words, if they had cause to terminate him, then there is an inconsistency. In other words, the contract said he could be terminated without cause or he could be terminated with cause.
"[Juror]: I believe we assumed that he was terminated for cause, but breached the employment agreement because the cause was not just.
"The Court: Well then there wouldnt have been cause.
"[Juror]: No, but in the document his termination letter said he was terminated for cause.
"The Court: Right, and the jury found that he was terminated — that there was not cause to terminate him.
"[Juror]: Correct.
"The Court: Or else they wouldnt have breached the contract.
"[Juror] Right, right, the nine that said yes, thats correct."
(Emphasis added.)
The court considered the issue of damages in a bifurcated proceeding, and thereafter awarded Deutsch damages under the employment agreement consisting of six months base salary and certain stock options.
Specifically, the court awarded Deutsch (1) six months base salary of $ 47,500; (2) stock options for 125,000 shares of Vectron common stock, exercisable at a price of $ 1.10 per share, to be transferred to Deutsch on the day of approval of Vectrons qualified stock option plan and governed by the terms of that plan (with an additional option of 75,000 shares to be given under specified circumstances in the event of Vectrons sale or merger); and (3) an option to purchase 200,000 shares of Vectron common stock exercisable at $ 1.10 per share exercisable for 84 months from May 14, 1999.
On March 1, 2001, Vectron moved for judgment notwithstanding the verdict and also filed its notice of intent to move for a new trial. The court held hearings on the motions on April 6, 2001 and April 27, 2002, took the matter under submission the latter day and, without stating reasons, denied the motions by minute order dated May 3, 2001. The court entered judgment in Deutschs favor, reflecting the damage awards plus prejudgment interest, costs and attorney fees. Vectron appeals.
DISCUSSION
We begin by reviewing the courts order denying Vectrons motion for JNOV, because if that order cannot stand on grounds of insufficient evidence, we must enter judgment in Vectrons favor as if JNOV had been granted. ( § 629; McCoy v. Hearst Corp. (1991) 227 Cal. App. 3d 1657, 1661, 278 Cal. Rptr. 596; Bank of America v. Superior Court (1990) 220 Cal. App. 3d 613, 626, 269 Cal. Rptr. 596.) Doing so, we need not reach the courts order denying a new trial.
Vectron contends the trial court erred in denying its motion for JNOV because there is no evidence to support the verdict on Deutschs causes of action for breach of the employment agreement and breach of the implied covenant of good faith and fair dealing. It maintains the evidence overwhelmingly shows Vectron carried out an appropriate investigation into whether Deutsch had engaged in competitive activities warranting termination for cause, giving Deutsch notice of its claims and an opportunity to respond to them, and thereafter reasonably concluded it was justified in terminating him for good cause. Vectron asserts Deutsch failed to meet his burden to prove Vectrons termination decision was not reached honestly, or was arbitrary or capricious under Cotran v. Rollins Hudig Hall Int1, Inc. (1998) 17 Cal.4th 93. We agree.
I. Standard of Review
A trial court may properly grant a motion for JNOV only if it appears from the trial record, viewed in the light most favorable to the party securing the verdict, that there is no substantial evidence to support it. (Sweatman v. Department of Veterans Affairs (2001) 25 Cal.4th 62, 68.) On appeal from an order denying the motion for JNOV, the standard of review is the same, i.e., "whether any substantial evidence — contradicted or uncontradicted — supports the jurys conclusion." (Ibid ; see Trujillo v. North County Transit Dist. (1998) 63 Cal.App.4th 280, 284; Shapiro v. Prudential Property & Casualty Co. (1997) 52 Cal.App.4th 722, 730.) "In general, `"the purpose of a motion for judgment notwithstanding the verdict is not to afford a review of the jurys deliberation but to prevent a miscarriage of justice in those cases where the verdict rendered is without foundation." [Citation.] "(Trujillo v. North County Transit Dist., supra, 63 Cal.App.4th at p. 284.)
