Tilkey v. Allstate Ins. Co.

Filed 4/21/20
CERTIFIED FOR PUBLICATION
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
MICHAEL A. TILKEY, D074459
Plaintiff and Respondent,
v. (Super. Ct. No. 37-2016-00015545-
CU-OE-CTL)
ALLSTATE INSURANCE COMPANY,
Defendant and Appellant.
APPEAL from a judgment of the Superior Court of San Diego County,
Frederick L. Link, Judge. Affirmed in part; reversed in part.
Brown Law Group, Janice P. Brown, Arlene R. Yang; Akin Gump Strauss Hauer
& Feld, Rex S. Heinke, Jessica M. Weisel; Cozen & O'Connor, Anneliese Wermuth, and
Jenny R. Goltz, for Defendant and Appellant.
Edleson & Rezzo, Louis "Chip" Edleson, Joann F. Rezzo; Williams Iagmin and
Jon R. Williams, for Plaintiff and Respondent.
INTRODUCTION
While Michael Tilkey and his girlfriend Jacqueline Mann were visiting at her
home in Arizona, the two got into an argument. Tilkey decided to leave the apartment.
When he stepped out onto the enclosed patio to collect his cooler, Mann locked the door
behind him. Tilkey banged on the door to regain entry, and Mann called police. Police
arrested Tilkey and charged him under Arizona law with criminal damage deface,
possession or use of drug paraphernalia, and disorderly conduct, disruptive behavior.
Domestic violence charges were attached to the criminal damage and disorderly conduct
charges.
Tilkey pled guilty to the disorderly conduct charge only, and the other two charges
were dropped. After Tilkey completed a domestic nonviolence diversion program, the
disorderly conduct charge was dismissed. Before the disorderly conduct charge was
dismissed, Tilkey's company of 30 years, Allstate Insurance Company (Allstate),
terminated his employment based on his arrest for a domestic violence offense and his
participation in the diversion program. Allstate informed Tilkey it was discharging him
for threatening behavior and/or acts of physical harm or violence to another person.
Following the termination, Allstate reported its reason for the termination on a Form U5,
filed with Financial Industry Regulatory Authority (FINRA) and accessible to any firm
that hired licensed broker-dealers like Tilkey. Tilkey sued Allstate for wrongful
termination in violation of Labor Code1 section 432.7 and compelled, self-published
defamation.
1 Further statutory references are to the Labor Code unless otherwise specified.
2
At trial, Allstate presented evidence that it would have terminated his employment
based on after-acquired evidence that Tilkey had circulated obscene and inappropriate e-
mails using company resources.
The jury returned a verdict in Tilkey's favor on all causes of action and awarded
him $2,663,137 in compensatory damages and $15,978,822 in punitive damages. It
advised the court that it did not find Allstate's after-acquired evidence defense credible,
and the court agreed.
Allstate appeals the verdicts, contending (1) it did not violate section 432.7 and so
there was no wrongful termination; (2) compelled self-published defamation per se is not
a viable tort theory; (3) it did not defame Tilkey because there is not substantial evidence
its statement was not substantially true; (4) punitive damages are unavailable in
compelled self-publication defamation causes of action; (5) the defamatory statement was
not made with malice; and (6) the punitive damages awarded here were
unconstitutionally excessive.
We agree that Allstate did not violate section 432.7 when it terminated Tilkey's
employment based on his plea and his participation in an Arizona domestic nonviolence
program and will reverse that judgment. However, we conclude compelled self-
published defamation is a viable theory, and substantial evidence supports the verdict that
the statement was not substantially true, so we will affirm that portion of the judgment.
Additionally, while we conclude punitive damages are available in this instance, the
punitive damages awarded here are not proportionate to the compensatory damages for
defamation, and we will remand the matter for recalculation of the punitive damages.
3
FACTUAL AND PROCEDURAL BACKGROUND
On August 16, 2014, Tilkey was staying with his girlfriend, Mann, and her young
grandson in Arizona. After going out for the evening and drinking, the two began to
argue, and Tilkey decided to leave the home. When Tilkey stepped outside onto the
enclosed patio, Mann closed and locked the patio door, which was a traditional door with
glass panes. Tilkey banged on the patio door, demanding to be let back in so he could
gather his belongings, which were in the bedroom where Mann's grandson was sleeping.
Mann called police.
When police arrived, Mann told them she did not want Tilkey in the apartment
because she was afraid he would wake up her grandson. Police noted the interior trim on
the framing above the patio door was broken.
Officers searched Tilkey's travel bag, which contained marijuana and a plastic
container used to smoke marijuana. Police arrested Tilkey and filed three charges against
him: criminal damage deface (Arizona Revised Statute [A.R.S.] § 13-1602A1),
possession or use of drug paraphernalia (A.R.S. § 13-3415A), and disorderly conduct -
disruptive behavior (A.R.S. § 13-2904A1). A domestic violence label was attached to the
criminal damage and disorderly conduct charges.
On August 31, 2014, Mann sent an e-mail to Tilkey at work mentioning the
charges that had been filed against him. A field compliance employee later discovered
this e-mail while conducting a routine compliance review and forwarded it to Human
Resources (HR). HR professional Tera Alferos conducted the initial investigation; she
interviewed Tilkey December 4, 2014. She noted Tilkey had been asked to accept a plea
4
deal to have two of the three charges dropped, then the last one dismissed. She never
spoke with Mann or interviewed the arresting officers. She also did not investigate
Mann's background or review her social media accounts.
Mann sent an e-mail to Allstate March 3, 2015, which revealed the arrests and
made several other allegations. That same day, the e-mail was shared with Harriet Harty,
Executive Vice President of HR; Christina Metzger, Vice President of HR; and Tyrone
Burno, Director of HR. Alferos added the e-mail to the case file. A couple weeks later,
Alferos sent Burno a summary of her investigation, which stated that the police report
had been reviewed and noted Tilkey had been charged with but not convicted of a crime.
The summary also explained there was no FINRA reporting obligation because there
were no felony charges, and it concluded there had been no violation of company policy.
On March 31, 2015, Alferos provided Burno with a revised summary of
investigation that added that Tilkey had entered a diversion program for the disorderly
conduct (domestic violence) charge, resulting in a deferred prosecution. Burno then
changed the conclusion to state Tilkey's behavior may have been at a level that caused the
company to lose confidence in him. Burno supplied this version of the summary of
investigation to Metzger, Harty, and Greg Burns, the senior vice president of HR, the
same day.
At Burno's request, Alferos next added references to the domestic violence charge
because it suggested Tilkey had engaged in behavior that could be construed as acts of
physical harm or violence toward another person, in violation of company policy.
5
On April 16, 2015, Metzger e-mailed Harty stating she and Burns could support a
decision to terminate Tilkey's employment or not. In a May 4, 2015 e-mail referencing
the decision to terminate Tilkey's employment, Metzger wrote that they were amending
the reason for terminating Tilkey to be "violence against another person whether
employed by Allstate or not." Alferos submitted a formal termination request two days
later stating that based on Tilkey's voluntary entrance into a diversion program, he had
engaged in acts of physical harm or violence to another person. It identified the policy
violation as "[t]hreats or acts of physical harm or violence to the property or assets of the
Company, or to any person, regardless of whether he/she is employed by Allstate." The
summary of investigation attached to the termination request stated, "the retention of the
domestic violence charges suggests that Tilkey engaged in behavior that was construed as
acts of physical harm or violence towards another person."
Following written approval from Tilkey's supervisors, the company terminated
Tilkey's employment on May 27, 2015. When the company terminated his employment,
it informed Tilkey, "Your employment is being terminated as a result of engaging in
behaviors that are in violation of Company Policy. Specifically, engaging in threatening
behavior and/or acts of physical harm or violence to any person, regardless of whether
he/she is employed by Allstate."
6
The company then filed a Form U5 with FINRA2 reporting its reason for
terminating him as follows: "Termination of employment by parent property and
casualty insurance company after allegations of engaging in behaviors that are in
violation of company policy, specifically, engaging in threatening behavior and/or acts of
physical harm or violence to any person, regardless of whether he/she is employed by
Allstate. Not securities related."
On July 1, 2015, the State of Arizona filed a motion to dismiss the case against
Tilkey with prejudice, and the court approved it the same day.
Tilkey sued Allstate asserting three causes of action: (1) violation of section
432.7; (2) wrongful termination based on noncompliance with section 432.7; and
(3) compelled self-published defamation to prospective employers.
