Dore v. Arnold Worldwide, Inc.

Facts

The statutory backdrop is Labor Code section 2922: an “employment, having no specified term, may be terminated at the will of either party on notice to the other” — a presumption that “can be overcome by an express or implied agreement to the contrary.” (Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 391–392, citing Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 336.)

Brook Dore was a regional account director at a Colorado advertising agency, specializing in automobile accounts. In 1999 he learned of a management supervisor position in the Los Angeles office of Arnold Worldwide, Inc. (AWI, then Arnold Communications). (Dore, supra, 39 Cal.4th at p. 387.) According to Dore, no one told him during his interviews that his employment would be terminable without cause or “at will.” Instead, he was told AWI had landed a new automobile account and needed someone to handle it long term; that he would “play a critical role in growing the agency”; that AWI wanted “a long-term fix, not a Band-Aid”; and that AWI employees were treated like family. He also learned his two predecessors had been terminated for cause. (Ibid.) AWI offered him the position by telephone in April 1999, and he orally accepted. (Ibid.)

Days later, Dore received a three-page letter from AWI senior vice-president Sharon McCabe, dated April 6, 1999, purporting to “confirm our offer” and to state “[t]he terms of this offer”: commencement date, compensation, and benefits in bullet points, plus a “90 day assessment” with “initial performance feedback,” objectives to be set for an annual review, and the prospect of discussing “consideration for being named an officer of Arnold Communications.” (Dore, supra, 39 Cal.4th at pp. 387–388.) Then came the paragraph “central to the present dispute”: “Brook, please know that as with all of our company employees, your employment with Arnold Communications, Inc. is at will. This simply means that Arnold Communications has the right to terminate your employment at any time just as you have the right to terminate your employment with Arnold Communications, Inc. at any time.” (Id. at p. 388.) The letter asked Dore to sign and return it to signify acceptance of “these employment terms.” He read it and signed. (Ibid.)

AWI terminated Dore’s employment in August 2001. He sued AWI and a related entity, Arnold Worldwide Partners, alleging breach of contract, breach of the implied covenant of good faith and fair dealing, intentional infliction of emotional distress, fraud, and negligent misrepresentation. (Dore, supra, 39 Cal.4th at p. 388.)

Procedural history

Both defendants moved for summary judgment. The trial court granted AWI’s motion “on the ground that Dore could not establish the existence of either an express or an implied-in-fact agreement that his employment was terminable only for cause,” and granted the related entity’s motion because it was not Dore’s employer. (Dore, supra, 39 Cal.4th at p. 388.) The trial court reasoned that because the express written contract — AWI’s letter — controlled, it “need not consider whether Dore’s proffered extrinsic evidence establishes the existence of an earlier implied agreement to terminate only for cause.” (Id. at pp. 391–392.)

The Court of Appeal affirmed as to Arnold Worldwide Partners but reversed as to AWI, directing entry of summary adjudication for AWI only on the negligent misrepresentation claim. In its view, the offer letter was not clear and unambiguous: by defining “at will” solely in terms of duration — the right to terminate “at any time” — AWI had “impliedly relinquished the right to terminate Dore without cause”; the court also pointed to extrinsic evidence, including a postemployment noncompetition and nondisclosure agreement AWI required Dore to sign. (Dore, supra, 39 Cal.4th at pp. 388–389, 392 & fn. 1.) The Supreme Court granted AWI’s petition for review and reversed the judgment of the Court of Appeal, unanimously; Justice Baxter (joined by Justice Corrigan) and Justice Moreno filed separate concurrences. (Id. at pp. 388, 394.)

Issue

Three questions, all resolved as matters of contract law on summary judgment. First, is a termination provision stating that employment may be ended “at any time” — without expressly saying “with or without cause” — reasonably susceptible to an interpretation permitting an implied-in-fact agreement that termination will occur only for cause? (Dore, supra, 39 Cal.4th at pp. 389, 391.) Second, even if “at any time” is not per se ambiguous, did AWI’s letter read as a whole — its evaluation-schedule provisions and its definition of “at will” — or Dore’s extrinsic evidence of long-term assurances expose a latent ambiguity requiring trial? (Id. at pp. 391–393.) Third, could Dore’s promissory fraud claim survive given his admission that he read, signed, and understood the at-will letter — that is, could he show justifiable reliance on alleged oral promises of long-term, for-cause employment? (Id. at pp. 393–394.)