To support the verdict, evidence must be "`"reasonable in nature, credible, and of solid value; it must actually be `substantial proof of the essentials which the law requires in a particular case."" (People v. Superior Court (Jones) (1998) 18 Cal.4th 667, 681, fn. 3, 958 P.2d 393, quoting Estate of Teed (1952) 112 Cal. App. 2d 638, 644, 247 P.2d 54; Kruse v. Bank of America (1988) 202 Cal. App. 3d 38, 51, 248 Cal. Rptr. 217 [same].) A mere scintilla of evidence or evidence that is bare speculation or conjecture is not enough; rather, there must be some substance to the evidence upon which a reasonable person could rely. (Nally v. Grace Community Church (1988) 47 Cal.3d 278, 291, 253 Cal. Rptr. 97, 763 P.2d 948; Roddenberry v. Roddenberry (1996) 44 Cal.App.4th 634, 651; Bowman v. 194 Board of Pension Commissioners (1984) 155 Cal. App. 3d 937, 944, 202 Cal. Rptr. 505.) "While substantial evidence may consist of inferences, such inferences must be `a product of logic and reason and `must rest on the evidence [citation]; inferences that are the result of mere speculation or conjecture cannot support a finding [citations]." (Kuhn v. Department of General Services (1994) 22 Cal.App.4th 1627, 1633; Roddenberry v. Roddenberry, at p. 651.)
II. There is no Substantial Evidence to Support the Jurys Contract Verdicts
Deutsch does not distinguish between the evidence supporting the breach of contract verdict and that supporting the verdict for breach of the covenant of good faith and fair dealing. We treat the claims as one, as those causes of action merely assert differing legal theories of obtaining relief for the employment agreements breach. (See Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 36, 900 P.2d 619 [implied covenant of good faith and fair dealing should not be endowed with an existence independent of its contractual underpinnings]; Love v. Fire Ins. Exchange (1990) 221 Cal. App. 3d 1136, 1153, 271 Cal. Rptr. 246.)
The question, as Vectron correctly points out, is whether Deutsch presented any direct evidence, or evidence from which the jury could infer, Vectron did not possess the requisite good faith belief that good cause existed to terminate Deutsch for competitive or intentionally injurious activities. In part, Deutsch was required to present evidence that Vectrons decision was not a "reasoned conclusion, in short, supported by substantial evidence gathered through an adequate investigation that includes notice of the claimed misconduct and a chance for the employee to respond." (Cotran, supra, at p. 108.) Under this standard, an employers decision to terminate an employee is proper if the employer had a good faith belief, supported by substantial evidence, that the employee engaged in prohibited conduct.
Cotran involved a wrongful termination suit where the employee was hired under an implied agreement not to be dismissed except for good cause. (Cotran, supra, 17 Cal.4th at p. 95.) In a footnote, the court said: "Wrongful termination claims founded on an explicit promise that termination will not occur except for just or good cause may call for a different standard, depending on the precise terms of the contract provision." (Id. at p. 96, fn. 1.) Deutsch questions Cotrans application by stating: "What [Cotran] has to do with this case, where the investigation was found to be pretextual and there were no legitimate grounds to terminate the employee, is a mystery." The argument gives us no basis to conclude Cotrans standard is not applicable to the present case.
In addition to his own testimony denying he had formed any plan to compete with Vectron and denying the statements attributed to him by Smilo and Bowling, Deutsch points to the following as substantial evidence of Vilellas improper motivations:
(1) Deutsch was due substantial deferred compensation at a time when Vectron was struggling to obtain financing; (2) the allegations against Deutsch surfaced at about the time Vectron received additional funding, and he was terminated after Vectron sold its first machine; (3) Vectrons termination letter was vague about the reasons for Deutschs termination; and (4) there was no documentary evidence to support Vilellas version of the July 8, 1999 meeting. Deutsch asserts the jury implicitly accepted Deutschs version of events, concluding Smilo and Bowling lied about their conversations about his plans to start a third company. He argues, "If the jury had found the Smilo/Bowling version of the conversations to be true, they would have found for Vectron." He further maintains the circumstances point to the conclusion that Smilo and Bowling created false documentation at Vilellas request: "Vilella refused to show the plaintiff copies of the written material on July 8, 1999, raising the possibility that the documents bearing the July 6, 1999 date were manufactured later, at Vilellas direction." According to Deutsch, Vilella had second thoughts about honoring his promises to Deutsch after the company surfaced from crisis and lied about Vectrons receipt of investment monies to avoid paying Deutsch his deferred compensation. Finally, Deutsch asserts that at trial, Smilo repudiated many of his accusations against Deutsch in a later conversation with Deutschs counsel.
