Huerta v. Kava Holdings, Inc.

Citation: Not availableDocket: B277164

Court: California Court of Appeal; November 13, 2018; California; State Appellate Court

Original Court Document: View Document

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Kava Holdings, Inc., operating as Hotel Bel-Air, terminated employee Felix Huerta following an altercation with another server, Atanas Kolev, which was recorded on surveillance. Huerta filed a lawsuit against Kava Holdings, raising multiple legal claims, most of which were dismissed before trial. The court granted Kava's motion for nonsuit regarding Huerta's retaliation claim under the Fair Employment and Housing Act (FEHA) but allowed the jury to decide on claims of harassment, discrimination, and failure to prevent such behavior. The jury ruled in favor of Kava.

After the trial, the court determined Huerta's action was not frivolous, thus denying Kava's request for attorney and expert fees. However, it awarded Kava $50,000 in costs and expert fees due to Huerta's rejection of a pretrial settlement offer under Code of Civil Procedure section 998. The appellate court affirmed the judgment but reversed the order for costs, clarifying that, effective January 1, 2019, section 998 should not apply to nonfrivolous FEHA actions, emphasizing that a lawsuit must be deemed frivolous for such costs to be awarded. The ruling cited Arave v. Merrill Lynch, indicating a shift in the interpretation of section 998 regarding FEHA claims. 

The factual background highlights the altercation on December 21, 2013, where Kolev confronted Huerta over perceived negligence in completing work duties, escalating to a physical push.

Plaintiff asserts that during an altercation with Kolev, he called Kolev a "loser" without using profanity and believed they were not shouting at each other. As Kolev approached, he grabbed the plaintiff by the throat, prompting the plaintiff to state his intention to report the incident. Other employees intervened, and the plaintiff reported the confrontation to manager Michael Pekarsky, detailing the incident but not indicating it was racially motivated. He provided a written statement recounting the events and mentioning previous threats from Kolev, but did not specify any racial or national origin harassment. Pekarsky informed hotel security, who located Kolev, and both men were subsequently escorted off the property and suspended pending investigation.

The investigation included obtaining written statements from other employees, none of which indicated that Kolev had bullied the plaintiff due to his Hispanic background. HR, led by general manager Denise Flanders and others, attempted to follow up with the plaintiff regarding previous threats but received no response. On December 24, 2013, both men were terminated for violating the company's "Pledge" code of conduct, which prohibits disorderly conduct, fighting, threats, and obscene language, allowing for immediate termination without prior disciplinary action. The Pledge promotes open communication with management and requires immediate reporting of harassment, with protections against retaliation for such reports.

Post-termination, three Hispanic coworkers reported to the HR director that the plaintiff had been subjected to sustained racial harassment by Kolev. Although there were no prior complaints about Kolev, he had a history of making racist remarks toward Hispanic employees. The plaintiff filed a lawsuit on August 8, 2014, against the hotel and several management individuals, asserting 11 causes of action, including six under the Fair Employment and Housing Act (FEHA) related to race and national origin discrimination, harassment, retaliation, and wrongful termination. He also claimed damages for breach of an implied contract, negligent hiring, and negligent supervision. Before trial, all individual defendants were dismissed, and the court granted summary adjudication on several of the plaintiff's claims. A settlement offer of $375,000 was made by the defendant shortly before trial, which the plaintiff rejected in favor of a $1.55 million demand. During the jury trial, evidence indicated that coworkers encouraged the plaintiff to report Kolev's harassment, but he hesitated due to perceived inaction from management, citing an instance where Kolev made derogatory comments in front of managers who failed to intervene.

Plaintiff testified that Kolev verbally assaulted him with racial slurs, referring to him as a “[expletive] Mexican,” and made threatening comments about his military training. Kolev denied any discriminatory intent, claiming the interactions were part of workplace camaraderie and not meant to harm. He also stated that he made similar jokes about others, not just the plaintiff. At the end of the trial, the plaintiff withdrew all claims except for those under the Fair Employment and Housing Act (FEHA) regarding retaliation, harassment, discrimination, and failure to prevent such behavior. The trial court granted a nonsuit for the retaliation claim, citing a lack of evidence of protected activity, but allowed the remaining claims to proceed to a jury, which ultimately ruled in favor of the defendant.