Holding

Reasoning

The conceded rule and the disputed premise. Justice Werdegar began from ground Dore himself conceded: “a clear and unambiguous at-will provision in a written employment contract, signed by the employee, cannot be overcome by evidence of a prior or contemporaneous implied-in-fact contract requiring good cause for termination.” (Dore, supra, 39 Cal.4th at p. 389, citing the cases collected in Guz, supra, 24 Cal.4th at p. 340.) The whole case therefore reduced to whether AWI’s letter was clear and unambiguous. Review was de novo, with the opposing evidence liberally construed. (Id. at pp. 388–389, citing Yanowitz v. L’Oreal USA, Inc. (2005) 36 Cal.4th 1028, 1037.)

Resolving the appellate conflict over “at any time.” The Courts of Appeal were split on whether a provision for termination “at any time” or on specified notice is, “without more, reasonably susceptible to an interpretation allowing for the existence of an implied-in-fact agreement that termination will occur only for cause.” (Dore, supra, 39 Cal.4th at p. 389.) Seubert v. McKesson Corp. (1990) 223 Cal.App.3d 1514, Wallis v. Farmers Group, Inc. (1990) 220 Cal.App.3d 718, and Bert G. Gianelli Distributing Co. v. Beck & Co. (1985) 172 Cal.App.3d 1020 had said yes — treating termination clauses silent as to cause as open to extrinsic proof of a good-cause limitation; Bionghi v. Metropolitan Water Dist. (1999) 70 Cal.App.4th 1358 had said no, holding that a contract terminable on specified notice “allows termination with or without good cause” absent evidence the parties used the words “in some special sense.” (Id. at pp. 389–391.) The court sided with Bionghi’s logic and rejected the premise that silence about cause equals ambiguity about cause: “We disagree with Dore that the verbal formulation ‘at any time’ in the termination clause of an employment contract is per se ambiguous merely because it does not expressly speak to whether cause is required. As a matter of simple logic, rather, such a formulation ordinarily entails the notion of ‘with or without cause.’” (Id. at p. 391.) A footnote to the disposition made the housecleaning explicit, disapproving Seubert, Wallis, and Gianelli to the extent inconsistent. (Id. at p. 394, fn. 2.)

The whole-letter inquiry: latent ambiguity doctrine affirmed, but not triggered. The court was careful not to convert the “at any time” holding into a rule that ends contract interpretation at the document’s face. That a phrase “is not in itself ambiguous with respect to cause for termination does not preclude the possibility that AWI’s letter, when considered as a whole, contains ambiguity on the topic.” (Dore, supra, 39 Cal.4th at p. 391.) Ambiguity “arises when language is reasonably susceptible of more than one application to material facts”; “[e]ven if a contract appears unambiguous on its face, a latent ambiguity may be exposed by extrinsic evidence which reveals more than one possible meaning to which the language of the contract is yet reasonably susceptible”; and the test for admitting extrinsic evidence “is not whether [the instrument] appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.” (Ibid., quoting California State Auto. Assn. Inter-Ins. Bureau v. Superior Court (1986) 177 Cal.App.3d 855, 859, fn. 1, Morey v. Vannucci (1998) 64 Cal.App.4th 904, 912, and Pacific Gas & E. Co. v. G. W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 37.) Applied here, though, the doctrine produced nothing. The letter “plainly states” the employment was at will — and Dore “admitted as much and further admitted that he ‘read, signed, understood and did not disagree with the terms of the letter.’” (Id. at p. 392.) The 90-day assessment and annual review described an “employee evaluation schedule” and “neither expressly nor impliedly conferred on Dore the right to be terminated only for cause.” (Ibid.)

The definitional sentence is a restatement of section 2922, not a relinquishment. The Court of Appeal’s central move — reading the letter’s definition of “at will” (the right to terminate “at any time”) as an implied surrender of the right to terminate without cause — inverted the sentence’s plain function. AWI’s definition “used language similar to the language the Legislature used” in Labor Code section 2922, and under Guz, “[a]n at-will employment may be ended by either party ‘at any time without cause,’ for any or no reason, and subject to no procedure except the statutory requirement of notice.” (Dore, supra, 39 Cal.4th at p. 392, quoting Guz, supra, 24 Cal.4th at p. 335.) “For the parties to specify — indeed to emphasize — that Dore’s employment was at will (explaining that it could be terminated at any time) would make no sense if their true meaning was that his employment could be terminated only for cause. Thus, even though AWI’s letter defined ‘at will’ as meaning ‘at any time,’ without specifying it also meant without cause or for any or no reason, the letter’s meaning was clear.” (Ibid.)

