How to Sue the Individual Defendant and When to Do It
By Jeremy Pasternak
CAOC “Forum” – January 2003
The question of whether or not to sue a potential defendant might traditionally be answered with another question, “why not?” In employment cases, it is not so simple a question, both because of difficult legal questions regarding viability as well as tactical and strategic questions that might not be present in other tort litigation.
When bringing an employment case, whether for wrongful termination, sexual harassment, retaliation, breach of contract, failure to pay wages, or any of the other myriad employment suits, plaintiff’s counsel must look not only to identifying the correct employer-defendant, but also to identifying the viability – and advisability – of suing individual employees.
This article will look at: 1) why you might or might not want to sue individual defendants; and 2) once the decision has been made that it is tactically and strategically advisable, what bases there are for doing so under California law.
II. TACTICAL AND STRATEGIC CONSIDERATIONS
Plaintiff’s counsel typically file suit against all possible defendants. There are many solid reasons for filing against “secondary” or even lesser defendants, such as the potential for failed liability against a primary defendant, the implication of additional insurance policies, future insolvency of a primary defendant, and, of course, the practical consideration of having “more money at the table” in settlement negotiations. Most obvious is the fact that to not do so can ultimately equal malpractice, should any of these or other factors be implicated.
These considerations, while still present in employment litigation, can play different roles than they can in other tort litigation. As each factor is discussed, those differences will be highlighted.
A. Diversity – Staying in State Court
In deciding who to sue and who not to sue, you must first consider the question of venue; with the exception of a very few venues in California, it is preferable to be in state court. Even if you are considering taking a case in a notoriously conservative venue, one in which the broader jury pool of the federal court system might be an advantage, the specter of a unanimous jury looms large, and is probably an overriding concern.
Given the popularity, particularly among larger corporations, of incorporating in Delaware, diversity can be a real concern. Hence the need for an individual defendant. Employees are most often suing their managers, with whom they generally work closely. This is particularly true in harassment cases. After all, it is the rare thing that an employee is harassed by someone who does not work in the same office. Individual defendants are most likely California residents and as defendants, they destroy diversity.
To beat diversity, then, the plaintiff’s lawyer should look first to individual defendants. If the company is registered as a California corporation, so much the better; diversity is not a factor.
B. Who Holds the Purse-Strings?
From a practical perspective, you must always be looking for ways to settle a case. Before deciding to sue an individual defendant, therefore, it is essential to consider who holds the purse-strings.
In a personal injury case, that person is almost always an adjuster. But insurance, omnipresent in personal injury litigation, is often not present at all in employment litigation. Jackson, Lewis, Schnitzler & Krupman, one of the largest management- and employer-side law firms in the country, citing a poll by the Society for Human Resource Management, states on its website that only 22% of employers carry Employer Practices Liability Insurance (“EPLI”) Policies.1 Those of us practicing in the area may find that a far lesser percentage of the employer defendants we face carry it. The bottom line is that insurance is far from a “given” in this type of litigation. In addition, many EPLI policies carry large deductibles or retentions. Therefore we must assume that it will be an individual within the company, rather than an “objective” insurance adjuster, who will be making settlement decisions.
Although a large and well-run organization will probably put such decisions into the hands of a general counsel or another uninvolved individual, depending on the size of the company and the level in the hierarchy of the individual defendant, an individual defendant may be personally involved in the decision-making process. It is also important to note that general counsel have a tendency to become the proverbial “company man” and lose some of the objectivity they may have had as outside counsel. The person you are suing may well be a friend of the general counsel. And in any situation where you are suing individuals in a company, there may well be a tendency for decision-makers, even those who are not being personally sued, to look out for their fellow employees who are defendants. When individuals are being sued, the litigation becomes more of a personal matter, as opposed to a simple business matter.
What this means is that you may be personally suing the very person who must decide – or at least has input into the decision of – whether or not to pay your client. It also means that the person making settlement decisions may be acting as much or more out of emotion as out of practical business considerations. Every lawyer who even considers bringing an employment case for discrimination or harassment must remember this: You are not suing someone for making a simple mistake. You are suing someone for being a racist, a sexist, a homophobe, or the like. How is this potential defendant going to respond to that?
