Kelly-Zurian v. Wohl Shoe Co.

Facts

The Fair Employment and Housing Act makes it an unlawful employment practice for an employer, because of sex, “to harass an employee,” and provides that harassment “by an employee other than an agent or supervisor shall be unlawful if the entity, or its agents or supervisors, knows or should have known of this conduct and fails to take immediate and appropriate corrective action.” (Gov. Code, § 12940, subd. (h)(1); Kelly-Zurian, supra, 22 Cal.App.4th at p. 415.) Harassment becomes actionable as a hostile environment when the workplace is “permeated with discriminatory intimidation, ridicule and insult that is ‘ “sufficiently severe or pervasive to alter the conditions of the victim’s employment and create an abusive working environment.” ’ ” (Id. at p. 409, quoting Harris v. Forklift Systems, Inc. (1993) 510 U.S. 17.)

Wohl Shoe Company hired Kathleen Joyce Kelly-Zurian in May 1979 as a manager trainee at its Fox Hills store; she was promoted to store manager in 1980 and, in 1984 at age 25, to regional supervisor in charge of six Los Angeles–area stores. (Kelly-Zurian, supra, 22 Cal.App.4th at p. 406.) At the time of that promotion, Robert Lawicki was a company administrator in charge of two supervisors, including Zurian. (Ibid.) During Zurian’s first week in the new position, on a drive to a store in Oxnard, Lawicki put his hand on her knee and asked whether she “fooled around”; she responded that she wished he would leave her alone and wanted only a business relationship, and did not report the incident at the time. (Ibid.)

For the next three years, the court recounted, Lawicki harassed Zurian “both physically and verbally.” (Kelly-Zurian, supra, 22 Cal.App.4th at p. 406.) He came up from behind and put both his hands on her breast, pinched her buttocks as he walked by, and on one occasion grabbed her crotch and asked “if [she] was wet.” (Ibid.) He made repeated graphic inquiries about her body, her underwear, and her sexual activity. (Ibid.) “At no time did Zurian engage in any sexual activity with Lawicki.” (Ibid.) Lawicki, by contrast, testified the two had a three-year consensual relationship that he ended when Zurian told him she was pregnant — an account the jury rejected. (Id. at p. 406 & fn. 1.) Two former Wohl employees corroborated Zurian, recounting sexually degrading remarks Lawicki made in front of her. (Ibid.)

Zurian first complained in July 1987 to Fred Zarf, the vice-president in charge of personnel in St. Louis, asking that her name not be mentioned. (Kelly-Zurian, supra, 22 Cal.App.4th at pp. 406–407.) In late August 1987 she spoke with two visiting managers; she refused to confront Lawicki directly, and although they later told her they had spoken to him and he “wasn’t going to do it anymore,” the harassment had already driven her from a management meeting in tears. (Id. at p. 407.) When she told a St. Louis vice-president, Joseph Ennis, he said the company’s “hands were tied” because she would not confront Lawicki face to face, asked “well, you don’t have any video movies, do you?,” and offered her no other position. (Ibid.) Zurian resigned on September 3, 1987. (Ibid.) She then suffered panic attacks, depression, insomnia, and a serious drinking problem, and was diagnosed with posttraumatic stress disorder, with recurring nightmares and flashbacks of the harassment. (Ibid.)

Procedural history

In December 1988 Zurian sued Wohl and Lawicki, alleging sexual harassment and discrimination in employment, constructive wrongful discharge, intentional infliction of emotional distress, and negligence. (Kelly-Zurian, supra, 22 Cal.App.4th at pp. 407–408.) The case was tried to a jury in July 1990, with the issue of punitive damages bifurcated. (Id. at p. 408.) The jury returned a verdict for Zurian and against Lawicki, awarding $125,000 in compensatory damages and finding that his conduct involved oppression or malice — but it returned a verdict in favor of Wohl. (Ibid.)

On posttrial motions, the trial court (Judge Abby Soven) granted Zurian’s motion for judgment notwithstanding the verdict against Wohl in the sum of $125,000, reasoning that because the jury found against Lawicki, it was required to find against Wohl “solely because Lawicki is a supervisor within the meaning of the code,” a “form of strict liability.” (Kelly-Zurian, supra, 22 Cal.App.4th at pp. 408, 414.) The court granted Zurian $103,000 in attorney fees against both defendants, but denied her motion for a new trial on punitive damages against Wohl, and denied Lawicki’s motions for JNOV and a new trial. (Id. at p. 408.) All three parties appealed: Lawicki challenged the judgment against him; Wohl challenged the JNOV; and Zurian challenged the denial of a new trial on punitive damages. (Ibid.) The Court of Appeal affirmed in full. (Id. at p. 406.)

