BURDETTE v. CARRIER CORPORATION

Filed 1/17/08

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(Sacramento)

APPEAL from a judgment of the Superior Court of Sacramento County, Lloyd A. Phillips, Jr., Judge. Reversed.

Tucker, Ellis & West, Irene C. Keyse-Walker, Lawrence A. Callaghan; Lewis Brisbois Bisgaard & Smith, Claudia J. Robinson; for Defendants and Appellants.

Kenyon Yeates, Riegels Campos & Kenyon, Charity Kenyon; Anthony J. Poidmore for Plaintiff and Respondent.

In this defamation action, plaintiff John Burdette sued his former employer, Carrier Corporation, and several of Carriers employees for slanderous statements made by the employees regarding the circumstances surrounding Burdettes resignation from Carrier.

Prior to this action, Carrier brought a diversity action against Burdette in the federal district court seeking to recover money it claimed Burdette owed the company. Burdette filed a cross-claim on July 31, 2000, naming Carrier and Anthony Guzzi, its vice president of sales, as defendants, alleging inter alia that [o]n or about December of 1999 through the present [Carrier], through GUZZI and other unknown employees and agents disseminated false, slanderous information that Burdette had stolen money from Carrier and had conspired to and wrongfully taken money from Carrier and was generally dishonest in his employment dealings with Carrier, and that such statements injured his reputation and prevented him from maximizing his employment potential. (Italics added.)

The cross-claim was dismissed after the court granted Carriers motion for summary judgment because the actual statements at issue were made by Carrier management-level employees in the employment context and are privileged. The day after the date set for the hearing on the motion, Burdette filed documents (the depositions of employees Carnago and Fitzpatrick) he characterized as a supplemental opposition to the submitted summary judgment motion. He stated that [t]his new evidence clearly shows that rumor and gossip to the effect that Burdette was stealing was rampant in both the Sacramento and Reno offices of CARRIER. The court denied the request because [t]o allow Burdette to file additional documents in opposition to summary judgment after the movants filed their reply brief could deny them a fair opportunity to contest the documents. The judgment of dismissal became final on filing and Burdette did not file an appeal.

Burdette filed this action on December 27, 2002, alleging that on or about December of 1999 through the present, including the period alleged in the dismissed federal action, Carrier Corporation and several of Carriers employees, including Carnago and Fitzpatrick, disseminated slanderous information essentially tracking the claim in the federal action.

The case was tried before a jury over Carriers objection that the action was barred by res judicata and the one-year statute of limitations. All but one of the statements tendered in the state action, the statement made to Mike Lotspeich by Fitzpatrick (Fitzpatrick statement), were shown to have been made during the period encompassed by the federal action. The damages evidenced at trial were collectively attributed not only to the Fitzpatrick statement but also to the statements at issue in the federal action. The jury awarded Burdette $1,065,750 in compensatory damages, $3.5 million in punitive damages against Carrier, and $9,000 in punitive damages against Carriers employee, Edward Fitzpatrick.

At issue is the preclusive effect of a federal judgment in a state court based upon the granting of a summary judgment in the federal action. That tenders two aspects of res judicata, claim preclusion and issue preclusion. They are subject to being confused because the cross-claim against Carrier and the issue decided in the federal action are both predicated upon statements made by Carrier employees during the period covered by the federal cross-claim.

Burdette argues that res judicata does not bar the state action against Carrier, Carnago and Fitzpatrick because the claim, based upon late discovery of the defamatory material, constitute[s] separate or distinct causes of action that were not placed in issue in the former case. We disagree.

Claim preclusion bars a second action upon the same claim against the same parties litigated to a final judgment in a prior action. A diversity claim resolved in a federal action is subject to the law of res judicata of the state in which the federal court sits. (See Semtek Intern. Inc. v. Lockheed Martin Corp. (2001) 531 U.S. 497 [149 L.Ed.2d 32] (Semtek).) In this case it is California. The test of the claim is the cause tendered by the pleadings and resolved on the merits.

A trial on the merits includes a trial in which the plaintiff fails to provide evidence in support of the claim.

