GARDNER v. BABY TREND, INC. No. G042621, Consol. with G042913.
ROBERT PAUL GARDNER III, Plaintiff and Respondent, v. BABY TREND, INC., et al., Defendants and Appellants; ROBERT PAUL GARDNER III, Plaintiff and Appellant, v. BABY TREND, INC., et al., Defendants and Appellants.
Court of Appeals of California, Fourth District, Division Three.
Filed January 13, 2012.
Horovitz & Levy, H. Thomas Watson , Karen M. Bray and Daniel J. Gonzalez ; Ku & Fong and H.G. Robert Fong for Defendants and Appellants.
Law Office of Michael J. Procopio, Michael J. Procopio and Jill S. Kramer ; Law Offices of Steven R. Young, Steven Young ; Pine & Pine, Norman Pine , Beverly Tillett Pine , Janet R. Gusdorff and Stacy L. Tillett , for Plaintiff, Respondent and Appellant.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
BEDSWORTH, ACTING P. J.
Baby Trend, Inc., and its president, Denny Tsai (collectively Baby Trend) appeal from an $8.1 million judgment entered in favor of Robert Gardner, arising out of the parties' business relationship.
Baby Trend abruptly terminated its relationship with Gardner in 2004, prompting this lawsuit — although prompt is a problematic term in this case. Many of Gardner's claims depended upon his assertion that when the parties entered into their agreement naming him vice-president of sales in 1999 (and notwithstanding the specification to the contrary in the agreement), he became Baby Trend's employee, rather than an independent contractor. The jury agreed with Gardner that he ultimately became an employee of Baby Trend, although it concluded this did not occur until January of 2002, and it also found Baby Trend violated various duties owed to Gardner as an employee. Those determinations constitute much of the basis for the judgment in this case.
On appeal, Baby Trend first attacks what it refers to as Gardner's "employee-based" claims — meaning those which are dependent upon the jury's determination Gardner was an employee, rather than an independent contractor, when Baby Trend terminated their relationship. Baby Trend first asserts there were numerous instructional errors which tainted the jury's determination, including instructions which misstated the law pertaining to how the jury must determine whether Gardner was an employee or an independent contractor and also improperly imposed the burden on Baby Trend to prove that Gardner at all times remained an independent contractor.
Additionally, Baby Trend argues Gardner is estopped from relying upon the jury's determination he was transformed into a Baby Trend employee in January of 2002, as a means of supporting the judgment in his favor. Baby Trend point outs Gardner explicitly abandoned that very theory after the close of evidence in the liability phase of the trial, and elected instead to go to the jury on the theory he had become a Baby Trend employee in January of 1999, as a direct result of the parties' agreement naming him vice-president — a claim the jury's verdict necessarily rejected. Baby Trend maintains Gardner cannot resurrect his abandoned theory, simply because the jury apparently found it more persuasive than the claim he actually made. Baby Trend further contends the evidence was insufficient, in any event, to support the jury's determination his status changed to employee in January of 2002. Based upon these estoppel and insufficiency of the evidence claims, Baby Trend asserts it is entitled to entry of judgment in its favor on all of Gardner's employee-based claims.
Additionally, Baby Trend attacks the portions of the judgment which do not depend upon Gardner's alleged status as a Baby Trend employee. Specifically, Baby Trend argues Gardner's claims for fraud and breach of contract — both arising out of Baby Trend's alleged failure to pay Gardner agreed-upon commissions — were time-barred as a matter of law. Baby Trend also asserts Gardner waived his claims for breach of contract by accepting the commission amounts paid without formal protest, and that the evidence was insufficient, as a matter of law, to support Gardner's claim of fraud by concealment.
Baby Trend also challenges the portion of the judgment which relies upon its alleged violation of the Independent Wholesale Sales Representatives Contractual Relations Act of 1990 (the Independent Sales Act) (Civ. Code, § 1738.10 et seq.) — although the jury awarded Gardner only $1 for the claim — because the jury never made any finding Gardner solicited any sales for Baby Trend within California, as required by the statutory scheme, and because the claim was time-barred.
Finally, Baby Trend contends the court erred in awarding Gardner the equitable remedy of restitution, based upon Baby Trend's alleged violation of the unfair competition law (UCL) (Bus. & Prof. Code, §§ 17200 et seq.), after the jury had already rendered a verdict for damages in his favor based upon the same alleged misconduct and the same harm. Essentially, Baby Trend claims Gardner's equitable claim for restitution under the UCL was merely duplicative of his legal claims, and thus the court should have denied the equitable relief. And, since the court's restitution award was built upon the jury's verdict on the legal claims, that award must likewise fall with those legal claims.
Gardner cross-appeals, asserting the court erred by entering a judgment notwithstanding the verdict in Tsai's favor, after finding he could not be held individually liable for retaliation under the Labor Code, as Gardner's employer.
We reverse the judgment. We agree with Baby Trend that several errors in the jury instructions essentially steered the jury into a determination Gardner had become an employee of Baby Trend at some point, and given the state of the evidence in this case, that was prejudicial. Moreover, we agree with Baby Trend that Gardner explicitly vacated any claim that he had been "transformed into an employee" in 2002, as alleged in his third amended complaint, and instead proceeded solely on the theory that as of "January 19, 1999, . . . no matter what that contract said . . . he was in truth and in fact, by reason of the conduct [sic, `contract,'] an employee." But the jury implicitly rejected that claim, finding instead that Gardner had become a Baby Trend employee in January of 2002 — essentially the very claim Gardner had vacated. On appeal, Gardner cannot defend the judgment by reclaiming the theory he explicitly abandoned at trial. Because the jury rejected Gardner's contention he became an employee of Baby Trend by virtue of the parties' 1999 agreement, Gardner failed to prove his case on the point, and Baby Trend is entitled to judgment in its favor on each of Gardner's employee-based causes of action.
We also agree with Baby Trend that Gardner's fraud cause of action fails as a matter of law. On this claim as well, Gardner's theory of recovery was (as Baby Trend characterizes it) "a moving target." He alleged in his complaint that the fraud occurred when Baby Trend falsely promised to pay him a "flat five percent" commission as part of the January, 1999 agreement making him a vice-president, and he reiterated that claim in the initial (statute of limitations) phase of the trial. However, in the second (liability) phase of the trial, he explicitly abandoned that theory, and argued an entirely different theory of fraud — that Baby Trend had "concealed" factory pricing information from him. On appeal, he acknowledges the jury rejected that new fraud theory as a basis for awarding damages, and apparently found in his favor on his original theory — and he consequently resurrects that original fraud theory to justify upholding the judgment. We need not address the propriety of Gardner's tactics on this point, however, because we agree with Baby Trend that Gardner's original fraud theory was barred by the statute of limitations. Based upon Gardner's own testimony, he was aware in early 1999 that Baby Trend was not paying him the "flat five percent" commission rate he claims the parties had agreed upon. And when he protested the matter, Baby Trend simply denied the existence of any such agreement. Baby Trend never wavered in its position, and by 2001, Gardner had formed the belief he had been "lied" to. Those facts were sufficient to cause any reasonable person to suspect Baby Trend never intended to perform its alleged promise, and thus Gardner's original claim for fraud accrued, at the latest, in 2001. And a lawsuit filed in 2005 to assert that claim foundered on the statute of limitations.
