Meade v. Cedarapids, Inc.

164 F.3d 1218, 1999 WL 8004

Opinions

Opinion by Judge EZRA; Concurrence by Judge KOZINSKI; Partial Concurrence and Partial Dissent by Judge WALLACE.

EZRA, District Judge:

Factual Background

Plaintiffs William Meade, Leland S. Stewart, Doug Vierkant, and David Girard (“Plaintiffs”) and their spouses, Catherine A. Meade, Frankie Lee Stewart, Linda K. Vierkant, ■ and Elizabeth D. Girard (“Spouses”) appeal the district court’s summary judgment in favor of Cedarapids and related corporations (“Defendants”) in Plaintiffs’ diversity action. Plaintiffs allege fraudulent misrepresentation and intentional infliction of emotional distress, arising from the closure of the El-Jay Division of Cedarapids (“El-Jay”) in Eugene, Oregon.

The main factual dispute centers on when the decision to close El-Jay. was made. Plaintiffs assert that it was made in July of 1994, long before any of them even applied for a job. Defendants contend that a plan (rather than a decision) was made at that time, and that the plan was contingent upon a number of factors, including 1) approval of a capital expenditure of approximately $5,000,000 in order to expand the Cedar Rapids, Iowa facility, 2) approval by the Iowa Department of Economic Development of a $1,000,000 tax incentive package, and 3) approval by the labor union of changes in the work rules in order to integrate the consolidated work force in Iowa. Defendants further argue that this last contingency was not resolved until May 1, 1995 and that, therefore, the decision to close El-Jay was not made until that time. Both Plaintiffs and Defendants have produced evidence supporting the date on which each believes the decision to close El-Jay was made.

Each Plaintiff applied for and was offered a job at El-Jay between August 1994 and April 1995. Before accepting the positions, Plaintiffs each signed an at-will employment agreement stating that their employment was subject to termination by either, party at any time. To accept the positions at El-Jay, each Plaintiff either quit the job he was then doing or passed up other employment opportunities. ■ Each Plaintiff and his spouse moved to Eugene, Oregon, where El-Jay was located.

Plaintiffs assert that Defendants made intentional or reckless misrepresentations during the course of the hiring process. For instance, Plaintiffs allege that in response to specific questions about El-Jay’s future growth, they were told how desirable it was to live in Eugene; that there would be growth in the parts business; that El-Jay would be growing 20% in the next year; that El-Jay was running out of office space; that sales were up and were expected to increase; that production rates were expanding; that El-Jay was a stable company with few down-sizings and layoffs; that it would be hiring more staff and creating new positions; that the company was “ramping up”; that the future looked great for the company; and that the company’s growth was a “long term situation.”

The personnel who made these statements were unaware of the closure plan. Some of these persons stated that they would not have made these statements had they known of the closure decision. Plaintiffs contend they never would have interviewed with El-Jay had they known of the closure plans. Plaintiffs gave notice to their employers and prospective employers in reliance on Defendants’ representations and omissions. Plaintiffs also assert Defendants knew that Plaintiffs would consult with their wives regarding the representations before deciding to relocate.

On July 24,1997, the district court granted summary judgment to Defendants, holding that Defendants had no duty to disclose their closure plan and that Plaintiffs could not, as a matter of law, reasonably have relied on the representations made to them. Moreover, the district court concluded that Defendants’ conduct in not disclosing the plans to close El-Jay to Plaintiffs during prehire interviews cannot, as a matter of law, be outrageous enough to exceed the bounds of social tolerance. The district court had jurisdiction pursuant to 28 U.S.C. § 1332. We have jurisdiction over this timely filed appeal pursuant to 28 U.S.C. § 1291. We affirm in part, and reverse in part.

Standard, of Review

Summary judgment is reviewed de novo. Covey v. Hollydale Mobilehome Estates, 116 F.3d 830, 834 (9th Cir.1997). Our review is governed by the same standard used by the trial court under Fed. R. Civ. Pro. 56(c). Ghotra v. Bandila Shipping, Inc., 113 F.3d 1050, 1054 (9th Cir.1997). We must determine, viewing the evidence in the light most favorable to the nonmoving party, whether there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law. Covey, 116 F.3d at 834. We must not weigh the evidence or determine the truth of the matter but only determine whether there is a genuine issue for trial. Id. Summary judgment is not proper if material factual issues exist for trial. Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir.1995).

