Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. BC358697, Terry A. Green, Judge.
Ball, Hulbert & Roberts, Stephen C. Ball, John A. Roberts; Law Offices of Timothy B. Sottile and Timothy B. Sottile for Plaintiff and Appellant.
Musick, Peeler & Garrett and Richard S. Conn for Defendants and Respondents.
SUZUKAWA, J.
The trial court entered a judgment of dismissal after sustaining without leave to amend the demurrer of defendants Stephen Morgan and Philip Hawkey to the third amended complaint. Plaintiff Craig Sexson has appealed from the judgment, contending that the complaint states a valid claim for intentional infliction of emotional distress. We agree and reverse the judgment with directions.
However, as will be discussed in the body of the opinion, neither Morgan nor Hawkey actually filed a demurrer to the third amended complaint. Following the sustaining of a demurrer by a codefendant, the University of La Verne, the parties stipulated that because Morgan and Hawkey were similarly situated to the University of La Verne, the same ruling should apply to them. Based on this stipulation, the trial court dismissed the intentional infliction of emotional distress claim as to Morgan and Hawkey, and entered the judgment of dismissal that is the subject of this appeal.
BACKGROUND
I. Factual Allegations
The following allegations and quotations are taken from the third amended complaint.
Plaintiff and appellant Sexson was employed by the University of La Verne (the University), a California corporation, which operates “a private, for-profit, university in La Verne, California.” All of Sexson’s alleged acts were performed in the course and scope of his employment with the University.
Defendants and respondents Morgan and Hawkey are the University’s president and executive vice-president, respectively. Although the University is a defendant in this action, it is not a party to this appeal.
The complaint alleges that each defendant “acted as the agent, employee, representative, partner, joint-venturer, or co-conspirator of each of the other” defendants, that they each acted within the course and scope of their duties with the express and/or implied permission, consent, authorization and ratification of the others, and that all of their acts “together constitute a single and continuing course of conduct.”
A. The Athens Campus and the Somateo
From 1975 through 2004, the University had an overseas campus in Athens, Greece, where Sexson was employed. From 1981 to 2004, Sexson’s job was “to organize and run the Athens Campus as a fully accredited overseas campus of the University of La Verne.”
Until the early 1990’s, the Athens campus was located on an American military base. After the base was closed, the University, in order to comply with Greek law, established the Somateo, a Greek nonprofit association that operated the Athens campus. Pursuant to Greek law, the Somateo’s board of directors was comprised of Greek citizens. The board of directors, in accordance with the University’s directions, gave Sexson autonomous decision-making authority over the Somateo. Sexson, in turn, managed the Somateo on the University’s behalf. “The effect of this arrangement was to insure that the University of La Verne could continue to legally operate in Athens without the University of La Verne relinquishing any control of the operation of its overseas campus.” “[A] further legal effect of the arrangement between the University . . . and the Somateo was to make Craig Sexson personally liable for the debts of the Somateo under Greek law.”
In the complaint, the Somateo is also referred to as the La Verne College of Athens.
B. The Naples Campus and the Instituto
From 1976 to 2004, the University also operated an overseas campus in Naples, Italy. Like the Greek campus, the Naples campus was originally founded to serve American military personnel, but later was reorganized under “an Italian legal entity ‘Instituto di Studi Culturali La Verne University’ (hereinafter the ‘Instituto’).” Sexson served as president of the Instituto in the course of his employment with the University.
In 2002, the University learned that an investigation by the Italian government of the Instituto’s nonprofit and/or tax exempt status had uncovered an unpaid tax liability in excess of 1.3 million euros. In order to avoid financial liability for the Instituto’s unpaid tax obligation, the University encouraged Sexson to sign, in his personal capacity, an Italian tax amnesty agreement that made Sexson personally liable for a reduced tax liability of 600,000 euros. Sexson signed the amnesty agreement in reliance upon Morgan’s promise that the University would indemnify him.