Res judicata bars the relitigation not only of claims that were conclusively determined in the first action, but also matter that was within the scope of the action, related to the subject matter, and relevant to the issues so that it could have been raised. (Sutphin v. Speik (1940) 15 Cal.2d 195, 202; Merry v. Coast Community College Dist. (1979) 97 Cal.App.3d 214, 222.) A party cannot by negligence or design withhold issues and litigate them in consecutive actions. Hence the rule is that the prior judgment is res judicata on matters which were raised or could have been raised, on matters litigated or litigable. (Sutphin v. Speik, supra, at p. 202.)

The claim tendered in the federal action against Carrier was that it was liable for defamatory statements made by Guzzi and other unknown employees during the period stated in the pleading. The court ruled on the merits of the claim as tendered. The federal court denied Burdette the right to produce new evidence of information provided by Carnago and Fitzpatrick during the period covered by the claim and the court found the remaining statements by Guzzi to be privileged.

Thus, claim preclusion operates to bar the claim against Carrier in this action based upon the Carnago and Fitzpatrick statements made during the period covered by the federal claimbecause they were raised or could have been raised in the federal action. In addition, issue preclusion bars the claim against Fitzpatrick because the issue of defamatory remarks by other unnamed employees was tendered by the pleading in the federal action and resolved against Burdette in the summary judgment proceeding. (See Clemmer v. Hartford Insurance Co. (1978) 22 Cal.3d 865, 874.)

However, this does not extend to the Fitzpatrick statement to Lotspeich made after the period covered in the federal action. Each new defamatory statement may be made the basis of a separate cause of action and hence Carrier and Fitzpatrick may be made liable for the statement because it was not within the claim or issue adjudicated in the federal action. However, the damages assessed in this action were cumulatively attributed not only to the Fitzpatrick statement to Lotspeich but also to the Carnago and Fitzpatrick statements made during the period covered in the federal action. Accordingly, the judgment against Carrier and Fitzpatrick arising from theFitzpatrick statement to Lotspeichmust be reversed because the trial court failed to limit the damages to those caused by Fitzpatricks statement alone.

We shall reverse the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

A. The Principal Players

Burdette was hired by Carrier upon his graduation from college in 1995. He was a sales engineer in Salt Lake City for about a year and one-half before relocating to Sacramento in 1997.

Ed Fitzpatrick was one of the owners of an air conditioning business in Reno, Nevada. After the business was acquired by Carrier, Fitzpatrick became the manager of Carriers Reno office. Fitzpatrick left Carrier in August 2004.

Joan Carnago was the human resource coordinator out of Carriers Sacramento office. She left Carrier in 2002.

Phil Williams was Burdettes supervisor. Williams began working for Carrier after graduating from college in 1980. He was the area general manager for Northern California and Nevada. Williams left Carrier in September 1999.

At the regional level were James Jensen and Bernie Halterbeck. Jensen was the regional finance manager for the western region. Jensen was hired to fill that position in May 1999, and was still in the position at the time of trial. Halterbeck was Carriers regional general manager for the western region. He was Williamss supervisor. Carrier fired Halterbeck in January 2000.

Anthony Guzzi was the vice president and general manager of commercial sales and service in North America for Carrier from June 1998 to December 2000.

B. The Events Surrounding the Defamation Claim

An apparent misunderstanding over Burdettes entitlement to sales commissions coming out of Carriers Reno branch sparked the defamatory statements at issue. Williams and Halterbeck recruited Burdette to work in Carriers Sacramento office in 1997. Burdette testified his understanding was that all of the accounts in the Sacramento and Reno territory would be assigned to him. After Burdette found out that Carrier was acquiring Fitzpatricks Reno company, he became concerned that he would no longer be assigned to all of the Reno accounts. He spoke to Williams about his concerns, and Williams told him not to worry because the Reno branch would be a service branch with no incentivized sales people. An incentivized salesperson was one who earned a base salary plus commissions, pursuant to the company formula.

Williams testified that he never told Burdette he was to receive credit for jobs sold through the Reno branch simply because it was his territory. He would receive credit only for specific projects in which he had specific involvement. Williams claimed he never promised Burdette he would be given 100 percent credit on all jobs out of the Reno branch. Williamss understanding was that Burdette would not receive a commission unless he had physically performed some work to help Carrier achieve the sale.