Gardner's claim for breach of contract based upon the failure to pay the flat five-percent commission is similarly problematic. As Baby Trend points out, the amount awarded by the jury on this claim suggests it intended to compensate Gardner only for the amounts Baby Trend improperly deducted from his commissions in 1999-2001 — i.e., the years before the jury determined he had been transformed into an employee. And as Baby Trend explains, all of those underpayments would have been barred by the two-year statute of limitations applicable to oral contracts by the time Gardner filed his initial complaint in 2005. For his part, Gardner simply dismisses Baby Trend's arguments pertaining to breach of contract as moot, on the basis that the damages awarded on that claim had been determined by the trial court to be duplicative of other damages awarded on the employee-based claims, which Gardner assumes will be affirmed on appeal. However, in light of our determination that the jury actually rejected Gardner's theory underlying his employee-based claims, and thus that Baby Trend was entitled to prevail on those claims, we conclude his breach of contract claim must be remanded for a new trial. Assuming, as Baby Trend claims, the jury intended to award Gardner breach of contract damages only for the period in which he remained an independent contractor, that period has now been extended all the way to June 30, 2004, when the parties' relationship was terminated. Since the statute of limitations was tolled less than one year after that date, at least a portion of Gardner's alleged breach of contract damages were suffered within the two-year limitations period applicable to that claim. He is entitled to the opportunity to prove that claim on retrial.
And we also agree with Baby Trend's contention Gardner's claim for liability pursuant to the Independent Sales Act was barred by the statute of limitations. The court determined the applicable statute of limitations for this claim was one year, and instructed the jury it accrued at the point Gardner "knew, or reasonably should have known . . . the facts supporting his claim," Baby Trend contends this one-year period necessarily expired long before 2005, when Gardner filed his lawsuit, because he was at all times aware of the facts underlying his claim, including that both he and Baby Trend believed he was an independent contractor, and that Baby Trend had not provided him with a formal written agreement which fully set forth his territory and commission structure. Gardner counters by pointing out he was unaware of the "fact that he was entitled to have a written cont[r]act." But Gardner's entitlement to a written contract is a matter of law, not fact. Plaintiff's personal ignorance of the existing law giving rise to his cause of action does not prevent the running of the statute of limitations.
Finally, we agree the court's restitution award under the UCL must be reversed. Restitution is based upon principles of equity, and in this case, the court's award was based largely upon the equities reflected by the jury's verdict on the legal claims — including Baby Trend's alleged fraud as well as its purported violation of Labor Code provisions applicable to Gardner as its employee. Our reversal of the judgment pertaining to those legal claims undermines the court's decision, and it cannot stand. Additionally, Gardner's reliance on the UCL's "four-year statute of limitations" as a means of defending the propriety of his fraud award required us to assess that limitations period, and we consequently conclude Gardner's UCL claim is untimely as well. Consequently, Baby Trend is entitled to judgment in its favor on that claim.
Our reversal of the judgment in favor of Gardner, and specifically our determination that Baby Trend is entitled to judgment it its favor on his employee-based claims, renders moot Gardner's attempt to reinstate the jury's "retaliation" verdict against Tsai individually, on the basis he should be viewed as Gardner's employer for purposes of the Labor Code. We thus do not address that contention.
When Gardner first began working as a sales representative for Baby Trend in 1988, it was undisputed he was operating as an independent contractor. Gardner resided in Texas, and represented Baby Trend in its "territory eight," which included Texas, Louisiana, Oklahoma, and Arkansas. Gardner began his career as a manufacturer's sales representative by joining his father's business in 1986, and after his father died in 1991, Gardner renamed the business Gardner Marketing Group. He specialized in selling products in the juvenile and toy industries.
Gardner had a pre-existing relationship with Toys-R-Us, and Baby Trend was very interested in exploiting that connection to sell its products to Toys-R-Us. Thus, according to Gardner, Baby Trend promised him a five percent commission on all Toys-R-Us sales. Initially, however, that commission was subject to various deductions, including an "override" percentage paid to Baby Trend's then-vice-president of sales. However, when that vice-president was fired in November of 1998, Tsai orally promised to pay Gardner a "flat" commission on the sales, with no deductions taken out.
In January of 1999, two months after the prior vice-president of sales was terminated, Gardner and Baby Trend finalized the details of an agreement whereby Gardner would be named Baby Trend's vice-president of sales and marketing. The agreement is largely documented in a written memorandum, although not all the details of the agreement are included in the writing.
What the memorandum does specify is that Gardner would have "responsibility for the mass merchant accounts in the United States." Gardner would "deal directly with Target, Wal Mart and [Toys-R-Us,]" which would "essentially be `house' accounts," and have the possibility of adding Sears and Kmart to that list as well. He would also be working with other Baby Trend representatives who had responsibility for other "mass merchant accounts."
The memorandum specified Gardner would operate as an independent contractor, and that he would continue to retain responsibility for territory eight for Baby Trend, as well as for "other manufacturers as long as there is no conflict." Gardner was expressly allowed to "maintain your relationship with Safety 1st corporate [a manufacturer of child safety products] and as a sales rep until such time as a clear conflict arises."
The January 1999 memorandum also provided that in addition to sales, Gardner would be "assist[ing] in the selection of fabrics, products and product development," for Baby Trend, and in connection with those responsibilities, Baby Trend would "arrange `business class' airfare to the Orient from Los Angeles for [Gardner] as well as meal expense involving requested trips. Other travel related expenses such as hotels etc. would be [Gardner's] responsibility."
The memorandum stated that Gardner's compensation would be commission-based, and that his commissions for Toys-R-Us would "continue to be as it is now, with no override."
The 1999 memorandum is open-ended. It does not specify any term or termination date.
In the wake of the parties' 1999 agreement, Baby Trend was able to substantially increase sales to Toys-R-Us, due in some significant part to Gardner's efforts. As Baby Trend characterizes it, Toys-R-Us became its "principal customer," and "[t]he responsibility for direct dealing with Toys-R-Us lay with Gardner." Gardner acknowledges that as Baby Trends' sales increased, so did his commission payments: He received approximately $750,000 from Baby Trend in 1999, $900,000 in 2000, $1.2 million in 2001, $1.1 million in 2002, and $1.4 million in 2003.
However, Gardner also says Baby Trend never paid him the flat five-percent commission he contended was promised to him for Toys-R-Us. In fact, he viewed Baby Trend as being "in breach" of that obligation throughout 1999. And although Gardner talked to Tsai about that issue repeatedly, Tsai simply disagreed with him. According to Gardner, Tsai just kept telling him "oh no, it's based on profit."
Although Gardner believed Tsai had "lied" to him about their commission agreement, he did not force any resolution of the issue. Instead, he chose to "put my head down and work hard and tr[y] to get as many sales as possible."
In the wake of the 1999 agreement, Baby Trend continued to make Gardner's commission payments without withholding anything for taxes, and it reported the commissions to taxing authorities on a 1099 form as Gardner's self-employed income. Gardner, in turn, included the income on tax returns he filed as sole proprietor of Gardner Marketing Group. In fact, it is undisputed that both parties continued to subjectively believe Gardner remained in an independent contractor relationship with Baby Trend until after termination of their relationship.