As part of its defense at trial, Allstate presented evidence that Tilkey had used
company equipment, including the company-issued laptop computer and the company's
Intranet and Internet system, to forward e-mails containing graphic nudity and racist
jokes, among other items. It argued that had it known of these e-mails at the time, it
would have discharged Tilkey. Tilkey presented evidence that the circulation of the e-
mails was part of the culture of the workplace.
Following trial, the jury returned a verdict for Tilkey and awarded $2,663,137 in
compensatory damages, with $960,222 for wrongful termination and $1,702,915 for
2 The Form U5 is a document to let FINRA know if there is a change in the status
regarding the licensing of a licensed broker dealer.
7
defamation, and $15,978,822 in punitive damages. The jury concluded that Tilkey
engaged in misconduct by sending the inappropriate e-mails. However, it also advised
the court that the misconduct was not sufficiently severe that Allstate would have
discharged him as a matter of settled company policy because of that misconduct alone
had Allstate known of it. The court agreed.
Allstate moved for a judgment notwithstanding the verdict (JNOV) and for a new
trial, motions which the trial court denied. Allstate timely appealed.
8
DISCUSSION
I.
WRONGFUL TERMINATION
Allstate argues it did not violate section 432.7 when it used as a factor in its
termination decision Tilkey's arrest and subsequent conditional plea and entry into a
diversion program. Tilkey counters that the company's reliance on his arrest records
violated section 432.7; thus, he was wrongfully terminated. The parties' disagreement
hinges on the interpretation of section 432.7, subdivision (a)(1), which prohibits
employers from utilizing as a factor in employment decisions any record of arrest or
detention that did not result in conviction or any record regarding referral to or
participation in any pretrial or posttrial diversion program.3
A.
Standard of Review
Statutory interpretation is a legal issue, which we review de novo.
(Weatherford v. City of San Rafael (2017) 2 Cal. 5th 1241, 1247.) In interpreting a
statute, we attempt "to ascertain and effectuate the law's intended purpose." (Id. at
p. 1246.) Our " 'fundamental task' " is " 'to determine the Legislature's intent so as to
effectuate the law's purpose.' " (Carson Citizens for Reform v. Kawagoe (2009) 178
3 The statute also prohibits an employer from seeking or using as a factor in an
employment decision any record that concerns a conviction that has been judicially
dismissed. (§ 432.7, subd. (a)(1).) The parties did not raise this as a basis for the
wrongful termination claim.
9
Cal. App. 4th 357, 366; Fluor Corp. v. Superior Court (2015) 61 Cal. 4th 1175, 1198
(Fluor).) " ' "We begin with the plain language of the statute, affording the words of
the provision their ordinary and usual meaning and viewing them in their statutory
context, because the language employed in the Legislature's enactment generally is
the most reliable indicator of legislative intent." [Citations.] The plain meaning
controls if there is no ambiguity in the statutory language. [Citation.] If, however,
"the statutory language may reasonably be given more than one interpretation,
' " 'courts may consider various extrinsic aids, including the purpose of the statute, the
evils to be remedied, the legislative history, public policy, and the statutory scheme
encompassing the statute.' " ' " [Citation.]' [Citation.]" (Fluor, at p. 1198.)
B.
Tilkey's Conditional Plea Agreement
Section 432.7 prohibits an employer from considering as a factor in
employment decisions including termination of "any record of arrest . . . that did not
result in a conviction." (§ 432.7, subd. (a)(1).) Allstate argues a conditional plea
agreement qualifies as a conviction. Tilkey contends he never entered a guilty plea; thus,
there was no conviction. As we will explain, we conclude the term "conviction" as
defined in section 432.7 does not require entry of judgment.
" '[T]he term "conviction" has no fixed definition and has been interpreted by
the courts of this state to have various meanings, depending upon the context in which
the word is used[]' [Citation.]" (People v. Kirk (2006) 141 Cal. App. 4th 715, 720).
10
However, here, the statute defines a "conviction" to include "a plea, verdict, or finding
of guilt regardless of whether sentence is imposed by the court." (§ 432.7, subd.
(a)(3)(A).) The plain language here makes clear that a judgment is not required because
the conviction can exist without respect to sentencing. (See ibid.)
The statute's legislative history supports this interpretation. In 2013, the
Legislature amended section 432.7 to include, among those items prohibited from a
prospective employer's consideration, prior convictions that were dismissed by a court
pursuant to Penal Code section 1203.4 unless the conviction was related to job
performance. (Sen. Com. on Pub. Safety, Analysis of Sen. Bill No. 530 (2013-2014
Reg. Sess.) Apr. 23, 2013, p. 7, ¶ 3.) The purpose of the amendment was "to close
some loopholes and provide additional tools and changes to existing law to make
effective existing state policy to remove employment barriers to those who have
committed crimes that have been expunged by the courts." (Assem. Com. on
Judiciary, Analysis of Sen. Bill No. 530 (2013-2014 Reg. Sess.) June 25, 2013,
pp. 2-3.) This addition demonstrates that convictions and dismissed convictions
represent two different categories of convictions. It also verifies that a conviction can
exist even before judgment is entered, and it is different from one that is subsequently
dismissed or expunged.
Allstate asks us to follow the example provided by People v. Laino (2004) 32
Cal. 4th 878. While the cases are factually similar, there are distinctions between the
provision of the "Three Strikes" law and section 432.7 that make the comparison
11
imprecise. In Laino, the defendant pled guilty in Arizona to assault with a firearm
against his wife and received probation that included a diversion program, which he
successfully completed. (Id. at p. 882.) The defendant was never sentenced for the
crime because he complied with the terms of the agreement; instead, the court
dismissed the charges. (Ibid.) The defendant was later charged with two counts of
theft in California, and he argued the conditional guilty plea he entered in Arizona
was not a conviction for purposes of the Three Strikes law. (Id. at p. 896.)
The Supreme Court disagreed because California's Three Strikes law imposes
punishment "[n]otwithstanding any other law" if the defendant was previously
convicted of a felony. (Pen. Code, §§ 667, subd. (c), 1170.12, subd. (a).) The Three
Strikes law defines "conviction" to include convictions in other jurisdictions that
would be punishable by imprisonment if committed in California, based on the date of
the conviction and unaffected by the sentencing. (Pen. Code, §§ 667, subd. (d)(1)
& (2), 1170.12, subd. (b)(1) & (2).) Thus, under the Three Strikes law, "it is settled
that for purposes of a prior conviction statute, a conviction occurs at the time of entry
of the guilty plea." (People v. Castello (1998) 65 Cal. App. 4th 1242, 1253.)
Section 432.7 does not contain similar provisions. The Labor Code does not
provide details for determining the impact of a conviction in another jurisdiction or
state that a conviction occurs on the date of the conviction. However, it does define
conviction to include a plea, regardless of whether the court ultimately imposes a
sentence. (See § 432.7, subd. (a)(3)(A).) Thus, for purposes of the Labor Code, a
12
conviction does not require an entry of judgment of guilt; it merely requires the entry
of a plea.
Having determined what "conviction" means in the context of section 432.7,
we turn now to the plea-related documents in the matter.
On January 15, 2015, Tilkey, his attorney, and the prosecutor signed a
document entitled "Plea Agreement Diversion." The agreement stated it would "serve
the ends of justice to suspend entry of judgment so that the defendant may participate
in a diversion program." From this language, as well as a later-filed motion to dismiss
the remaining charge, we conclude that there was no judgment of guilt in the Arizona
court. However, as we have explained, a conviction under section 432.7 does not
require an entry of judgment; it simply requires entry of a guilty plea.
Section 9 of the Plea Agreement Diversion document suggests that the guilty
plea agreement was not entered because it says that it "will be entered on the record
by the Court" if the defendant "fails to timely show proof of compliance" with the
conditions stated in the agreement. The defendant's signature on the document
certifies that he "agree[s] to enter my plea of guilty as indicated above on the terms
and conditions set forth in this document." These conditions included a domestic
nonviolence program under the supervision of an Arizona company, as well as
payment of court costs, and assessments, and compliance with other limitations, like
nonpossession of firearms and staying away from Mann. Thus, this document shows
Tilkey agreed to enter a type of deferred prosecution, with the entry of guilty plea
13
delayed until the prosecutor determined that Tilkey had completed the diversion
program and remained in compliance with the other terms of the agreement.
