Phoenix Technologies Ltd. v. VMware, Inc.

Northern District of California, cand-4:2015-cv-01414

ORDER ON JURY INSTRUCTION NO. 27 REGARDING IMPUTATION. Signed by Judge Haywood S. Gilliam, Jr. on 6/12/2017.

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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 PHOENIX TECHNOLOGIES LTD., Case No. 15-cv-01414-HSG 8 Plaintiff, ORDER ON JURY INSTRUCTION NO. 27 REGARDING IMPUTATION 9 v. 10 VMWARE, INC., 11 Defendant. 12 Northern District of California United States District Court 13 The Court files this order for the record regarding Jury Instruction No. 27, which concerns 14 the imputation of knowledge to a corporation. The parties agree that an imputation instruction 15 should be given, but propose substantially different instructions. See Dkt. No. 289 at 89-92. 16 Having considered the parties' arguments, the Court will provide the following instruction to the 17 jury: 18 As against Phoenix as an employer, Phoenix is deemed to have notice and knowledge of whatever its employee has notice or 19 knowledge of and ought in good faith and in the exercise of ordinary care and diligence, to communicate to Phoenix, so long as Phoenix's 20 employee acquired the knowledge while acting in the course and scope of his or her employment. This is so whether Phoenix's 21 employee communicated the knowledge to Phoenix or not. 22 The parties eventually agreed that California law governs this issue. See Dkt. No. 341 at 23 41:18-20, 42:5-11, 42:12-14. However, there is no California Civil Jury Instructions ("CACI") 24 model instruction covering this concept. The Court thus derived this instruction from its reading 25 of California case law, as summarized below. In Sanders v. Magill, the Supreme Court of 26 California established that "[k]knowledge of an officer of a corporation within the scope of his 27 duties is imputable to the corporation." 9 Cal. 2d 145, 153 (1937). The California Court of 28 Appeal expanded upon this definition in Columbia Pictures Corp. v. De Toth, 87 Cal. App. 2d 1 620, 630 (1948), holding that: As against a principal, both principal and agent are deemed to have 2 notice of whatever either has notice of, and ought, in good faith and the exercise of ordinary care and diligence, to communicate to the 3 other. A principal is chargeable with and is bound by the knowledge of, or notice to, his agent received while the agent is acting within 4 the scope of his authority and which is with reference to a matter over which his authority extends. The fact that the knowledge 5 acquired by the agent was not actually communicated to the principal. . . does not prevent operation of the rule. The knowledge 6 is, in law, imputed to the principal. 7 Id. (internal quotation marks omitted); see also Sanders, 9 Cal. 2d at 154 (holding that 8 knowledge need not be actually communicated to the principal or other employees for it to be 9 imputed, as to hold otherwise "would permit a corporation, by not letting its right hand know what 10 is in its left hand, to mislead and deceive those who are dealing with it in perfectly good faith."). 11 In FMC Corp. v. Plaisted and Cos., a case VMware brought to the Court's attention, the 12 California Court of Appeal further held that knowledge of "rank and file" employees may be Northern District of California United States District Court 13 imputed to a corporation in the same way as its corporate officers, managers, directors, and 14 supervisory employees. 61 Cal. App. 4th 1132, 1212-1214 (1998); see also Dkt. No. 341 at 49:1- 15 2. Taking all of these principles into consideration, the FMC court affirmed the trial court's 16 administration of three specific jury instructions on imputation, two of which this Court has 17 combined to create the instruction it will give in this case. 18 Defendant VMware, Inc. ("VMware") makes the additional argument that "[i]mputation 19 requires only a finding that a Phoenix employee acquire or have in mind a fact while acting within 20 the scope of employment," such that the knowledge an employee gains prior to his or her 21 employment may also be imputed to the corporation. Dkt. No. 430 at 3:14-15. In support of its 22 position, VMware relies on the California Supreme Court's decision in O'Riordan v. Fed. Kemper 23 Life Assur., 36 Cal. 4th 281, 288 (2005).1 In O'Riordan, plaintiff and his wife consulted an 24 independent insurance agent to replace their life insurance policies with term insurance. Id. at 25 284. At the agent's suggestion, the couple completed application forms for policies at the 26 1 27 O'Riordan cites the same California Civil Code provision, section 2332, discussed in Columbia Pictures. See 36 Cal. 4th at 288 (citing section 2332 for the principle that "[a]s against a principal, 28 both principal and agent are deemed to have notice of whatever either has notice of, and ought, in good faith and the exercise of ordinary care and diligence, to communicate to the other."). 2 1 preferred nonsmoker rate through the Federal Kemper Assurance Company, despite the plaintiff's 2 wife informing the agent that she had previously smoked for many years and that her last policy 3 was a smoker's policy. Id. While the agent was an independent agent, he had never sold 4 insurance for Kemper. Id. Two days after the couple had filled out their applications, the agent 5 was appointed to be a Kemper agent. Id. at 284-85. Kemper then issued the term life insurance at 6 the nonsmoker rate for both the plaintiff and his wife, and paid the agent a monthly commission. 