Issue

The consolidated appeals presented three doctrinal questions. First, whether a sexual-harassment plaintiff, to establish an actionable hostile environment, must prove that the conduct “seriously affected the psychological well-being of a reasonable employee,” or whether — after Harris v. Forklift Systems, Inc. (1993) 510 U.S. 17 — no such showing of psychological injury is required. (Kelly-Zurian, supra, 22 Cal.App.4th at p. 412.) Second, whether under the FEHA an employer is strictly liable for a supervisor’s harassment of an employee, even though the jury, on the instructions given, returned a verdict in the employer’s favor. (Id. at pp. 414–417.) Third, whether the employer could be held liable for punitive damages — that is, whether the harassing supervisor was a “managing agent” within Civil Code section 3294, subdivision (b), whose oppression or malice is imputed to the corporation without proof of ratification. (Id. at pp. 419–422.)

Holding

Reasoning

Pervasiveness was established by three years of physical and verbal abuse. The court first rejected Lawicki’s argument that the harassment was merely “intermittent” and that he was often “on his best behavior.” (Kelly-Zurian, supra, 22 Cal.App.4th at p. 409.) Quoting Harris, it restated the governing test — a workplace “permeated with discriminatory intimidation, ridicule and insult that is ‘ “sufficiently severe or pervasive to alter the conditions of the victim’s employment and create an abusive working environment” ’ ” — and found the conduct “easily meets this test.” (Ibid.) “Rather than a few isolated episodes, the harassment by Lawicki persisted for over three years,” and was “not limited to verbal abuse,” extending to touching of Zurian’s breast and crotch and regular pinching of her buttocks. (Ibid.) Because a reviewing court will not reweigh evidence or pass on credibility, Lawicki’s insistence that the jury should have believed him was “unavailing.” (Ibid.)

Emotional-distress evidence sustained the entire general verdict. On the amount of damages, the court applied the deferential standard that the size of an award is committed first to the jury and then to the trial court, and may be disturbed on appeal only where it “shocks the conscience and suggests passion, prejudice or corruption.” (Kelly-Zurian, supra, 22 Cal.App.4th at pp. 409–410.) The proof of panic attacks, depression, insomnia, a serious drinking problem, and posttraumatic stress disorder constituted “substantial evidence of significant emotional distress,” notwithstanding that wage loss was about $7,000 and medical bills only $320. (Id. at p. 410.) Because Wohl never requested a special verdict on economic damages, the court could not parse the award, and the emotional-distress evidence “standing alone” sufficed to sustain the entire $125,000. (Id. at p. 418.)

The serious-psychological-injury instruction was correctly refused under Harris. The doctrinal centerpiece of Lawicki’s appeal was his proposed BAJI No. 2.60, which — drawing on Fisher v. San Pedro Peninsula Hospital (1989) 214 Cal.App.3d 590 — would have required Zurian to prove that the conduct “would have seriously affected the psychological well-being of a reasonable employee.” (Kelly-Zurian, supra, 22 Cal.App.4th at p. 412.) The court held the refusal proper, reasoning that the United States Supreme Court in Harris had “clarified that conduct need not seriously affect an employee’s psychological well-being to be actionable as abusive work environment harassment.” (Ibid.) “So long as the environment reasonably would be perceived, and is perceived, as hostile or abusive, there is no need for it also to be psychologically injurious.” (Ibid.) The court likewise rejected Lawicki’s proposed special instruction that, absent tangible job detriment, Zurian had to show by “clear and convincing evidence” that the conduct was pervasive and destructive of the work environment. (Id. at pp. 412–413.) That misread Fisher, which spoke of a “commensurately higher showing,” not a clear-and-convincing burden; and singling out harassment plaintiffs for the same standard used for punitive damages “would impose an unfair and inappropriate burden on such claimants.” (Id. at p. 413.) The “usual ‘preponderance of the evidence’ standard” applied. (Ibid.)

The in limine and cross-examination rulings were within discretion. The court sustained the reciprocal in limine rulings that excluded evidence of Zurian’s viewing of X-rated videotapes, her abortions, and her sexual history with persons other than Lawicki, alongside evidence of Lawicki’s affairs or other harassment claims against him. (Kelly-Zurian, supra, 22 Cal.App.4th at pp. 410–411.) The videotape and abortion evidence was irrelevant and, even if marginally relevant, properly excluded under Evidence Code section 352; the rulings “served to narrow the case to the extent possible to what happened between Zurian and Lawicki.” (Id. at p. 411.) The court found no abuse of discretion in the trial court’s warning to defense counsel that she had “five minutes more to cross-examine” unless she opened a new line, noting that any limit on Wohl’s counsel did not impair Lawicki’s separate cross-examination and that defense counsel had cross-examined Zurian across portions of three trial days. (Id. at pp. 411–412.)