C. The University’s Disavowal of the Somateo’s Liabilities
After learning of the Instituto’s unpaid tax liability, the University’s attorney (Mielle Nichols of the Seyfarth Shaw firm) audited the Athens program. The audit led defendants to realize “in late 2002, that they faced similar tax liability to that incurred in the Naples program. In a letter to [Sexson] dated December 6, 2002, defendant Stephen Morgan urged [Sexson] to ‘reorganize Athens in such a manner that the University no longer has financial responsibility or potential financial liabilities for its operations’ and urged plaintiff to implement various initiatives including ‘relocating of the [Athens] campus to new facilities.’”
The Athens faculty members were University faculty members who were “‘recruited, selected, and appointed under University policy and procedures but [were] listed as employees of the Somateo for tax purposes.’” The complaint does not explain why the required taxes were not paid, or whether the University was aware of the nonpayment.
Sexson, in accordance with Morgan’s instructions, leased a new facility for the Athens campus and began refurbishing it. Unbeknownst to Sexson, however, the University was “searching for possible buyers of the Athens Campus and its academic program.” When the University could not find a buyer, its “mounting concerns over the tax and other financial liability associated with” the Athens campus led the University “in early 2004[] to formulate an exit strategy similar to that they had employed in Naples, i.e., quickly leave town without paying the bills.”
“[I]n order to accomplish their exit strategy defendants needed to silence and neutralize” Sexson. Accordingly, they “undertook a plan to disengage from their branch campus without informing [Sexson], their other employees or their faculty.” In order to secure Sexson’s cooperation, “defendants induced [Sexson] to sign a severance agreement by promising to keep the Athens Campus operational and by promising to indemnify plaintiff for the Italian debt.”
The severance agreement was attached as an exhibit to the first amended complaint but not the third amended complaint. The severance agreement, which Sexson signed on September 3, 2004, stated in part that Sexson would serve as an independent consultant to the University. It further stated that Sexson was “aware of the University’s current desire to transfer the operations in Athens to another suitable educational institution” and that he agreed “to actively assist the University in achieving this goal.”
“As a result of the defendants’ false promises to keep the Athens Campus operational, Craig Sexson and others incurred debt and obligations as the Athens Campus prepared for the start of the fall 2004 term.”
On September 17, 2004, the University terminated its relationship with the Somateo and “formally disavowed any financial or legal responsibility for the affairs or debts of their Athens Campus, the La Verne College of Athens or the obligations that the employees of the University of La Verne incurred on behalf of the University of La Verne.” When “the defendants disavowed their legal and financial responsibilities they knew, or should have known, that the debts incurred for the operations of the La Verne College of Athens would be imposed on their employee Craig Sexson by virtue of his position as the managing director of the Athens Campus, and that those debts would expose plaintiff and others to criminal liability and financial ruin.”
In October 2004, the “defendants breached the severance contract [by] refusing to pay the balance due and refusing to indemnify [Sexson] for the Naples tax debt.”
D. Sexson’s Criminal and Civil Liabilities
In November 2005, Sexson learned that as the director of the Somateo, “he was being criminally charged by the IKA (the Greek Social Security Administration) for the non-payment of [the] Athens Campus faculty members’ social security taxes” in the amount of 275,000 euros. Sexson wrote to Morgan in January 2006, stating that he was being criminally charged for the nonpayment of debts incurred in the course and scope of his employment with the University. Sexson requested that the University “provide him with legal counsel and indemnification.”
Defendants refused to indemnify or provide a defense for Sexson. Morgan, “with full knowledge that [Sexson] faced incarceration for the non-payment of the IKA debt, responded to [Sexson] on February 14, 2006 stating ‘The University of La Verne has no responsibility, of any kind, for the liabilities of the Somateo.’”
Sexson’s attorney, Yanni Kelemenis, wrote to Morgan in April 2006, again seeking assistance regarding the unpaid tax liabilities. The request was ignored even though Kelemenis had warned “that [Sexson] faced incarceration if the University of La Verne failed to step forward.”