When leads from the Reno area did not go through Burdette for handling, he first tried talking to the people in Reno. When this did not change anything, he got Williams involved, who agreed to discuss the matter with Fitzpatrick in Reno. In 1999, Burdette started keeping track of a number of accounts out of the Reno office to see if they had been credited to him. He discovered they were not, so using a regional password he had learned about when he was in Salt Lake City, he started to enter his identification number on the accounts. However, Carriers policy was that only the regional finance manager (Jensen) and his assistant had access to the regional password.

In November 1999, Burdette was questioned as to why he was getting all the commissions in the Reno area. Carrier demanded that he pay back the credit he received from the Reno accounts, amounting to over $100,000. In January 2000, Carrier placed Burdette on paid, indefinite suspension, meaning he would receive his base salary, but he was not to sell for or represent Carrier in any way. Burdette resigned shortly afterward.

After a couple of months, Burdette was hired by Advanced Microtherm. He worked for Advanced Microtherm for six or seven months before taking a better offer with Norman Wright.

C. The Defamatory Statements

Burdette asserts that the defamatory statements were made by Fitzpatrick and Carnago. Carnago admitted discussing with Fitzpatrick on one occasion that Burdette had put his sales I.D. on jobs for which he was not entitled to receive sales credit. They exchanged the opinion that they thought what Burdette had done was dishonest. This occurred sometime after Burdette left Carrier in January 2000. There was evidence that prior to the discussion with Fitzpatrick, Carnago had expressed these views with other Carrier employees as well.

Burdette testified to the effect these slanderous statements had on him. He offered the testimony of James Lazor, the CEO of the Edward B. Ward Company (EB Ward). EB Ward is an independent distributor for Carrier. In December 1999, Carrier announced it would eliminate all of the commissioned sales people in the western region, and that EB Ward would be giving job offers to the Carrier salespeople. However, Lazor told Burdette he would not be receiving a job offer until his issue with Carrier was resolved. Burdette testified that when he was at Advanced Microtherm he was less confident because he was confronted by customers who had heard about what had happened at Carrier.

Burdette presented evidence of one incident he alleged to be slanderous, which occurred after the other statements. Fitzpatrick and Mike Lotspeich were on a business lunch in July 2002, when Fitzpatrick called Burdette a thief and a crook and said that he stole from Carrier. Lotspeich was the vice president of Norman S. Wright Mechanical Equipment, and Burdettes boss at the time. Lotspeich immediately called Burdette and the company president to tell them about the conversation.

D. The Federal Action

On June 8, 2000, Carrier filed an action in federal court, alleging Burdette had wrongfully used the regional password to give himself full credit for jobs in which he had limited or no involvement, and seeking the return of $163,351.00 in wrongfully obtained commissions.

Burdette filed a cross-claim on July 31, 2000, alleging, inter alia, that [o]n or about December of 1999 through the present, Guzzi, vice president of sales for Carrier, and Carrier, through GUZZI and other unknown employees and agents, defamed him by claiming he had stolen from Carrier, had wrongfully taken money from Carrier, had conspired with his superiors to wrongfully take money from Carrier, had paid kick-backs to his superiors, and was generally dishonest in his employment dealings with Carrier. (Italics added.)

On January 7, 2002, Carrier filed a motion for summary judgment and a statement of undisputed facts on Burdettes cross-claim, to be heard on February 4, 2002, and points and authorities claiming that Guzzis statements were entitled to a conditional privilege because they were made to key co-employees and management of the company itself.

On January 22, 2002, Burdette filed a separate statement of undisputed facts and points and authorities in opposition to summary judgment claiming that Carrier and Guzzi were not entitled to a conditional privilege because their statements were made with malice.