■ Discussion

I. Intentional or Reckless Misrepresentation

To support their claims of misrepresentation under Oregon law, Plaintiffs must establish 1) that Defendants made a false representation of material fact; 2) with the knowledge or belief that it was false, or with an insufficient basis for asserting that it was true; 3) with the intent that Plaintiffs rely on it; 4) that Plaintiffs justifiably relied; and 5) that Plaintiffs suffered consequent damages. Maitland v. Mitchell (In re Harris Pine Mills), 44 F.3d 1431, 1439 (9th Cir.1995) (citing Riley Hill Gen’l Contractor v. Tandy Corp., 303 Or. 390, 737 P.2d 595, 604 (Or. 1987)).

Reckless indifference to the truth or falsity of a statement can satisfy the state of mind requirement for a misrepresentation action. Elizaga v. Kaiser Foundation Hospitals, 259 Or. 542, 487 P.2d 870, 873 (Or.1971). A party need not make an affirmative statement to be liable for fraud. Caldwell v. Pop’s Homes, Inc., 54 Or.App. 104, 634 P.2d 471, 477 (1981). The mere nondisclosure of material facts can be a form of misrepresentation where the defendant has made representations which would be misleading without full disclosure. Elizaga, 487 P.2d at 873. The extent to which a representation is mis leading and, therefore, imposes a duty of disclosure, is a question of fact. Gregory v. Novak, 121 Or.App. 651, 855 P.2d 1142, 1144 (1993).

A. False Representations

Defendants assert that no rational trier of fact could find that Defendants made false representations. The district court agreed. However, viewing the evidence in the light most favorable to Plaintiffs, a reasonable trier of fact could find that Defendants’ agents made false representations.

In order to show that Defendants made misrepresentations, Plaintiffs need not establish a duty to disclose, but instead must prove the truth of their claim that Defendants had already reached a decision on the closure of El-Jay. Plaintiffs have adduced sufficient evidence to be allowed to prove this before a trier of fact. If the trier of fact finds that Defendants’ decision was sufficiently certain, they could then conclude that Defendants’ representations of future growth, “ramping up,” etc. were false at the time they were made.

There are two bases on which Defendants could be found to have made false representations. First, the mere nondisclosure of material facts can be a form of misrepresentation where the defendant has concealed a known fact that is material to the transaction, see Millikin v. Given, 283 Or. 283, 583 P.2d 548, 550 (1978), or has made representations that would be misleading without full disclosure, see Felonenko v. Siomka, 55 Or.App. 331, 637 P.2d 1338, 1340 (1981). Defendants argue that nondisclosure is actionable only where a defendant has made representations that would be misleading without full disclosure and there is a duty to disclose. The district court apparently agreed and held that since there was no duty to disclose, there was no actionable fraud. However, this is not entirely correct. “[O]ne who' makes a representation that is misleading because it is in the nature of a ‘half-truth’ assumes the obligation to make a full and fair disclosure of the whole truth.” Gregory, 855 P.2d at 1144.

Under Oregon law, there is a duty to disclose likely material contingencies. In Elizaga v. Kaiser Found. Hosp., 259 Or. 542, 487 P.2d 870 (1971), an employer made representations that could imply that the job offered to the plaintiff would continue past a certain date. The employer knew, however, that the position would “probably” be termi•nated before that date. Since “nondisclosure of material facts can be a form of misrepresentation where the defendant has made representations which would be misleading without full disclosure,” the Oregon Supreme Court held that “[i]n order to avoid misleading plaintiff, defendant was under a duty to disclose that the Board of Examiners might well terminate the program.” Id. at 873; see also Caldwell, 634 P.2d at 477 (holding that failure to disclose possible sale of mobile-home park was actionable because “the likelihood that the mobile home would remain in the park was crucial to plaintiffs decision to purchase”).

Second, Plaintiffs contend that no duty to disclose is required when fraud is based upon active concealment, as opposed to nondisclosure. Plaintiffs allege Defendants actively concealed the closure by intentionally withholding material information from El-Jay management. The fact - that El-Jay management did not know of the closure is irrelevant because “[a] principal who deliberately withholds material facts from his agent in order that the agent may innocently misrepresent the facts is guilty of fraud if the agent does in fact make such a misrepresentation and it is relied on by the third party.” Bodenhamer v. Patterson, 278 Or. 367, 563 P.2d 1212, 1215-16 (Or.1977); Restatement (Second) Agency 555 § 256.

The district court erred in holding, as a matter of law, that no reasonable trier of fact could conclude that Defendants made false representations. Plaintiffs have put forth sufficient evidence to allow a jury reasonably to decide either way.

Defendants argue that they should not be forced to disclose sensitive business information. Defendants would not have been placed in this position, however, but for the false impression created by statements suggesting future growth and the “ramping up” of production. But for Defendants’ affirmative misrepresentations, there would be no duty to disclose.