As we explain, we are compelled to conclude there is no direct evidence to support the theory, or from which the jury could reasonably and logically infer, Vectron had no reasonable grounds for believing Deutsch engaged in dischargeable conduct, or otherwise acted unfairly in investigating the matter. In reaching this conclusion, we gather and view the evidence in Deutschs favor, drawing all reasonable inferences from it and determine if it is of sufficient substantiality to support the jurys verdict.
A. Deutschs trial testimony
We first conclude Deutschs testimony does not support the jurys contract verdicts. His attempt to offer his own testimony denying Vectrons allegations concentrates on a question that Cotran teaches is not at issue, namely, whether Deutsch in fact engaged in the wrongful activity for which he was terminated. In Cotran, the court explained the question is not directed to the employees actual guilt: "The proper inquiry for the jury . . . is not, `Did the employee in fact commit the act leading to dismissal? It is, Was the factual basis on which the employer concluded a dischargeable act had been committed reached honestly, after an appropriate investigation and for reasons that are not arbitrary and pretextual? The jury conducts a factual inquiry in both cases, but the questions are not the same. In the first, the jury decides the ultimate truth of the employees alleged misconduct. In the second, it focuses on the employers response to allegations of misconduct." (Cotran, supra, 17 Cal.4th at p. 107.) Pointing out the jurys remoteness from the everyday reality of the workplace, the Cotran court explained: "The decision to terminate an employee for misconduct is one that not uncommonly implicates organizational judgment and may turn on intractable factual uncertainties, even where the grounds for dismissal are fact specific. If an employer is required to have in hand a signed confession or an eyewitness account of the alleged misconduct before it can act, the workplace will be transformed into an adjudicatory arena and effective decisionmaking will be thwarted. Although these features do not justify a rule permitting employees to be dismissed arbitrarily, they do mean that asking a civil jury to reexamine in all its factual detail the triggering cause of the decision to dismiss - including the retrospective accuracy of the employers comprehension of that event - months or even years later, in a context distant from the imperatives of the workplace, is at odds with an axiom underlying the jurisprudence of wrongful termination. That axiom, clearly enunciated in Pugh [v. Sees Candies, Inc. (1988) 203 Cal. App. 3d 743, 769, 250 Cal. Rptr. 195], is the need for a sensible latitude for managerial decisionmaking and its corollary, an optimum balance point between the employers interest in organizational efficiency and the employees interest in continuing employment." (Cotran, supra, 17 Cal.4th at p. 106.)
Given the jury is not to be placed in a managerial-type role — i.e., to determine whether the misconduct actually occurred — we agree with Vectron that Deutschs testimony denying he ever proposed a plan to compete with Vectron, or the fact the jury may have believed him, is irrelevant. Turning our focus, then, to Vectrons activities, Deutsch sought to paint a picture of a scheme orchestrated by Vilella to fabricate a conflict of interest scenario solely to terminate Deutsch without having to pay him approximately $ 6,000 in deferred earnings or transfer Vectron stock and stock options. This scheme included Vilella telling Bowling and Smilo to manufacture a false story about Deutschs intent to recruit them into a new, competing company, instructing them to document those falsities, and then setting up a sham investigation into the matter without giving Deutsch advance notice of the July 8, 1999 meeting or a reasonable opportunity to respond to Bowling and Smilos allegations.
As there was no direct evidence of such a scheme, Deutsch would have had to prove this scenario by inference. (E.g. Dandini v. Dandini (1953) 120 Cal. App. 2d 211, 214, 260 P.2d 1033 [conspiracy is not ordinarily susceptible of direct proof but must be spelled out from circumstantial evidence].) "A factual inference is a deduction that may logically and reasonably be drawn from one or more facts established by the evidence." (BAJI No. 2.00; Evid. Code, § 600, subd. (b).) We are unable, however, to logically draw the required inferences from the evidence presented at trial. We go through the circumstantial evidence item by item.