On April 10, 2006, Sexson was found criminally liable in Greece for nonpayment of IKA taxes and “received a 20 month suspended sentence and a €4,000 euro fine.” Sexson “faces additional criminal liability regarding failure to pay taxes to the IKA which will result in his receiving a substantial criminal sentence.” Sexson’s “inability to pay the fines assessed by the court for obligations of the Athens Campus will also result in his incarceration.” Additionally, Sexson “faces civil liability for the unpaid debts of the La Verne College Athens and the Athens Campus.” Sexson has incurred over $100,000 in necessary out-of-pocket expenditures and over $2 million in debts and obligations on behalf of the University.
II. Procedural Background
A. Original Complaint
Sexson filed his original complaint against the University, Morgan, and Hawkey on September 18, 2006. He alleged five causes of action, two against the University and three against all of the defendants. Against the University, he alleged claims for: (1) breach of the severance agreement, based on the University’s nonpayment of $40,000 and repudiation of its promise to indemnify Sexson for the Italian tax liability (first cause of action); and (2) violation of Labor Code section 2802, based on the University’s refusal to indemnify Sexson for debts and liabilities incurred on behalf of the University, including over $100,000 in out-of-pocket expenses and over $2 million in debts and obligations (fourth cause of action). Against all of the defendants, he alleged claims for: (1) fraud and deceit, based on the false promise that if Sexson signed the severance agreement, the University “would continue to operate the campus, implying the University of La Verne would be responsible for any accumulated debts and liabilities of the La Verne College of Athens and the Somateo,” and the false implied promise that the University would indemnify Sexson for the costs of relocating the campus and refurbishing the new premises (second cause of action); (2) intentional infliction of emotional distress, based on the defendants’ refusal to assist and indemnify Sexson for the debts and obligations that he incurred on behalf of the University, despite knowing that such refusal would expose plaintiff to criminal prosecution and financial ruin and cause him severe emotional distress (third cause of action); and (3) declaratory relief, seeking to resolve the parties’ dispute as to whether the debts and obligations incurred by Sexson were incurred on behalf of the University, which must indemnify him (fifth cause of action).
Labor Code section 2802 provides: “(a) An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful. [¶] . . . [¶] (c) For purposes of this section, the term ‘necessary expenditures or losses’ shall include all reasonable costs, including, but not limited to, attorney's fees incurred by the employee enforcing the rights granted by this section.”
In his prayer for relief, Sexson requested breach of contract damages of $1 million, indemnification of any past and future debts and obligations incurred in the course and scope of his employment, emotional distress damages, punitive damages, attorney fees incurred in the defense of any criminal and civil proceeding, attorney fees incurred in the prosecution of this action under Labor Code section 2802, declaratory relief, costs, interests, and any other relief that the court finds just and appropriate.
B. First Amended Complaint
On September 28, 2006, Sexson filed a first amended complaint that was similar to the original complaint. The University demurred to the third cause of action for intentional infliction of emotional distress and the fourth cause of action for violation of Labor Code section 2802. Morgan and Hawkey demurred to the second cause of action for fraud and deceit and the third cause of action for intentional infliction of emotional distress. All of the defendants moved to strike the complaint’s references to emotional distress damages and punitive damages.
With regard to the fraud and deceit claim, Morgan and Hawkey contended that because the severance agreement, which was attached as an exhibit to the complaint, “affirmatively provides . . . for Sexson’s assistance in closing the Athens campus,” the allegedly false representations made by Hawkey could not reasonably have been relied upon by Sexson. Morgan and Hawkey argued: “Accepting as true the knowledge of Sexson that the University was actively considering closing the Athens campus and that he would forseeably be compensated for assisting in such closure, Sexson cannot plausibly contend that he reasonably relied on a prior oral, superceded conversation in which it was allegedly stated that the campus would not be closed and implied that the University would assume all Somateo debts.” Morgan and Hawkey further contended that in signing a lease for new premises and incurring debt for the refurbishing of the premises, Sexson gratuitously incurred debt without any “express representation that the University would indemnify Sexson.” “It is patent that a general instruction to relocate campus facilities cannot be deemed a fraudulent covenant of indemnity for debts gratuitously personally assumed. Such an instruction is neither false nor true. The relief Sexson seeks is available, if at all, under the applicable labor law. And that remedy is available at law against the University, not against its innocent officer. [Fn. omitted.]”