B. Justified Reliance

The district court held that Plaintiffs were not justified in relying on representations and omissions made during their pre-employment negotiations, as a matter of law, because Plaintiffs each signed an at-will employment agreement. That Plaintiffs’ employment with Defendants was at-will does not defeat their justified reliance on Defendants’ representations about El-Jay. Even in the presence of language stating “no promises about employment have been made,” an action for fraud in the inducement of a contract is possible. See Wilkinson v. Carpenter, 276 Or. 311, 554 P.2d 512, 515 (1976). The representation Plaintiffs relied upon in this case is that El-Jay was growing and expanding. Plaintiffs were not relying on representations as to the duration of their employment. Plaintiffs accepted at-will employment, but they accepted at-will employment with a company that represented its Eugene facility as growing while failing to disclose and/or concealing that it was closing.

Furthermore, Plaintiffs contend that then-injuries were suffered as a result of the fraudulent inducement to enter employment, not the premature termination of that employment. The district court apparently treated the claims as breach of contract claims rather than claims of fraudulent inducement to form a contract.

Finally, Plaintiffs maintain that allowing at-will employment to defeat Plaintiffs’ reliance would effectively allow employers to make any representations to prospective employees and then not fulfill those representations once employment began. We agree. Although Plaintiffs had no reasonable expectations for employment of any particular duration, they reasonably relied on statements as to the company’s future growth, particularly when given in response to Plaintiffs’ concerns. If Plaintiffs can prove Defendants’ representations were knowingly or recklessly false, then a reasonable trier of fact could find the requisite elements of the tort of fraudulent misrepresentation.

Therefore, because genuine issues of material fact exist as to whether Defendants made false representations and whether Plaintiffs justifiably relied on those representations, we reverse the district court s grant of summary judgment on this claim.

C. Spouses’ Misrepresentation Claims

In order for Plaintiffs’ spouses to establish a claim for misrepresentation, Plaintiffs will have to prove that Defendants “made a representation to [Plaintiffs] ... under circumstances that entitled [the spouses] to believe that [Cedarapids] had authorized [Plaintiffs] to communicate the representation to [the spouses].” Johnsen v. Mel-Ken Motors, Inc., 134 Or.App. 81, 894 P.2d 540, 545 (1995). Because spouses usually make decisions as a family unit rather than as separate individuals, it is likely that the process of deciding whether to relocate for a new job involves convincing the spouse that the positive qualities of the new job outweigh the difficulties caused to the family. Although Defendants argue that Plaintiffs cannot prove that any representations were made under such circumstances, we do not, as a matter of law, hold that Plaintiffs cannot so prove. Therefore, we reverse the district court’s grant of summary judgment on this claim.

II. Intentional Infliction of Emotional Distress

Under Oregon law, the elements of the tort of intentional infliction of emotional distress are 1) the defendant intended to inflict severe emotional distress on the plaintiff; 2) defendant’s acts were the cause of plaintiffs severe emotional distress; and 3) defendant’s acts constituted an extraordinary transgression of the bounds of socially tolerable conduct. McGanty v. Staudenraus, 321 Or. 532, 901 P.2d 841, 849 (1995).

Plaintiffs fail to satisfy these requirements. First, intent means that the actor either desires to inflict severe emotional distress or knows that such distress is certain or substantially certain to result from his or her conduct. See id. at 853. Although Plaintiffs adduced evidence to show that Defendants had considered the effects the closure would have on Plaintiffs, there is no evidence indicating that severe emotional distress on the part of the Plaintiffs was a substantial certainty or that Defendants intended to cause such distress.

Second, although the Defendants’ conduct, as described by Plaintiffs, is objectionable, it can hardly be described as an “extraordinary transgression of the bounds of socially tolerable conduct.” Plaintiffs correctly point out' that this determination is made in consideration of the parties’ relationship. Even if the employer/employee context imposes a greater obligation to refrain from inflicting emotional distress, there is río evidence that Plaintiffs suffered what case law generally recognizes as severe emotional distress, for example, fright and abuse. Plaintiffs were undoubtedly unhappy, but mere malcontent does not amount to severe emotional distress.

Because Plaintiffs have not proffered evidence raising a genuine issue that Defendants intended or knew with substantial certainty that their conduct would cause severe emotional distress and because Defendants’ conduct does not rise to the level of “an extraordinary transgression of the bounds of socially tolerable conduct,” we affirm the district court’s summary judgment in favor of Defendants on the intentional infliction of emotional distress claim.

Although the dissent makes much of the fact that our opinion is not binding precedent, there are few published decisions addressing these issues. In light of the paucity of such case law, we feel that future litigants will benefit from the court’s published opinion.

AFFIRMED IN PART AND REVERSED IN PART.