B. The timing of Bowlings allegations
We cannot infer from the timing of Bowlings allegations about Deutsch that Vilella had by that time decided to terminate Deutsch so to avoid paying him his deferred compensation and stock options. As a threshold matter, we may not infer that Vilella, when he hired Deutsch, planned to employ him only until he completed Vectrons patent work and then fire him without giving him his promised compensation. The jury specifically found neither Vectron nor Vilella defrauded Deutsch; they therefore rejected any such theory in connection with Deutschs fraud cause of action. This court may not draw an inference that is contradicted by an express finding. (See, e.g., City and County of San Francisco v. Board of Permit Appeals (1989) 207 Cal. App. 3d 1099, 1108-1109, 255 Cal. Rptr. 307.) Thus, a jury would have to infer that Vilella concocted such a scheme and elicited Bowlings assistance when he was faced with Deutschs demand for his contract. However, such an inference is not reasonable or logical. The inference is especially unwarranted when, on the very day Vilella acknowledged the companys upcoming receipt of investment funding, Vilella gave Deutsch his employment agreement to sign. Presumably if Vilella had wanted to avoid giving Deutsch what was due him under the employment agreement, he could have easily withheld the contract.
Nor can we reasonably infer both Bowling and Smilos letters were created for Vilella as a sham or mere pretext. Deutsch relied heavily on the fact both letters were dated July 6, 1999. We cannot agree that the fact the letters carried the same date permits an inference they were manufactured out of whole cloth for Vilella to support a scheme to terminate Deutsch for good cause. But even more fatal to Deutschs position in that respect is that any inference that Vilella asked Bowling and Smilo to manufacture fake evidence of Deutschs competitive plan is rebutted by direct testimony. Vilella expressly denied that he told Bowling to write his July 6, 1999 letter; Bowling likewise denied preparing it at Vilellas request, or receiving any assistance at all in drafting the letter. Although an appellate court will normally defer to the trier of facts drawing of inferences, the trier may not indulge in the inference when that inference is rebutted by clear, positive, and uncontradicted evidence of such a nature that it is not subject to doubt in the minds of reasonable people. (Beck Development Co. v. Southern Pacific Transportation Co . (1996) 44 Cal.App.4th 1160, 1204, citing Hicks v. Reis (1943) 21 Cal.2d 654, 660, 134 P.2d 788.)
In his brief, Deutsch asserts Vilella told both Bowling and Smilo to write their allegations of Deutschs disloyalty, but the cited testimony shows Vilella asked only Smilo to prepare his letter. Even assuming the evidence indicated Vilella asked both Bowling and Smilo to prepare their letters, that fact does not permit a reasonable jury to infer Vilella told them what to say, or conclude the contents of the letters were false.
C. The July 8, 1999 meeting and remainder of the investigation
Nor can we conclude from the evidence that Vectrons July 8, 1999 meeting, or the remainder of its investigation was conducted unfairly, without permitting Deutsch a fair opportunity to respond to Bowlings and Smilos allegations. Although the court in Cotran did not definitively pronounce the essentials of an adequate investigation, it did give a "sense of what investigative fairness in this context contemplates." (Cotran, supra, 17 Cal.4th at p. 108.) The employer "`must act in good faith and fairly listen to both sides . . . . [It] can obtain information in any way [it thinks] best, always giving a fair opportunity to those who are parties in the controversy for correcting or contradicting any relevant statement prejudicial to their view." (Ibid.) Further, "`the common law requirement of a fair procedure does not compel formal proceedings with all the embellishments of a court trial [citation], nor adherence to a single mode of process. It may be satisfied by any one of a variety of procedures which afford a fair opportunity for an applicant to present his position . . . . This court should not attempt to fix a rigid procedure that must invariably be observed. " (Ibid; see also Silva v. Lucky Stores, Inc. (1998) 65 Cal.App.4th 256, 264.)
At trial, Deutsch repeatedly characterized the July 8, 1999 meeting as a "surprise" meeting, focusing on the fact he was not given prior notice of the allegations against him. But the fact Deutsch was not told in advance that he would be confronted with certain accusations does not reasonably tend to prove the accusations are false, and we cannot conclude the manner in which the meeting was called itself constituted an objectively unfair or unreasonable method of investigation. Deutsch did not present any evidence, for example, that Vectron had never conducted investigations in this manner, or that it otherwise had a particular practice that it did not follow in his case.