As for the intentional infliction of emotional distress claim, Hawkey and Morgan argued that “[f]or the same reasons that the Complaint fails to allege actionable fraud, Sexson cannot sustain a cause of action for intentional infliction of emotional distress against Defendants Hawkey and Morgan.” They joined in the University’s demurrer, in which the University argued in part: “[U]nder the severance agreement, the University is at most liable for non-payment of a $40,000 consulting fee. Sexson’s claims that he has sustained meaningful damage as a result of fraudulent representations are equally illusory. Indeed, Sexson could not have detrimentally relied on oral representations that the Somateo would continue in operations, because under the severance agreement he agreed to assist in shutting down the operations of the Somateo. Similarly, assuming, arguendo, that Defendant Stephen Morgan, the University’s President, fraudulently promised to indemnify Sexson from Italian tax liability, as of September 3, 2004, no such liability had been asserted against him, and the complaint is devoid of reference to any subsequent enforcement efforts by the Italian government. [¶] It follows that, if Sexson has sustained any significant damage, the claim of damage must be predicated on the failure of the University to honor obligations under Labor Code § 2802. . . . [E]ven if section 2802 governed the University’s relationship with Sexson, under this section an employer is in general not liable to indemnify an employee for knowingly engaging in criminal conduct, may well have no liability to reimburse the costs of criminal defense, and certainly has no liability to advance costs of defense without a prior adjudication that section 2802 applies.”
By stipulation, the parties agreed to allow Sexson to file a second amended complaint.
C. Second Amended Complaint
In the second amended complaint, Sexson dropped his claim against the University for breach of the severance agreement. He continued to allege a claim against the University for violation of Labor Code section 2802 (third cause of action) and to allege claims against all of the defendants for fraud (first cause of action), intentional infliction of emotional distress (second cause of action), and declaratory relief (fourth cause of action).
The defendants again demurred and moved to strike the complaint’s references to emotional distress damages and punitive damages. The University pointed out that “[b]ecause Sexson’s second cause of action for intentional infliction of emotional distress is impliedly based on breaches of duty by the University, it is logical to consider whether the University has breached duties under LABOR CODE § 2802, before considering the viability of the second cause of action.” Notwithstanding the University’s position, the trial court overruled the demurrer to the Labor Code section 2802 claim and sustained, with leave to amend, the demurrer to the intentional infliction of emotional distress and fraud claims.
D. Third Amended Complaint
In the third amended complaint, which is the pleading at issue on appeal, Sexson dropped his fraud claim against all of the defendants. He alleged three causes of action for: (1) intentional infliction of emotional distress against all of the defendants (first cause of action); (2) indemnification under Labor Code section 2802 against the University (second cause of action); and (3) declaratory relief against all of the defendants (third cause of action).
The University demurred to the Labor Code section 2802 and intentional infliction of emotional distress claims. Although Hawkey and Morgan did not join in the University’s demurrer or file a separate demurrer to the intentional infliction of emotional distress claim, they joined in the University’s motion to strike the complaint’s references to emotional distress damages and punitive damages.
The University again argued in its demurrer that “[b]ecause Sexson’s first cause of action for intentional infliction of emotional distress is impliedly based on breaches of duty by the University, it is logical to consider whether the University has breached duties under LABOR CODE § 2802, before considering the viability of the first cause of action.” Notwithstanding the University’s position, the trial court sustained the demurrer, without leave to amend, as to the intentional infliction of emotional distress claim, but overruled the demurrer to the Labor Code section 2802 claim.
