Key Decisions

August 2013 – All Articles

(filed under: Key Decisions | August 16, 2013)

Insurers Can Be Sued For Unfair Competition Under Business & Professions Code Section 17200

Zhang v. Superior Court
(Cal. Sup. Ct.), filed August 1, 2013, published August 1, 2013

KEY FACTS

Yanting Zhang owned certain commercial premises. California Capital Insurance Company insured the premises. A fire damaged the premises. Zhang made a claim to California Capital.

Zhang sued California Capital as a result of its handling of her claim. She alleged causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing based on the way California Capital handled her claim. In particular, she alleged California Capital refused to authorize adequate payment for the repair and restoration of the premises.

Zhang also alleged a cause of action for violation of the Unfair Competition Law (“UCL”) embodied in Business and Professions Code Section 17200. She incorporated all of the prior allegations in her complaint and alleged that California Capital “engaged in unfair, deceptive, untrue, and/or misleading advertising.” She alleged that California Capital “promises its insureds that it will timely pay proper coverage in the event the insured suffers a covered loss” but had no intention of honoring its advertised promises.

California Capital demurred, arguing that the cause of action was based on conduct that the Insurance Code Section 790.03 prohibits, and Moradi-Shalal v. Fireman’s Fund Ins. Co., 46 Cal.3d 287 (1988), barred the UCL cause of action.

The trial court sustained California Capital’s demurrer. Zhang appealed.

The Court of Appeal reversed. It held that regardless of whether a UCL claim could be based on conduct prohibited by section 790.03, it could be based on false advertising and that Zhang had alleged false advertising.

California Capital sought California Supreme Court review.

HOLDING & REASONING

The California Supreme Court affirmed.

It held that although Moradi-Shalal v. Fireman’s Fund Ins. Co., 46 Cal.3d 287 (1988), precludes actions based on violations of Insurance Code Section 790.03(h), it does not preclude first party UCL actions based on grounds independent from Section 790.03, even when the insurer’s conduct also violates Section 790.03. It said:  “We have made it clear that while a plaintiff may not use the UCL to ‘plead around’ an absolute bar to relief, the [Unfair Insurance Practices Act] does not immunize insurers from UCL liability for conduct that violates other laws in addition to the [Unfair Insurance Practices Act].”

In reaching this decision, the court agreed with State Farm Fire & Casualty Co. v. Superior Court, 45 Cal.App.4th 1093 (1996).  It disapproved of Textron Financial Corp. v. National Union Fire Ins. Co., 118 Cal.App.4th 1061 (2004). Additionally, it noted that its ruling does not affect the opinions in third party cases such as Industrial Indemnity Co. v. Superior Court, 209 Cal.App.3d 1093 (1989), or Safeco Ins. Co. v. Superior Court, 216 Cal.App.3d 1491 (1990).

In reaching its decision, the Court noted that in an action under the UCL, prevailing plaintiffs are generally limited to injunctive relief and restitution and may not receive damages or attorney fees, except to the extent attorney fees are awarded on a “private attorney general” theory in a class action. Moreover, a plaintiff must have “suffered injury in fact and [have] lost money or property as a result of…unfair competition.” As a result, permitting a UCL action would not have the same negative societal impact as permitting one under Section 790.03(h) (which led to Moradi-Shalal).

The Court declined to consider California Capital’s argument that no UCL cause of action may be based on an insurer’s handling of a fire loss claim, because the exclusive remedy in disputes over such claims is the appraisal process provided in Insurance Code Section 2071. It did so because California Capital had not raised it in the trial court, the Court of Appeal, or its petition for review.

ANALYSIS

This decision will probably mean that insurers will be facing more Section 17200 claims in first party cases. The decision does not address Section 17200 claims in a third-party context.

 

A Manufacturer Was Not Liable For Injuries

Sanchez v. Hitachi Koki Co., Ltd.
(Cal. Ct. of App., 2d Dist.), filed July 9, 2013, published July 9, 2013

KEY FACTS

Andres Sanchez cut himself when he tried to use an angle grinder fitted with a saw blade rather than a grinding disk. The grinder’s safety instructions and manual expressly warned against such a practice.

Sanchez sued Hitachi, the grinder’s manufacturer.