The motion for new trial was properly denied despite the judge’s misgivings. The court addressed Lawicki’s argument that the trial court should have granted a new trial because it “would not have come to the same result” as the jury. (Kelly-Zurian, supra, 22 Cal.App.4th at pp. 413–414.) Although a judge ruling on an insufficiency-of-the-evidence motion must independently weigh the evidence and judge credibility, the trial court here also stated this was “a case . . . where different minds could fairly come to different conclusions,” thereby implicitly finding sufficient credible evidence to support the verdict. (Id. at p. 414.) It therefore “properly declined to substitute its own judgment for that of the jury.” (Ibid.)

The FEHA makes the employer strictly liable for a supervisor’s harassment. Turning to Wohl’s appeal, the court rejected the argument that employer liability for a supervisor’s hostile-environment harassment turns on common-law agency principles — that is, on whether the supervisor used job authority to harass or whether management knew and failed to act. (Kelly-Zurian, supra, 22 Cal.App.4th at pp. 414–415.) Parsing section 12940, the court reasoned that because the statute makes harassment “by an employee other than an agent or supervisor” unlawful only where the employer knows or should have known and fails to intervene, it necessarily “reflects that harassment by a supervisor is unlawful regardless of whether the employer knows or should have known and fails to intervene.” (Id. at p. 415.) Fisher had drawn the same distinction, recognizing that an employer is “ ‘strictly liable for the harassing conduct of its agents and supervisors,’ ” while coworker liability depends on notice. (Ibid.) The court expressly declined to follow Valdez v. City of Los Angeles (1991) 231 Cal.App.3d 1043, which had imported a federal notice requirement, because the case was “governed by the California FEHA.” (Id. at pp. 415–416 & fn. 5.) Thus, “to hold Wohl liable for Lawicki’s harassment of Zurian, all that needed to be shown was Lawicki’s position as a supervisor” — a fact established by uncontroverted evidence that Zurian reported to him and that he had the power to fire her. (Id. at p. 416.)

The verdict for Wohl could not be reinstated, and policy violations do not defeat scope of employment. Wohl argued that under the instructions the jury must be presumed to have found Lawicki was not “acting as a supervisor,” so its defense verdict should stand. (Kelly-Zurian, supra, 22 Cal.App.4th at pp. 416–417.) The court disagreed: the jury was instructed that, to recover, Zurian had to prove “Lawicki was acting as a supervisor for . . . Wohl,” and by finding for her it “necessarily found Lawicki committed the harassment in his capacity as a supervisor.” (Id. at p. 417.) The court also rejected the scope-of-employment defense built on company anti-harassment policy, invoking Mary M. v. City of Los Angeles (1991) 54 Cal.3d 202 for the proposition that “[t]ortious conduct that violates an employee’s official duties or disregards the employer’s express orders may nonetheless be within the scope of employment.” (Ibid.) The fact that Lawicki’s conduct deviated from company policy therefore “does not absolve Wohl of liability.” (Ibid.)

Punitive damages run through Civil Code section 3294, not section 12940. On Zurian’s cross-appeal, the court held that the strict-liability rule of section 12940 does not extend to punitive damages. (Kelly-Zurian, supra, 22 Cal.App.4th at p. 419.) Although the statute makes an employer liable for a supervisor’s harassment regardless of knowledge, “it is not authority for the proposition the employer also is strictly liable for punitive damages for a supervisor’s conduct.” (Ibid.) The governing provision is Civil Code section 3294, subdivision (b), under which a corporate employer is liable for punitive damages based on an employee’s acts only where an “officer, director, or managing agent” had advance knowledge of unfitness and acted with conscious disregard, authorized or ratified the conduct, or was personally guilty of oppression, fraud, or malice. (Id. at pp. 419–420.) The court agreed with Zurian on one point of law: under Agarwal v. Johnson (1979) 25 Cal.3d 932, an act of oppression, fraud, or malice by a managing agent is “sufficient to impose liability on a corporate employer for punitive damages, without any additional showing of ratification.” (Id. at p. 420.) The trial court had erred in supposing ratification was independently required, and the standard BAJI No. 14.73.1 was “deficient” in failing to state the managing-agent rule. (Id. at pp. 420–421.)