7 Id. at 285. "After his wife's death from breast cancer, plaintiff, as beneficiary of his wife's life 8 insurance policy, sought to collect the policy proceeds." Id. at 283. However, Kemper "rescinded 9 the policy and denied plaintiff's claim," asserting that the "wife had concealed from the insurer her 10 smoking of cigarettes in the month period preceding her application, and that had she been truthful 11 it would not have issued a policy at the 'preferred nonsmoker rate.'" Id. Plaintiff sued and 12 Kemper moved for summary judgment, "claiming the facts were undisputed that [the wife] falsely Northern District of California United States District Court 13 answered the application's questions about smoking and tobacco use in the 36 months preceding 14 her application, thus entitling Kemper to rescind [her] life insurance policy." Id. at 285. The trial 15 court granted Kemper's motion for summary judgment, which the Court of Appeal affirmed. Id. 16 at 283, 286. 17 The California Supreme Court reversed the lower courts' decisions, citing Columbia 18 Pictures for the principle that "[t]he principal is charged with knowledge which his agent acquires 19 before the commencement of the relationship when that knowledge can reasonably be said to be 20 present in the mind of the agent while acting for the principal." Id. at 288. The Court found that 21 the wife did not conceal information from Kemper about her history of smoking because she had 22 disclosed it to the agent, and that the information was thus imputed to Kemper when the agent 23 became a Kemper agent. Id. 24 To the extent VMware now argues that O'Riordan stands for the very broad proposition 25 that all pre-employment knowledge reasonably present in one's mind while working at a 26 corporation is imputable to the corporation, the Court finds that to be an overreading of the case. 27 As the court in Jefferson Pilot Life Ins. Co. v. Goold, No. SACV 03-36 VAP (ANx), 2005 WL 28 5957832, at *2 (C.D. Cal. Nov. 15, 2005) held, "O'Riordan did nothing to upset California's long- 3 1 standing doctrine that information an agent acquires outside the scope of the agent-principal 2 relationship cannot be imputed to the principal. . . ." Instead, O'Riordan stands for the proposition 3 that pre-employment knowledge may be imputed to a corporation when the employee was 4 working within the scope of what would eventually become the agent/principal relationship, "even 5 if the agent/principal relationship had not yet been formed." Id. In other words, O'Riordan and 6 Columbia Pictures (on which O'Riordan heavily relied) involved the unique situation in which a 7 true agent, in his capacity as an agent, acquired information central to a later-developed 8 relationship with the principal to whom the agent's knowledge was then imputed. See O'Riordan, 9 36 Cal. 4th 281 (insurance agent's knowledge of client's smoking was imputable to insurance 10 agency because the agent obtained that information while working within the course and scope of 11 what would eventually become his agent-principal relationship with the agency); Columbia 12 Pictures, 87 Cal. App. 2d at 629-30 (where motion picture director's agent was familiar with the Northern District of California United States District Court 13 standard form of director's contract used by a producer, the director left the details of the contract 14 to the agent, and the agent had the relevant terms of the form agreement in mind during 15 negotiations, director was chargeable with the agent's knowledge of terms of form and bound by 16 them, even though no knowledge was communicated to the director and the knowledge was 17 acquired by the agent prior to his employment.). While O'Riordan used facially expansive and 18 definitive language in addressing the true agent-principal circumstance at issue there, the Court 19 finds that applying that case as broadly as VMware urges here would be inconsistent with 20 longstanding and basic California legal principles governing imputation. 21 // 22 // 23 // 24 The Court thus finds O'Riordan's discussion of information obtained before the 25 commencement of a relationship inapplicable to the facts of this case. Here, evidence was 26 introduced that two Phoenix employees obtained some knowledge of VMware and its products 27 prior to entering into any sort of relationship with Phoenix, through independent research, and for 28 reasons entirely unrelated to the course and scope of their eventual employment at Phoenix. 4 1 Accordingly, the Court's instruction does not include VMware's proposed language to the effect 2 that the relevant question is "what these individuals knew while they were at Phoenix," regardless 3 of "whether [they] learned [those facts] the day before [they] started or the day after [they] 4 started." Dkt. No. 341 at 52:24-25, 53:2-3. 5 IT IS SO ORDERED. 6 Dated: 6/12/2017 7 ______________________________________ HAYWOOD S. GILLIAM, JR. 8 United States District Judge 9 10 11 12 Northern District of California United States District Court 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5