Hitachi moved for summary judgment, arguing that under O’Neil v. Crane Co. 53 Cal.4th 335 (2012), it could not be liable for harm caused by another manufacturer’s product unless its own product contributed substantially to the harm, or it participated substantially in creating a harmful combined use of the products. Hitachi asserted that it had not manufactured the saw blade, that the grinder did not require the use of the saw blade, and that Sanchez and his wife’s own expert conceded that the grinder was not intended to be used with a saw blade. Hitachi pointed to two separate written warnings advising consumers never to use a saw blade with the grinder, so it argued it had no duty to warn Sanchez about not using a saw blade with the grinder or to provide kickback prevention for a product not intended to be used with the grinder.

The trial court granted Hitachi’s motion.

HOLDING & REASONING

The Court of Appeal affirmed.

The court rejected Sanchez’s attempts to distinguish O’Neil.  In O’Neil, the Supreme Court held that a valve manufacturer was not liable for asbestos injuries caused by asbestos exposure when the asbestos was manufactured by another company and then applied to the valve. Sanchez asserted that unlike the situation in O’Neil, where the valve was not itself dangerous, the grinder was. However, the court dismissed this assertion, noting: “Sanchez was not injured by any intended use of the grinder, and he may not predicate his claims on the speculative harm that might have befallen someone else, putting the grinder to its intended use.” It then stated: “Imposing liability under the circumstances here would convert strict liability into ‘absolute liability’ for product manufacturers.”

The court also rejected Sanchez’s argument that the grinder contributed substantially to the accident because it was defectively designed, saying: “[A] product substantially contributes to the harm suffered by a plaintiff only where the intended use of that product inevitably resulted in the harm.”

The court next rejected Sanchez’s argument that Hitachi participated substantially in creating a harmful combined use of the products, because it knew that consumers used saw blades with the Hitachi grinder and failed to take steps to reduce or prevent that misuse. O’Neil, however, stated that a product manufacturer participates substantially in creating a harmful combined use only if it specifically designs its product for the combined use. The grinder was not specifically designed to use a saw blade.

ANALYSIS

This result takes O’Neil one step further. Some would argue that putting a saw blade on an angle grinder should be deemed 100% comparatively negligent as a matter of law. However, given O’Neil, the court did not need to reach that issue.

 

An Employer Could Be Liable For An Employee’s Drunk Driving

Purton v. Marriott International, Inc.
(Cal. Ct. of App., 4th Dist.), filed July 31, 2013, published July 31, 2013

KEY FACTS

In December 2009, the Marriott International held its annual holiday party as a “thank you” for its employees and management. Marriott did not require employees to attend the party. Management decided that each party attendee would receive two drink tickets. They planned to serve only beer and wine at the party.

Michael Landri was a Marriott employee. He did not work on the day of the party. Before the party, Landri drank a beer and a shot of “Jack Daniel’s” whiskey at his home. Landri was driven to the party. He took a flask to the party, which he estimated held about five ounces, filled to some degree with Jack Daniel’s. During the party, he drank other alcohol.

At about 9:00 p.m., Landri and several other people left the party. He did not consume any alcohol after leaving.

About 20 minutes after arriving at his home, Landri decided to drive an intoxicated co-worker home. While doing so, Landri struck a vehicle driven by Dr. Jared Purton, killing Dr. Purton. Landri had a .16 blood alcohol level.

Dr. Purton’s parents filed a wrongful-death action against Landri, Marriott and others. They alleged that Marriott held the party for its benefit, including to improve relations between employees, to improve relations between it and employees, and to increase the continuity of employment by providing a fringe benefit.

Marriott moved for summary judgment, arguing that it could not be liable because the accident did not occur within the scope of Landri’s employment. The trial court granted the motion, finding that at the time of the accident, Landri was not acting within the scope of his employment.

HOLDING & REASONING

The Court of Appeal reversed.

The court held that an employer may be liable for its employees’ torts as long as the proximate cause of the injury occurred within the scope of employment. The court found that it was irrelevant that foreseeable effects of Landri’s negligent conduct (the car accident) occurred when he was no longer acting within the scope of his employment. It also held that no legal justification exists for terminating the employer’s liability as a matter of law simply because the employee arrived home safely from the employer hosted party. What mattered was that Landri had become intoxicated while within the scope of his employment. The court noted: “a reasonable trier of fact could find that Landri acted negligently by becoming intoxicated at the party, that this act was within the scope of his employment and proximately caused the car accident which resulted in Dr. Purton’s death.”

ANALYSIS

This case is interesting — particularly when compared to cases holding that by statute, one who serves alcohol to another is not the proximate cause of injuries caused by intoxication. Had Marriott permitted a non-employee party guest to become intoxicated and had permitted that guest to drive home, its conduct, by statute, would not have been a proximate cause of any resulting injury. See, e.g., Debolt v. Kragen Auto Supply, 182 Cal.App.3d 269 (1986).