Because of the strong emotional factor, having an individual defendant making settlement decisions can either move a case towards settlement or can provide an impediment. Ask yourself and your client the following questions:
1) If I sue this individual defendant personally, will they want so badly to prove that they are not a racist, etc., that they will never consider any kind of settlement?
2) Did this individual have a personal axe to grind against my client, which may result in a level of anger that may impede settlement?
3) Is this person so afraid of personal liability that they will gladly spend the company’s money to get rid of the case?
4) Will this decision-maker want to point the finger at someone else?
This last consideration is far too often overlooked and bears further analysis. If an individual is not personally sued, it can influence their willingness to settle the case and blame someone else for the expense. This is particularly true in smaller companies, where there may be no formal structures in place to insulate individual defendants from the decision-making process.
Take, for example, a case in which your client is sexually harassed by her boss, complains of the harassment to the boss’s boss, and shortly thereafter is fired by the boss’s boss, after the boss recommends termination for ostensibly lawful reasons. This is both a sexual harassment case and a retaliation case, and as is further discussed below, both the boss and the boss’s boss are potential defendants. But if the boss’s boss holds the purse-strings, do you really want to sue that person in this instance? If they are an individual defendant, and are accused of retaliation, and then settle the case, they will have to explain to their superiors that they paid out the company’s money based on their own alleged wrongdoing, and because of their fears about personal liability. On the other hand, if they are not an individual defendant, and are not personally accused of any wrongdoing, they can settle the case, point the finger at the boss, and have plausible deniability when discussing the matter with their superiors.
5) Are there any internal political factors to consider?
This is akin to the “point the finger” factor suggested above. Consider what other political factors could be implicated. For example, in publicly-traded companies, litigation must be disclosed in 10-Qs and 10-Ks. The identities of individual defendants are also often disclosed, and in these post-Enron/WorldCom days, greater rather than lesser disclosure is to be expected.
6) What is the “embarrassment” factor?
Again, don’t forget that in suing an individual for most employment torts, you are accusing them of being the worst of our society. What effect will that have in terms of their relations with their co-workers and their colleagues in the industry? This can play both ways, encouraging a quick and quiet settlement on one hand, and a “vindicating” win – and perhaps a long, hard battle – on the other.
7) How well does my client know this person?
One of the real opportunities that you, as the plaintiff’s employment attorney, have is to discuss these questions with your client. After all, if your client is going to be suing someone for discrimination or harassment, they most likely know the person, and therefore can be a source of insight into how that person might react. This is a far cry from personal injury litigation, where any one of thousands of adjusters could be on the other side, the identity of whom we don’t know at the outset, in any event. Your client is probably the best source of information as to possible “emotional” ramifications of suing an individual defendant.
C. Procedural Ease
A purely tactical issue is the convenience which results from suing individuals personally. The individual defendant must respond to all forms of discovery, not just a notice of deposition or deposition subpoena. Do not underestimate the value of even the most basic written discovery: The more questions a defendant answers under oath, the more opportunity there is for cross-examination. Often, defense counsel prepares identical or nearly identical answers for all the defendants, which increases the odds that an answer to a similar deposition question may result in some divergence in answers under oath which can be exploited later.
In one wrongful termination case I tried, a manager we named as a defendant stated on the stand that there was in fact no real termination, but that it was actually a “mutual” decision between the company and my client. When confronted with a simple form interrogatory response which stated, “Plaintiff was fired because …” he looked like a bald-faced liar and then, trying to recover, explained that the interrogatory responses had been prepared by his attorney. That was probably truthful, but there was no way that the jury was going to accept such an excuse.
Having an individual defendant also aids in the trial process. For instance, a Notice to Appear and to Produce Documents at Trial can be used on any individual defendant, whereas it can be used for non-defendant employees only at the very highest levels of management (as opposed to at deposition, where Notices of Deposition can be served on any employee). (See Calif. Code of Civ. Proc. §§ 1987(c) and (d) and 2025.)
D. Punitive Damages and Managing Agents
All employment torts carry with them the potential for punitive damages. California Code of Civil Procedure § 3294 requires that to obtain punitive damages against a corporation, an officer, director, or managing agent must have perpetrated the unlawful act, ratified, or, prior to the wrongful acts, employed the wrongdoer despite knowledge of their lack of fitness for the workplace.