However, Gardner's claim was that notwithstanding the parties' subjective beliefs, his role in fact "changed from independent contractor to employee and . . . he and Baby Trend both `acted as if' they had an employer-employee relationship."
Unfortunately, that relationship ultimately soured. Apparently, Gardner began to get angry about the deductions taken by Baby Trend from his commissions, which both parties agreed were increased as Toys-R-Us began squeezing Baby Trend's profit margins. Gardner claimed that over time, the rate of his commissions decreased "by a lot," as Tsai just kept adding more deductions to the calculations. For example, in September of 2003, Tsai told Gardner that part of the cost of additional engineering relating to a product would be a deduction from his commissions. Although Gardner did not agree, and told Tsai he believed that if he was paying part of the engineering costs, he should be paid a greater portion of the product's profits, Tsai simply "laughed" at him, and explained that the added engineering cost was an "insignificant" share of the total development cost. Gardner was not happy with the additional commission reductions but felt he had no choice but to agree.
Gardner testified he was never provided with any "computer runs" or other formal documentation of how his "profitability" commissions were calculated, but that Tsai would "just handwrite on this tablet" the factors that went into the calculation of profitability.
In late May or early June of 2004, however, Gardner began complaining "pretty extensive[ly]" about his commission payments. Among other things, Gardner believed he had been unfairly denied a one percent commission on a "give-away" stroller supplied to Toys-R-Us, because the 1999 agreement provided he should receive a one percent commission on items where Baby Trend's gross profit was 15 percent or below. Tsai asked Gardner to document his complaints. Gardner did so, and on June 29, Tsai called him and told him to be in the California office the very next day. Gardner told him he couldn't do that, but could be there July 1st or 2nd. Tsai's wife, Betty, sent Gardner an email expressing concern that Gardner was "telling people that we owe you money . . . ." Gardner essentially denied doing so, although he acknowledges he had "complained" about the issue to two other members of Baby Trend's management. On June 30, Tsai terminated Baby Trend's relationship with Gardner, effective immediately.
In June of 2005, nearly a year after termination of the agreement, the parties entered into an agreement to toll any statutes of limitation pertaining to Gardner's claims against Baby Trend, effective June 15, 2005, for the specific purpose of allowing the parties to "engage in settlement discussions in an attempt to forego the expense and uncertainty of litigation." The agreement provided that the parties wished to "preserve all claims, causes of action and/or defenses existing" as of June 15, 2005. The tolling period was extended once, and ended on October 31, 2005.
The parties' settlement efforts proved fruitless, however, and Gardner filed his initial complaint against Baby Trend on October 28, 2005, within the extended tolling period. Gardner's third amended complaint alleged causes of action for: (1) wrongful termination in violation of public policy; (2) failure to reimburse business expenses; (3) unlawful deductions of wages earned and waiting time penalties; (4) violation of the Independent Sales Act;
In his third amended complaint, Gardner explicitly alleged that he "functioned as an `employee' of . . . Baby Trend . . . from approximately June 2002 to the time of his termination in June 2004." He alleged that "as of at least June, 2002, [he] had been required and instructed on multiple occasions by [Baby Trend] to work exclusively on [its] business, and [Baby Trend] insisted that he could not work for any other business, or even his own business." Gardner also alleged that as an express condition of his accepting the position of vice-president of sales and marketing for Baby Trend, it was to "continue paying [him] the flat five percent (5%) commission on any business he wrote with Toys-R-Us."
Gardner alleged Baby Trend violated the parties' oral commission agreement by improperly deducting expenses from his commissions. He also alleged that, as a result of his status as a Baby Trend employee, Baby Trend ran afoul of applicable Labor Code provisions by: (1) deducting expenses from his commissions; (2) requiring that he bear a portion of the expenses he incurred in travel on Baby Trend's behalf; (3) failing to immediately pay all commissions due when it terminated the parties' relationship; and (4) retaliating against him for complaining about his wages. Gardner further alleged Baby Trend terminated his employment in retaliation for his complaints about his commission payments, and thus it constituted a wrongful termination in violation of public policy.
Gardner also alleged that for the period he had been Baby Trend's independent sales representative (i.e., prior to June 2002), Baby Trend had violated the Independent Sales Act by willfully failing to enter into a written contract with him, and by willfully failing to pay his Toys-R-Us commissions "as provided in the written contract." Gardner also claimed that all of Baby Trend's alleged conduct underlying his claims for wrongful termination, retaliation, wage violations and violations of the Independent Sales Act also qualified as "unlawful, deceptive and unfair business practice prohibited by California Business and Professions Code section 17200,"
Gardner's fraud claim was based upon the allegation that Tsai orally represented to him, during their negotiation of the January 1999 agreement, by which he was named vice-president of sales and marketing for Baby Trend, that he would receive a "flat five percent (5%) commission on any business [he] wrote with Toys-R-Us," and that at the time Tsai made that representation, he "never intended to continue to pay this commission to [Gardner.]" Gardner further alleged Baby Trend "attempted to conceal" the fact it was "unlawfully paying [him] less than he should have been paid."
In its answer to the third amended complaint, Baby Trend alleged numerous affirmative defenses, including violations of the applicable statutes of limitations, equitable waiver, consent, laches, waiver by acceptance of payments, mutual mistake, and novation. Baby Trend also filed a cross-complaint against Gardner, alleging Gardner breached his express agreement with Baby Trend to function as an independent contractor, by claiming that he "at some point became an employee," and thereby exposing Baby Trend to liability as an employer. Baby Trend also alleged Gardner breached their agreement by engaging in conduct which "conflicted with the business of Baby Trend." Baby Trend also alleged Gardner defrauded it by misrepresenting and concealing facts demonstrating he was preparing to compete with it.
The trial commenced in February of 2009, and was divided into four phases. In the first phase, the jury was asked to determine whether the applicable statutes of limitations barred Gardner's causes of action for breach of oral contract, fraud, and violation of the Independent Sales Act. The jury was asked to render a special verdict in which it first determined, with respect to each of the three causes of action, whether Baby Trend had "prove[d] the date" upon which Gardner's causes of action accrued. Only if it answered that question in the affirmative, was the jury asked to reveal that date of accrual for each cause of action.
The jury concluded, with respect to both the breach of contract and violation of the Independent Sales Act, that Baby Trend did not "prove the date" of accrual. The jury consequently made no finding as to what date those causes of action did accrue. The jury was unable to reach a decision concerning whether Baby Trend had "prove[d] the date upon which [Gardner's] cause of action for fraud accrued," and the court ultimately decided to "take the verdict as it stands, and . . . rule that defendants have failed to carry their burden of proof . . . ." The court later referred to what happened as a "mistrial" on the statute of limitations defense to fraud, and the judgment reflects that as well.
In phase two of the trial, the parties presented the jury with their evidence pertaining to liability. After the conclusion of that evidence, Gardner made a motion for nonsuit on Baby Trend's cross-claim for breach of contract. Baby Trend's claim was based upon the theory that if Gardner himself viewed his role within Baby Trend as morphing into that of an employee after November of 2001 — when Tsai sent a memo asking the department heads (including Gardner) to take on greater responsibilities due to Tsai's health problems — then "the rules change both for the employer and the employee." Baby Trend argued that if Gardner believed he was assuming greater responsibilities for the company, he would also be assuming greater responsibilities to the company, such as the duty of loyalty. And Gardner allegedly breached that duty by failing to disclose certain information to Baby Trend about his outside activities which were inconsistent with what he allegedly viewed as his enhanced role within the company.