 

A Pre-Litigation Demand Letter Was Privileged

Malin v. Singer
(Cal. Ct. of App., 2d Dist.), filed July 16, 2013, published July 16, 2013

KEY FACTS

Shereene Arazm consulted with her attorney, Martin Singer, regarding alleged misappropriation of company assets by Michael Malin and Lonnie Moore. Singer sent Malin a demand letter and draft of Arazm’s proposed complaint. Together, Malin interpreted these documents as threatening to expose a secret sexual encounter Malin did not want people to know about. The letter stated:

I am litigation counsel to Shereene Arazm. I am writing to you with respect to your outrageous, malicious, wrongful and tortious conduct. As a result of your embezzlement, conversion and breach of fiduciary duty, you have misappropriated more than a million dollars from my client. As a result thereof, my client intends to file the enclosed lawsuit against you, Lonnie Moore, and various business entities that you and Mr. Moore control. As alleged in the Complaint, you, Mr. Moore and several of your co-conspirators have been embezzling and stealing money from Ms. Arazm and Geisha House, LLC for years. As set forth in detail in the Complaint, you and Mr. Moore have devised various schemes to embezzle money from the restaurants and clubs which you own and/or manage, including, but not limited to Geisha House and WonderLand. You and Mr. Moore have created a special account or “ledger,” which allows you to keep tabs on how the stolen funds are divided among you, Mr. Moore and your various co-conspirators. My client intends, as part of the lawsuit, to seek a full-fledged forensic accounting of the books and records for Geisha House, LLC, 2HYPE Productions, Inc., LTM Consulting, Inc., and Malin & Moore Enterprises, LLC, in addition to your personal accounts.

In addition, as set forth in the Complaint, we have information that you and Mr. Moore have engaged in insurance scams designed to defraud not only the insurers of your establishments, but also the insurers of WonderLand. You have also taken steps to hide your assets from creditors as well as from the taxing authorities. We are aware that you have converted my client’s monies and deposited them in accounts in the Cook Islands. We have also confirmed that you have planned to illegally transfer your shares in Geisha House Los Angeles to Sylvain Bitton in a further attempt to hide from creditors and avoid tax liability.

Because Mr. Moore has also received a copy of the enclosed lawsuit, I have deliberately left blank spaces in portions of the Complaint dealing with your using company resources to arrange sexual liaisons with older men such as ‘Uncle Jerry,’ Judge [name redacted] a/k/a ‘Dad’ (see enclosed photo), and many others. When the Complaint is filed with the Los Angeles Superior Court, there will be no blanks in the pleading.

My client will file the Complaint against you and your other joint conspirators unless this matter is resolved to my client’s satisfaction within five (5) business days from your receipt of this Complaint.”

Singer included with the letter a photograph of the judge and a copy of the draft complaint. The draft complaint did not identify any alleged sexual partners, but contained several blank spaces and redactions that, according to the letter, would be filled in before the complaint was filed. The draft complaint stated:

“[O]ver the past several months, _______________ has arranged through email and through Internet websites such as craigslist.org to have multiple sexual encounters with [redacted] which include _________________________. Based on information and belief, _______________ used company resources to facilitate these rendezvous and to communicate with various [redacted] including _______________, _______________, and _______________.”

After he received the demand letter, Malin sued Singer and Arazm for civil extortion, violation of civil rights, and intentional and negligent infliction of emotional distress. In turn, Arazm sued Malin for conversion, breach of contract, breach of fiduciary duty, accounting, and civil conspiracy.

Arazm and Singer moved to strike Malin’s complaint as a SLAPP suit arising from the exercise of Arazm’s constitutionally protected rights of speech or petition. The trial court denied the motion.

HOLDING & REASONING

The Court of Appeal reversed, to the extent that the trial court denied the motion as to Malin’s cause of action for civil extortion.

The court rejected Malin’s argument that the cases of Flatley v. Mauro, 39 Cal.4th 299 (2006) and Mendoza v. Hamzeh, 215 Cal.App.4th 799 (2013), precluded the trial court from granting Arazm and Singer’s motion. It held that Singer’s demand letter did not constitute civil extortion, as was the case with the demand letter in Flatley and Mendoza.

Ordinarily, a demand letter sent in anticipation of litigation is a legitimate speech or petitioning activity, is privileged, and will not support a claim.