However, also on January 15, 2015, the Arizona court held a guilty plea
proceeding. Appearing in that proceeding, Tilkey "expresse[d] a desire to plead guilty
to" a class 1 misdemeanor, disorderly conduct fighting (DV), A.R.S. § 13-2904A1.
Tilkey, his attorney, and the court signed this document, in which Tilkey certified that
he understood "the constitutional rights which [he] [gave] up by entering this plea and
that [he] still desire[d] to plead guilty." (Italics added.) The court's signature on the
document certifies that it "conclude[s] that the [d]efendant knowingly, voluntarily and
intelligently enters a plea to the above charge(s), and [it] accept[s] their plea." (Italics
added.) The first document indicated a willingness to enter a diversion program on the
promise of a deferred prosecution; the second document shows entry of a guilty plea.
This understanding of what occurred is supported by the testimony of Tilkey's
Arizona attorney, Carlos Estrada, who could not recall discussing with Tilkey whether
the agreement would lead to a conviction, just that it would lead to a dismissal of the
charges. Estrada testified that the purpose of the plea agreement diversion document
and the guilty plea proceeding document were for the court to suspend the entry of
judgment of guilt so that successful completion of the diversion program would result
in dismissal of the remaining charge. Tilkey's testimony likewise focused on the
ultimate outcome of the case; when asked if he believed the plea of guilt he entered
had been entered on the record, Tilkey replied that he believed completion of the
14
diversion program would mean there would not be "any record of anything
anywhere."
Because Tilkey appeared before the Arizona court and entered a guilty plea,
which the court accepted, Tilkey's guilty plea was a conviction under section 432.7.
This information was used by Allstate to terminate Tilkey's employment in May 2015,
before the charges against Tilkey were dismissed on July 1, 2015. Thus, Allstate did
not violate section 432.7 by using Tilkey's Arizona arrest as a factor in its decision to
terminate his employment.
C.
Tilkey's Referral to and Participation in Nondomestic Violence Diversion Program
Section 432.7 also prohibits an employer from considering as a factor in an
employment decision records of referral to or participation in a diversion program.
(§ 432.7, subd. (a)(1).) It defines a pretrial or posttrial diversion program as "any
program under Chapter 2.5 (commencing with Section 1000) or Chapter 2.7
(commencing with Section 1001) of Title 6 of Part 2 of the Penal Code, Section 13201
or 13352.5 of the Vehicle Code, Sections 626, 626.5, 654, or 725 of, or Article 20.5
(commencing with Section 790) of Chapter 2 of Part 1 of Division 2 of, the Welfare
and Institutions Code, or any other program expressly authorized and described by
statute as a diversion program." (§ 432.7, subd. (j), italics added.)
Allstate argues that because California views domestic nonviolence diversion
programs as contrary to public policy, such a program is unauthorized, and thus the
15
company's consideration of Tilkey's participation in one did not violate section 432.7.
Tilkey contends that a domestic nonviolence diversion program is one that is
expressly authorized and described by statute in Arizona, and thus Allstate was
prohibited from considering Tilkey's participation.
Because there is ambiguity here, we consider the Legislature's intent. (Fluor,
supra, 61 Cal.4th at p. 1198.) In 1976, the California Attorney General issued an
opinion questioning the authority of local prosecutors and courts to offer diversion
programs for behavior identified by the Legislature as unlawful; it suggested counties
could not legally institute diversion programs. (Health and Welfare Agency, Dept. of
Health, Enrolled Bill Report on Assem. Bill No. 533 (1977-1978 Reg. Sess.) Aug. 31,
1977, p. 1; Assemblyman Majority Leader Howard L. Berman, letter to Governor
Edmund G. Brown, Jr. re Assem. Bill No. 533 (1977-1978 Reg. Sess.) Aug. 31, 1977,
p. 1 [Berman Letter].) At the time, the state had collected little data regarding the
effectiveness of diversion programs. (Berman Letter, at pp. 2-3.) Assembly Bill
No. 533 authorized local communities to establish diversion programs and required
counties employing the programs to supply annual reports to the Legislature. (Health
and Welfare Agency, Dept. of Health, Enrolled Bill Report on Assem. Bill No. 533,
supra, p. 2.)
In 1979, the Legislature expressly authorized diversion for misdemeanor
domestic violence charges using a system similar to the domestic nonviolence
diversion program options available to Tilkey in Arizona. (See Stats. 1979, ch. 913,
16
§ 1; Pen. Code, § 1000.6 et seq. [repealed].) The California statutes allowed courts to
permit pretrial diversion without an admission of guilt and to dismiss criminal charges
following successful completion of the program. (Id. at §§ 1000.6, subds. (a), (c);
1000.9 [repealed].)
During the 1995-1996 legislative session, the Legislature revisited domestic
violence diversion programs. Domestic violence diversion programs were not
meeting their intended goal, with only a 50 percent success rate reported in Los
Angeles, and difficulty prosecuting cases when perpetrators failed to complete their
diversion programs. (Sen. Rules Com., Office of Sen. Floor Analyses, 3d Reading
analysis of Assem. Bill No. 168 (1995-1996 Reg. Sess.) as amended July 14, 1995,
pp. 3-4; Sen. Rules Com., Office of Sen. Floor Analyses, 3d Reading analysis of
Assem. Bill No. 169 (1995-1996 Reg. Sess.) as amended July 15, 1995, pp. 3-4.) The
Assembly and Senate introduced competing bills.
Assembly Bill No. 168 would have allowed domestic violence perpetrators to
plead guilty and defer entry of judgment, contingent upon successful completion of a
diversion program. (Sen. Rules Com., Office of Sen. Floor Analyses, 3d Reading
analysis of Sen. Bill No. 168 (1995-1996 Reg. Sess.) as amended July 14, 1995, p. 2.)
Senate Bill No. 169 would eliminate diversion as an option in all domestic violence
cases. (Sen. Rules Com., Office of Sen. Floor Analyses, 3d Reading analysis of
Assem. Bill No. 169 (1995-1996 Reg. Sess.) as amended July 15, 1995, p. 3, ¶ 1.)
17
After the Legislature passed both bills, the governor vetoed Assembly Bill
No. 168, commenting, "we can no longer continue to treat domestic violence cases as
if they are not more significant than traffic violations." (Governor's veto message to
Assem. on Assem. Bill No. 168 (Oct. 4, 1995) (1995-1996 Reg. Sess.) p. 1.) The
governor compared the two bills, explaining that Assembly Bill No. 168 would deem
the arrest which formed the basis for the diversion to have never occurred, and
explaining the "problem is a lack of accountability" because perpetrators could "opt to
attend a counseling program without ever acknowledging that they have committed a
crime and are prepared to accept the consequences." (Ibid.) He wrote that offering a
deferred entry of judgment would merely be a cosmetic change and stated, "We must
change the culture which makes domestic violence acceptable and dispel the myth that
the battering of a domestic partner is a family matter, and something less than a
crime." (Id. at pp. 1-2.)
The state abolished domestic violence diversion programs about a decade
before Tilkey engaged in the domestic nonviolence program in Arizona. Were he to
have been charged with the same crime in California, a diversion program would not
have been an option. It would be contrary to California's public policy against
misdemeanor domestic violence diversion programs to prohibit consideration of
Tilkey's participation in one. The location of the crime in Arizona does not have any
effect on California's public policy opposing diversion for domestic violence offenses.
18
Accordingly, we conclude section 432.7's reference to diversion programs
excludes out-of-state domestic violence programs, and Allstate's consideration of
Tilkey's participation in one did not violate the law.
We are unpersuaded by Tilkey's argument that the lack of reference to
California authorities in section 432.7 means the Legislature did not intend to limit
consideration of diversion programs only to those offered in California. The statutes
cited by Tilkey as evidence the Legislature is capable of limiting the scope of its laws
are different in kind than one authorizing diversion in lieu of criminal conviction
because they relate to physical location for purposes of jurisdiction (see, e.g.,
sections 220.2 and 226 referencing the location of employment records), or the
geographical location of people protected by employment laws (see, e.g., §§ 250
[seasonal labor to include employees hired in California who perform work out of
state]; 1060, subd. (c) [applying only to employees whose "primary place of
employment" is within California]; 1071 [addressing public transit employment
within California].)
We also disagree with Tilkey's claim that concluding a domestic violence
diversion program offered in Arizona is not protected under section 432.7 means
section 432.7 applies only to California arrests, detentions, and diversion programs.