On the day set for the hearing on the motion for summary judgment, February 4, 2002, Burdette filed a motion to continue the hearing to permit consideration of supplemental evidence on the ground that he had just received the transcript of the depositions of Joan Carnago and Ed Fitzpatrick, which disclosed that Carnago had admitted that she and numerous Carrier employees had exchanged discussions that Burdette was a thief and had improperly taken sales credits from Carrier. The day after the date set for the hearing on the motion, Burdette filed documents he characterized as a supplemental opposition to the submitted summary judgment motion. The supplemental documents indicated that the depositions of Fitzpatrick and Carnago had been set for late November 2001, during the time that discovery was still open. However, because Carriers attorney was unavailable, Burdettes attorney agreed to postpone the depositions, which were then taken on January 23, 2002. The documents claim that in her deposition, Carnago admitted that she and numerous Carrier employees had discussed that Burdette was allegedly a thief and had improperly taken sales credits from Carrier. Burdette requested the court grant a continuance in ruling on the summary judgment motion so that the deposition testimony of Fitzpatrick and Carnago could be considered by the court in ruling on the motion. The court denied the continuance.

The federal district court granted Carriers summary judgment motion of Burdettes cross-claim. As to the defamation cross-claim, the court found that the actual statements at issue were made by Carrier management-level employees in the employment context and are privileged. . . . Furthermore, Burdette failed to produce evidence of malice. Burdette took no appeal from the federal judgment.

E. This Proceeding

Burdette filed this action for defamation on December 27, 2002. He alleged that on or about December of 1999 through the present, including the period alleged in the federal action, defendants Carnago, Amy Adams, Chris Countryman, Fitzpatrick and doe defendants had made statements claiming he had stolen from Carrier, had wrongfully taken money from Carrier, had conspired with his superiors to wrongfully take money from Carrier, and that he was generally dishonest in his employment dealings with Carrier. He alleged Carrier had approved and ratified these statements.^[1]

Defendants demurred to the complaint on several grounds, including res judicata and the statute of limitations. With respect to the statute of limitations, defendants argued that plaintiffs complaint had been filed a year and one-half after his cross-claim in the federal case, and that the statute of limitations for a defamation cause of action is one year. (Code Civ. Proc. 340, subd. (c).) Burdette countered that each publication is a separate injury and separate tort, and that he was unaware of the publications alleged in this case until January 23, 2002, the date of the Fitzpatrick and Carnago depositions in the federal case.

The trial court overruled the demurrer, stating:

[T]he action is not barred by res judicata. The federal court . . . specifically found that Civil Code 47 applied because the actual statements at issue were made by Carrier management-level employees in the employment context and are privileged. Although the named defendants in both cases are alleged to be employees of defendant Carrier Corporation, defendants offer no basis on which the court might find that the named defendants here are the management-level employees in the federal action. . . . [T]he action is not barred by the one-year statute of limitations of CCP 340. Plaintiff filed his complaint on December 27, 2002. He alleges that he did not learn of the defamation until approximately January 23, 2002. The fact that plaintiff knew Guzzi made statements in 2000 does not mean that plaintiff learned of defendants statements at that time.

Defendants raised these arguments again in a motion for summary judgment. The trial court denied the motion, finding:

[Defendants] have not established that the claim for defamation is barred by res judicata. Although [the federal court] found for Carrier on Burdettes defamation claim which was based on the same type of statements alleged herein, Defendant has not established that the federal action based on statements of [Guzzi] and other employees were the same claims that are the subject of this action or that the claims were against the same parties. Plaintiff has submitted evidence that he did not discover the acts of these particular defendants until after his opposition to the federal summary judgment motion was due. . . . Thus, Burdette has submitted evidence that the claims alleged herein are not the same claims that were the subject of the Federal action and that he did not have the opportunity to litigate these claims against Carrier or the individual defendants in the federal action. . . .

. . . [T]here is a triable issue of fact as to the statute of limitations on the claim against Carrier since plaintiff has submitted evidence that the defamatory statements were discovered after defendants motion for summary judgment in the federal action was filed, which was within one year of the filing of this action.

The jury rendered a verdict in Burdettes favor, awarding him $1,065,750 in compensatory damages, plus $3.5 million in punitive damages against Carrier and $9,000 in punitive damages against Fitzpatrick.