Following the verdict, the defendant sought costs, expert witness fees, and attorney fees as the prevailing party under section 12965(b) and section 998. The defendant's initial memorandum of costs totaled $111,242.83, including $47,322.50 in expert fees, and attorney fees of $1,318,955. The plaintiff contested these requests, arguing that section 12965(b) barred cost awards unless the plaintiff's claims were deemed unreasonable or frivolous. After extensive litigation and a revised memorandum reducing the claimed costs to $98,863.59, the trial court found the plaintiff's action was not frivolous, thus denying the defendant ordinary costs, expert fees, and attorney fees under section 12965(b). However, it awarded postoffer ordinary costs and expert witness fees under section 998, reducing the total to $50,000 based on the plaintiff's financial situation. The plaintiff appealed both the judgment and the postjudgment order, leading to a consolidation of the appeals.

Nonsuit was properly granted on the retaliation claim under the Fair Employment and Housing Act (FEHA), which prohibits workplace discrimination and harassment based on factors such as race and national origin. For a retaliation claim to succeed, the employee must demonstrate: 1) engagement in a protected activity, 2) an adverse employment action by the employer, and 3) that the protected activity was a substantial motivating factor for the employer’s action. The trial court can grant nonsuit if the evidence is insufficient to proceed to a jury. 

On appeal, the review is conducted de novo, affirming if no reasonable jury could find that the plaintiff was terminated in retaliation for reporting harassment or discrimination. In this case, the plaintiff failed to establish that he engaged in protected activity, as he did not report the incident as racially motivated. Although evidence of Kolev's bigotry was presented, the key issue was whether the plaintiff’s report of harassment was a substantial factor in his termination. He only reported the assault, not indicating it was racially motivated, and did not complain of ongoing harassment before his termination. The termination stemmed from the confrontation itself, which violated company policy rather than FEHA. Thus, evidence did not support a finding of retaliation based on race.

Plaintiff failed to provide evidence that decision-makers Flanders, Brown, or Crocini were aware of any racist conduct by Kolev prior to terminating him. Their decision was based solely on the plaintiff's involvement in an altercation with Kolev, which violated the company's code of conduct. Testimony indicated that Pekarsky and coworkers heard Kolev use profanity, but they did not report it to HR, and the foul language did not include racial slurs. Even if such language constituted a FEHA violation, the plaintiff did not report it, negating his ability to claim retaliation under FEHA.

Additionally, the plaintiff contended that the trial court erred by restricting his counsel's closing argument, which he argued limited the jury's ability to hold the hotel liable for Kolev's harassment. The plaintiff asserted that Kolev's assault on December 21, 2016, was strong evidence of the hotel's liability due to its inaction. During jury instruction discussions, both parties agreed on the appropriateness of certain jury instructions regarding harassment, including verbal and physical harassment. However, the court denied the inclusion of physical harassment related to the December 21 incident, reasoning that the hotel had already taken action by terminating Kolev. The court allowed argument regarding racial motivation behind Kolev's actions but clarified that the confrontation itself could not be portrayed as unaddressed physical harassment. The plaintiff's closing argument emphasized that the altercation would not have occurred without Kolev's prior racially motivated harassment, suggesting a direct link to his termination.

Reversal of trial court decisions is not presumed; it is only warranted in cases of miscarriage of justice, as established in Keyes v. Bowen. An appellant must show both trial court error and resulting prejudice to be entitled to a reversal, supported by substantial argument and citations to relevant legal authorities. Failure to provide context or discussion regarding cited cases leads to forfeiture of claims. Generally, issues not objected to in trial court are forfeited on appeal. The plaintiff did not object to the court’s instructions nor to the closing arguments, leading to forfeiture of those issues. The court provided a standard instruction as requested by the plaintiff, negating claims of unfair limitation.

Regarding section 998, which pertains to costs in legal actions, the trial court awarded the defendant costs and expert witness fees, adjusting the amount based on the plaintiff's limited resources. This decision was influenced by precedents, including Seever and Holman. However, the Supreme Court's ruling in Williams clarified that section 12965(b) provides specific guidelines for awarding costs in FEHA actions, which serves as an exception to the general rules in section 1032. Recent case law, particularly Arave, determined that section 998 does not apply to nonfrivolous FEHA actions. The court finds the reasoning in Arave compelling and asserts that the specific policies governing FEHA cost awards take precedence over general cost provisions. The analysis will continue by addressing applicable laws for prevailing party costs in civil and FEHA actions.