Our conclusion is more narrow: domestic violence diversion programs offered
outside California are not protected under section 432.7 because California policy
excludes such a benefit.
19
Finally, citing People v. Bedrossian (2018) 20 Cal. App. 5th 1070, Tilkey
maintains that California provides statutory protections to domestic violence arrests
and convictions and, therefore, we should honor Tilkey's participation in a domestic
nonviolence diversion program. In Bedrossian, the First Appellate District Court of
Appeal recognized that records of an arrest for domestic violence can be expunged
under Penal Code section 851.8 when no accusatory pleading is filed. This case is not
helpful because, unlike Tilkey, the defendant in Bedrossian did not plead guilty or
admit any factual basis for the charges against him. (See id. at p. 1073.) There, the
court reasoned that the risk Bedrossian would be harmed by a delay in destruction of
arrest records was mitigated by statutory protections like section 432.7 (Bedrossian, at
p. 1075), but Bedrossian was not at risk because his arrest did not result in a
conviction or a referral to a diversion program.4 (Bedrossian, at p. 1073.)
4 Allstate does not argue, and we do not hold, that it would be proper for an
employer to consider, after charges are dismissed, an arrest that results in conviction and
punishment, followed by dismissal under Penal Code section 1203.4, which is the factual
situation presented in the other cases cited by Tilkey. (See People v. Seymour (2015) 239
Cal. App. 4th 1418, 1421-1422 [defendant permitted to have felony domestic violence
charge dismissed due to discharge from probation prior to termination of probation
period]; see also Shirey v. Los Angeles County Civil Service Comm. (2013) 216
Cal. App. 4th 1, 4-5 [battery conviction set aside following probation and not guilty plea
entered].) Penal Code section 1203.4 permits a court, in the interests of justice, after a
defendant has fulfilled conditions of probation, or after a defendant has been discharged
prior to the termination of probation, to withdraw a guilty plea or to set aside a guilty
verdict, and to dismiss the accusations or information. The defendant is
"thereafter. . . released from all penalties and disabilities resulting from the offense of
which he or she has been convicted . . . ." (Pen. Code, § 1203.4, subd. (a)(1).) In
contrast, when Tilkey was discharged from employment, the domestic violence charge
20
Having concluded that Allstate did not violate section 432.7 by utilizing
Tilkey's arrest or participation in a domestic nonviolence diversion program as a
factor in its employment termination decision, we will reverse the wrongful
termination verdict.
II.
DEFAMATION
Allstate next challenges the defamation verdict, contending that self-compelled
defamation should not provide a basis for a defamation per se cause of action. It
further contends there was no evidence here that Tilkey's self-publication was
compelled by its publication of the reason for his employment termination on the
Form U5 because that publication contained a privileged statement. Finally, Allstate
maintains that its statement was substantially true, justifying reversal of the verdict.
We review questions of law, and therefore the viability of self-compelled
defamation per se theory, de novo. (Topanga and Victory Partners v. Toghia (2002)
103 Cal. App. 4th 775, 779-780.) We look for substantial evidence regarding whether
Tilkey was compelled to self-publish the defamatory statement, and we look for
substantial evidence regarding whether the statement was substantially true. (See
Sweatman v. Department of Veteran Affairs (2001) 25 Cal. 4th 62, 68 (Sweatman)
[denial of JNOV reviewed under substantial evidence standard].) In so doing, we do
against him had not been dismissed. Moreover, nothing prohibited Allstate's
consideration of referral to a diversion program.
21
not " 'weigh the evidence, consider the credibility of witnesses, or resolve conflicts in
the evidence or in the reasonable inferences that may be drawn from it.' " (Do v.
Regents of the University of California (2013) 216 Cal. App. 4th 1474, 1492 (Do).)
We consider disputed facts in a light most favorable to the jury's verdict. (Ibid.)
For a valid defamation claim, the general rule is that "the publication must be
done by the defendant." (Live Oak Publishing Co. v. Cohagan (1991) 234 Cal. App. 3d
1277, 1284 (Live Oak Publishing).) There is an exception "when it [is] foreseeable
that the defendant's act would result in [a plaintiff's] publication to a third person."
(Ibid.) For the exception to apply, the defamed party must operate under a strong
compulsion to republish the defamatory statement, and the circumstances creating the
compulsion must be known to the originator of the statement at the time he or she
makes it to the defamed individual. (Beroiz v. Wahl (2000) 84 Cal. App. 4th 485, 497
(Beroiz); Davis v. Consolidated Freightways (1994) 29 Cal. App. 4th 354, 373 (Davis);
Live Oak Publishing, at p. 1285; McKinney v. County of Santa Clara (1980) 110
Cal. App. 3d 787, 796 (McKinney).)
A.
Compelled Self-Published Defamation Per Se
Allstate asks us to reject combining the doctrines of defamation per se and self-
defamation, arguing the two theories are at odds because compelled self-publication
must occur for the purpose of countering an injury (loss of employment opportunity),
while defamation per se does not require proof of actual damages. We do not find
22
these theories in conflict. In an action for defamation per se, the meaning is so clear
from the face of the statement that the damages can be presumed. (Contento v.
Mitchell (1972) 28 Cal. App. 3d 356, 358 (Contento).) However, that presumption
does not mean an employee does not anticipate injury; nor does it mean there is no
injury.
Moreover, while compelled self-published defamation per se technically
eliminates the need for publication by the defendant to a third party, a plaintiff cannot
manufacture the defamation claim by simply publishing statements to a third party
because the plaintiff must disclose contents of the employer's statement to a third
party after reading or being informed of the contents. (Live Oak Publishing, supra,
234 Cal.App.3d at p. 1284.) The originator of the statement is liable for the
foreseeable repetition because of the causal link between the originator and the
presumed damage to the plaintiff's reputation (see id. at p. 1285), but the publication
must be foreseeable. (Davis, supra, 29 Cal.App.4th at p. 373.) The presumed injury
is no less damaging because the plaintiff was compelled to make the statement instead
of the employer making it directly to the third party.5
5 While defamation per se does not require a finding of actual damages (Contento,
supra, 28 Cal.App.3d at pp. 357-358), in this case, the jury found that Tilkey suffered
actual damages of $1,586,185 for harm to his profession or occupation, $111,000 for
harm to his reputation, and $5,730 for shame, mortification, or hurt feelings.
23
Allstate offers several other arguments for why we should not accept a theory
of compelled self-published defamation. Allstate argues a theory of self-publication
undermines at-will employment, which allows companies to discharge employees
capriciously, as long as the decision is not unlawful. Allstate also argues that
permitting this cause of action may have a chilling effect on communication between
an employer and employee, reducing the free flow of information due to self-
censorship. Next, Allstate argues this theory of defamation incentivizes an employee
to spread defamatory statements instead of mitigating damages. Finally, Allstate
notes that employment is primarily a contractual relationship. These arguments do
not persuade us to alter our conclusion here.
These same arguments could be offered to support the elimination of a
defamation cause of action against employers altogether—the crux of Allstate's
argument is that because the employee controls whether a statement is repeated to a
third party, the risks of an end-run around the at-will employment doctrine is greater.
But the additional requirements of proving a strong compulsion, the necessity to
disclose the statement, and the foreseeability of the repetition all contribute to
discouraging employees from simply repeating the defamatory information instead of
mitigating their damages. (See Live Oak Publishing, supra, 234 Cal.App.3d at
pp. 1284, 1285.)
Allstate argues only one published case has permitted a compelled self-
publication claim to survive summary judgment, and that case, McKinney, relied on
24
out-of-state cases with unique facts, implying it should not supply a basis for our
conclusion. However, the facts of the cases discussed in McKinney are not so
different from the one before us now.
In Colonial Stores, Inc. v. Barrett (Ga.Ct.App. 1946) 38 S.E.2d 306, 307-308,
the plaintiff received a restricted statement of availability that prevented him from
being hired by other employers, and he claimed that statement contained a false
reason for his termination. There, the employee was required to share the statement
with prospective employers. (Ibid.) In Grist v. Upjohn Company (Mich.Ct.App.
