Faigin v. Signature Group Holdings, Inc.
211 Cal. App. 4th 726, 150 Cal. Rptr. 3d 123, 79 A.L.R. Fed. 2d 679 (2012)
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Rule of Law:
An employee's long-term service, combined with the employer's policies and practices, can create an implied-in-fact contract requiring termination only for good cause. This implied contract can exist with a subsidiary company even if the employee has a separate written employment contract with the parent company, provided the written contract is not inconsistent with the implied one.
Facts:
- Alan W. Faigin began working for Fremont General Corporation in 1980.
- Beginning in 1990, Faigin also performed legal work for Fremont General's subsidiary, Fremont Reorganizing Corporation (FRC), eventually becoming its general counsel, chief legal officer, and interim president.
- In March 2007, the Federal Deposit Insurance Corporation (FDIC) issued a cease and desist order requiring FRC to replace its senior management.
- In April 2007, Faigin and Fremont General (the parent company) entered into a written three-year employment contract that obligated Faigin to work for Fremont General and its subsidiaries, including FRC.
- In November 2007, a new management group began working at FRC.
- On December 20, 2007, after over 17 years of continuous service to FRC, the FRC board of directors formally relieved Faigin of his positions and replaced him as general counsel.
- After being removed from his roles at FRC, Faigin continued to perform work for other Fremont entities and receive his salary until March 2008, when Fremont General terminated his employment for cause.
Procedural Posture:
- Faigin filed a complaint against FRC in state trial court, initially alleging breach of a written employment contract.
- During trial, the court granted FRC's motion in limine to exclude the written employment contract between Faigin and Fremont General.
- After Faigin's case-in-chief, FRC moved for a nonsuit.
- The trial court granted Faigin leave to amend his complaint to conform to proof, adding a count for breach of an implied-in-fact employment contract.
- The jury returned a special verdict for Faigin, finding FRC breached an implied-in-fact employment contract and awarded him $1,347,000 in damages.
- The trial court entered judgment on the jury verdict and later denied FRC's motions for a new trial and for judgment notwithstanding the verdict (JNOV).
- FRC, as appellant, appealed the judgment and the denial of its JNOV motion to the California Court of Appeal. Faigin, also as an appellant, cross-appealed the denial of his motion for prejudgment interest.
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Issue:
Can an employee who has a written employment contract with a parent company establish a separate, implied-in-fact contract with a subsidiary, requiring termination only for good cause, based on the totality of the circumstances of their employment with that subsidiary?
Opinions:
Majority - Croskey, Acting P. J.
Yes. An employee can establish a separate, implied-in-fact contract with a subsidiary requiring termination only for good cause, even when a written contract exists with the parent company, so long as the written contract is not inconsistent with the implied agreement. The court found that substantial evidence supported the jury's finding that Faigin was an FRC employee based on his 17 years of continuous service, high-level positions, and physical office at FRC, despite his W-2s originating from the parent company. The written contract with Fremont General did not specify at-will employment and was for a fixed term, and was therefore not inconsistent with an implied agreement with FRC to terminate only for good cause. The court reasoned that Faigin's continued work for FRC served as adequate consideration for this implied promise because he was not legally obligated to continue and could have terminated his employment at any time. Finally, the court held that the damages were not an illegal 'golden parachute' payment under federal banking regulations, as the award was for breach of contract, not a severance agreement, and FRC was no longer an FDIC-insured institution at the time of judgment.
Analysis:
This decision reinforces the principle that employment relationships are defined by the totality of their circumstances, not just formal contractual documents. It clarifies that a written contract with a parent company does not preclude the formation of a separate, implied-in-fact contract with a subsidiary based on long-term service and company practices. This holding cautions corporate families to maintain clear and consistent employment terms across all entities to avoid creating unintended contractual obligations. The case underscores that courts will look to the substance of the working relationship to determine the rights and duties of the parties involved.
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