On August 24, 2007, the parties filed a joint stipulation in which they sought to apply to Morgan and Hawkey the order sustaining the University’s demurrer to the intentional infliction of emotional distress claim without leave to amend. The parties stated in relevant part: “The basis of the Application is that this court recently ruled on defendant’s demurrer to plaintiff’s Third Amended Complaint. As to the cause of action for Intentional Infliction of Emotional Distress, only Defendant University of La Verne demurred. It is the parties’ belief that had all defendants, including Morgan and Hawkey, joined in the demurrer, the court would have sustained the demurrer as to those defendants as the facts, claims and legal arguments would have been identical. It is plaintiff’s desire and intent to immediately appeal the court’s ruling on the demurrer as to Morgan and Hawkey.”
On August 24, 2007, the trial court approved the stipulation and entered an order that applied to Morgan and Hawkey sustaining without leave to amend the University’s demurrer to the intentional infliction of emotional distress claim. Also on August 24, 2007, the trial court entered a judgment of dismissal as to Morgan and Hawkey.
On August 28, 2007, Sexson filed a notice of appeal from the judgment of dismissal.
DISCUSSION
I. One Final Judgment Rule
When the trial court entered the judgment of dismissal as to Morgan and Hawkey on August 24, 2007, a third cause of action for declaratory relief was still pending against them. Sexson filed a notice of appeal on August 28, 2007, but did not dismiss the declaratory relief claim until September 19 (without prejudice) and 24 (with prejudice), 2007.
The first issue to be determined is whether Sexson violated the one final judgment rule by filing the notice of appeal from an interlocutory judgment. “Subdivision (a) of section 904.1 of the Code of Civil Procedure provides that an appeal may be taken from a judgment, excluding, with exceptions not relevant here, any appeal from an interlocutory judgment. [¶] It is generally recognized that the rule which only permits an appeal from one final judgment is designed to prevent oppressive and costly piecemeal disposition and multiple appeals in a single action, and so requires that review of intermediate rulings should await the final disposition of the case. (See Knodel v. Knodel (1975) 14 Cal.3d 752, 760 . . .; and Gosney v. State of California (1970) 10 Cal.App.3d 921, 928-929.)” (Tinsley v. Palo Alto Unified School Dist. (1979) 91 Cal.App.3d 871, 879-880.)
“Judgments that leave nothing to be decided between one or more parties and their adversaries, or that can be amended to encompass all controverted issues, have the finality required by section 904.1, subdivision (a). A judgment that disposes of fewer than all of the causes of action framed by the pleadings, however, is necessarily ‘interlocutory’ (Code Civ. Proc., § 904.1, subd. (a)), and not yet final, as to any parties between whom another cause of action remains pending.” (Morehart v. County of Santa Barbara (1994) 7 Cal.4th 725, 741.)
In this case, the August 24, 2007 judgment was initially a nonappealable interlocutory judgment because it disposed of only one of two causes of action against Morgan and Hawkey. (McMillin v. Ventura Sav. & Loan Assn. (1971) 15 Cal.App.3d 588, 589 [the purported appeal from a nonappealable interlocutory judgment was dismissed as premature because the judgment disposed of only one of three causes of action].) However, the interlocutory judgment became a final and appealable judgment against Morgan and Hawkey when Sexson dismissed the remaining declaratory relief claim with prejudice on September 24, 2007. At that point, the judgment was no longer interlocutory because there were no remaining claims to be litigated against Morgan and Hawkey.
In the trial court, the University pointed out several times that the claim for intentional infliction of emotional distress is intertwined with the claim for indemnity. Assuming that is the case, we conclude that the existence of unresolved issues between Sexson and the University does not compel us to dismiss the appeal as premature, because, as to Morgan and Hawkey, there are no unresolved issues and the judgment is, therefore, final as to them. Accordingly, the proper course is not to dismiss the appeal as premature but to determine whether Sexson has stated a cause of action against Morgan and Hawkey. (See Code Civ. Proc., § 579 [“In an action against several defendants, the court may, in its discretion, render judgment against one or more of them, leaving the action to proceed against the others, whenever a several judgment is proper”]; Tinsley v. Palo Alto Unified School Dist., supra, 91 Cal.App.3d at pp. 879-881 [in a case involving multiple defendants, the appellate court refused to dismiss as premature the appeal by some of the defendants from a judgment of dismissal (based on the sustaining, without leave to amend, of their demurrer), even though the action was still proceeding against otherwise identically situated defendants].)
