Weeks v. Baker & McKenzie

Facts

The statutory framework. The Fair Employment and Housing Act (FEHA) (Gov. Code, § 12900 et seq.) “makes unlawful the sexual harassment of an employee by any person. (Gov. Code, § 12940, subd. (h)(1).)” (Weeks, supra, 63 Cal.App.4th at p. 1146.) Under that subdivision “an employer is strictly liable for acts of sexual harassment committed by an agent or supervisor,” and Government Code section 12940, subdivision (i), “makes it unlawful ‘[f]or an employer . . . to fail to take all reasonable steps necessary to prevent discrimination and harassment from occurring.’” (Id. at p. 1146.) The FEHA does not itself authorize punitive damages; instead, “California’s punitive damages statute, Civil Code section 3294, applies to actions brought under the FEHA, including actions brought for sexual harassment.” (Id. at p. 1147.) Section 3294 permits punitive damages “where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice,” and subdivision (b) governs employer liability for an employee’s acts. (Id. at pp. 1147–1148.)

A decade of warnings before Weeks was hired. Greenstein became a capital partner in 1982. (Weeks, supra, 63 Cal.App.4th at p. 1138.) “In spring 1987, a secretary in the Chicago office told Linda Johnson, the director of administration, that Greenstein had committed acts of sexual harassment against her,” and the secretary “apparently threatened legal action.” (Ibid.) Johnson reported it to Robert Cunningham, chairman of the Chicago office committee, “telling Cunningham that she had just prevented a sexual harassment charge from being filed by the secretary.” (Ibid.) “Neither Cunningham nor any other person with authority over Greenstein took action as a result of Johnson’s report.” (Ibid.) When Johnson later threatened to resign over a salary increase she believed was meant “to prevent someone from filing a sexual harassment suit against the firm,” the increase was approved and “Johnson did indeed resign.” (Ibid.)

A pattern that “followed him.” Greenstein next bothered associate Melinda Faier, sending “a vulgar note,” throwing “a pencil at her breasts,” and on one occasion crawling “underneath the table to tickle her feet.” (Weeks, supra, 63 Cal.App.4th at pp. 1138–1139.) When confronted, partners told him only that “if it were to happen again, they would take steps,” and one warned that he would “kick his ass to China.” (Id. at p. 1139.) When Greenstein relocated to California in 1990, partners Cunningham and Coleman told the relocation liaison “that he tended to engage in juvenile conduct and they had received a complaint about him,” but “[n]one of these persons told individuals who might be working with Greenstein . . . that Greenstein could cause problems.” (Ibid.) The harassment continued in California against secretaries Donna Blow, Elyce Zahn, Julie Haydock-Davis, Vicki Gardner, and Twila Carlsen. (Id. at pp. 1139–1143.) Gardner, who complained and “pressed Atkin to see to it that Greenstein received counseling,” was transferred and ultimately “told to leave the firm.” (Id. at pp. 1143, 1159.) Tellingly, when employee Stephanie Brookins asked to speak about an unrelated matter, the office manager preemptively asked, “Is this about sexual harassment?” (Id. at p. 1145.)

The harassment of Weeks. Weeks began as Greenstein’s secretary on July 23, 1991. (Weeks, supra, 63 Cal.App.4th at p. 1146.) Within weeks, Greenstein “put his hand in her breast pocket and dropped more candies into the pocket,” then “put his knee in her lower back, pulled her shoulders back, and said, ‘Let’s see which breast is bigger.’” (Ibid.) He later lunged at her “with his hands cupped,” asked “What’s the wildest thing you have ever done?,” called her “an imbecile,” and on another occasion “grab[bed] her buttocks.” (Ibid.) Weeks “testified that Greenstein’s conduct left her petrified, angry and confused.” (Ibid.) After she complained, the firm transferred her; she “left Baker & McKenzie at the end of September.” (Id. at p. 1144.) The firm took no action against Greenstein “for over a year,” and when it finally removed him in 1993, the decision “was precipitated not by his acts of sexual harassment, but by . . . back-dating documents.” (Id. at p. 1145.)