Gardner responded to that argument by simply denying that any enhanced responsibilities he might have begun shouldering in 2001 could have played a role in his transformation to employee. As his counsel explained it: "[m]y view is, and I said it from the beginning, I believe that Mr. Gardner was an employee from January 19, 1999, on." Gardner's counsel denied any intention of relying upon Tsai's November 2001 memo, as a basis for claiming employee status: "The document that you're talking about, I did not assert that that signaled the change in status for Mr. Gardner."
When Baby Trend's counsel pointed out that Gardner's third amended complaint — which alleged he became an employee in June of 2002 — was consistent only with the theory that his status had gradually changed as a result of his changing role within the company, rather than as a direct result of the 1999 agreement, Gardner's counsel once again made explicit that his theory was Gardner "was an employee January 19, 1999, forward." The court then expressly inquired "[t]here is no transformation that's being contended; am I correct in that? [¶] . . . [¶] . . . So to the extent that it is alleged in the complaint, are you vacating that portion of the allegation, if any, that recites in your cause of action recovery because he became an employee, he transformed into an employee in June 2002?" Gardner's counsel agreed, explaining "that was our motion to amend, and that was going to be my third motion today." The court replied "your motion is granted."
The court then immediately granted Gardner's motion for nonsuit on "that aspect" of Baby Trend's breach of contract claim. The court explained "[t]here is no allegation, there has been no evidence of transforming into an employee in June of 2002. [¶] The allegations and the theories are that at the beginning, at the inception, January 19, 1999, that no matter what that contract said [about] Mr. Gardner . . . being an independent contractor, he was in truth and in fact . . . an employee." Gardner's counsel agreed, "[t]hat is my theory, your honor."
Gardner's argument to the jury was consistent with his counsel's representation to the court. He explained that the agreement reached by the parties in January 1999, was an agreement Baby Trend entered into with Rob Gardner, the individual, rather than with Gardner Marketing, the independent business that had previously provided Baby Trend with Gardner's sales and marketing services. He also focused on the fact the January 1999 agreement, did not merely ask him to do "a single, results oriented task," as he contended an independent contract would require, but instead asked him to do a "broad range" of things, including "product design," "go[ing] to factories," "sales," and "go[ing] to Toys-R-Us." Gardner suggested the jury find he was an independent contractor from "1988 to . . . January 1st, 1999," while acknowledging it might conclude Baby Trend began exerting employer "control" over him "a bit later than January 19, 1999."
The jury rendered detailed special verdicts in Gardner's favor, on both his complaint and Baby Trend's cross-complaint. The jury was asked to answer 34 questions pertaining to Gardner's complaint, including "during what period of time did Rob Gardner work for Baby Trend as an independent contractor?" The jury answered "1988 to Jan 2002." The jury was asked to answer questions pertaining to Baby Trend's "wrongful discharge" of Gardner, and to separately consider whether Tsai, as an individual, had "retaliate[d]" against him. The jury found in Gardner's favor on both claims, and awarded the identical sum of $5,373,046 in damages (including economic and non-economic) for each.
The jury also found in Gardner's favor on his other claims, awarding various sums in damages with respect to each.
The fourth phase of trial was a hearing to allow the court to consider Gardner's claim for an equitable award of "restitution" for Baby Trend's violation of the UCL. The court rendered a decision which incorporated the jury's findings in its special verdict, and concluded those findings supported recovery of restitution under the UCL. The court awarded $7,657,541, which corresponded to the amounts awarded by the jury for economic damages on Gardner's claims for wrongful discharge, for violations of the Labor Code (not including the waiting time penalty), and violation of the Independent Sales Act.
Baby Trend moved for a judgment notwithstanding the verdict, and the court granted it in part. It ruled Tsai could not be held individually liable for retaliation, in violation of the Labor Code, since he was not Gardner's employer. It also set aside the jury's damage award for breach of contract, because that award overlapped the award for unlawful wage deductions. Finally, the court determined it had erred by including Gardner's wrongful termination damages and his $1 penalty under the Independent Sales Act as part of its restitution award under the UCL, as neither future earnings nor a penalty could qualify as restitution.
The net judgment entered against Baby Trend was $8,099,722, which was comprised of: $5,123,046 in economic damages "for wrongful termination and retaliation," $1,022,548 in "reimbursement of expenses," $1,511,946 for "unlawful deductions, unfair practices, and fraud," $275,000 for "emotional distress," $167,231 for waiting time penalties, and $1 for the violation of the Independent Sales Act. Tsai was ordered to share in $1,786,946 of that judgment, which corresponded to the jury's verdict for fraud, including emotional distress damages of $275,000.
Baby Trend's first assertion is that the court erroneously instructed the jury on the law pertaining to Gardner's claim that although he admittedly started out as an independent contractor, he later became a Baby Trend employee. Baby Trend contends those erroneous instructions prejudiced the jury's determination of that key issue, thus denying Baby Trend a fair trial. It contends the judgment must consequently be reversed to the extent of Gardner's employee-based claims.
The jury instructions in this case reflect several incorrect statements of the law which, in light of the evidence admitted, certainly qualify as prejudicial. Although Baby Trend objected to many of the instructions, it was not even necessary to do so, since "`"[a] failure to object to civil jury instructions will not be deemed a waiver where the instruction is prejudicially erroneous as given, that is, which is an incorrect statement of the law.'" (Carrau v. Marvin Lumber & Cedar Co. (2001) 93 Cal.App.4th 281, 296; see also Brown v. Smith (1997) 55 Cal.App.4th 767, 783, fn. 11[`Jury instructions which are erroneous on a material element of law are deemed excepted to even absent any objection at trial.'].)" (Bowman v. Wyatt (2010) 186 Cal.App.4th 286, 298, fn. 7.)
Baby Trend's principal objection is to the court's reliance on the Judicial Council's California Civil Jury Instructions (CACI) No. 3704, as a basis for instructing the jury on the factors it must consider in determining whether Gardner qualified as an employee or independent contractor. As Baby Trend points out, the recent case of Bowman v. Wyatt, supra, 186 Cal.App.4th 286 persuasively explains why CACI No. 3704 reflects an erroneous statement of the law pertaining to this issue.
Specifically, as Bowman explains, CACI No. 3704 instructs the jury that a person qualifies as an employee of another for purposes of specified work, based solely on the determination that the employer "had the right to control how [the person] performed the work . . . ." (Bowman v. Wyatt, supra, 186 Cal.App.4th at p. 297.) It is only if the jury determines that the other did not have that "right to control," that CACI No. 3704 instructs it to consider a list of other "circumstances" in deciding whether the worker qualifies as an employee. That is not the law.
Instead, as Bowman explains, while "the right of control is an important factor in determining whether a worker is an employee or an independent contractor, . . . it is not the only factor. Indeed, the Supreme Court has said, `the "control" test, applied rigidly and in isolation, is often of little use in evaluating the infinite variety of service arrangements.' ([S. G.] Borello [& Sons, Inc. v. Department of Industrial Relations (1989)] 48 Cal.3d [341,] 350.) Thus, as we have demonstrated, the cases consistently endorse a multi-factor test that considers not only the right of control, but also secondary factors such as whether the worker is engaged in a distinct occupation or business, the skill required in the particular occupation, whether the employer or the worker supplies the tools and the place of work, the length of time for which the services are to be performed, whether the worker is paid by time or by the job, whether the work is a part of the regular business of the employer, and the kind of relationship the parties believe they are creating." (Bowman v. Wyatt, supra, 186 Cal.App.4th at p. 303.)