Sexson contends that the trial court possessed jurisdiction to dismiss the declaratory relief claim with prejudice. We agree. Sexson’s initially premature notice of appeal did not divest the trial court of jurisdiction to dismiss the declaratory relief claim with prejudice and thereby dispose of the remaining cause of action against Morgan and Hawkey. (Maxwell v. Superior Court (1934) 1 Cal.2d 294, 297 [a purported appeal from a nonappealable interlocutory order will not divest the trial court of jurisdiction to proceed to final judgment].) Accordingly, we conclude that there was no violation of the one final judgment rule.
II. Standard of Review
“‘In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. “We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.” [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff.’ (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) ‘To meet [the] burden of showing abuse of discretion, the plaintiff must show how the complaint can be amended to state a cause of action. [Citation.] However, such a showing need not be made in the trial court so long as it is made to the reviewing court.’ (William S. Hart Union High School Dist. v. Regional Planning Com. (1991) 226 Cal.App.3d 1612, 1621.) ‘[W]e may affirm a trial court judgment on any basis presented by the record whether or not relied upon by the trial court.’ (Day v. Alta Bates Medical Center (2002) 98 Cal.App.4th 243, 252, fn. 1.)” (Blumhorst v. Jewish Family Services of Los Angeles (2005) 126 Cal.App.4th 993, 999.)
III. Intentional Infliction of Emotional Distress
“The elements of a prima facie case for the tort of intentional infliction of emotional distress are: (1) extreme and outrageous conduct by the defendant with the intention of causing, or reckless disregard of the probability of causing, emotional distress; (2) the plaintiff’s suffering severe or extreme emotional distress; and (3) actual and proximate causation of the emotional distress by the defendant’s outrageous conduct. (Fletcher v. Western National Life Ins. Co. (1970) 10 Cal.App.3d 376, 394; Alcorn v. Anbro Engineering, Inc. (1970) 2 Cal.3d 493, 497-499; State Rubbish etc. Assn. v. Siliznoff (1952) 38 Cal.2d 330, 336-339; 4 Witkin, Summary of Cal. Law (8th ed.) Torts, §§ 234-237, pp. 2515-2517.) ‘Whether treated as an element of the prima facie case or as a matter of defense, it must also appear that the defendants’ conduct was unprivileged.’ (Fletcher v. Western National Life Ins. Co., supra, 10 Cal.App.3d at p. 394; State Rubbish etc. Assn. v. Siliznoff, supra, 38 Cal.2d at p. 339; Rest.2d Torts, § 46, com. g.) Conduct to be outrageous must be so extreme as to exceed all bounds of that usually tolerated in a civilized community. (Alcorn v. Anbro Engineering, Inc., supra, 2 Cal.3d at p. 499, fn. 5; Fuentes v. Perez (1977) 66 Cal.App.3d 163, 170; Rest.2d Torts, § 46, com. d.)” (Cervantez v. J. C. Penney Co. (1979) 24 Cal.3d 579, 593-594.)
“An action for intentional infliction of emotional distress exists only where the defendant’s conduct was not privileged. (State Rubbish Etc. Assn. v. Siliznoff (1952) 38 Cal.2d 330, 336-339; Fletcher v. Western National Life Ins. Co. (1970) . . . 10 Cal.App.3d 376, . . . 395 . . . .) The assertion of an economic interest in good faith is privileged. (Fletcher v. Western National Life Ins. Co., supra, 10 Cal.App.3d 376, at 396.)” (Girard v. Ball (1981) 125 Cal.App.3d 772, 786-787.)
