Employees who alleged they remained in their jobs after the employer made oral promises of a bonus upon completion of the sale of the company, which bonus was never paid, had adequately pled claims for promissory fraud (concealment), breach of contract and promissory estoppel, the California Court of Appeal has ruled, reversing dismissal of those causes of action. Moncada et al. v. West Coast Quartz Corp. et al., No. H036728 (Cal. Ct. App. Nov. 22, 2013). However, the Court affirmed the dismissal of the employees’ claims for intentional infliction of emotional distress, negligent misrepresentation, and equitable estoppel. 

Background

Irma Moncada, Randy Morris and Everardo Serrano (collectively, the “employees”) worked for silicon manufacturer West Coast Quartz Corporation. Paul Maloney, the president and chief financial officer, and Nancy Tkalcevic, the chief executive officer, were the owners and sole shareholders of West Coast. In 2004, Maloney and Tkalcevic told the employees that they planned to sell West Coast, and that the sale would take two to ten years to consummate. Maloney and Tkalcevic also said the employees would receive bonuses sufficient for them to retire if they remained with the company until the sale was completed. 

During the next five years, Maloney and Tkalcevic repeatedly reiterated their promise to pay the bonus, and the employees rejected other job offers and relocation opportunities in reliance on their promises. In 2009, Maloney and Tkalcevic sold West Coast for approximately $30 million, but they never paid the employees the promised bonus. The employees sued West Coast for promissory fraud, breach of contract, intentional infliction of emotional distress, negligent misrepresentation, and equitable estoppel. The trial court granted West Coast’s motion to dismiss the suit. The employees appealed.

Promissory Fraud

The employees argued the trial court erred in dismissing their promissory fraud claim. The appellate court agreed. It found the allegations, if true, would establish all of the elements of promissory fraud. 

To plead a claim for promissory fraud in California based on concealment, a plaintiff must allege: (1) the defendant concealed or suppressed a material fact; (2) the defendant was under a duty to disclose that fact; (3) the defendant intended to defraud the plaintiff; (4) the plaintiff was unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact; and (5) the plaintiff suffered damages.

The employees alleged that, to induce them to remain employed with the company through the sale, West Coast intentionally represented that it would pay them a bonus that would be sufficient for them to retire. The employees also alleged that West Coast’s promises were false and that they relied on them, passing up other job or relocation opportunities because of the promised bonus. 

Breach of Contract, Promissory Estoppel

Turning to the breach of contract claim, West Coast argued that the contractual terms were too vague to be enforceable. The Court disagreed with West Coast, finding the agreement was sufficiently clear and certain. 

To plead a claim for breach of contract in California, a plaintiff must set forth facts showing the contractual terms are reasonably certain. The terms are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.

The Court noted West Coast had promised that if the employees remained at West Coast through the sale, they would be paid a bonus sufficient for retirement. The employees stayed and worked until West Coast was sold. Accordingly, the Court concluded the employees had alleged sufficient facts to support their breach of contract claim. 

Likewise, the Court found the employees had alleged a promissory estoppel claim because West Coast’s promise to pay a bonus was sufficiently clear and definite and the employees relied on it to their detriment. 

Claims Dismissed

However, the Court upheld the dismissal of the employees’ claims for intentional infliction of emotional distress, negligent misrepresentation and equitable estoppel. The Court held the employer’s conduct was not extreme or outrageous enough to support a claim for intentional infliction of emotional distress. It also found the employees’ allegation that West Coast acted intentionally in making false promises was inconsistent with a claim for negligent misrepresentation, which “lacks the element of intent to deceive.” Finally, the Court dismissed the equitable estoppel claim because no such independent cause of action exists under California law.

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Moncada illustrates the risks of making oral promises to employees, particularly in the context of the sale of a business. As a result of the oral promises, the employer and its officers in this case may face significant liability for fraud, including the possibility of punitive damages. To limit such liability and to induce employees to remain with a company through a sale, employers should consider developing a retention bonus plan addressing the type of bonus to be provided and the requirements for receiving a bonus.