The Bowman court thus concluded that "CACI No. 3704 does not correctly state the law because it instructs a jury that the right of control, by itself, is dispositive." (Bowman v. Wyatt, supra, 186 Cal.App.4th at p. 303.)
Gardner doesn't argue that Bowman is incorrect. Instead, he asserts that Baby Trend "knowingly" waived its objection to the propriety of CACI No. 3704 on appeal, because after unsuccessfully asserting that very objection at the trial level, Baby Trend did not raise the issue in its initial opening brief on appeal. However, Baby Trend did assert the claim in a "supplement" to its opening brief, filed shortly after the Bowman decision became final. More important, that supplement was filed four months prior to the date Gardner filed his respondent's brief on appeal, and Gardner thus had the opportunity to fully address the claim. In these circumstances, we decline to find any waiver.
Gardner also asserts that, in contrast to the situation in Bowman, CACI No. 3704's improper focus on the employer's right to control as being dispositive on the issue of employee status, was not prejudicial here. The contention is not a persuasive one. "Prejudicial" in this context means that given "`(1) the state of the evidence, (2) the effect of other instructions, (3) the effect of counsel's arguments, and (4) any indications by the jury itself that it was misled'" (Red Mountain, LLC. v. Fallbrook Public Utility Dist. (2006) 143 Cal.App.4th 333, 359, quoting Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 580-581), "it is `reasonably probable'" that erroneous instructions misled the jury. (Red Mountain, LLC. v. Fallbrook Public Utility Dist., supra, 143 Cal.App.4th at p. 359; Soule v. General Motors Corp., supra, 8 Cal.4th at p.581, fn. 11.) But a "`reasonable probability' in this context `does not mean more likely than not, but merely a reasonable chance, more than an abstract possibility.'" (Kinsman v. Unocal Corp. (2005) 37 Cal.4th 659, 682, quoting College Hospital Inc. v. Superior Court (1994) 8 Cal.4th 704, 715.) This standard is a fairly low one, and easily met in this case.
Initially, we note our agreement with Baby Trend's assertion that CACI 3704's improper focus on Baby Trend's right to control Gardner as being dispositive on the issue of employee status was amplified by the court's additional instruction informing the jury that Baby Trend's right to control Gardner could in turn be established by the mere fact Baby Trend had the right to terminate its relationship with Gardner. As the instruction put it, "[o]ne way to ascertain if Baby Trend had the right to control Rob Gardner is to determine whether Gardner had to obey instructions Baby Trend gave, on penalty of termination if Gardner disobeyed. . . . Perhaps no single circumstance is more conclusive to show the relationship of an employee than the right of the employer to end the service whenever the employer sees fit to do so." (Italics added.)
The practical effect of this instruction, was to tell the jury that "the right to terminate equals the right to control," and when it is coupled with CACI No. 3704's adjuration that the right to control equals employee status, the jury was, in effect, urged to determine Gardner was Baby Trend's employee based solely on the fact that the parties' agreement had no fixed term, and thus that either party could terminate it at will. That allowed the jury to ignore the complicated analysis actually required to be undertaken in determining whether a worker is an employee rather than an independent contractor, and decide the point in Gardner's favor based upon a factor which appears neutral, at best, in the context of this case.
But Gardner contends that even if the jury was improperly steered into the conclusion that Baby Trend had a right to control him, and was further improperly instructed that right to control equaled employee status, these errors made no difference in this case, because an assessment of the additional factors required to be considered in determining Gardner's alleged employee status make clear the jury would have reached that conclusion in any event. We cannot agree.
Gardner attempts to make this point by offering his own assessment of each of the nine secondary factors listed in CACI No. 3704, and then toting up the score as between those he contends favor employee rather than independent contractor status. The final score is a solid 5-1 in favor of employee status (with Gardner assessing three factors as being "either inapplicable or neutral." However, this approach is unsound, because as the Supreme Court explained in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, supra, the individual factors "`cannot be applied mechanically as separate tests; they are intertwined and their weight depends often on particular combinations.' [Citation.]" (S.G. Borello & Sons, Inc. v. Department of Industrial Relations, supra, 48 Cal.3d at p. 351.)
Moreover, in our view, several of the additional factors listed in CACI NO. 3704 can be viewed as favoring the determination that Gardner was an independent contractor: First, although Baby Trend did supply an office for Gardner in California, the parties' understood that Gardner was willing to work there only "part of a week, every other week." That means Gardner's primary place of work was not supplied by Baby Trend. Second, Gardner was not paid by the hour, but more closely to "by the job." He was paid entirely on commission, and thus the amount of his payment depended on closing of sales to customers (i.e. the completion of jobs), rather than the amount of his work. Third, the work being done by Gardner for Baby Trend was not the only occupation or business of Gardner for most of the time he worked for Baby Trend — including much of the time he claimed to have been working as an employee. Gardner claimed he did not begin working exclusively for Baby Trend until 2001, more than two years after he was allegedly transformed into an employee.
Finally, as we have already explained, we would place the fact that Baby Trend "had an unlimited right to end the relationship with Gardner" squarely in the "indeterminate" category. In the context of the parties' relationship here, that fact established nothing more than that their relationship was for an unspecified term. Either party could choose to terminate it. But that had been true since the beginning, when Gardner was indisputably an independent contractor, and there was no evidence to suggest that was unusual for that type of independent sales relationship.
In our view, these factors provide more than enough basis to support the conclusion the court's erroneous reliance on CACI No. 3704 was prejudicial in this case. Indeed, it appears to us quite possible that if the jury had not been instructed that Baby Trend's right to control Gardner was determinative of his employee status, they may well have concluded that the additional factors bearing upon the issue actually supported the conclusion he remained, at all times, an independent contractor.
Our determination that the court's erroneous reliance on CACI No. 3704 was prejudicial, is sufficient, in and of itself, to warrant reversal of the judgment on Gardner's employee-based claims. However, Baby Trend points to what it contends are additional instructional errors, and we agree those assertions have merit as well.
For example, Baby Trend asserts the court also erred in giving the jury an instruction which suggested it could draw a conclusive presumption that Gardner was a Baby Trend employee, based upon recitals contained in the parties' statute of limitations tolling agreement. The agreement recited, among other things, that "[w]hereas, Gardner was, but is no longer, employed by Baby Trend, his employment having ended on or about June 30, 2004," and "[w]hereas, on or about May 6, 2005, Gardner, through counsel, sent a letter to Baby Trend alleging various claims relating to his employment."
Although the court did not instruct the jury that it was obligated to conclusively presume Gardner was a Baby Trend employee based upon the language of this agreement — as Gardner had urged — it did instruct that "[t]he facts recited in a written instrument are conclusively presumed to be true as between the parties thereto, or their successors in interest," and then informed the jury that "[i]t is up to you . . . to determine the meaning of the word `employment' in [the tolling agreement]."