1969) 168 N.W.2d 389, 405-406, the employer disclosed to a prospective employer
the reason for termination, compelling the employee to repeat the reason so he could
refute it. Allstate argues that because no one at Allstate made a nonprivileged
disclosure of its reason for terminating Tilkey's employment to prospective
employers, his situation is not analogous. We disagree. Allstate provided a written
explanation for Tilkey's termination of employment on the Form U5 to FINRA, which
was available to every prospective employer of similarly-licensed employees. As we
explain post, that disclosure was not absolutely privileged. Thus, Tilkey was
compelled to explain the reason for his discharge, and this repetition was reasonably
foreseeable.
We are also not persuaded by Allstate's remaining arguments. Nothing about
compelled self-published defamation limits an employer's right or ability to terminate
employment unfairly or capriciously. (See Guz v. Bechtel National Inc. (2000) 24
25
Cal. 4th 317, 350-351.) And because a defamation cause of action does not arise from
an employer's statement to the employee of the reasons for termination of
employment unless they include false accusations of criminal conduct, lack of
integrity, dishonesty, incompetence, or reprehensible personal characteristics or
behavior (see, e.g., Jensen v. Hewlett-Packard Co. (1993) 14 Cal. App. 4th 958, 964-
965 [employee performance evaluation]; see, e.g., King v. United Parcel Service, Inc.
(2007) 152 Cal. App. 4th 426, 440 [employer statements about reasons for terminating
another employee are generally privileged because of common interest in protecting
workplace from abuse]), there is no additional chilling effect on the free flow of
information between the employer and the employee.
Additionally, the qualified privilege that attaches to communications about an
employee's job performance when made without malice or abuse to a third party
likewise protects an employer against compelled self-published defamation. (See Cal.
Civ. Code, § 47, subd. (c); Noel v. River Hills Wilsons, Inc. (2003) 113 Cal. App. 4th
1363 [malice required for application of conditional privilege]; Neal v. Gatlin (1973)
35 Cal. App. 3d 871, 877 ["It is well established that a former employer may properly
respond to an inquiry from a prospective employer concerning an individual's fitness
for employment, and if it is not done maliciously, such response is privileged"].) This
conditional privilege helps protect the free flow of reference information. (Noel, at
pp. 1373-1374.)
B.
26
Form U5 Privilege
Civil Code section 47, subdivision (b) makes a communication absolutely
privileged if made in an official proceeding authorized by law, or in the initiation or
course of any other authorized proceeding, with some exceptions not applicable here.
(Cruey v. Gannett Co. (1998) 64 Cal. App. 4th 356, 368.)
Firms are required to file a Form U5 with FINRA whenever a registered
representative leaves the firm. If the registered representative's employment has been
terminated, the form asks the firm to provide a reason for termination. When the
Form U5 identifies allegations of improper conduct by a broker-dealer, an issue that
FINRA may need to investigate, it can on those occasions be considered "a
communication made 'in anticipation of an action or other official proceeding.'
(Briggs [v. Eden Council for Hope & Opportunity (1999)] 19 Cal.4th [1106,] 1115.)"
(Fontani v. Wells Fargo Investments, LLC (2005) 129 Cal. App. 4th 719, 732,
disapproved of on other grounds in Kibler v. Northern Inyo County Local Hospital
District (2006) 39 Cal. 4th 192.) In those instances, the information reported on the
Form U5 would be protected by the absolute privilege outlined in Civil Code section
47, subdivision (b). (See Fontani, at p. 732.)
Section 7 of the Form U5 includes a list of disclosure questions for full
terminations that asks if the terminated employee was the subject of a governmental
investigation; was under internal review for fraud, wrongful taking of property, or
violated investment related laws, regulations, or industry standards relating to
27
compliance; was convicted of or pled guilty to a felony; or was convicted of or pled
guilty to a misdemeanor that related to investments, fraud, false statements, bribery,
perjury, forgery, counterfeiting, extortion, or wrongful taking of property. These
questions make clear that FINRA seeks termination information that allows it to
assess whether the employee's conduct lacked compliance with regulatory
requirements in the securities arena. FINRA does not ask for information about
nonsecurities-related activities because that information falls outside its scope of
regulation.
Thus, the absolute privilege extends to communications required by FINRA,
i.e., fraud- and securities-related information. However, the communication of
Tilkey's termination here did not regard improper securities-related conduct, and
Allstate did not limit its responses to fraud- and securities-related information.
Instead, Allstate explained Tilkey's departure was the result of a "termination of
employment by parent property and casualty insurance company after allegations of
engaging in behavior that are in violation of company policy, specifically, engaging in
threatening behavior and/or acts of physical harm or violence to any person,
regardless of whether he/she is employed by Allstate. Not securities related." This
statement did not contain allegations of improper securities conduct, theft, or
allegations or charges of fraud or dishonesty. It was not offered in anticipation of or
to initiate an investigation; nor was it offered in the course of any other official
28
proceeding. (See Civ. Code, § 47, subd. (b).) Thus, the absolute privilege does not
apply.6
C.
Substantial Evidence Supports Jury Findings That Tilkey Was Compelled to Self-
Publish Statement That Was Not Substantially True
Finally, Allstate contends Tilkey was not under a strong compulsion to self-
publish the defamatory statement and there was not substantial evidence to support the
jury's finding the statement was not substantially true. We disagree.
We look for substantial evidence regarding whether Tilkey was compelled to
self-publish and whether its statement that he was engaged in threatening behavior
and/or acts of physical harm or violence to any person was substantially true.
(Sweatman, supra, 25 Cal.4th at p. 68.) In so doing, we do not " 'weigh the evidence,
consider the credibility of witnesses, or resolve conflicts in the evidence or in the
reasonable inferences that may be drawn from it.' " (Do, supra, 216 Cal.App.4th at
p. 1492.) We consider disputed facts in a light most favorable to the judgment.
(Ibid.)
1. Compulsion
6 Had Allstate instead eliminated the specifics in its statement, privilege may have
attached because Allstate was required to report the termination. For example, it could
have supplied the following statement: "Termination of employment by parent property
and casualty insurance company after allegations of engaging behavior that are in
violation of company policy. Not securities related."
29
The jury concluded that Tilkey was under strong pressure to communicate
Allstate's defamatory statement to another person. There is ample evidence to support
this conclusion.
The vocational evaluator testified Tilkey would have a difficult time ever
getting another job because he had been terminated, and the reason for termination
reported on the Form U5 was negative. He testified that because job applications ask
for information about whether the applicant had been terminated from employment,
Tilkey would have to explain the situation, and that would be "an absolute killer." He
also noted that because Tilkey sold life insurance, he was required to hold securities
licenses, and agencies and employers hiring those with securities licenses would have
access to U5 forms. Tilkey's supervisor at Allstate, William Vasquez, testified that
Allstate routinely reviewed the securities public information from the Form U5 of any
person they were hiring, and he could not recall ever hiring anyone at Allstate whose
Form U5 stated he was terminated for cause. Tilkey likewise testified that when he
recruited agents, he would have someone check the Form U5, and he never hired
anyone whose Form U5 showed the termination was for cause. He also never
received an interview from any company that had access to a Form U5, even though
he had 30 years of experience and performed well, receiving the third largest bonus in
the state just a few weeks before his termination. Tilkey's knowledge of how
companies used the Form U5, coupled with Allstate's related hiring practice,
compelled him to explain and respond to the allegation. (See Live Oak Publishing,
30
supra, 234 Cal.App.3d at p. 1285 [compulsion from need to explain to employers who
will learn of allegation if they investigate past employment].)
Tilkey looked for work in other fields as well, but even then he was asked
about whether he had been terminated from a job. He answered the question honestly,
stating that Allstate alleged he had engaged in threatening behavior and/or acts of
physical harm or violence to another person, then countered it by explaining he had
never threatened anyone. (See Beroiz, supra, 84 Cal.App.4th at p. 497 [republication
necessary to disprove accusation].)
None of these facts is disputed. Taken together, in a light most favorable to the
verdict, the implication is evident. Even if the company never offered any specific
information about the reason for Tilkey's discharge from employment to prospective
employers, its statement at the time of discharge and its reporting of the information
on the publicly-available Form U5 necessitated Tilkey's self-publication in other
settings. Without explaining Allstate's claims, Tilkey would not have been able to
explain his employment history and sudden departure after 30 years.
2. Substantial Truth
The truth of a statement is an absolute defense against civil liability. (Ringler
Associates Inc. v. Maryland Casualty Co. (2000) 80 Cal. App. 4th 1165, 1180.) The
defendant does not need to prove the literal truth of every word in the challenged
statement; the defense is complete "so long as the imputation is substantially true so
31
as to justify the 'gist or sting' of the remark." (Campanelli v. Regents of University of
California (1996) 44 Cal. App. 4th 572, 582 (Campanelli).)