Critically, Deutschs testimony that he was not given a chance to respond to the July 6, 1999 letters contradicted his earlier deposition testimony in which he said during the meeting they discussed both letters and also, line by line, the framework document. It also contradicted a declaration Deutsch had submitted in opposition to summary judgment in which he admitted in the July 8, 1999 meeting he was "accused of engaging in anti-competitive activity, stating that I was planning to start a new company with Sheldon Smilo that would compete with Vectron by selling Smilos technology to Vectron." Relying on DAmico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 112 Cal. Rptr. 786, 520 P.2d 10 and Mikialian v. City of Los Angeles (1978) 79 Cal. App. 3d 150, 144 Cal. Rptr. 794, Vectron points out such admissions are entitled to greater credibility than Deutschs trial testimony.
Vectrons contention has merit. In Mikialian, the court of appeal was confronted with judgment of a nonsuit in a case involving a plaintiff truck driver injured in a hit and run accident. At trial, the plaintiff sought to establish liability on the defendant city by testifying a police officer had directed him to park his truck in the spot where he was struck. (Mikialian, supra, 79 Cal. App. 3d at p. 154.) This testimony, however, contradicted the plaintiffs prior deposition testimony in which he denied anyone directed him to pull his truck to the location. (Id. at p. 155.) At trial, the plaintiff did not attempt to correct his deposition testimony, nor did he explain his answers were a product of misunderstanding, confusion or mistake. (Id. at pp. 155, 160.)
The court of appeal concluded the plaintiffs trial testimony did not constitute substantial evidence creating an issue of fact on the question of the citys liability. (Id. at p. 158.) Its reasoning turned on the principle, expressed in DAmico v. Board of Medical Examiners, supra, 11 Cal.3d 1, that party admissions made in discovery carry a presumption of trustworthiness and should receive deference over and above other types of evidence, such as counteraffidavits submitted in opposition to summary judgment. (Mikialian, supra, 79 Cal. App. 3d at pp. 160-161.) " The reasons for this attitude toward the legitimate products of discovery are clear. As the law recognizes in other contexts [citations] admissions against interest have a very high credibility value. This is especially true when, as in this case, the admission is obtained not in the normal course of human activities and affairs but in the context of an established pretrial procedure whose purpose is to elicit facts. Accordingly, when such an admission becomes relevant to the determination . . . of whether or not there exist triable issues of fact (as opposed to legal issues) between the parties, it is entitled to and should receive a kind of deference not normally accorded evidentiary allegations in affidavits. [Citations.] The rule stated in DAmico is that the assertion of facts contradictory to deposition testimony by affidavit does not constitute " substantial evidence of the existence of a triable issue of fact " for the purpose of denying a motion for summary judgment. A fortiori, trial testimony simply contradicting a clear and unequivocal admission in a deposition cannot require denial of a nonsuit." (Mikialian, supra, 79 Cal. App. 3d at p. 161.) Here, as in Mikialian, Deutsch did not attempt to explain his contradictory deposition testimony or suggest any reason why it was not inconsistent with his trial testimony. The testimony indicates he was made aware of the allegations and given an opportunity during the lengthy meeting to respond. Deutschs only possible claim of unfairness would rest on the fact he did not see the letters; we cannot say Vilellas refusal to show him the letters suggests the allegations within them were false. And Deutsch testified in his deposition they covered his framework document line by line at the meeting. This gave him ample opportunity to explain why that document did not reflect a plan for a competing company. There is no evidence suggesting Deutsch was cut short in his efforts to explain what in fact happened.
For the same reason, we must reject the suggestion that we may infer Vilellas scheme from the fact notes of the July 8, 1999 meeting do not mention the July 6, 1999 letters. Those notes attempt to paraphrase the discussions of the lengthy meeting on one page and do not mention either of the letters from Bowling or Smilo. But the inference Deutsch asks this court to draw - that those letter were not discussed at the meeting - is nevertheless contradicted by Deutschs same deposition testimony in which he stated the letters were discussed.
As for Vectrons continued investigation after the July 8, 1999 meeting, there is simply no evidence, circumstantial or otherwise, to suggest the tape-recorded meeting was scripted or otherwise a charade, put on solely to generate proof of a false conflict-of-interest. And Deutsch does not present any evidence to contradict Yatess testimony that after the July 8, 1999 meeting he discussed the matter extensively with both Bowling and Smilo, confirmed their information, and agreed with Vectrons termination decision after concluding they were telling the truth.