Procedural history

Weeks filed her complaint on May 20, 1992. (Weeks, supra, 63 Cal.App.4th at p. 1145.) The trial in the San Francisco Superior Court before Judge John E. Munter was bifurcated under Civil Code section 3295. (Id. at p. 1152.) Baker & McKenzie “stipulated that it would be liable for compensatory damages under Government Code section 12940, subdivision (h)” if the jury found that Greenstein had sexually harassed Weeks. (Id. at p. 1146, fn. 3.) The jury found that Greenstein “was guilty of oppression or malice” and that Baker & McKenzie either had “advance knowledge of the unfitness” of Greenstein and continued to employ him with conscious disregard, “or (b) ratified the conduct.” (Id. at pp. 1152–1153.) It awarded $50,000 in compensatory damages, $225,000 in punitive damages against Greenstein, and $6.9 million against the firm, reduced to $3.5 million on the firm’s new-trial motion after Weeks agreed. (Id. at pp. 1137, 1165–1166.) The court also awarded $1,847,437.86 in attorney fees, calculated in part with a 1.7 multiplier. (Id. at p. 1137.)

Both defendants appealed. In an opinion by Stein, J., with Strankman, P. J., and Dossee, J., concurring, the Court of Appeal affirmed the judgment in all substantive respects but reversed and remanded the fee award for reconsideration of the multiplier. (Weeks, supra, 63 Cal.App.4th at pp. 1176–1177.) Rehearing was denied (with modification) June 2, 1998, and the Supreme Court denied review August 26, 1998. There was no dissent.

Issue

The appeal raised several questions, of which three drove the punitive-damages analysis: (1) whether punitive damages may be assessed directly against an employer under Civil Code section 3294, subdivision (b), “absent a showing that Baker & McKenzie itself was guilty of oppression, fraud, or malice” (Weeks, supra, 63 Cal.App.4th at p. 1153); (2) whether the employer’s liability under subdivision (b) is “merely vicarious,” such that the award against it “can be no greater than the award assessed against Greenstein” (id. at p. 1154); and (3) whether subdivision (b) requires an employer “to terminate the employment of an ‘unfit’ employee or be subject to liability for punitive damages” (id. at p. 1156). The court also addressed the admission of other-acts evidence, the excessiveness and due-process challenges to the awards, juror misconduct, and the fee enhancement.

Holding

Reasoning

The conduct described in subdivision (b) is itself the equivalent of malice. Baker & McKenzie’s lead argument was that the jury “made no such finding” that the firm itself was guilty of oppression, fraud, or malice. (Weeks, supra, 63 Cal.App.4th at p. 1153.) The court rejected the premise that a separate, freestanding finding is required. Tracing the 1980 enactment of subdivision (b) through Senate Bill No. 1989, the court explained that the provision “does no more than codify and refine existing law” and “authorizes the imposition of punitive damages on an employer in three situations”: advance-knowledge-and-conscious-disregard hiring, authorization or ratification, or the employer being “itself guilty of the oppression, fraud or malice.” (Id. at pp. 1153–1154.) Requiring proof of subdivision (a) malice on top of subdivision (b) conduct would render “surplusage the third alternative for employer liability,” violating the “cardinal rule of statutory construction that a construction that renders some words surplusage is to be avoided.” (Id. at pp. 1153–1154.) The court read College Hospital Inc. v. Superior Court (1994) 8 Cal.4th 704 not as imposing a separate malice requirement but as “recogniz[ing] that the conduct described in subdivision (b) is the equivalent of oppression, fraud, or malice.” (Id. at p. 1154.)

Liability is the firm’s own, not borrowed — so the award is not capped. The court squarely rejected the “merely vicarious” theory and its corollary cap. Subdivision (b) “does not authorize an award of punitive damages against an employer for the employee’s wrongful conduct. It authorizes an award of punitive damages against an employer for the employer’s own wrongful conduct.” (Weeks, supra, 63 Cal.App.4th at p. 1155.) Liability is “vicarious only to the extent that the employer is liable for the actions of its officer, director or managing agent in hiring or controlling the offending employee, in ratifying the offense or in acting with oppression, fraud or malice.” (Ibid.) Because deterrence “will not be served if the wealth of the defendant allows him to absorb the award with little or no discomfort,” capping the firm’s award at the employee’s “could have little deterrent effect.” (Ibid.) The court noted that “no court has adopted Baker & McKenzie’s position,” citing awards “inconsistent with that position,” including cases imposing six-figure punitive awards on employers with none against the employee. (Ibid.) The firm’s reliance on the discovery-bifurcation language of Civil Code section 3295, subdivision (d), failed because the Legislature would not be presumed “to alter existing substantive law . . . by means of a provision regulating the introduction of evidence.” (Id. at pp. 1155–1156.)

