Civil Liability for Investors

Sexual Harassment in California

There are two laws in California that address civil sexual harassment.  First, section 51.9 of the Civil Code governs claims of sexual harassment in business or professional relationships outside the workplace.[1]  The Fair Employment and Housing Act (“FEHA”), on the other hand, applies to claims for harassment in the employment context.[2]  Section 51.9 provides that a person is liable for sexual harassment when:

  • there is a business, service, or professional relationship between the parties, or the defendant holds him or herself out as being able to help establish such a relationship,
  • the defendant made sexual advances, or engaged in conduct of a sexual or hostile nature based on gender, that were unwelcome and pervasive or severe, and
  • the plaintiff suffered economic loss, disadvantage, or personal injury as a result.

The statute provides a non-exhaustive list of business relationships that could give rise to liability, including relationships with doctors, attorneys, accountants, trust officers, landlords, property managers, building contractors, and teachers as well as any relationship “substantially similar” to the examples.  A recent amendment expanded the list of exemplar relationships to specifically include directors and producers as well as investors, elected officials, and lobbyists.[3]  

 

Harassment by Investors

Investors are clearly in the crosshairs of section 51.9.  The Senate Analysis of the amendment stated it sought to deter discrimination and “transform the ‘boys’ club’ culture for which the less scrupulous parts of the tech, entertainment, and political industry have become notorious.”[4]  It cited several articles detailing claims of sexual harassment in the movie and tech industries, including two articles about harassment by Silicon Valley venture capitalists.[5]  Interestingly, the Judd court in 2020 found the question of whether producers could be liable under section 51.9 to be one of first impression, but the 2017-2018 Senate Analysis considered the addition of producers to be “declaratory of existing law.”[6] 

Nevertheless, the Ninth Circuit’s holding that producers were “sufficiently similar” to the other examples listed in section 51.9 is consistent with the legislative intent of the statute.  The court reasoned that a common attribute among the exemplar relationships was “an inherent power imbalance” where “one party is uniquely situated to exercise coercion or leverage over the other.”[7]  The court concluded that this power imbalance is also present in the producer-actor relationship because a small number of top producers can “make or break actors’ careers.” 

The investor/startup relationship shares the same power imbalance seen in the producer/actor relationship.  Venture capitalists have “control over access to tremendous resources and the fate of nascent businesses,” and that imbalance “is further magnified by the fact that the actions of one venture capitalist often influence the actions of others.”[8]  By amending section 51.9 to list investors, producers, and politicians, the legislature intended to put industries with a history of discriminatory behavior, such as venture capitalists, on “notice” that “they can be sued for engaging in sexual harassment of those over whom they wield so much power and influence.”[9]

Harassment by Joint Venture Partners and Suppliers

Whether suppliers can be liable for civil sexual harassment appears to be a closer call than joint venture partners.  Under California law, a joint venture is a partnership between two people or entities who combine property or skills for the purpose of carrying out a single business enterprise.[10]  Elements required to establish a joint venture include sharing ownership and control and agreeing to share profits and losses.[11]  Thus, the elements necessary to establish a joint venture—the sharing of power—appear at odds with the inherent power imbalance that is essential to section 51.9. 

The question of whether suppliers can be liable has become more interesting in recent days as lumber prices skyrocket.  Fortune reports that “[l]umber prices are up 232% and ‘could spiral out of control in the next few months.’”[12]  Although not an inherent power imbalance, this scarcity leaves lumber yards and builders at the mercy of suppliers for the immediate future, presenting the argument that the relationship could be sufficiently similar to the other enumerated examples, such as building contractors.  Ultimately, “whether a particular relationship falls within the scope of section 51.9 must be informed by the specific facts of that case.”[13] 

 

Harassment by Customers

Whether customers of a business could be liable under section 51.9 will similarly depend on the facts because there is usually no inherent power imbalance in general consumer relationships. 

Even assuming the first element could be satisfied, a plaintiff would also need to establish that the harassment was so “pervasive or severe” that it altered the conditions of the business relationship.[14]  Pervasiveness requires “more than a few isolated incidents,” although a single incident of physical assault may qualify as “severe.”[15]  In this regard, section 51.9 borrows meaning from workplace sexual harassment law (i.e., FEHA). 

Judd argued another form of harassment founded in FEHA, quid pro quo harassment, based on a unique piece of evidence—an interview with the director of the Lord of the Rings trilogy, who explained that his decision not to hire Judd was based solely on Weinstein’s comment about avoiding Judd at all costs. Thus, Judd’s refusal of Weinstein’s sexual advances resulted in “tangible retaliatory conduct by the defendant in the context of their professional relationship.”[16]

While the court did not reach the issue of quid pro quo, the Ninth Circuit was careful to distinguish Judd’s relationship with Weinstein from “an employment relationship outside the purview of section 51.9,” because, as alleged, the meeting was “a form of business development” as opposed to a job interview for a specific role.[17] 

Overall, the judicial and legislative history of section 51.9 demonstrates an intent to expand the scope of liability in response to pervasive discrimination in male-dominated industries that would otherwise fall outside of FEHA’s scope.  Please contact the attorneys at Wood Litigation for an initial consultation if you believe you have experienced harassment. 

[1] Hughes v. Pair (2009) 46 Cal.4th 1035; 209 P.3d 963, 972. 

[2] Hughes v. Pair (2009) 46 Cal.4th 1035; 209 P.3d at p. 970. California’s FEHA mirrors federal law prohibiting employers from discriminating against employees on the basis of sex, race, color, national origin, and religion, which includes sexual harassment.  Gov’t Code, § 12940, et seq.; Meritor Sav. Bank v. Vinson (1986) 477 U.S. 57.

[3] California Civil Code, § 51.9.

[4] Sen. Rules Com., Off. of Sen. Floor Analyses, Unfinished business reading analysis of Sen. Bill No. 224 (2017-2018 Reg. Sess.) as amended Aug. 23, 2018, p. 4, available at: https://leginfo.legislature.ca.gov/faces/billAnalysisClient.xhtml?bill_id=201720180SB224# (“Senate Analysis”).

[5] Senate Analysis, p. 5, fn. 1 & 2.

[6] Senate Analysis, p. 1.

[7] Judd, 967 F.3d at p. 957.

[8] Senate Analysis, p. 5.

[9] Senate Analysis, p. 4.

[10] Weiner v. Fleischman (1991) 54 Cal.3d 476, 482.

[11] CACI No. 3712.

[12] Lance Lambert, “Lumber prices are up 232% and ‘could spiral out of control in the next few months,’” Fortune (Apr. 2021), available at: https://fortune.com/2021/04/27/lumber-prices-are-up-232-and-it-could-spiral-out-of-control-in-the-next-few-months/.

[13] Judd, 967 F.3d at p. 958.

[14] Hughes v. Pair (2009) 46 Cal.4th 1035; 209 P.3d at p. 974.

[15] Hughes v. Pair (2009) 46 Cal.4th 1035; 209 P.3d at pp. 974-75.

[16] Hughes v. Pair (2009) 46 Cal.4th 1035; 209 P.3d at p. 976 (“Because plaintiff has identified no tangible retaliatory conduct by defendant in the context of their professional relationship, plaintiff's claim is properly treated as a claim for hostile environment sexual harassment.”).

[17] Judd, 967 F.3d at p. 959.


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