Extrinsic evidence cannot manufacture susceptibility. Dore’s recruitment evidence — the “critical” role, the “long-term fix,” longtime employees, the family atmosphere — failed at the threshold: “Even if credited, such evidence would not support an inference that Dore reasonably understood AWI’s letter as consistent with a promise not to terminate him without cause.” (Dore, supra, 39 Cal.4th at pp. 392–393.) The court closed the analysis with the sequencing rule that decides most of these cases: “When a dispute arises over the meaning of contract language, the first question to be decided is whether the language is ‘reasonably susceptible’ to the interpretation urged by the party. If it is not, the case is over.” (Id. at p. 393, quoting Southern Cal. Edison Co. v. Superior Court (1995) 37 Cal.App.4th 839, 847.) The letter contained “no ambiguity, patent or latent, in its termination provisions,” so the contract and implied-covenant claims failed together. (Ibid.)

The fraud claim fails on reliance. Dore’s promissory fraud theory — that AWI lured him from secure Denver employment with promises of indefinite employment, for-cause termination, and notice-and-opportunity procedures it never intended to keep — foundered on his own concessions. He admitted no one at AWI “specifically told him he would be employed there so long as his work was satisfactory or that he could be fired only for good cause,” and he admitted reading, signing, and understanding the letter stating “the terms” of his employment, which “expressly and unambiguously stated that Dore’s employment was at will.” (Dore, supra, 39 Cal.4th at pp. 393–394.) His signature “as a matter of law defeats any contention that he reasonably understood AWI to have promised him long-term employment.” (Id. at p. 394.) Because reliance failed, the court did not reach AWI’s arguments on misrepresentation or intent not to perform. (Id. at p. 393.)

Justice Baxter, concurring: the Pacific Gas problem. Joined by Justice Corrigan, Justice Baxter agreed that the letter “could hardly have made it clearer” and that “[n]o rational person could believe this language meant both parties were obliged to continue the employment relationship except upon ‘good cause.’” (Dore, supra, 39 Cal.4th at p. 394 (conc. opn. of Baxter, J.).) But he refused to join “the majority’s general endorsement of Pacific Gas,” which in his view “essentially abrogated the traditional rule that parol evidence is not admissible to contradict the plain meaning of an integrated agreement,” leaving parties unable to “confidently conduct their affairs on the basis of the language they have drafted.” (Id. at p. 395 (conc. opn. of Baxter, J.).) Quoting Judge Kozinski’s critique in Trident Center v. Connecticut General Life Ins. Co. (9th Cir. 1988) 847 F.2d 564, 569, and Justice Mosk’s own second thoughts, Baxter read the majority as adopting a limiting construction — a “latent” ambiguity exists only when the language, applied to the facts of the dispute, is reasonably susceptible of the competing meaning, and “extrinsic evidence is admissible only to prove a meaning the contract’s language will reasonably accommodate.” (Id. at pp. 395–396 (conc. opn. of Baxter, J.).) He expressed hope “the majority’s limiting ‘gloss’ will be noted by the bench and bar,” and signaled openness to “a fuller reconsideration of the meaning and scope of Pacific Gas” in an appropriate case. (Id. at p. 396 (conc. opn. of Baxter, J.).)

Justice Moreno, concurring: “upon notice” is a different question. Justice Moreno — who also joined the majority — wrote separately to cabin the opinion’s discussion of notice-based termination clauses (Bionghi, Wallis): AWI’s letter said “at any time,” not “upon notice,” and the majority “has no occasion to express, and does not express, any view as to whether providing for termination ‘upon notice’ also connotes a mutual intention to create an at-will employment arrangement.” (Dore, supra, 39 Cal.4th at pp. 396–397 (conc. opn. of Moreno, J.).) In his view, “a provision that allows for termination ‘upon notice’ does not, by itself, shed light on whether the parties intended an at-will employment contract, or a relationship terminable only for cause.” (Id. at p. 397 (conc. opn. of Moreno, J.).)