DISCUSSION

Carrier argues on appeal, as it did at trial, that Burdettes claims are barred by the statute of limitations. We agree that the statute of limitations bars all claims of defamation except Fitzpatricks statement to Lotspeich, but we find that these claims suffer more fundamentally from the bar of res judicata. Although Carrier raised this issue on demurrer, summary judgment, and motion for judgment notwithstanding the verdict, it did not raise the issue on appeal. We therefore requested supplemental briefing from the parties on this issue.

I

Res Judicata

The Restatement Second of Judgments describes res judicata as the limitations on the opportunity in a second action to litigate claims or issues that were litigated, or could have been litigated, in a prior action. (Rest.2d Judgments, Intro., ch. 1, p. 1.) The limitations fall into the categories of claim preclusion and issue preclusion. (Ibid.) The principle underlying the rule of claim preclusion is that a party who once has had a chance to litigate a claim before an appropriate tribunal usually ought not to have another chance to do so. A related but narrower principle -- that one who has actually litigated an issue should not be allowed to relitigate it --underlies the rule of issue preclusion. (Id. at p. 6.) Both aspects of res judicata are at play in this action.

A. Claim Preclusion

The claim-preclusive effect of the prior federal judgment is determined by California law. In Semtek, supra, 531 U.S. at page 499 [149 L.Ed.2d at p. 37], the Supreme Court addressed the question whether the claim-preclusive effect of a federal judgment dismissing a diversity action on statute-of-limitations grounds is determined by the law of the State in which the federal court sits." (Ibid.) The court said that federal common law governs the claim-preclusive effect of a dismissal by a federal court sitting in diversity, and that since state rather than federal substantive law is at issue, there was no need for a uniform federal rule. (Id. at p. 508 [pp. 42-43].) Thus, the court held the dismissal on the merits was governed by a federal rule that in turn incorporates the state law of claim-preclusion. (Ibid.)

The California Supreme Court has defined the doctrine of claim preclusion as follows: a final judgment, rendered upon the merits by a court having jurisdiction of the cause, is conclusive of the rights of the parties and those in privity with them, and is a complete bar to a new suit between them on the same cause of action. This is the general doctrine of res judicata. (Goddard v. Security Title Insurance & Guarantee Co. (1939) 14 Cal.2d 47, 51.)

1. Final Judgment

It is the federal rule that a judgment once rendered is final for purposes of res judicata until reversed on appeal, modified or set aside in the court of rendition.[] (Colhoun v. Franchise Tax Bd. (1978) 20 Cal.3d 881, 887.) (Agarwal v. Johnson (1979) 25 Cal.3d 932, 954, fn. 11, disapproved on another ground in White v. Ultramar (1999) 21 Cal.4th 563, 575.) Thus, the federal judgment in Carriers favor was a final judgment for purposes of claim preclusion until reversed on appeal and Burdette did not take an appeal.

2. On the Merits

The judgment in the federal case was on the merits because the substance of the claim (whether any Carrier employee, including Guzzi, defamed Burdette during the designated time period) was tried and determined by way of summary judgment. (Johnson v. City of Loma Linda (2000) 24 Cal.4th 61, 77.)

3. Parties and Those in Privity

Carrier was a party to both actions, thus Burdettes claim for defamation against Carrier was based upon statements by Carrier employees during the time period alleged in the federal action is barred. However, the individual employees named as defendants in this action were not parties to the federal action, nor were they in privity with Carrier, as we shall explain. Therefore, the action is not barred against them under the doctrine of claim preclusion, although we shall conclude the issue of their having made defamatory statements was decided in the prior action, and Burdette is collaterally estopped from raising the issue again.

The Restatement Second of Judgments, section 51, describes the instances in which a party may be in privity where one is vicariously responsible for the conduct of the other.

If two persons have a relationship such that one of them is vicariously responsible for the conduct of the other, and an action is brought by the injured person against one of them, the judgment in the action has the following preclusive effects against the injured person in a subsequent action against the other.

(1) A judgment against the injured person that bars him from reasserting his claim against the defendant in the first action extinguishes any claim he has against the other person responsible for the conduct unless:

(a) The claim asserted in the second action is based upon grounds that could not have been asserted against the defendant in the first action; or

(b) The judgment in the first action was based on a defense that was personal to the defendant in the first action. (Id. at pp. 47-48.)