But, in Flatley, the Supreme Court articulated an exception for a demand letter that was so extreme that it was found to constitute criminal extortion as a matter of law. In finding that the letter in Flatley constituted criminal extortion, the Supreme Court observed: “That the threats were half-couched in legalese does not disguise their essential character as extortion.”  And, it cautioned that its discussion of what constitutes “extortion as a matter of law” was “limited to the specific facts of this case.”

In Mendoza, the court found the anti-SLAPP statute did not apply because the demand letter improperly and unlawfully threatened to report the recipient’s conduct to the authorities unless the dispute was settled.

After analyzing the Flatley and Mendoza cases, the court noted: “In contrast with the demand letters in Flatley and Mendoza, Singer’s demand letter did not expressly threaten to disclose Malin’s alleged wrongdoings to a prosecuting agency or the public at large.” It noted:

[T]he “secret” that would allegedly expose him and others to disgrace was inextricably tied to Arazm’s pending complaint. The demand letter accused Malin of embezzling money and simply informed him that Arazm knew how he had spent those funds. There is no doubt the demand letter could have appropriately noted that the filing of the complaint would disclose Malin had spent stolen monies on a car or a villa, if that had been the case. The fact that the funds were allegedly used for a more provocative purpose does not make the threatened disclosure of that purpose during litigation extortion. We cannot conclude that the exposure of Malin’s alleged activities would subject him to any more disgrace than the claim that he was an embezzler.

ANALYSIS

It is not always easy to draw the line between a legitimate advocacy and threats that go too far. In fact, the court noted that, “In reaching [the] conclusion [it did in Flatley], the court explained it was not implying that rude, aggressive, or even belligerent prelitigation negotiations, whether verbal or written, that may include threats to file a lawsuit, report criminal behavior to authorities or publicize allegations of wrongdoing, necessarily constitute extortion.”

 

An Attorney’s Mistake Was Inexcusable

Toho-Towa Co., Ltd. v. Morgan Creek Productions, Inc.
(Cal. Ct. of App., 2d Dist.), filed July 11, 2013, published July 11, 2013

KEY FACTS

Toho-Towa negotiated with Morgan Creek Productions to acquire Japanese distribution rights to a motion picture produced by Morgan Creek. After the parties had reached an agreement as to the terms of the distribution deal, Morgan Creek’s general counsel at the time told Toho-Towa that a Morgan Creek affiliate, rather than Morgan Creek itself, would grant Toho-Towa the distribution rights under the agreement, and that a third related entity would guarantee certain contractual obligations to Toho-Towa. He told Toho-Towa that this was the structure Morgan Creek used for its international distribution deals.

When the transaction went sour, Toho-Towa initiated arbitration with the two affiliates.

The arbitrator entered a final arbitration award in favor of Toho-Towa against the two affiliates for $5,233,386. On Toho-Towa’s motion, the award was confirmed as a judgment. With interest and attorney’s fees, the judgment was for $5,741,536.

When neither of the affiliates paid the judgment, Toho-Towa conducted debtor examinations.

Toho-Towa then moved to add Morgan Creek to its judgment against the affiliates, on the theory that Morgan Creek was the alter ego of the other two entities.

Morgan Creek opposed the motion by objecting to Toho-Towa’s various offers of evidence. It did not, however, submit any evidence challenging its status as an alter ego.

Based on arguments Morgan Creek made at the hearing of Toho-Towa’s motion, the trial court continued the hearing to give Morgan Creek an opportunity to address one of Toho-Towa’s arguments.

Morgan Creek filed additional papers, but did not submit any evidence in support of its position.

Three days before the new hearing date, Morgan Creek changed counsel. Its new counsel made an ex parte application to again continue the hearing and also for leave to introduce additional evidence. In support of this, Morgan Creek provided a declaration and evidence that it was not the alter ego of the affiliate companies.

The trial court announced that it had considered all of the papers and then granted Toho-Towa’s motion.

Morgan Creek then filed a motion for relief pursuant to Code of Civil Procedure Section 473. The trial court denied this motion, rejecting requests for relief based on prior counsel’s mistake of law and Morgan Creek’s failure to introduce evidence in opposition to Toho-Towa’s motion to add Morgan Creek as a judgment debtor.

Morgan Creek appealed.

HOLDING & REASONING

The Court of Appeal affirmed.