But the error was harmless because Lawicki was not a managing agent. The instructional error was nonetheless harmless, the court held, because on this record “the jury could not have made the finding that Lawicki was a managing agent.” (Kelly-Zurian, supra, 22 Cal.App.4th at p. 421.) Citing Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, the court explained that managing-agent status “does not necessarily hinge on their ‘level’ in the corporate hierarchy”; the “critical inquiry is the degree of discretion the employees possess in making decisions that will ultimately determine corporate policy.” (Id. at pp. 421–422.) That Zurian reported to Lawicki and that he could terminate her “merely reflect Lawicki was Zurian’s supervisor, not that he was a managing agent.” (Id. at p. 422.) Uncontroverted evidence showed corporate policy, salaries, and reviews were administered through the St. Louis office, and Lawicki “could not even set Zurian’s salary or give her a raise without authorization from St. Louis.” (Ibid.) Because Zurian “failed to present any substantial evidence that Lawicki was involved in setting company policy,” the denial of a new trial on punitive damages was correct in result. (Ibid.) Justices Croskey and Hinz concurred without separate opinion. (Id. at p. 422.)

Significance

Kelly-Zurian is one of the early California decisions to carry the United States Supreme Court’s holding in Harris v. Forklift Systems, Inc. (1993) 510 U.S. 17 into FEHA harassment law, and it did so decisively: the panel refused the very “seriously affected the psychological well-being” language that Fisher v. San Pedro Peninsula Hospital had earlier endorsed, treating Harris as having clarified that no proof of psychological injury is required. (Kelly-Zurian, supra, 22 Cal.App.4th at p. 412.) That move matters because it lowers the threshold for the subjectively and objectively offensive environment and forecloses a recurring defense instruction. The opinion is equally important on employer liability. Its textual reading of section 12940, subdivision (h)(1) — that the express coworker-notice condition implies strict liability for supervisor harassment — became a standard citation for the proposition that the FEHA does not borrow the federal agency-based liability framework, and it openly declined to follow Valdez v. City of Los Angeles on that point. (Id. at pp. 415–416.) At the same time, the decision draws a sharp and durable line between compensatory and punitive exposure: strict liability under the FEHA does not reach punitive damages, which remain governed by the managing-agent test of Civil Code section 3294, subdivision (b). (Id. at pp. 419–422.) Its managing-agent analysis — distinguishing supervisory authority over a subordinate from genuine policymaking discretion — anticipated the Supreme Court’s later refinement of that term in White v. Ultramar, Inc. (1999) 21 Cal.4th 563, and remains a useful illustration that the power to hire and fire is not, without more, policymaking authority. (Id. at p. 422.)

Key quotes

“The United States Supreme Court in Harris has clarified that conduct need not seriously affect an employee’s psychological well-being to be actionable as abusive work environment harassment. . . . So long as the environment reasonably would be perceived, and is perceived, as hostile or abusive, there is no need for it also to be psychologically injurious.” (Kelly-Zurian, supra, 22 Cal.App.4th at p. 412.)

“By providing harassment of an employee by an employee other than an agent or supervisor shall be unlawful only if the employer knows or should have known of the harassment and fails to intervene, section 12940 reflects that harassment by a supervisor is unlawful regardless of whether the employer knows or should have known and fails to intervene.” (Id. at p. 415.)

“However, the fact Zurian reported to Lawicki and that he had the authority to terminate her merely reflect Lawicki was Zurian’s supervisor, not that he was a managing agent.” (Id. at p. 422.)

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Practice pointer

Open questions

Because Lawicki was concededly a supervisor, the court expressly found it “unnecessary . . . to discuss the interpretation of ‘agent’ as that term is used in section 12940,” noting only that “agent” is not synonymous with “employee.” (Kelly-Zurian, supra, 22 Cal.App.4th at p. 415, fn. 4.) The reach of agent-based strict liability — and where the line falls between a “supervisor,” an “agent,” and a mere coworker — was therefore left for another day. The opinion also did not resolve how much policymaking discretion is enough to make a supervisor a managing agent; it held only that authority to supervise and terminate a subordinate is not, by itself, sufficient, leaving the calibration of the “degree of discretion” inquiry to later cases such as White v. Ultramar, Inc. (Id. at pp. 421–422.) Finally, having affirmed on the merits, the court found it “unnecessary to address any remaining arguments of the parties,” reserving without decision the constructive-discharge and other theories pleaded but not separately analyzed. (Id. at p. 422.)