The duty is to take reasonable preventive steps, not to fire. Baker & McKenzie warned that affirmance “would require this court to say that, as a matter of law, Baker had no alternative but to fire Greenstein,” with “profound and serious consequences for California’s labor force.” (Weeks, supra, 63 Cal.App.4th at p. 1156.) The court agreed it would be “unreasonable and probably violative of public policy to require an employer to terminate any and every employee that might be expected to act inappropriately” — and resolved the tension by reading the statute differently. The phrase “employed him or her with a conscious disregard of the rights or safety of others” means “the employer may not employ or continue to employ the errant employee without taking action reasonably designed to protect the rights or safety of others.” (Id. at pp. 1157–1158.) Thus “[t]he question . . . is not whether the employee’s misconduct was such that termination was the only option, but whether the employer took reasonable steps to prevent the misconduct.” (Id. at p. 1158.) The court distinguished compensatory liability under Government Code section 12940, subdivision (i), which “may be predicated on negligent conduct,” from punitive liability, which “requires ‘conscious disregard.’” (Id. at p. 1158.) Applying that standard, substantial evidence showed the firm “turned a blind eye to complaints made about Greenstein,” failed to “place reports of Greenstein’s misconduct in his own personnel file,” and left Weeks “a highly foreseeable target” without warning or protection. (Id. at pp. 1159–1160.)

Other-acts evidence was admissible on punitive liability and on Greenstein’s mental state. Accepting “without analysis” that the firm’s stipulation to compensatory liability gave it grounds to object, the court held the evidence of Greenstein’s prior conduct nonetheless admissible because “[t]he majority of the evidence at issue was relevant not only to . . . liability for compensatory damages under Government Code section 12940, subdivision (i), but also to the question of its liability for punitive damages under Civil Code section 3294, subdivision (b).” (Weeks, supra, 63 Cal.App.4th at pp. 1160–1161.) As to Greenstein, the evidence was admitted not to prove conduct toward Weeks but, under Evidence Code section 1101, subdivision (b), to show that he “was fully aware that similar conduct would cause injury, and acted either with the intent to cause injury or with a willful and conscious disregard of Weeks’s rights.” (Id. at pp. 1162–1163.) The court rejected the jury-confusion argument, noting the firm “not only failed to request clarifying instructions but stipulated to those given,” and held a related misconduct complaint waived for lack of “a timely and proper objection.” (Id. at pp. 1162–1163.)

Neither punitive award was excessive, and neither offended due process. Applying the three Neal criteria — “the particular nature of the defendant’s acts,” “the amount of compensatory damages awarded,” and “the wealth of the defendant” — the court held the $3.5 million award, “5 percent of Baker & McKenzie’s net worth,” well within bounds, even though it was “70 times greater than the compensatory damages award.” (Weeks, supra, 63 Cal.App.4th at pp. 1166–1167.) The court refused to credit the firm’s “learned its lesson” argument, reasoning that “[l]imiting an award because of a defendant’s contrition . . . undermines the purpose of punitive damages.” (Id. at p. 1167.) On the federal due process challenge, the court framed “[t]he ultimate question” as “one of reasonableness,” turning on harm, “the reprehensibility of the defendant’s conduct,” potential harm to others, and wealth, and found the balance “reasonable and well within accepted parameters.” (Ibid.) The $225,000 against Greenstein — “less than five times” compensatory damages and only slightly above 10 percent of his stipulated $2 million net worth — was likewise sustained because there was “no evidence that payment of that sum will bankrupt him.” (Ibid.)

Juror misconduct, but no prejudice. One juror, whose wife had been an unnamed member of a 400-plaintiff class in a 1981 sex-discrimination case litigated by one of Weeks’s attorneys, did not disclose this on voir dire. (Weeks, supra, 63 Cal.App.4th at pp. 1167–1168.) Though “a presumption of juror misconduct may have been raised,” the presumption was rebutted: the juror “simply was unaware of Attorney Exelrod’s connection to his wife’s case,” and the record provided “no basis for assuming” his wife’s hiring-and-pay discrimination case “had any effect on his view of the present case for sexual harassment.” (Id. at pp. 1168–1169.)