Baby Trend raises several claims of error with respect to this instruction — including that the tolling agreement was an aspect of settlement negotiation, and thus inadmissible to establish liability (Evid. Code, § 1550) — but we need address only one. As Baby Trend points out, absent a conflict in the extrinsic evidence, it is the function of the court, and not the jury, to interpret the meaning of words used in an agreement. (Wolf v. Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107, 1131.)
And here, the trial court specifically concluded it did not view the use of the word "employment" in the tolling agreement as an indication the parties had agreed Gardner was a Baby Trend employee. Instead, the court actually agreed with Baby Trend's point that the word was of no particular significance, because in common parlance, one can be said to employ an independent contractor.
Having recognized the inherent weakness of Gardner's claim, and the inherent ambiguity of the word "employment" as used in the tolling agreement, the court should have simply rejected Gardner's attempt to spin it into a conclusive presumption in his favor — not presented that ambiguity to the to the jury for resolution. It was error for it to do so.
Moreover, we agree with Baby Trend that the error was prejudicial as well. When one of the key disputes in a case is whether the plaintiff was an employee or an independent contractor — and the evidence could support either conclusion — dangling the word "employment" before the jury and suggesting that one word just might be the key to resolving the dispute gives a huge advantage to the person on the employee side.
As Gardner obviously recognized in making his conclusive presumption claim, employment sounds a whole lot more like the relationship one forms with an employee than it does a relationship with an independent contractor. The fact that the word can properly be used to describe either relationship makes that advantage a hugely unfair one.
Additionally, we note a wholly separate problem with this "conclusive presumption" instruction: in the context of this case, it's irreconcilably inconsistent with another of the court's instructions, which informed the jury that the parties' characterization of their relationship in "any agreement" was "not dispositive" and "cannot affect the true relationship of the parties . . . ." This latter instruction, of course, was intended to demonstrate that the parties' explicit designation of Gardner as an independent contractor in their January 1999 agreement, was of no significance.
Taken together, what these instructions told the jury was that the characterization of the parties' working relationship is a fact which could be conclusively presumed based upon the label they gave it in one agreement (the tolling agreement) while their contrary characterization of that same fact in a different agreement (the January 1999 agreement, by which the parties actually formed the relationship) is entitled to no weight. But the parties' own characterization of their working relationship is either a conclusively presumable fact, or it is not. The resolution of that question cannot simply depend upon whose ox is being gored.
Finally, Baby Trend also asserts the court erred by instructing the jury that it was Baby Trend which had the burden of proof on the issue of whether Gardner was an employee or an independent contractor. Again, we agree. The challenged instruction informed the jury that "[t]he party seeking to avoid liability has the burden of proving that persons whose services he has retained are independent contractors rather than employees. In other words, there is a presumption of employment."
The instruction was based on Labor Code section 3357, which provides: "Any person rendering service for another, other than as an independent contractor, or unless expressly excluded herein, is presumed to be an employee."
The assertion is a persuasive one, since the Workers' Compensation Act is specifically designed to protect injured workers, and is required to be liberally construed in favor of the employee with the express purpose of "extend[ing] benefits to persons injured in their employment." (Lab. Code, § 3202; Lara v. Workers' Comp. Appeals Bd., supra, 182 Cal.App.4th at p. 399.) There is no similar design to benefit an uninjured plaintiff seeking damages in an ordinary civil case.
Moreover, our Supreme Court has stated repeatedly that the definition of "employee" utilized in the Workers' Compensation Act is intentionally broader that the definition which exists in civil law: "`an "employment" relationship sufficient to bring the [A]ct into play cannot be determined simply from technical contractual or common law conceptions of employment but must instead be resolved by reference to the history and fundamental purposes underlying the . . . Act [citations].' [Citation.] The purpose of the Act is to protect individuals against the special risks of employment . . . . [and it] `accomplishes this goal by defining "employment" broadly in terms of "service to an employer" and by including a general presumption that any person "in service to another" is a covered "employee." [Citations.]' [Citation.]" (Arriaga v. County of Alameda (1995) 9 Cal.4th 1055, 1061; S.G. Borello and Sons v. Department of Industrial Relations, supra, 48 Cal.3d at p. 352, fn. 6; Laeng v. Workmen's Comp. Appeals Bd. (1972) 6 Cal.3d 771, 777-778, 783; see also Martinez v. Combs (2010) 49 Cal.4th 35 [Supreme Court determines applicable wage order of the Industrial Welfare Commission (IWC), and not the common law, defines the employment relationship for purposes of agricultural workers' claim to recover unpaid minimum wage.].)
But even assuming that Labor Code section 3357 could properly be applied in a civil case, we have a different, and more specific, problem with the jury instruction relying upon it as a basis for an instruction shifting the burden of proof onto Baby Trend in this case: Labor Code section 3357 explicitly excludes a person "rendering service . . . as an independent contractor" from those who are presumed to be employees. It states that "[a]ny person rendering service for another, other than as an independent contractor . . ., is presumed to be an employee."
Had the jury instruction faithfully applied the rule stated in Labor Code section 3357, it would have instructed the jury that it could only presume that Gardner was an employee after it determined he was not an independent contractor. That means Gardner would still have had the burden of proving he was not an "independent contractor" in order to earn the presumption he is an "employee." Once Gardner had done the former, he would have had little need for the latter. Consequently, the court erred by instructing the jury that Baby Trend had the burden of proof on this issue.
Usually, when we determine that the jury instructions were fatally flawed, the remedy is to remand the case for a new trial on the affected claims. In this case however, Baby Trend makes the additional assertion that the jury verdict, as rendered, demonstrates Gardner actually failed to prove his claim that he became a Baby Trend employee, and thus that it is Baby Trend, and not Gardner, who was entitled to judgment on each of the employee-based claims.
Specifically, Baby Trend points out that although Gardner had alleged in his third amended complaint that he became a Baby Trend employee in "approximately June 2002"; i.e., two and a half years after the agreement naming him vice-president of sales and marketing, he explicitly vacated that claim at trial. Gardner represented that he was instead proceeding on the specific theory that as of "January 19, 1999, . . . no matter what that contract said, . . . he was in truth and fact, by reason of the conduct [sic, `contract,'] an employee."
And Gardner concedes this on appeal, stating that while "Baby Trend consistently argued to the jury that Gardner was never an employee," he "argued . . . that — despite the labels of his agreement with Baby Trend and even despite his prior subjective understanding — he had become a Baby Trend employee when he was made Vice President of the company in January, 1999." Gardner did not rely upon what he refers to as "the evolving nature" of the parties' relationship in the years after the 1999 agreement as a basis for asserting that he had been transformed into an employee at some later point.
However, as Gardner acknowledges, "a unanimous jury expressly rejected the positions of both sides."
We agree with Baby Trend that Gardner cannot simply resurrect his previously abandoned factual theory as a means of defending the judgment on appeal.
Of course, Gardner denies that he has done this, claiming that his fundamental theory of the case — i.e., "that he was a Baby Trend employee at least for some time and was thus entitled to the Labor Code protections" — remained unchanged. We can't agree with his characterization of the situation. Gardner did not make such a vague factual claim. He made a very precise one, after affirmatively representing that he was not relying upon the alternative factual theory alleged in his complaint.