The court first addressed the question of what evidence was properly before it for purposes of the appeal. It held that since the trial court denied Morgan Creek’s motion to present additional evidence, unless it erred, only that evidence that was submitted in support of and opposition to Toho-Towa’s motion was properly before it. However, since Morgan Creek did not appeal the trial court’s denial of its ex parte application, its additional evidence was not properly before it. The court rejected Morgan Creek’s argument that since its additional declarations had been designated as part of the record on appeal, the appellate court could consider it. Designating something does not mean it is properly considered.

Having determined what it could consider on appeal, the court noted that a “trial court’s failure to consider evidence not before it cannot be error.”

The court then turned to a consideration of alter ego liability and whether there was substantial evidence before the trial court to support its determination that Morgan Creek was the alter ego of its affiliates. It determined that there was.

Next, the court addressed Morgan Creek’s motion for relief, which was based on two separate grounds: (1) its attorney’s mistake of law, and (2) its attorney’s excusable neglect. Of the first ground, it said:

“It is well settled that relief may be granted for mistake of law by a party’s attorney. An honest mistake of law is a valid ground for relief where a problem is complex and debatable. The issue of which mistake of law constitutes excusable neglect presents a question of fact. The determining factors are the reasonableness of the misconception and the justifiability of lack of determination of the correct law.”

The court then summarized Morgan Creek’s “mistake of law” argument as being that its former counsel did not know that the trial court would decide the case based on the evidence presented to it.

The court rejected it, saying:

This was not a winning argument, given the fact that Mr. Gutman had been practicing law for 28 years, had experience representing entertainment clients, including [Morgan Creek], in litigation, had conducted over 50 jury trials, and had obtained several multi-million dollar verdicts and settlements.

The court then addressed Morgan Creek’s “excusable neglect” argument:

A party who seeks relief under section 473 on the basis of mistake or inadvertence of counsel must demonstrate that such mistake, inadvertence, or general neglect was excusable because the negligence of the attorney is imputed to his client and may not be offered by the latter as a basis for relief. In determining whether the attorney’s mistake or inadvertence was excusable, the court inquires whether “a reasonably prudent person under the same or similar circumstances” might have made the same error. In other words, the discretionary relief provision of section 473 only permits relief from attorney error “fairly imputable to the client, i.e., mistakes anyone could have made.” Conduct falling below the professional standard of care, such as failure to timely object or to properly advance an argument, is not therefore excusable. To hold otherwise would be to eliminate the express statutory requirement of excusability and effectively eviscerate the concept of attorney malpractice. The failure to introduce readily available, compelling evidence which supports the client’s position that it is not the alter ego of a sister corporation with a $5.7 million outstanding judgment is not a mistake that a reasonably prudent person in the same circumstances might have made but rather conduct falling below the professional standard of care.

Based on this, the court held that the trial court acted within its discretion in denying Morgan Creek’s Section 473.

ANALYSIS

This case is noteworthy for its discussion of what constitutes excusable versus inexcusable neglect. An attorney’s failure to introduce readily available, compelling evidence cannot be an excusable neglect.

 

Other Cases Of Interest

To Sue For Wrongful Termination, One Must First Be An Employee

Estrada v. City of Los Angeles
(Cal. Ct. of App., 2d Dist.), filed July 24, 2013, published July 24, 2013

Frank Estrada was a reserve police officer for the City of Los Angeles, which is a volunteer position. Even though reserve police officers are not employees, they are treated as employees for purposes of workers’ compensation. That way, if one is injured “on the job,” he or she will be compensated for his or her injuries.

The City terminated Estrada’s position as a reserve police officer after discovering what it considered to be possible improprieties in some of his business dealings. Estrada responded by suing the City for disability discrimination under the California Fair Employment and Housing Act. He asserted that he was terminated because of prior workers’ compensation claims.

The trial court dismissed Estrada’s case based on its conclusion that Estrada was not an employee of the City and therefore could not bring an action for employment discrimination.

 

Security Guards Were Entitled To Compensation For All Time Worked

Mendiola v. CPS Security Solutions, Inc.
(Cal. Ct. of App., 2d Dist.), filed July 3, 2013, published July 3, 2013

Tim Mendiola worked for CPS Security Solutions. Its business was providing security guards for building construction sites throughout California.

A number of the security guards employed by CPS were designated “trailer guards.” In addition to their regular patrols, “trailer guards” were expected to spend the night at their assigned jobsites in CPS-provided residential-type trailers. This was so they were available to investigate alarms and other suspicious circumstances and to prevent vandalism and theft.

During these nighttime periods, CPS considered the trailer guards “on call” and generally compensated them only for the time spent actively conducting investigations.