According to the complaint, Sexson suffered a criminal conviction in Greece based on the nonpayment of the faculty members’ social security taxes. Allegedly, he received a suspended sentence and was fined, and faces additional criminal convictions, imprisonment, and civil lawsuits for about $2 million in other debts and obligations incurred on behalf of the University in the course and scope of his employment. It is further alleged that the defendants’ refusal to indemnify Sexson “was not privileged.” According to the complaint, when Sexson “incurred the expenditures and losses in obedience to the directions of his employer University of La Verne, he never believed that any of the directions or duties he carried out were unlawful.”
Based on these allegations, Sexson contends that the trial court erred in determining, “as a matter of law, that no reasonable jury in California could find respondents’ conduct in disavowing their debts and leaving their long term employee to answer for them and to face jail and personal financial disaster, to be outrageous or capable of causing severe emotional distress.” Sexson argues that the University owed a duty of indemnity, which it recklessly disavowed despite knowing that this would subject Sexson to imprisonment and massive financial liability for the University’s debts. He asserts that “[a] jury would be fully justified in determining that respondents acted with reckless disregard of the probability of causing Sexson emotional distress by denying him indemnity which will result in prison and financial ruin due to the depletion of his life savings and his being saddled with fines and judgments. When Sexson and his attorneys notified Morgan that he was being criminally prosecuted and facing incarceration for debts of [the University] in the hundreds of thousands of euros, respondents were on notice that if they did not assist plaintiff, there was a high probability he would sustain emotional distress. [Record citation omitted.] And by taking what appellant alleges is a bad faith position that the debts belong to ‘the Somateo’ and that [the University] has no responsibility of any kind for them nor any duty to Sexson, respondents ‘recklessly disregard’ the high probability of causing Sexson emotional distress. [Record citation omitted.]”
In Douglas v. Los Angeles Herald-Examiner (1975) 50 Cal.App.3d 449 (Douglas), which Sexson cites in his reply brief, the plaintiff, a newspaper reporter, sued his employer, a newspaper company, for indemnity and monetary damages under Labor Code section 2802, claiming that he had incurred attorney fees and costs in defending an action that was filed against him because of services rendered in the course and scope of his employment. The plaintiff in Douglas had investigated a real estate developer’s allegedly unlawful activities and had written published articles about the developer’s activities. The developer sued the plaintiff in federal court for civil rights violations, alleging that the plaintiff had disclosed improperly obtained documents in the published articles. The plaintiff sued the employer for indemnity and damages incurred in defending against the developer’s lawsuit, as well as for punitive damages for the emotional distress allegedly resulting from the employer’s wrongful refusal to indemnify the plaintiff. After a bench trial, the trial court entered a judgment for the employer, but made no finding as to whether, as alleged in paragraph XIII of the complaint, the employer had authorized, ratified, and approved the plaintiff’s conduct. The appellate court reversed on appeal, concluding that the failure to enter a finding with regard to paragraph XIII of the complaint was reversible error. The appellate court stated that if the developer had sued the plaintiff “‘solely and exclusively because of acts performed for, at the direction of, and with the authorization and approval of [the employer] which acts of [plaintiff] were specifically ratified and approved by [the employer]’ as alleged in paragraph XIII of the complaint, then [the plaintiff] would be entitled to indemnity from [the employer] for the costs and expenses incurred in defending the” underlying action. (Id. at p. 462.) The appellate court further stated, “We have no doubt that Labor Code section 2802 requires an employer to defend or indemnify an employee who is sued by third persons for conduct in the course and scope of his employment.” (Id. at p. 461.)
Of further relevance to this appeal, the appellate court in Douglas also left open the possibility of the plaintiff’s recovery of punitive damages for the intentional infliction of emotional distress, stating: “[S]ince we have concluded that reversal is required, we will express no opinion regarding an award of damages for emotional distress or punitive or exemplary damages. On retrial, the trier of fact will determine as a fact whether or not [the employer] acted in bad faith or with malice.” (50 Cal.App.3dat p. 467.) Based on this language, Sexson argues that “emotional distress and punitive damages are available to a plaintiff who proves that his employer wrongfully denied indemnity and defense costs under section 2802 where the employee is sued for conduct arising out of his employment.”