The jury was asked whether Allstate stated, "[Tilkey] engaged in threatening
behavior and/or acts of physical harm or violence to another person," and it concluded
Allstate did. The jury also found the statement was not substantially true. These
conclusions are supported by substantial evidence.
The facts of the evening of Tilkey's arrest, which formed the basis of Allstate's
conclusion that he engaged in threatening behavior and/or acts of physical harm or
violence, are largely undisputed. Tilkey and Mann were at Mann's one-bedroom
apartment after an evening out when they began to argue. Tilkey stepped onto the
enclosed patio, and Mann closed and locked the door behind him. Tilkey banged on
the door loudly, demanding to be let into the home to gather his belongings from the
room where Mann's grandson was asleep. When police arrived, Mann told them she
was afraid Tilkey would wake her grandson, and the interior trim on the framing of
the patio door was broken. Tilkey was arrested for misdemeanor criminal damage
deface and disorderly conduct - disruptive behavior, and a domestic violence label
was attached to the disorderly conduct charges. Tilkey pled guilty to disorderly
conduct fighting (DV).
These facts do not include evidence that Mann was ever directly threatened; nor
do these events indicate that Tilkey was threatening to physically harm Mann or her
grandson. Tilkey's attorney explained that the charges did not reflect threats of
32
violence or harm. Estrada testified that A.R.S. section 13-2904A.1, the charge to
which Tilkey pled guilty, defines the crime as engaging in fighting, violent, or
seriously disruptive behavior. The basis of Tilkey's guilty plea was his admission that
he engaged in seriously disruptive behavior on the date, time, and location listed in the
charges against him. Estrada explained that while the court-generated guilty plea
form references fighting, the departmental report and his understanding were that the
conduct was disruptive behavior and not fighting, which is why the departmental
report listed "disruptive behavior" on it. Estrada also testified that there is a separate
charge for threatening behavior, A.R.S. section 13-1202, for which Tilkey was not
charged. Tilkey similarly testified that he agreed to enter a diversion program because
he felt like he was guilty of making noise that night.
Additionally, Alferos's summary of her investigation into the arrests initially
concluded Tilkey was not in violation of company policy. It was only after her
supervisor Burno directed her to revise the summary of investigation that Alferos
concluded Tilkey's behavior "may [have been] at a level which causes management to
lose confidence in his ability to work at Allstate." When Burno modified the
conclusion again later, he relied on the retained charge against Tilkey to conclude
"Tilkey engaged in behavior that was construed as acts of physical harm and violence
towards another person." And Alferos's termination request form stated that based on
Tilkey's voluntary entrance into the diversion program, he had engaged in acts of
physical harm or violence to another person. But Estrada's testimony made clear that
33
a domestic violence label does not mean the person engaged in physical violence or
even threatened violence.
Thus, there is substantial evidence that the events of August 16, 2014, do not
support Allstate's statement, especially when construed in a light most favorable to the
jury verdict. Tilkey and his girlfriend had a heated exchange during which there was
shouting, a door slam, and banging on the door. The charge to which Tilkey initially
pled guilty was a disorderly conduct charge, not a threat charge. And while there was
a factual basis for that guilty plea, disorderly conduct does not require any physical
violence or threat of physical violence, so the existence of that charge is not sufficient
on its own to conclude Tilkey engaged in physical harm or threatened physical harm.
The factual basis for the plea was disruptive behavior, not physical harm, or even
threat of physical harm. Finally, Tilkey explained that he entered the diversion
program because he felt like he was guilty of making noise that night.
The "gist or sting" of Allstate's remarks was that Tilkey behaved in a physically
violent or threatening manner, and that was why his employment was terminated.
(See Campanelli, supra, 44 Cal.App.4th at p. 582.) But the facts do not point to
Tilkey threatening Mann, physically harming her, or being violent. Thus, there is
substantial evidence to support the jury's verdict that Allstate's statement to the
contrary was not substantially true, and we will affirm.
III.
PUNITIVE DAMAGES
34
Allstate presents four arguments for why the judgment on punitive damages
should be reversed: (1) no managing agent acted to terminate Tilkey with knowledge
of violating section 432.7 or with knowledge of or a reckless disregard for the truth;
(2) Allstate did not consciously disregard the requirements of section 432.7;
(3) punitive damages are not available in compelled self-publication defamation
matters; and (4) the award is excessive in violation of due process rights. Having
already concluded Allstate did not violate section 432.7, we do not address Allstate's
contentions relating to that section of the Labor Code. We address the remaining three
contentions in turn below.
A.
Standard of Review
We review whether a punitive damages award is constitutionally excessive de
novo, independently assessing the "reprehensibility of the defendant's conduct, the
relationship between the award and the harm done to the plaintiff, and the relationship
between the award and civil penalties authorized for comparable conduct." (Simon v.
San Paolo U.S. Holding Co., Inc. (2005) 35 Cal. 4th 1159, 1172 (Simon).)
We likewise review denial of a motion for JNOV de novo. (Linear Technology
Corp. v. Tokyo Electron Ltd. (2011) 200 Cal. App. 4th 1527, 1532) " '[W]e determine
whether substantial evidence supported the verdict, viewing the evidence in the light
most favorable to the party who obtained the verdict. [Citation.] We resolve all
conflicts in the evidence and draw all reasonable inferences in favor of the verdict,
35
and do not weigh the evidence or judge the credibility of witnesses.' " (Ibid.;
Licudine v. Cedars-Sinai Medical Center (2016) 3 Cal. App. 5th 881, 890.)
B.
Managing Agents Acted with Reckless Disregard
We first turn our attention to whether managing agents knew the reason given
for termination was not substantially true and whether they acted with reckless
disregard for the truth.
For punitive damages, the plaintiff must prove by clear and convincing evidence
that the defendant acted with "oppression, fraud, or malice" and that those acts were
performed or ratified by an "officer, director or managing agent." (Civ. Code, § 3294,
subds. (a), (b); College Hospital Inc. v. Superior Court (1994) 8 Cal. 4th 704, 726.) A
company ratifies a managing agent's decision when it knows about and accepts the
decision. (Ibid.; Cruz v. HomeBase (2000) 83 Cal. App. 4th 160, 168.)
The term "managing agent" includes "only those corporate employees who
exercise substantial independent authority and judgment in their corporate
decisionmaking so that their decisions ultimately determine corporate policy." (White v.
Ultramar, Inc. (1999) 21 Cal. 4th 563, 566-567 (White).) It does not depend on the
person's level within the corporate hierarchy but instead the amount of discretion
permitted in making decisions. (Powerhouse Motorsports Group, Inc. v. Yamaha Motor
Corp., U.S.A. (2013) 221 Cal. App. 4th 867, 886, quoting Kelley-Zurian v. Wohl Shoe Co.
36
(1994) 22 Cal. App. 4th 397, 421.) The scope of an employee's discretion and authority is
a question of fact. (Davis v. Kiewit Pacific Co. (2013) 220 Cal. App. 4th 358, 366.)
"The reckless disregard test is not a negligence test measured by whether a
reasonably prudent person would have published, or would have investigated before
publishing, the defamatory statement." (McGarry v. University of San Diego (2007) 154
Cal. App. 4th 97, 114.) Instead, a reckless disregard for truth or falsity is demonstrated
when there is " 'sufficient evidence to permit the conclusion that the defendant in fact
entertained serious doubts as to the truth of his publication,' " but published the statement
anyway. (Copp v. Paxton (1996) 45 Cal. App. 4th 829, 846-847.) This may be
demonstrated through circumstantial evidence, including a failure to investigate, anger
and hostility toward the plaintiff, or reliance on unreliable sources. (Id. at p. 847, quoting
Reader's Digest Assn. v. Superior Court (1984) 37 Cal. 3d 244, 258.)
Burno was the director of HR, and employees including Alferos reported directly
to him. Allstate argues Burno's job title and role as a supervisor do not establish that he
is a managing agent. Although Burno's hiring and firing authority is not sufficient in
itself to characterize him as a managing agent (White, supra, 21 Cal.4th at p. 566), in his
role overseeing the centralized staff who investigated complaints, he helped guide the
application of company policy. The vice president of HR explained that when judgment
was required, as in cases that were not straightforward like attendance issues, the
manager would make the decisions about discipline. Moreover, Burno exercised
independent authority and judgment in his handling of this particular matter, directing
Alferos to change her conclusion, then altering the conclusion himself later and
37
ultimately deciding whether company policy prohibited the behavior in which Tilkey had
engaged. Burno's day-to-day work required the exercise of independent authority and
judgment, making him a managing agent.