A defendant is entitled to know what factual theory it is expected to defend against, and it would be wholly unfair if we allowed the jury to assess liability based upon a factual claim defendant wasn't aware it needed to address. In this case, Baby Trend was entitled to rely on Gardner's explicit abandonment of one factual theory, and to concentrate its defense on the theory he actually chose to pursue before the jury.
Because the jury rejected Gardner's specific claim that he became an employee of Baby Trend by virtue of the parties' 1999 agreement, Gardner failed to prove his case on the point, and we therefore conclude Baby Trend is entitled to judgment in its favor on each of Gardner's employee-based causes of action.
Baby Trend next argues that the undisputed facts of this case establish Gardner's fraud cause of action was barred by the statute of limitations as a matter of law. We agree.
As we noted in the introduction, Gardner's theory of recovery on this claim — like his claim of employee status, was something of a moving target. He alleged in his complaint that Baby Trend's fraud occurred when Tsai promised him that Baby Trend would pay him a "flat 5%" commission if he accepted the position of vice-president of sales and marketing in January 1999. Garner reiterated that claim in the initial (statute of limitations) phase of the trial, explaining that his fraud claim was "that [Baby Trend] didn't hold up the agreement that we had in January of 1999."
However, in the second (liability) phase of the trial, Gardner explicitly abandoned that theory — his counsel told the jury that Gardner's cause of action was "[n]ot that they fraudulently induced us to enter into a contract back in 1999, as was argued at the first phase of the trial when the defendants were trying to prove statute of limitations." Instead, Gardner claimed Baby Trend had defrauded him in an entirely different way — by concealing from him the factory pricing information which was crucial to the calculation of his commissions.
On appeal, Gardner again frankly acknowledges the jury rejected his specific theory when it decided the fraud issue — or as he put it, "the jury obviously reached a different conclusion," and decided instead "that the `important fact/promise' that was fraudulently `concealed' was [Baby Trend's] secret intent not to pay a flat [five percent] commission."
We need not address the propriety of Gardner's approach, however, because we agree with Baby Trend that Gardner's original fraud theory was barred by the statute of limitations as a matter of law. "While resolution of the statute of limitations issue is normally a question of fact, where the uncontradicted facts . . . are susceptible of only one legitimate inference, summary judgment is proper." (Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1112.)
The statute of limitations applicable to common law fraud is three years. (Code Civ. Proc., § 338, subd. (d).) However, a fraud cause of action for fraud does not accrue — meaning the three-year period does not commence — "until the discovery, by the aggrieved party, of the facts constituting the fraud." (Code Civ. Proc., § 338, subd. (d).)
In this case, Gardner's own testimony establishes he was indisputably aware of all the pertinent facts underlying his fraud claim in early 1999. Specifically, Gardner testified he had recognized immediately that Baby Trend was not going to be paying him the "flat" five percent commission — i.e., without any deductions — which he claimed had been promised him for sales to Toys-R-Us. Moreover, Gardner acknowledges that when he complained to Tsai about his commission level — again, in early in 1999 — Tsai made no attempt to disguise what was going on. Instead, Tsai expressly told Gardner he did not believe they had agreed to such a deal, and made clear his intention that Gardner's commissions would be based upon profits rather than straight sales. Gardner testified that while he was not happy about that, and believed Tsai was a "liar," he chose to just keep working, and try to increase the level of sales to Toys-R-Us. Over the course of the following four years, Baby Trend never wavered in that position, and Gardner never received the "flat" five percent commission rate he believed had been promised to him initially.
Gardner does not dispute any of those facts in his respondent's brief, but simply claims instead that knowledge of those facts is insufficient to constitute discovery of his fraud cause of action. The piece Gardner claims is missing is evidence he was aware of what he characterizes as the key element of a fraud claim: i.e., that Tsai's "original `intent [was] not to perform.'" As Gardner sees it, the fact he already considered Tsai to be a "liar" with respect to the commission issue in 1999, does not necessarily mean he actually "believed Tsai never intended to perform" his promise. Unfortunately for Gardner, his personal belief on the ultimate issue of whether he was defrauded is not what triggers commencement of the statutory limitations period.
As cogently explained in explained in Debro v. Los Angeles Raiders (2001) 92 Cal.App.4th 940, 950, plaintiff's "discovery" of the facts constituting the fraud cause of action means only that he is aware of sufficient facts to put a reasonable person on inquiry notice of his cause of action. "The purpose of this [discovery] provision is to promote the resolution of claims on the merits. Since fraud by its nature is often concealed from the victim, the provision protects fraud victims from having the limitations period run before they are even aware of the fraud. On the other hand, if the term `discovery' were viewed too literally, requiring awareness of every fact necessary for a fraud claim, a plaintiff could unduly delay the commencement of litigation by asserting ignorance of the ultimate fact of fraud. Accordingly, we have long interpreted Code of Civil Procedure section 338 to commence upon the discovery by the aggrieved party of the fraud or facts that would lead a reasonably prudent person to suspect fraud. (Miller v. Bechtel Corp. (1983) 33 Cal.3d 868, 875.)" (Debro v. Los Angeles Raiders, supra, 92 Cal.App.4th at p. 950, italics added; Jolly v. Eli Lilly & Co., supra, 44 Cal.3d 1103, 1110 ["Under the discovery rule, the statute of limitations begins to run when the plaintiff suspects or should suspect that her injury was caused by wrongdoing, that someone has done something wrong to her." (Italics added, fn. omitted)]; Sanchez v. South Hoover Hospital (1976) 18 Cal.3d 93, 101 [the limitations period begins once the plaintiff "has notice or information of circumstances to put a reasonable person on inquiry . . . ."].)
It's difficult to conceive of a scenario — short of one which incorporated defendant's explicit confession — which would be more likely to cause a plaintiff to suspect that defendant never intended to perform a promise, than the one portrayed by Gardner in this case. Baby Trend never complied with the alleged promise to pay Gardner a "flat" five percent commission, and when Gardner protested to Tsai about that, Tsai did not claim any change of heart or of circumstance. Instead, according to Gardner, Tsai simply denied the existence of the deal. And yet Gardner took no legal action to enforce the unfulfilled promise for six years. Instead, he testified that despite his belief — formed no later than 2001 — that Tsai was a liar "in regards to my commission," Gardner simply chose to keep working, and trying to increase Baby Trend's sales.
By making that choice — for more than three years — Gardner lost his right to pursue his fraud claim. As explained in Jolly v. Eli Lilly & Co., supra, 44 Cal.3d 1103, 1112, "[t]he fundamental purpose of the statute [of limitations] is to give defendants reasonable repose, that is, to protect parties from defending stale claims. A second policy underlying the statute is to require plaintiffs to diligently pursue their claims. Because a plaintiff is under a duty to reasonably investigate and because a suspicion of wrongdoing, coupled with a knowledge of the harm and its cause, will commence the limitations period, suits are not likely to be unreasonably delayed, and those failing to act with reasonable dispatch will be barred." (Italics added.) That's what happened here.
Gardner insists that even if his fraud claim is barred by the statute of limitations made specifically applicable to that claim, the damages awarded on that theory remain valid, because the court separately determined that Baby Trend's fraudulent conduct was also a violation of the Unfair Competition Law (UCL), and thus determined he was also entitled to recover the same amount in "restitution." Gardner notes that claims under the UCL have a four-year statute of limitations. (Bus. & Prof. Code, § 17208.)