Given that the same public policy that was at issue in Douglas applies to this case, we conclude the possibility of recovering punitive damages also exists in this case, provided the allegations are proven by the evidence. “California has a strong public policy that favors the indemnification (and defense) of employees by their employers for claims and liabilities resulting from the employees’ acts within the course and scope of their employment. That public policy has been codified in two statutes, [Labor Code section] 2802 and [Corporations Code section] 317, each of which provides broad rights to employees seeking indemnification and defense, and each of which has been expansively construed by California courts.” (Chin et al., Cal. Practice Guide: Employment Litigation (The Rutter Group 2007) ¶ 3:1, p. 3-1.) In light of this public policy, we believe it is possible, depending on the evidence, that a jury could reasonably find that defendants’ refusal to indemnify Sexson for the debts incurred in the course and scope of his employment was so reckless as to warrant the imposition of punitive damages.
Respondents argue that because their defense of privilege remains to be litigated in this case, they were justified in refusing to indemnify Sexson, and that their conduct, as a matter of law, was not outrageous. They contend that they are “privileged to litigate the following issues, among others: [¶] a) Whether SEXSON knowingly engaged in unlawful conduct other than at the direction of his employer. [¶] b) Whether LABOR CODE section 2802 applies to a long term, foreign resident employee. [¶] c) Whether Sexson’s failure to disclose non-payment of taxes by the Athens Campus constituted neglect or breach of fiduciary duty, giving rise to set-off or other defense to Sexson’s claims. [¶] Certainly, [the University] was privileged to contest its liability to Sexson on all these bases. Thus, the conduct of [the University] and the conduct of its officers, Morgan and Hawkey, is absolutely justifiable and not outrageous. (See Girard v. Ball (1981) 125 Cal.App.3d 772, 786-87; Deaile v. Gen. Tel. Co. of Calif. (1974) 40 Cal.App.3d 841, 849, 850.)”
These issues, however, do not establish that the complaint fails to state a cause of action against respondents. Even if Sexson is ultimately denied indemnification under Labor Code section 2802, respondents have not shown that Sexson is not entitled to equitable indemnity or to indemnity under the law of agency. The two cases cited by respondents are procedurally distinguishable in that neither case involved a demurrer. In Girard v. Ball, supra, 125 Cal.App.3d 772, the appellate court affirmed a summary judgment after finding that no triable issues of material fact had been raised by the complaint, the declarations, or the interrogatory answers. In Deaile v. General Telephone Co. of California, supra, 40 Cal.App.3d 841, the appellate court affirmed the judgment entered for the defendant following a jury trial.In this case, respondents have not ruled out the possibility that the evidence will favor the plaintiff and establish that the University’s refusal to indemnify him was not privileged or was made in bad faith.
We reject respondents’ contention that because Sexson’s claim is actually one for breach of contract, he is not entitled, as a matter of law, to tort damages. This contention is irrelevant because, as shown by the third amended complaint, Sexson is not alleging a breach of contract claim.
Finally, we note that although the University is not a party to this appeal, our determination that the complaint states a viable cause of action for intentional infliction of emotional distress will necessarily impact the University, which is identically situated with respondents. Because the trial court’s order sustaining the University’s demurrer without leave to amend is fatally inconsistent with our determination of the same legal issues, that portion of the trial court’s order cannot stand. We therefore direct the trial court on remand to reconsider its ruling on the University’s demurrer in accordance with the views expressed in this opinion.
DISPOSITION
The judgment is reversed and the cause remanded for further proceedings consistent with the views expressed in this opinion. Sexson is awarded his costs on appeal.
We concur WILLHITE, Acting P. J. MANELLA, J.