California Employment Jury Verdict Upheld but Punitive Damages Reduced

When a company relies on false statements made to its managers or directors by employees to take an adverse job action against an employee in California, the reliance on the false statements may fall under the common-interest privilege against defamation. Wrongful termination claims must be supported by substantial evidence, and the wrongful act must have been a substantial contributing factor to the termination decision. As King v. U.S. Bank National Assn., Cal. Ct. App. Case No. C085276 demonstrates, the common-interest privilege does not apply when the republication of false statements is done out of malice.^[1] The court also found that a wrongful motive does not have to be the only contributing factor to a termination decision to be considered to be a substantial motivating factor.

In January 2007, Timothy King began working for U.S. Bank Association as a senior vice president regional manager, market president, and market lead for the bank's Sacramento region. His responsibilities included management of the commercial banking business for the area, which served businesses with annual revenues ranging from $25.1 to $750 million. King received regular annual performance reviews from 2007 to 2011, and he far exceeded his financial goals in 2010 and 2011. All of his annual performance reviews from 2007 to 2011 were strong. King directly supervised four people, including his administrative assistant, Caroline Kim, and three relationship managers named John Flinn, Kim Thakur, and Edgar Gill. King reported to Michael Walker, who, in turn, reported to Kenneth Ladd.

King had several performance-related concerns about Thakur and Flinn. In 2012, Thakur made several mistakes, and King encouraged her to move to a different position because he was intending to place her on a performance improvement plan. Flinn was upset over the performance review that King gave him in 2012. Thakur contacted a human resources generalist at the bank named Maureen McGovern in Nov. 2012 and complained about harassment and gender discrimination by King. While King was being investigated, Flinn and Thakur made several other allegations against him, including that he told them to falsify reports. Because of the allegations made by Flinn and Thakur, U.S. Bank terminated King on Dec. 27, 2012.

King filed a lawsuit against U.S. Bank for defamation, breach of an implied contract, and wrongful termination.^[2] The case went to a jury trial, and the jury returned verdicts on each count in King's favor. The jury found that several employees made multiple false statements about King, including that he was a Mafia member, falsified many types of reports, and was stalking Thakur. The jury returned a verdict on the defamation counts of $6 million. For the wrongful termination claim, the jury found that King should have received a bonus and that U.S. Bank terminated him to avoid paying him what he was owed. They awarded him $2,489,696 in damages for past and future income losses. For the claim of breach of an implied contract, the jury found that U.S. Bank had breached the implied contract to provide him with a bonus. The jury awarded him $200,000 for his past economic damages for the bonus that he should have received.

King had also requested punitive damages. The jury found that the defamatory statements were made with malice by managers or officers of U.S. Bank and that the bank's decision to fire him was also made with malice. The jury awarded King $15.6 million in punitive damages.

U.S. Bank filed a motion for a judgment notwithstanding the verdict or a motion for a new trial. The court denied the bank's motion for a directed verdict but conditionally granted the motion for a new trial on the bank's excessive damages claims. U.S. Bank filed an appeal, arguing that there was insufficient evidence to support the jury's findings on any of the claims. King filed a cross-appeal on the court's granting of a new trial on excessive damages.

Issues: Whether the defamatory statements republished by McGovern were made with malice or if the common-interest privilege applied? Whether there was substantial evidence that King's termination was motivated by the bank's desire to avoid paying his bonus? Whether the punitive damages were supported by evidence and if they were excessive?

On appeal, the court looked at several issues. U.S. Bank argued that there was no substantial evidence to support the defamation claim against the bank because the defamatory statements were made by lower-level employees and could not be imputed to the bank. They argued that McGovern's republication of the defamatory statements made to her was protected by the common-interest privilege. The Bank also argued that there was no substantial evidence to support the wrongful termination claim and that King was not fired based on the bank's desire to avoid paying his bonus. Finally, the bank argued that the punitive damages were not supported by evidence and that they were excessive.

Rules: (1)The common-interest privilege applies to statements made without malice by officers in an employment setting. (2) If a wrongful reason was a substantial motivating factor for a termination, a wrongful termination claim is supported. (3) Punitive damages awards should be in a one-to-one ratio with compensatory damages.

Under Cal. Civ. Code § 47, statements that are republished by officers or directors in an employment setting without malice are privileged and may not form the basis of a defamation complaint.^[3] When an allegation is made about wrongful termination, the claim must be supported by substantial evidence that the alleged wrongful act was a substantial motivating factor for the termination decision. In California, punitive damages are generally limited to a one-to-one ratio with the compensatory damages award.

The court began by analyzing the defamation claims. U.S. Bank did not dispute that Flinn and Thakur made defamatory statements. However, it argued that the bank was not responsible for those statements since the two were lower-level employees. It argued that McGovern's republication of the defamatory statements was protected by the common-interest privilege because she did not make them with malice. The court looked at the fact that McGovern did not take any action to investigate the veracity of the claims that were made by Thakur and Flinn even though both had reputations for dishonesty. She also was aware that King had performance concerns about both employees. The court found that the fact that she republished the defamatory statements without investigating them was not protected by the common-interest privilege because her conduct amounted to actual malice.

The court then considered the wrongful termination claim. U.S. Bank argued that King's bonus was not the reason for his termination and so could not be viewed as a substantial contributing factor. However, the court noted that testimony indicated that the bank wanted to get his termination done before the end of the year so that his bonus would not kick in. It also found that one contributing factor does not need to be the sole reason for a termination but can be one of several that contributed to the adverse employment action.

The court then considered whether there was substantial evidence to support the punitive damages award and found that there was. Punitive damages are generally only awarded when a jury finds that the defendant acted with oppression, malice, or fraud. The jury did on the defamation and wrongful termination counts, and the court found that there was substantial evidence supporting the jury's decision. It also looked at whether the punitive damages award was excessive. The court noted that punitive damages should not exceed a one-to-one ratio to the compensatory damages. However, it also found that the court should not have awarded a new trial to U.S. Bank.

The court reversed the trial court's decision to grant a new trial on damages. It ordered the trial court to issue an order supporting the compensatory damages that were awarded by the jury in the total amount of $8,489,696. It also reduced the punitive damages award to $8,489,696 for a total verdict award of $16.97 million. U.S. Bank was ordered to pay King's costs on appeal.

If you believe that you were wrongfully terminated from your job in violation of public policy or out of retaliation, you may have legal rights to recover damages.^[4] Contact the law firm of Steven M. Sweat APC to schedule a consultation by calling us at 866.966.5240.

^[1] King v. U.S. Bank National Assn.

^[2] Wrongful Termination

^[3] CIVIL CODE - CIV, DIVISION 1. PERSONS [38 - 86]

^[4] Retaliation