Even if Burno were not a managing agent for Allstate, other managing agents,
Metzger and Harty, ratified the decision. Although Metzger framed the termination
decision as Burno's, other evidence suggests there was collective agreement by other
managing agents, and thus ratification, of the decision. Metzger testified that she was
involved in high-profile cases and unique situations, counseling Burno and serving as his
sounding board. She "fully supported" Burno's decision, and she talked it through with
several "very high-level managers at Allstate," including Harty, who was the head of HR
for the company. In their communications, Metzger and Harty expressed concern about
Tilkey's conduct and whether he should continue to serve as a face of Allstate. The
executive vice president and the president of HR knew about and supported the decision
to terminate Tilkey before his discharge; they had discussions about it, and they reviewed
the paperwork in advance.
Allstate argues that managing agents did not act with malice because Metzger did
not personally gather any information or see the version of the summary of investigation
that concluded there was no violation of company policy, and because she testified that
she considered Tilkey's behavior to be threatening. This argument ignores that Burno,
who supervised the investigation from the outset, was a managing agent, and Burno's
actions demonstrate a conscious disregard. He directed Alferos to change her conclusion
to justify terminating Tilkey's employment for loss of confidence in him. Then he
38
changed the conclusion completely to say Tilkey had "engaged in behavior that was
construed as acts of physical harm and violence towards another person" without
information that Tilkey had, in fact, engaged in physical harm or violence. Metzger was
aware of this change. Moreover, no one from Allstate ever interviewed Mann or looked
into her background, even though it was her e-mails that prompted the internal
investigation. Allstate's reliance on the testimony of Metzger to challenge the finding as
one she made in earnest is self-serving, and testimony which the jury and trial court
found not credible. (See People v. Maciel (2013) 57 Cal. 4th 482, 519 [trial judge or jury
determines credibility of witness and truth or falsity of facts upon which determination
depends].)
C.
Availability of Punitive Damages
Allstate asks us to follow a Minnesota Supreme Court case, Lewis v. Equitable
Life Assurance Soc. (Minn.S.Ct. 1986) 389 N.W.2d 876 (Lewis) to conclude punitive
damages are unavailable in compelled, self-published defamation cases, noting no
California cases have expressly addressed this issue. Tilkey contends that California law
permits punitive damages for defamation, and compelled self-publication is not less
worthy of the same punishment. We agree with Tilkey.
In Lewis, a group of employees were discharged for "gross insubordination" after
refusing to alter their expense reports following a business trip for which their work was
commended. (Lewis, supra, 389 N.W.2d at pp. 880-882.) The company failed to provide
expense guidelines, then offered differing instructions after the employees returned from
39
the business trip, each time asking the employees to adjust their accounting and to repay
the company the difference. (Id. at pp. 881-882.) The employees who refused to do so
were terminated for gross insubordination and denied severance pay. (Id. at pp. 881-
882.)
The company's policy was to give only the dates of employment and final job titles
of former employees unless specifically authorized in writing to release additional
information. (Lewis, supra, 389 N.W.2d at p. 882.) Despite this, at least once, each
employee stated the reason for termination and attempted to explain the situation in
subsequent job applications. (Ibid.) The Minnesota Supreme Court recognized for the
first time the validity of a compelled self-publication defamation cause of action. (Id. at
p. 888.) However, it declined to permit punitive damages because it was concerned that
their availability could encourage employees to publish the defamatory statements by
employers, deterring employer communication of the reason for the employee's discharge
to the employee. (Id. at p. 892.)
We reach a different conclusion here. First, punitive damages are available in
cases where the trier of fact finds slander per se. (See Manguso v. Oceanside Unified
School Dist. (1984) 153 Cal. App. 3d 574 [libel per se]; Contento, supra, 28 Cal.App.3d at
p. 359.) The slander here was self-published, but that does not change access to punitive
damages. To be successful with compelled self-publication defamation, a plaintiff
already must prove a necessity and a strong compulsion to disclose the statement, and the
employer must be able to reasonably anticipate the self-publication. (Beroiz, supra, 84
Cal.App.4th at p. 497; Davis, supra, 29 Cal.App.4th at p. 373; McKinney, supra, 110
40
Cal.App.3d at p. 796.) The plaintiff also must demonstrate that he actually published the
statement. (Dible v. Haight Ashbury Free Clinics (2009) 170 Cal. App. 4th 843, 851; Live
Oak Publishing Co., supra, 234 Cal.App.3d at p. 1285.) As we discussed ante, these
requirements mean a plaintiff cannot simply manufacture a defamation claim.
Moreover, the focus for punitive damages is not the plaintiff's repetition of the
defamatory statement to a prospective employer, but the employer's intent. To recover
pecuniary damages, the plaintiff must prove by clear and convincing evidence that an
employer has acted with malice, oppression, or fraud. (Civ. Code, § 3294, subds. (a), (b),
& (c).) An affirmative finding on malice or oppression demonstrates that the jury has
concluded the plaintiff proved the defendant "acted with the requisite reprehensible
motivation . . . thereby defeating the qualified privilege" and also that the "defendant['s]
conduct was also intentionally injurious to, or in conscious disregard of, plaintiff's rights,
thereby meeting the heightened requirements of malice (or oppression) necessary to
support an award of punitive damages." (Lundquist v. Reusser (1994) 7 Cal. 4th 1193,
1214, citing Civ. Code, § 3294, subd. (c)(1) & (2) [discussing prejudicial error after
concluding plaintiff bears the burden of proving malice].) Collectively, these additional
elements and heightened burden of proof already provide a safeguard against the plaintiff
self-publishing defamatory statements just so he or she can sue a former employer. If the
employee were not already encouraged to repeat the defamatory statements because of
the availability of a cause of action for compelled self-defamation, we fail to see how the
additional burdens created by the need to also prove the defendant's motive by clear and
41
convincing evidence, even in light of potentially increased recovery, increases the
likelihood that a plaintiff would bring a defamation lawsuit.
We note, too, there are some factual differences between Lewis and the matter
before us. Chief among them is the company policy in Lewis not to disclose more than a
former employee's dates of employment and final job title. (See Lewis, supra, 389
N.W.2d at p. 882.) Although the court there ultimately found there was a viable
compelled self-publication cause of action (Id. at p. 888), this type of fact would tend to
cut against the requirement that self-publication be foreseeable (Beroiz, supra, 84
Cal.App.4th at p. 497; Live Oak Publishing, supra, 234 Cal.App.3d at p. 1285). In
contrast, here the evidence that the self-publication was compelled, necessary, and
foreseeable was strong: Allstate published the statement on the Form U5, which was
available to all firms that hired licensed broker-dealers; the jobs to which Tilkey applied
included such jobs, and employers, including Allstate, routinely reviewed that
information before hiring an individual. This was not a situation where the availability of
the statement to prospective employers was questionable; Tilkey's disclosure of the
allegation was already in the public sphere, necessitating its repetition to challenge its
veracity. Even with an explanation of his situation, the allegation would be, as the
vocational expert explained, "an absolute killer."
D.
Constitutionality of Punitive Damages
Allstate contends the punitive damages award violates due process because the
large ratio between punitive damages and compensatory damages, a ratio greater than six
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to one, is disproportionate and far exceeds civil penalties for the same violation. We
agree.
"Appellate courts conduct de novo review of a trial court's application of the
guideposts to the jury's punitive damage award." (Nickerson v. Stonebridge Life
Insurance Co. (2016) 5 Cal. App. 5th 1, 15 (Nickerson).) Three factors determine whether
punitive damages are excessive: (1) degree of reprehensibility of the defendant's
misconduct; (2) disparity between actual or potential harm suffered and the pecuniary
award; and (3) the difference between the punitive damages award and comparable civil
penalties.7 (Simon, supra, 35 Cal.4th pp. 1171-1172; State Farm Mutual Auto Insurance
Co. v. Campbell (2003) 538 U.S. 408, 418 (State Farm); Major v. Western Home
Insurance Co. (2009) 169 Cal. App. 4th 1197, 1222-1223 (Major).) Because the parties
agree there are no corresponding civil penalties for the defamation, we consider only the
first two factors.