This factor weighs heavily in favor of reaching as high in the company’s hierarchy as possible for individual defendants. Although it is not technically necessary to individually sue an officer, director, or managing agent to obtain punitive damages, it does make logical sense.
E. Solvency of the Corporate Defendant
Hopefully, you have determined early on that the company you are considering suing can afford to pay a judgment and/or settle the case. But fortunes change, and occasionally the finances of an individual defendant can come in handy as a back-up, if nothing else. Though uncommon, it is occasionally possible to proceed against an individual only.
F. The Attorneys’ Fees Factor
Because of the fee provisions of FEHA, if the company is not sued, the individual defendant will face the specter of not only a plaintiff’s verdict, but also the attorneys’ fees that will be incurred if the company, which is not a defendant, decides that the individual defendant can foot their own bill for attorneys’ fees. Of course, this may also be true when the company is sued; companies sometimes force an individual perpetrator to foot the bill for their own defense. Either way, this factor weighs in favor of suing the individual.
Labor Code § 2802 requires that employers indemnify their employees for liabilities incurred in the course and scope of employment. This should mean that employers have to provide a defense to their individual defendant-employees. However, particularly in harassment cases, employers sometimes take the position that the allegedly unlawful activity was not taken in the course and scope of employment, and therefore refuse to provide a defense. Moreover, should the defendant-employee ultimately be found liable for unlawful activity, the employer’s position in this regard will be even stronger.
In one case where my client sought a modest settlement against a wealthy individual defendant, we dismissed the corporate defendant (without prejudice and well within the statute of limitations). The individual’s private counsel, who had been having a free ride on the company’s ticket, called us in a panic, realizing that now her client was going to have to pay his own bills (and might not). Her client must have been equally panicked, as he could no longer rely on the company to cover his attorneys’ fees and a possible verdict. The case settled in a matter of weeks.
G. Conflict Counsel
There is always a strong possibility that an individual defendant will either demand or simply be granted their own attorney. At that point, plaintiff’s counsel is in the position of being tag-teamed. Put bluntly, it is most often a poor (or lazy) plaintiff’s lawyer who lets this be a real factor; if you’re not ready to fend off multiple attacks, you have no business doing this kind of work. This factor is therefore more cautionary in nature, and is less concerned with whom to sue than whether to take the case in the first place.
Conflict counsel also presents the opportunity to play counsel off one another. Regardless of who pays the bills, the attorney’s duty is to the client. For example, if several individual defendants are accused of harassment, one may claim innocence but be willing to point the finger at another.
III. AUTHORITY FOR SUING INDIVIDUALS IN EMPLOYMENT CASES
Now that you have decided you want to sue, the question is, can you? Don’t treat this question lightly. An improperly-sued individual can always obtain a dismissal and then seek a cost award, sue for malicious prosecution, and also seek attorneys’ fees if the case was brought pursuant to the Fair Employment and Housing Act.3
The question of whether or not individuals can be personally sued under California law for discrimination was squarely answered by the California Supreme Court, Reno v. Baird (1998) 18 Cal.4th 640, following the earlier appellate court case of Janken v. GM Hughes Electronics (1996) 46 Cal.App.4th 55; they cannot. Do not try to name an individual defendant in an action for discrimination.
The same courts however, have held that individuals can be personally sued for harassment under FEHA. This is true whether those individuals are superiors to or co-workers of the plaintiff. This is particularly significant because of an unsettled issue under California law regarding the principles of respondeat superior in the sexual harassment context. For years, it was a given in California that companies were strictly liable for sexual harassment perpetrated by supervisors or other superiors of the plaintiffs. (See e.g., Fisher v. San Pedro Peninsula Hospital (1989) 214 Cal.App.3d 590, Carrisales v. Department of Corrections (1999) 21 Cal.4th 1132, 1136.) However, in Kohler v. Inter-Tel Technologies (9th Cir. 2001) 244 F.3d 1167, the Ninth Circuit held that a California court would apply a rule established by the U.S. Supreme Court in the Title VII context. This rule insulates companies from liability when they have a policy set up to prevent harassment, there is a system by which the employee can complain, and the employee does not avail themselves of that system, vitiating strict liability.4 In State Dept. of Health Services v. Superior Court (2001) 113 Cal.Rptr.2d 878, the California appellate court expressly disagreed with the court in Kohler, and held that there is strict liability under FEHA as opposed to Title VII. Review of State Dept. of Health Services has been granted.