Although we note our discomfort with the notion that the UCL could be used as an end-run around the statute of limitations otherwise applicable to a specific type of misconduct, we need not address the point. It is sufficient for us to point out that, as explained in Snapp & Associates Ins. Services, Inc. v. Robertson (2002) 96 Cal.App.4th 884, 892, a claim under the UCL accrues when defendant first engages in the wrongful conduct, and the four-year limitations period begins running at that point. "The `discovery rule,' which delays accrual of certain causes of action until the plaintiff has actual or constructive knowledge of facts giving rise to the claim, does not apply to unfair competition actions." (Id. at p. 891.)
Here, Baby Trend's wrongful conduct underlying the UCL claim began in 1999 — more than four years before Gardner filed his initial complaint in 2005. Consequently, Gardner's UCL claim was untimely in this case, and cannot be relied upon as a basis to preserve the damages awarded to him under any other theory.
Baby Trend next challenges Gardner's claim for breach of oral contract, which is likewise based upon the Baby Trend's failure to pay him the flat five percent commission agreed upon in 1999. As Baby Trend points out, the amount awarded by the jury on this claim suggests it intended to compensate Gardner only for the amounts Baby Trend had improperly deducted from his commissions in the period of 1999-2001 — i.e., the years before the jury determined he had been transformed into an employee.
And as Baby Trend explains, all of those underpayments would have been barred by the two-year statute of limitations applicable to oral contracts by the time Gardner filed his initial complaint in 2005. (Armstrong Petroleum Corp. v. Tri-Valley Oil & Gas Co. (2004) 116 Cal.App.4th 1375, 1388 ["Where there is a continuing wrong . . . with periodic new injury to the plaintiff, the courts have applied what Justice Werdegar has termed a `theory of continuous accrual.' [Citations.] [¶] Thus, where performance of contractual obligations is severed into intervals, as in installment contracts, the courts have found that an action attacking the performance for any particular interval must be brought within the period of limitations after the particular performance was due."].)
For his part, Gardner dismisses Baby Trend's arguments pertaining to breach of contract as moot, on the basis that the damages awarded on that claim had been determined by the trial court to be duplicative of other damages awarded on the employment-based claims, which Gardner assumes will be affirmed on appeal.
Baby Trend next asserts that Gardner's claim for liability pursuant to the Independent Sales Act was barred by the statute of limitations. Again, we agree.
In connection with the first phase of trial, the court determined the applicable statute of limitations for this claim was one year, and it instructed the jury the claim accrued at the point Gardner "knew, or reasonably should have known . . . the facts supporting his claim." Neither side expresses any disagreement with this assessment of the law on appeal.
What Baby Trend contends instead is that this one-year period necessarily expired long before 2005 — the year in which the parties both entered into their tolling agreement and Gardner filed his lawsuit — because he was at all times aware of the facts underlying his claim, including that both he and Baby Trend believed he was an independent contractor, and that Baby Trend had not provided him with a formal written agreement which fully set forth his territory and commission structure.
Gardner doesn't contest his knowledge of those facts, but counters by pointing out he remained unaware of the additional "fact" that "he was entitled to have a written cont[r]act" until after he consulted with an attorney, in early 2005. That occurred within the limitations period. However, Gardner's entitlement to a written contract is a matter of law, not of fact. A plaintiff's personal ignorance of the existing law giving rise to his cause of action does not prevent the running of the statute of limitations. As long as plaintiff is aware of the facts, the discovery rule charges him with the additional knowledge he would obtain "`"`from sources open to [his] investigation.'"'" (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 808, quoting Gutierrez v. Mofid (1985) 39 Cal.3d 892, 896-897, quoting Sanchez v. South Hoover Hospital (1976) 18 Cal.3d 93, 101; see also Marasco v. Wadsworth (1978) 21 Cal.3d 82, 88 [explaining that plaintiff's ignorance of his cause of action against a doe defendant is not an excuse for failing to pursue a claim unless the law has actually changed, giving rise to a theory of liability not previously recognized].)
If the rule were otherwise, a plaintiff could almost invariably claim, with success, that the limitations period on his claim did not commence until whatever point he ultimately chose to consult with the particular lawyer who actually informed him of his legal rights and remedies. And that would be entirely inconsistent with the obligation placed on plaintiffs to "diligently pursue their claims." (Jolly v. Eli Lilly & Co., supra, 44 Cal.3d 1103, 1112.) Part of the expected diligence is that plaintiff will consult an attorney, or otherwise take steps to ascertain his legal rights and remedies, within a reasonable period of learning the facts giving rise to his claim. That's what the limitations period is for. Here, Gardner failed to do so quickly enough to preserve his claim under the Independent Sales Act, and thus his claim for relief thereunder is barred.
Baby Trend's final contention is that the court's order of restitution under the UCL must be reversed. This is correct.
Restitution is based upon principles of equity, and in this case, it is clear the court's assessment of the equities was based upon the jury's verdict on the legal claims — including the jury's determination that Baby Trend had committed fraud, as well as its findings demonstrating that Baby Trend had violated Labor Code provisions applicable to Gardner as its employee. That was proper, as the court must adhere to the jury's resolution of factual issues common to both legal and equitable claims when assessing the propriety of granting an equitable remedy. (Hoopes v. Dolan (2008) 168 Cal.App.4th 146, 158-159.)
But, by the same token, our reversal of the judgment pertaining to those legal claims — and in particular our determination Gardner failed to establish his claim for employee status, and failed to assert his fraud claim in a timely fashion — severely undermines the court's assessment of the equities pertaining to case. Without that support, the court's decision cannot stand.
Additionally, Gardner's reliance on the UCL's four-year statute of limitations as a means of defending the propriety of his fraud award required us to assess the application of that limitations period as well, despite the fact Baby Trend did not explicitly raise it as an issue on appeal. Having done so, we conclude Gardner's UCL claim is untimely as well, since Baby Trend's first act of unfair competition occurred in 1999, more than four years prior to the parties' entry into their limitations tolling agreement. (Snapp & Associates Ins. Services, Inc. v. Robertson, supra, 96 Cal.App.4th at p. 892.) Consequently, no retrial of this cause of action is possible, and Baby Trend is entitled to judgment in its favor on the claim.
The judgment is reversed, and the case is remanded to the trial court with instructions to enter judgment in favor of Tsai on Gardner's claims. Gardner is entitled to a new trial on his claim for breach of contract against Baby Trend, confined solely to the damages allegedly suffered by Gardner within the two-year period prior to June 15, 2005, but Baby Trend is entitled to entry of judgment in its favor on each of Gardner's remaining claims. Baby Trend is entitled to its costs on appeal.
O'LEARY, J., concur.
ARONSON, J., Concurring.
We concur in the reasoning and the result in, concurs. the court's opinion, with one minor exception. The opinion correctly concludes the trial court prejudicially erred in giving the "conclusive presumption" instruction because it was "irreconcilably inconsistent with another instruction, which informed the jury that the parties' characterization of their relationship in `any agreement' was `not dispositive' . . . ." (See maj. opn. ante, at p. 28.) Consequently, we would not reach Baby Trend's alternative argument that the trial court should have decided whether the reference to employment in the statute of limitations tolling agreement established Gardner's status as an employee. We otherwise join in the reasoning and conclusion of the court's opinion.
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