The 1.7 multiplier was not justified. While fees were properly awarded under Government Code section 12965, subdivision (b) (and not under the “private attorney general” statute, Code Civ. Proc., § 1021.5, because the action “was brought not to benefit the public, but as a means of vindicating Weeks’s own personal rights and economic interest”), the court held the enhancement unsupported. (Weeks, supra, 63 Cal.App.4th at pp. 1170–1171.) The litigation “was difficult not because of the novelty or complexity of the issues, but because of the inherent difficulty of proving sexual harassment” — a difficulty “common to many” such cases — and a “windfall” of punitive damages “does not justify enhancement of attorney fees.” (Id. at pp. 1175–1176.) The fee order was reversed and remanded; the judgment was otherwise affirmed. (Id. at pp. 1176–1177.)

Significance

Weeks is a foundational California authority on employer punitive liability for sexual harassment, and one of the highest-profile FEHA verdicts of its era. Its enduring doctrinal contribution is the holding that the three forms of conduct in Civil Code section 3294, subdivision (b) — knowing-and-conscious-disregard retention, authorization or ratification, and the employer’s own oppression, fraud, or malice — are “the equivalent of oppression, fraud, or malice” rather than predicates that must be supplemented by a separate subdivision (a) finding. (Weeks, supra, 63 Cal.App.4th at p. 1154.) That reading defeats the recurring defense argument that a plaintiff must prove malice “twice” against a corporate employer, and it sits comfortably with the “managing agent” framework the Legislature substituted for the older “managerial capacity” test. (Id. at pp. 1150–1151.)

Equally consequential is the rejection of the “vicarious cap.” By holding that the firm’s liability “is not vicarious in the sense that the employer is liable for the wrongful conduct of the offending employee” (Weeks, supra, 63 Cal.App.4th at p. 1155), the court confirmed that a corporate employer’s punitive exposure is measured by its own culpability and its own wealth — not by the harasser’s. For plaintiffs, that uncouples the firm’s deep pockets from the individual’s; for defendants, it forecloses the tempting argument that a modest award against the harasser ceilings the corporate award. Finally, the duty-not-to-terminate analysis reframes the prevention duty in a way useful to both sides: the inquiry is whether the employer took reasonable preventive steps, “not whether the employee’s misconduct was such that termination was the only option.” (Id. at p. 1158.) The opinion’s limits are real: the court expressly declined to reach the ratification theory or any waiver question, and its fee-multiplier holding cautions trial courts against enhancing lodestar awards in single-plaintiff FEHA actions.

Key quotes

“Subdivision (b), however, governs awards of punitive damages against employers, and permits an award for the conduct described there without an additional finding that the employer engaged in oppression, fraud or malice.” (Weeks, supra, 63 Cal.App.4th at p. 1137.)

“Civil Code section 3294, subdivision (b) does not authorize an award of punitive damages against an employer for the employee’s wrongful conduct. It authorizes an award of punitive damages against an employer for the employer’s own wrongful conduct.” (Id. at p. 1155.)

“The question, therefore, is not whether the employee’s misconduct was such that termination was the only option, but whether the employer took reasonable steps to prevent the misconduct.” (Id. at p. 1158.)

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Practice pointer

Open questions

Whether the stipulated verdict form waived the malice argument. Because it concluded “that a specific finding of employer oppression, fraud or malice is not a prerequisite,” the court expressly “need not and do[es] not decide whether Baker & McKenzie waived the right to make a contrary argument by stipulating to a special verdict form that did not ask the jury to make that determination.” (Weeks, supra, 63 Cal.App.4th at p. 1153, fn. 9.)

Whether the firm “ratified” Greenstein’s conduct. Having found the failure-to-prevent theory sufficient, the court “find[s] it unnecessary to determine whether the evidence supports the further, alternative finding that Baker & McKenzie ratified Greenstein’s conduct.” (Weeks, supra, 63 Cal.App.4th at p. 1160, fn. 14.)

Whether some action short of termination would always suffice. The court left open whether Fitch v. Commission on Judicial Performance (1995) 9 Cal.4th 552 “requires a finding that Baker & McKenzie could have satisfied the duty it owed to its employees by some action short of terminating Greenstein,” questioning that reading but declining to “pursue the matter further.” (Weeks, supra, 63 Cal.App.4th at p. 1158, fn. 12.)

The proper formulation of the clear-and-convincing instruction. The court agreed BAJI No. 2.62 has been “criticized as an overabbreviation,” but held that “[n]o case . . . has found that the use of BAJI No. 2.62 is so misleading as to require reversal,” leaving any further refinement to “some additional mandate from the Supreme Court or the Legislature.” (Weeks, supra, 63 Cal.App.4th at p. 1165.)