1. Reprehensibility
The degree of reprehensibility is the most important indication of the
reasonableness of the defendant's conduct. (Roby v. McKesson Corp. (2009) 47 Cal. 4th
7 The parties do not clearly parse out these factors with attention to each cause of
action separately. Because we conclude the company's termination was not wrongful,
damages should be limited to those resulting from the defamation cause of action, and we
have attempted to so limit our review here. We are cognizant that the jury concluded the
reason provided for Tilkey's termination, while not unlawful under section 432.7, was
nonetheless not substantially true and was defamatory. Accordingly, we view the
emotional distress that arose from defamation as the basis for punitive damages in this
case.
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686, 713 (Roby); Nickerson, supra, 5 Cal.App.5th at p. 16.) Courts consider five factors
for assessing the degree of reprehensibility: (1) physical harm; (2) indifference or
reckless disregard for health or safety of others; (3) whether target was financially
vulnerable; (4) if the conduct was repeated or isolated; and (5) if the conduct was
intentional or accidental. (Major, supra, 169 Cal.App.4th at p. 1223, citing State Farm,
supra, 538 U.S. at p. 419; Simon, supra, 35 Cal.4th at p. 1180.)
Harm is physical when it affects emotional and mental health and is not purely
economic. (Roby, supra, 47 Cal.4th at p. 713.) Tilkey testified that he endured weight
gain, bouts of crying, loss of sleep, physical tension, and tightness in his chest. Thus,
there was evidence that he suffered physical symptoms from emotional distress. (See
Nickerson, supra, 5 Cal.App.5th at p. 17.) It is not clear from the record whether these
physical manifestations were the result of his termination, the defamatory statement, or a
combination of the two. However, the jury awarded separate amounts for emotional
distress damages tied to wrongful discharge and for shame, mortification, or hurt feelings
tied to defamation, suggesting distress from each action. It is not possible to separate out
the physical manifestations of the distress resulting from the discharge from the shame,
mortification, or hurt feelings resulting from the defamation, but it is clear this factor
weighs in favor of a finding of reprehensibility.
Allstate argues that the second factor is not supported because Allstate was
motivated by concerns about the health and safety of others, by enforcing its policy
prohibiting threats of violence against any person. This interpretation of the facts
presented relies on the conclusion that Tilkey's actions constituted a threat of violence
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against another person, a conclusion with which the jury disagreed in light of its finding
that the statement was not substantially true. Instead, the trial court viewed Allstate's
motivations as concerned more with its own reputation than ascertaining the truth. This
conclusion, again, is supported by the evidence outlined in greater detail ante.
With respect to the third factor, Allstate argues that Tilkey's only financial
vulnerability was that his employment was terminated, making him no different than any
other person who lost a job. Tilkey was different than the typical employee because he
relied on the company-issued cell phone and car for his everyday use. However, this
evidence, as well as evidence of his 30-year career with Allstate, is only relevant if
Tilkey's termination were wrongful. Having previously concluded it was not, we focus
on financial vulnerability with respect to the defamatory statement Allstate made. As the
trial court mentioned, the circumstances of Tilkey's termination precluded him from
finding future employment and forced him to live off his "dwindling 401K" without job
prospects, in part because Allstate blocked him from accepting lucrative jobs. In some
sense, Tilkey's long-standing professional relationship with Allstate made him dependent
on the company's recommendation for future employment, making Allstate's description
of his behavior as threatening or causing physical violence against another particularly
damaging for future job prospects. Allstate points out Tilkey earned an average of
$200,000 annually, had savings, and was awarded compensatory damages. Perhaps
Tilkey's savings meant he was not as financially vulnerable as someone without. This
factor is close but probably weighs slightly against supporting a finding of
reprehensibility.
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Finally, although Allstate contends its conduct was a one-time event, a statement
offered only at the time of Tilkey's termination meeting, this ignores its defamatory
statement on the Form U5, which could be repeatedly accessed by third parties, and it
ignores Tilkey's need and strong compulsion to repeat the statement. These additional
acts, for which Allstate is responsible, weigh in favor of finding its action reprehensible.
Although the fifth factor is of little consequence because acts must be intentional
to qualify for punitive damages, (Major, supra, 169 Cal.App.4th at p. 1223, quoting
Simon, supra, 35 Cal.4th at p. 1181), we address it here briefly to note the jury's
determination that the statement was not substantially true indicates some intentionality
on the part of the company. (Roby, supra, 47 Cal.4th at p. 716 [jury award of punitive
damages requires finding malice, fraud, or oppression].) Metzger testified that she
sincerely believed Tilkey's admission that he banged on the door to gain access for his
personal belongings, the frame of the door was broken, and Tilkey was arrested was
sufficient evidence that he engaged in threatening behavior and/or acts of physical harm
or violence to another. The company made this determination without communicating
directly with Mann, without seeming to consider that the charge was for disorderly
conduct and not threatening behavior, and while recognizing that the decision to
discharge Tilkey's employment really could go either way. After observing the evidence
offered at trial, the court concluded Allstate had not made a reasonable effort to
determine whether its statement was true, and it explained: "Allstate's contention that
Plaintiff's banging on the door was reasonably interpreted as 'threatening behavior' was
not believable."
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Our independent review of these factors supports the conclusion that Allstate's
defamatory behavior was reprehensible.
2. Relationship Between Punitive and Compensatory Damages
Punitive damages must bear a "reasonable relationship" to compensatory damages.
(BMW of North America, Inc. v. Gore (1996) 517 U.S. 559, 580-581; Little v. Stuyvesant
Life Insurance Co. (1977) 67 Cal. App. 3d 451, 469.) While " 'relatively high ratios could
be justified when " 'a particularly egregious act has resulted in only a small amount of
economic damages,' " ' " when a jury awards substantial compensatory damages, a lesser
ratio can reach the limits of the due process guarantee. (Major, supra, 169 Cal.App.4th at
p. 1224, quoting Simon, supra, 35 Cal.4th at p. 1182.) Although there is no bright line
regarding the proper ratio of punitive to compensatory damages, the United States
Supreme Court has suggested the ratio should generally be no higher than four to one and
almost never nine to one. (Gober v. Ralphs Grocery Co. (2006) 137 Cal. App. 4th 204,
213 (Gober), citing State Farm, supra, 538 U.S. at p. 425.)
The jury awarded Tilkey $960,222 for wrongful discharge and $1,702,915 in
actual damages for defamation. The punitive damages award was $15,978,822, a ratio of
six times the compensatory damages amount. Even without excluding the damages
awarded for wrongful discharge, this ratio strikes us as excessive given the level of
reprehensibility here. Without the compensatory damages awarded for wrongful
discharge, the ratio is greater than nine to one, a ratio we conclude is constitutionally
excessive. (See Gober, supra, 137 Cal.App.4th at pp. 213, 214.) Additionally, because
the jury's punitive damages award is not allocated to the various liabilities it found, it is
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not possible to know how much punishment the jury felt was necessary for the company's
defamatory action, which must serve as the basis for the damages in this case.
Accordingly, we will remand the matter for reconsideration of the appropriate amount of
punitive damages based on defamation.
IV.
AFTER-ACQUIRED EVIDENCE
An employer may exercise an after-acquired evidence defense in response to a
wrongful termination cause of action. (McKennon v. Nashville Banner Publ. Co. (1995)
513 U.S. 352, 362-363.) To establish this defense, the employer must demonstrate the
employee engaged in wrongdoing that would have resulted in a termination of
employment. (Ibid.) This cuts off damages from the date on which the evidence was
discovered. (Salas v. Sierra Chemical Co. (2014) 59 Cal. 4th 407, 430.)
Because the company did not violate section 432.7, the after-acquired evidence
defense is not relevant. Accordingly, we decline to address this issue.
DISPOSITION
The order denying Allstate's motion for JNOV regarding wrongful termination for
violation of section 432.7 is reversed, and the matter is remanded to the trial court with
directions to enter a judgment for Allstate on these causes of action. We affirm the
portions of the judgment finding Allstate liable for defamation and punitive damages.
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We remand the matter for the limited review of the proper amount of punitive
damages against Allstate based on the defamation cause of action.
The parties shall bear their own costs on appeal.
HUFFMAN, J.
WE CONCUR:
McCONNELL, P. J.
GUERRERO, J.
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