The state of the law is unclear. It may be that although individuals are always personally liable for sexual harassment, the companies are not; therefore, the individual defendant may also be the only viable defendant.
For some time, it was not entirely clear as to whether or not individuals could be sued for retaliation in violation of FEHA. Reno and Janken, referred to above, were decided largely on the theory that supervisors should not be held liable for “personnel” decisions, lest they be “chilled” in performing their duties. Defense counsel have, for several years, been using this policy argument to try and defeat personal liability for retaliation claims. However, a California court recently confirmed that individuals may be sued personally for retaliation in violation of FEHA, as well. (Walrath v. Sprinkel (2002) 99 Cal.App.4th 1237.)
D. Failures to Prevent, Investigate, and/or Remediate Harassment
FEHA has a separate requirement that all employers must have in place appropriate prophylactic measures to prevent discrimination and harassment, and must promptly investigate and provide remedies in response to complaints of harassment. (Calif. Govt. Code §§ 12940(j)(1) and 12940(k).)
There is authority to support suing individuals for violating these portions of FEHA, as long as the individuals have participated in some part of the discrimination or harassment. Defendants will invariably cite Fiol v. Doellstedt (1996) 50 Cal.App.4th 1318, to claim that individuals are not personally liable for failing to prevent harassment. Fiol only states that “Mere inaction by a nonharassing supervisor does not constitute aiding and abetting.” (Id. at 1327, emphasis added.) In Archuleta v. American Airlines, Inc. (C.D. Cal. 2000) 2000 WL 656808, the court explicitly distinguished Fiol, confirming that it applies only to supervisors who in no way participated in the harassment.
This is an important distinction which may allow for the inclusion of an individual defendant where it might not otherwise be available. Take an example in which an employee is harassed by several different supervisors. The harassment, taken as a whole, meets the “severe or pervasive”5 standard for harassment. However, each individual perpetrator’s harassment, taken alone, does not. Although the individual defendants may not be personally liable for harassment itself, they may be personally liable for the failure to prevent, investigate, and/or remediate the harassment by the other supervisors. These causes of action can give you a means of suing an in-state individual defendant, and defeat removal based on diversity.
E. Wage Claims
Although there is no case directly on point, there is authority to support a claim against individuals for failure to pay wages. These claims are brought pursuant to Labor Code § 201 et seq. This section prohibits “employers” from failing to pay wages in a prescribed time frame; the Code says nothing about “employees.” However, the courts have held that individual corporate officers who control the payment of wages can be held personally liable for their failures to pay wages. (Bureerong v. Uvawas (C.D. Cal. 1996) 922 F.Supp. 1450.)
In addition, Labor Code § 216 establishes a misdemeanor penalty against individuals who willfully fail to pay wages, and may provide an argument for individual liability under the Code. At least one court has held that the issue of whether individuals can be personally sued for failure to pay wages is an open question in the California courts. (Davis v. Prentiss Properties Limited, Inc. (C.D. Cal. 1999) 66 F.Supp.2d 1112.) The context of this case is significant. In Prentiss, the district court was considering whether to remand a case back to state court. The suit had been removed to federal court on a diversity claim. The defendants argued individuals could not be personally sued for failures to pay wages, and therefore, the individual defendant in the case was a “sham” defendant, necessitating remand. The Prentiss court ruled it was an undecided issue, and remanded the case, allowing the plaintiff to argue his theory before the Superior Court.
The Labor Commission’s Department of Labor Standards Enforcement issued an opinion letter, dated June 18, 2002, which concludes individuals who have control over wages can be held personally liable for failures to pay wages. This opinion letter can be found at the Department of Labor Standards Enforcement’s website, at http://www.dir.ca.gov/dlse/opinions/2002-06-18.pdf.