D. Smilos repudiation
Without the benefit of record citations, Deutsch asserts Smilo repudiated many of his accusations in a later conversation with Deutschs attorney. At trial, Deutschs counsel engaged Smilo in a series of questions about a telephone conversation she had had with him with Deutsch listening in and taking notes. The discourse was characterized by counsel asking Smilo if he recalled her question and his answer: "[Deutschs counsel]: Do you recall telling me that Vern Yates spoke to you before the July 8 surprise meeting for about five minutes only?
The absence of record citations is not surprising. In connection with this claim, Deutsch mischaracterizes the evidence when he states: "Smilo also told the plaintiffs attorney that he saw no reason for Bowling going to lunch with the plaintiff unless Vilella had put him up to it." In fact, at the cited testimony, Smilo denied making such a statement to Deutschs attorney, telling her it was not consistent with his memory.
"[Smilo]: No I dont recall that. As I recall he spoke to me after the meeting.
"[Deutschs counsel]: And afterwards, and you told me that afterwards he never called you or contacted you at all, do you recall that testimony? Do you recall that conversation?
* * *
"[Smilo]: I recall specifically that I spoke with him once, he asked me to explain the whole story and I explained it.
"[Deutschs counsel]: And that was before the July 8 meeting; isnt that true?
"[Smilo]: As I recall it was after.
"[Deutsch counsel]: And you told me it was before the meeting?
"[The Court]: Is that a question?
"[Deutschs counsel]: And do you recall telling me that you spoke, that Vern spoke with you before the meeting for about five minutes?
"[Smilo]: I dont recall exactly. As I recall it was after the meeting.
"[Deutschs counsel]: Do you deny - strike that. [P] And afterwards do you recall telling me that he never called you or contacted you? When I asked you that your answer was, no, do you recall that?
"[Smilo]: No, he called me once." Following much of this dialogue, the trial court properly admonished the jury that counsels questions and statements were not evidence unless the witness adopted the question in his answer. Setting aside the suggestions made by counsels questions, we find nothing in the exchange indicating that Smilo repudiated the statements made in his July 6, 1999 letter.
It is instructive here to set out the entirety of Deutschs argument in opposition to Vectrons motion for JNOV. We looked to these motions for Deutschs recitation of the direct and circumstantial evidence at trial demonstrating Vectrons termination decision was reached in the absence of good cause; that instead it was based on some pretextual, arbitrary or capricious reason and arrived at without an adequate investigation. On this point Deutsch argued: "Plaintiff testified that at the surprise meeting that led to Plaintiffs termination, during which he was accused of anti-competitive activities, that Plaintiff was denied the opportunity to see and to respond to the only two letters accusing him. This was undisputed by Defendants. Further, it was shown at trial that these two letters were orchestrated by Vilella to promote his own agenda. [P] It was shown at trial that the Defendants subsequently orchestrated meeting [sic] was not an appropriate investigation, and did no [sic] provide Plaintiff any opportunity for rebuttal." As indicated, Vectron in fact did dispute, with Deutschs own contradictory deposition testimony, Deutschs trial testimony that he was given no opportunity to consider the contents of Bowling and Smilos letters or respond to them. And, as we have explained, we find no evidence from which a jury can reasonably infer Vilella asked Bowling and Smilo to manufacture false letters. We are not persuaded the cited evidence is" `substantial proof of the essentials which the law requires" (Estate of Teed, supra,
112 Cal. App. 2d at p. 644) on the question of whether Vectron terminated Deutsch on pretextual, arbitrary grounds, without a reasonable investigation into the matter.
In sum, we have found no evidence, direct or circumstantial, from which a jury may reasonably infer that Vilella, Smilo and Bowling manufactured evidence of Deutschs plan in order to generate a dischargeable conflict of interest under his employment contract; Vilellas investigation was a mere pretext or sham conducted only to justify Deutschs termination with payment of benefits under the employment contract; and that the evidence gathered by Vectron did not give it good cause to terminate Deutschs employment. The damages award cannot be sustained because the jurys findings of breach of contract and breach of the covenant of good faith and fair dealing are not supported by substantial evidence.
DISPOSITION
The judgment and order denying Vectron, Inc.s motion for judgment notwithstanding the verdict are reversed. The matter is remanded and the superior court is directed to enter judgment for Vectron, Inc. and conduct a hearing to determine the accrued compensation and benefits, if any, owed Deutsch under the employment agreement.
NARES, Acting P. J., HALLER, J., We Concur.