The prevailing party in any civil action is entitled to costs as a matter of right, with defendants receiving this status automatically if a plaintiff recovers no relief. Trial courts have no discretion to deny costs to a prevailing party, which are outlined in Section 1033.5; however, expert witness fees are not included unless ordered by the court, and attorney fees require legal or contractual authorization. In contrast, in Fair Employment and Housing Act (FEHA) actions, cost awards are at the trial court's discretion, including for attorney and expert witness fees, creating an asymmetrical standard. This standard, established by the U.S. Supreme Court in Christiansburg, allows a prevailing plaintiff to receive costs and fees as a matter of right, while a prevailing defendant can only be awarded costs if the plaintiff's claim is found frivolous, unreasonable, or groundless. California courts adhere to this standard, extending it to expert witness fees. The California Supreme Court confirmed that in nonfrivolous FEHA actions, prevailing plaintiffs typically receive costs and fees unless exceptional circumstances arise, while prevailing defendants face stricter criteria for such awards.

Section 12965(b) serves as a clear exception to the cost provisions stipulated in section 1032, subdivision (b), specifically in the context of Fair Employment and Housing Act (FEHA) actions, as confirmed by the trial court and supported by Williams, 61 Cal.4th at p. 109. The applicability of section 998 in nonfrivolous FEHA actions remains unresolved, particularly when a plaintiff rejects a reasonable statutory settlement offer and does not achieve a better outcome. Appellate courts have historically analyzed section 998’s relevance by differentiating cost categories, including ordinary costs, attorney fees, and expert witness fees. 

In this case, the trial court ruled that the defendant was not entitled to attorney fees under section 998 but awarded ordinary costs and expert witness fees in a reduced amount due to the plaintiff’s financial situation. This decision was influenced by three previous appellate cases, notably Mangano v. Verity, Inc., where the court upheld the denial of attorney fees to a prevailing defendant in a FEHA case, citing the Christiansburg standard, which aims to deter frivolous lawsuits while encouraging valid claims. 

The trial court also referenced Seever, which allowed for the awarding of ordinary costs and expert witness fees to a successful defendant post-offer but did not label the underlying FEHA action as frivolous. Seever emphasized that shifting litigation costs to typically lower-income plaintiffs could dissuade them from pursuing legitimate claims. While the strong public policy behind section 998 suggests it should apply in FEHA cases, trial courts are encouraged to adjust cost awards to avoid imposing undue pressure on economically disadvantaged plaintiffs, ensuring that a balance is struck between the interests of defendants and the economic realities faced by plaintiffs.

The trial court did not assess Seever's financial situation, leaving uncertainty about whether the cost award constituted an excessive settlement incentive for someone of Seever's means. The court based its decision on *Holman*, which established that a prevailing employer in a FEHA case can be awarded expert witness fees under section 998 without proving the plaintiff's case was frivolous. However, if the case is nonfrivolous, the award must be scaled according to the plaintiff's economic resources. *Holman* also suggested that the Christiansburg standard applies to expert witness fees, indicating that section 12965 does not create an express exception to section 1032's prevailing cost provisions. The analysis referenced *Murillo*, which confirmed that the prevailing party cost provisions in the Song-Beverly Act do not exempt a prevailing defendant from recovering expert witness fees under section 998. Consequently, since the Song-Beverly Act does not expressly prohibit such recovery, the trial court had discretion to award these fees. 

Additionally, *Holman* maintained that attorney fees are governed by different rules than expert witness fees. The implications of *Williams* reinforced that the same rules apply to ordinary litigation costs and attorney fees, but its discussion regarding section 998 was limited. In 2018, *Arave* concluded that there is no authority to award section 998 fees in nonfrivolous FEHA actions, arguing that section 12965(b) serves as an express exception to section 1032 and overrides any related claims under section 998. Therefore, in nonfrivolous FEHA cases, the provisions of section 998 do not apply. Ultimately, the judgment is affirmed, but the order awarding costs and expert witness fees under section 998 is reversed, with no costs awarded on appeal.