Significance

Dore completes the modern at-will trilogy. Pugh v. See’s Candies, Inc. (1981) 116 Cal.App.3d 311 opened the door to implied-in-fact limits on termination drawn from the totality of the employment relationship; Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654 ratified that doctrine at the Supreme Court; and Guz recentered the analysis on Labor Code section 2922’s presumption while cataloguing the factors that can overcome it. Dore answers the question those cases left in daily contention: what happens when the implied-contract evidence collides with an express, signed at-will writing. The answer is categorical — if the writing is clear and unambiguous, the implied case never reaches a jury, and a definition of “at will” as terminable “at any time” does not blur the writing but restates the statute. (Dore, supra, 39 Cal.4th at pp. 391–392.) By disapproving Seubert, Wallis, and Gianelli (id. at p. 394, fn. 2), the court eliminated the line of authority that had treated cause-silence as interpretive open season, and effectively standardized the modern offer letter: post-Dore, a two-sentence at-will paragraph in a signed offer letter is summary judgment armor for the contract, covenant, and — through the reliance holding — fraud theories alike.

Two subtler contributions matter to litigators. First, Dore preserves — while visibly tightening — the Pacific Gas latent-ambiguity framework: extrinsic evidence remains admissible to expose a meaning “to which the language of the instrument is reasonably susceptible” (Dore, supra, 39 Cal.4th at p. 391), but the threshold susceptibility question is decided by the court, and if the language will not bear the proffered meaning, “the case is over.” (Id. at p. 393.) Justice Baxter’s concurrence, pressing for outright reconsideration of Pacific Gas, marks Dore as the high-water mark of the Supreme Court’s skepticism toward parol attacks on integrated writings. (Id. at pp. 395–396 (conc. opn. of Baxter, J.).) Second, Justice Moreno’s concurrence keeps a genuine question alive: Dore resolves “at any time” clauses, not “upon notice” clauses, and the majority expressly takes no position on the latter. (Id. at pp. 396–397 (conc. opn. of Moreno, J.).) For employees, the case’s practical lesson is stark — recruitment assurances of long-term employment, however emphatic, are legally inert once a clear at-will writing is signed; the claims that survive Dore are those (like FEHA and public-policy theories) that do not depend on contract at all.

Key quotes

“We disagree with Dore that the verbal formulation ‘at any time’ in the termination clause of an employment contract is per se ambiguous merely because it does not expressly speak to whether cause is required. As a matter of simple logic, rather, such a formulation ordinarily entails the notion of ‘with or without cause.’” (Dore, supra, 39 Cal.4th at p. 391.)

“For the parties to specify — indeed to emphasize — that Dore’s employment was at will (explaining that it could be terminated at any time) would make no sense if their true meaning was that his employment could be terminated only for cause.” (Dore, supra, 39 Cal.4th at p. 392.)

“When a dispute arises over the meaning of contract language, the first question to be decided is whether the language is ‘reasonably susceptible’ to the interpretation urged by the party. If it is not, the case is over.” (Dore, supra, 39 Cal.4th at p. 393, quoting Southern Cal. Edison Co. v. Superior Court (1995) 37 Cal.App.4th 839, 847.)

Read the full opinion (Justia) →

Practice pointer

Open questions

The most explicit reservation is Justice Moreno’s: the majority “has no occasion to express, and does not express, any view” on whether a termination-”upon notice” clause connotes at-will employment — so the Wallis/Bionghi problem for notice-based clauses remains formally open, with Moreno’s own view being that such a clause “does not, by itself, shed light” on the parties’ intent. (Dore, supra, 39 Cal.4th at pp. 396–397 (conc. opn. of Moreno, J.).) Second, the majority’s qualifier — “at any time” “ordinarily entails” with-or-without-cause (id. at p. 391) — leaves room for the unusual case in which extrinsic evidence shows the parties “used the words in some special sense” (id. at pp. 390–391, quoting Bionghi, supra, 70 Cal.App.4th at p. 1369); the opinion does not say what such proof would look like in an employment setting. Third, the fate of Pacific Gas itself: Justice Baxter’s invitation to undertake “a fuller reconsideration of the meaning and scope” of that decision (id. at p. 396 (conc. opn. of Baxter, J.)) was joined by only one other justice, and the majority’s “limiting gloss” — ambiguity must emerge from applying the language to the material facts, not from self-serving testimony alone — awaits further definition. Finally, because the court resolved the fraud claim solely on reliance, it “need not address” whether Dore’s evidence of misrepresentation or intent not to perform would otherwise have sufficed (id. at p. 393) — leaving open how a promissory-fraud claim fares where the alleged promises postdate, or expressly supplement, the signed at-will writing.