F. Intentional Infliction of Emotional Distress
Although the cause of action adds little to most employment claims (given that FEHA claims all carry with them the potential for general and punitive damages) the cause of action for Intentional Infliction of Emotional Distress (IIED) can provide a means of suing an individual defendant. The elements of an IIED claim are: the defendant engaged in outrageous conduct; the conduct was intentional; and the conduct caused severe emotional distress. These elements are easily met in any discrimination or harassment claim, and arguably in any failure-to-pay wages claim.
In Accardi v. Superior Court (1993) Cal.App.4th 341, the court held that the allegations of a FEHA case will also support a cause of action for IIED. See also Fisher v. San Pedro Peninsula Hospital (1989) 214 Cal.App.3d 590, 618, which holds that IIED claims are appropriate in sexual harassment cases (of course, if there is a viable sexual harassment claim against the individual, there is personal liability in any event; the IIED claim is more necessary in a discrimination claim, where personal liability might not otherwise be available). But look out for the following language from Janken:
A simple pleading of personnel management activity is insufficient to support a claim of intentional infliction of emotional distress, even if improper motivation is alleged. If personnel management decisions are improperly motivated, the remedy is a suit against the employer for discrimination. (Janken v. GM Hughes Electronics (1996) 46 Cal.App.4th 55, 80.)
This language should not be taken out of context. The Janken court did not bar all intentional infliction claims in the employment context (though defense counsel will certainly claim so); it ruled that something more than an adverse employment decision is required.
G. Don’t be Fooled by the “Managerial Privilege”
You may, at some point, encounter an assertion of the “Manager’s Privilege” or “Managerial Privilege,” which may be combined with the public-policy argument presented in Reno. Don’t be fooled. You will find the “manager’s privilege” cases make no reference to FEHA or other employment claims; they insulate individual managers in business disputes. Read defense counsel’s cases; you will find that they don’t apply.
Although standard procedure is to sue all potential defendants, it is not always the best course of action. Consider the factors set forth above, and then make a strategic determination as to whether it will really help the litigation and trial of your case.
1 In fact, until the mid-nineties, insuring against intentional acts of discrimination, harassment, or retaliation was generally considered violative of the provisions of Insurance Code § 533. It was not until 1996 that a California appellate court ruled otherwise. (Melugin v. Zurich Canada (1996) 50 Cal.App.4th 658.)
2 This is true particularly in light of the fact that differences in the “stories” presented by defendants can, standing alone, allow for a denial of summary judgment: “[W]eaknesses, implausibilities, inconsistencies, incoherencies, or contradictions in the employer’s proffered legitimate reasons for its action that a reasonable factfinder could rationally find them ‘unworthy of credence,’ [citation] and hence infer ‘that the employer did not act for the [asserted] non-discriminatory reasons.'” (Hersant v. Dept. of Social Services (1997) 57 Cal.App.4th 997, 1005.)
3 California Govt. Code § 12965(b) calls for attorneys’ fees and costs to be awarded to prevailing parties in FEHA cases. Fortunately, fees are awarded to prevailing plaintiffs as a matter of course, in all but the most special circumstances (see Stevens v. Coldwell Banker Commercial Group, Inc. (1988) 199 Cal.App.3d 1394, 1405) whereas prevailing defendants are awarded fees when a plaintiff’s claim is either “egregious” or “patently baseless” for objective reasons. (Cummings v. Benco, supra, 11 Cal.App.4th at 1389-1390. See also Rosenman v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro (2001) 91 Cal.App.4th 859, 869.)
4 The rule was established in 1998, in Burlington Industries, Inc. v. Ellerth (1998) 118 S.Ct. 2257 and Faragher v. City of Boca Raton (1998) 18 S.Ct. 2275.
5 Under FEHA, for sexual harassment to be actionable, it must be more than a few idle comments or remarks, and must be so “severe or pervasive” as to “alter the terms and conditions” of the plaintiff’s employment. (See e.g., Etter v. Veriflo Corp. (1998) 67 Cal.App.4th 457, 465.)
Jeremy D. Pasternak has law offices in San Francisco. He is a member of the Forum Editorial Board.