A Maryland Supreme Court case illustrates the applicability of this rule, and why the application here results in a finding that claim preclusion does not bar the action against the individual employees, other than Guzzi. In DeLeon v. Slear (Md. Ct.App. 1992) 616 A.2d 380, a doctor filed a diversity action in federal court against a hospital and the hospitals head of surgery, alleging defamatory complaints were made against him. (Id. at p. 382.) The doctor learned during discovery in the federal action that two nurses were the source of the complaints against him, but he did not name either of the nurses in the federal action.^[2] (Id. at p. 383.) The federal court granted the defendants summary judgment motion on the ground, inter alia, that the statements were privileged. (Ibid.)

The doctor then brought an action for defamation in state court against the nurses. (DeLeon v. Slear, supra, 616 A.2d at p. 383.) The nurses defended on the grounds of res judicata, collateral estoppel, and the statute of limitations. (Id. at p. 384.) The issue before the Maryland Supreme Court was whether the doctors claims were barred by the claim preclusion aspect of res judicata. (Id. at p. 385.)

Citing section 51 of the Restatement Second of Judgments, the court held that neither of the exceptions set forth in that section applied. The court held that exception (a) (the claim could not have been asserted in the first action) did not apply because it contemplated allowing a second action only when there was actually an independent claim that could not have been asserted in the first action. (DeLeon v. Slear, supra, 616 A.2d at pp. 387-388.)

The court further held that exception (b) (the judgment was based on a defense that was personal to the first defendant) was inapplicable, even though the judgment in federal court was based on the defense of privilege. (DeLeon v. Slear, supra, 616 A.2d at p. 388.) This was because the federal court alternatively based the judgment on other grounds, and because the conditional privilege was applicable to the nurses, as well as the hospital. (Ibid.)

In the case before us, the only defense identified by the federal court was privilege, and the privilege arguably would not apply to employee statements if there was not a sufficient common interest in the communications. Thus, the privilege was one Carrier could assert, but its lower level employees might not. Therefore, the doctrine of claim preclusion prevents Burdette from reasserting a claim for defamation against Carrier, but does not prevent the assertion of a defamation claim against Carnago or Fitzpatrick.

4. Same Cause of Action

Since under Semtek, supra, the measure whether a judgment in a federal diversity action is to be given preclusive effect is determined by the law of the state in which the federal court sits it is the California law that measures the nature of the claim to be given preclusive effect.

California adheres to a primary rights theory in determining whether the claims or causes of action are the same. (Agarwal v. Johnson, supra, 25 Cal.3d at p. 954.) The significant factor is whether the claim or cause of action is for invasion of a single primary right. (Ibid.) Whether the same facts are involved in both suits is not conclusive. (Id. at pp. 954-955.)

Moreover, more than one act may constitute a single cause of action. Under Pomeroys primary rights theory, . . . a cause of action consists of 1) a primary right possessed by the plaintiff, 2) a corresponding primary duty devolving upon the defendant, and 3) a delict or wrong done by the defendant which consists in a breach of such primary right and duty. [Citation.] Thus, two actions constitute a single cause of action if they both affect the same primary right. (Gamble v. General Foods Corp. (1991) 229 Cal.App.3d 893, 898, accord Weikel v. TCW Realty Fund II Holding Co. (1997) 55 Cal.App.4th 1234, 1246.)

Story continues as Part II ..

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^[1] Burdette dismissed all of the individual defendants except Fitzpatrick at trial.

^[2] Although Burdettes federal cross-claim named Roe defendants, Burdette never attempted to amend the cross-claim to name the Carrier employees, or if he did it is not a part of this record. There are no charging allegations against the Roe defendants in Burdettes cross-claim, as would be required under California law. While the federal rules do not specifically prohibit the naming of doe defendants, the use of fictitious defendants is disfavored in federal court. (Sigurdson v. Del Guerico (9th Cir. 1956) 241 F.2d 480, 482; Craig v. U.S. (9th Cir. 1969) 413 F.2d 854, 856.)