Mendiola filed a class action against CPS, alleging it violated California law governing minimum wage and overtime compensation. The trial court consolidated the class Mendiola sought to represent with another similar one.

The trial court granted a preliminary injunction requiring CPS to compensate trailer guards for all on call time spent in the trailers. CPS appealed.

The Court of Appeal affirmed in part and reversed in part.

As to weekdays, when the trailer guards were on patrol eight hours and on call eight hours it held that CPS was required to pay the guards for all 16 hours. As to weekends, when trailer guards were on patrol 16 hours and on call eight hours it held that CPS was permitted to deduct eight hours for sleep time.

 

The County Could Be Vicariously Liable

Rodriguez v. County of Los Angeles
(Cal. Ct. of App., 2d Dist.), filed July 2, 2013, published July 2, 2013

Freddy Rodriguez was stopped by police for talking on a cell phone while driving. When asked, he presented his driver’s license, registration and proof of insurance. Although these identified him as Freddy Pantoja Rodriguez, the police arrested him based on a 20-year-old no-bail bench warrant issued by the Orange County Superior Court for the arrest of “RODRIGUEZ Alfredo Ramos” for a parole violation.

When he was booked, Rodriguez told the booking officer his true name, and asked that his fingerprints and photograph be taken. His requests were initially ignored, and he was told there was an outstanding warrant for him issued by the superior court in Inglewood for his nonappearance on a citation for a dog leash violation.

Rodriguez was finally fingerprinted, photographed, and placed in a cell at the Los Angeles Police Department. Because it was a Friday, Rodriguez remained in custody at the department until Monday, when he was then taken to court in Inglewood. There, he pled guilty to the dog leash infraction and was sentenced to time served.

Despite this sentence, Rodriguez was not released. Instead, he was taken to the Los Angeles County jail, where he was called by the name of Ramos.

Rodriguez was held for a total of 11 days before the Orange County Superior Court concluded that Rodriguez was not Ramos.

Rodriguez sued both Los Angeles and Orange counties for false imprisonment. However, the trial court sustained Los Angeles County’s demurrer without leave to amend and granted Orange County’s motion for judgment on the pleadings. The trial court found that, under Venegas v. County of Los Angeles, 32 Cal.4th 820 (2004), the California sheriffs were acting as state officers as a matter of law in determining to hold inmates and that, as a result, the county defendants were immune from liability for false imprisonment by their sheriffs under Government Code Section 815.2(b).

The Court of Appeal reversed.  It concluded that because Venegas dealt with federal claims under the Civil Rights Act while the claims before it were state law claims, the case of Sullivan v. County of Los Angeles, 12 Cal.3d 710 (1974), applied rather than Venegas

Sullivan held that a county can be held vicariously liable for false imprisonment by county employees.

 

Attorney’s Fees And Costs Were Recoverable

Bender v. County of Los Angeles
(Cal. Ct. of App., 2d Dist.), filed July 9, 2013, published July 9, 2013

Noel Bender sued the County of Los Angeles and several sheriff’s deputies, including Deputy Scott Sorrow, for injuries he sustained as the result of a beating administered by Sorrow after an unlawful arrest.

Bender prevailed at trial and was awarded compensatory damages and punitive damages against Sorrow. He was also awarded substantial costs and attorney’s fees.

The Court of Appeal affirmed.

The court found that evidence of other instances in which Sorrow had allegedly used excessive force was relevant to impeach Sorrow’s assertion that the force he used was not excessive because Bender had resisted being detained. California Evidence Code Section 1101 makes evidence of specific instances of a person’s conduct inadmissible when offered to prove his or her conduct on a specified occasion. But, such evidence is admissible when relevant to prove a fact (such as intent, or absence of mistake or accident) “other than his or her disposition to commit such an act.”

The court found that the trial court had not abused its discretion in awarding Bender attorney’s fees. As to the time spent, the trial court was entitled to give credence to the billing records Bender submitted in support of his fee claim. “[V]erified time statements of the attorneys, as officers of the court, are entitled to credence in the absence of a clear indication the records are erroneous.” Absent such indications, the trial court did not abuse its discretion. Nor did it abuse its discretion in using a multiplier of 1.2 to increase the fees. “It is well-established the lodestar may be adjusted based on factors including those the trial court used here: the contingent nature of the award, the legal skill displayed in presenting the issues, and the extent the litigation precluded other employment.”

As to recoverable costs for expert witnesses, the court held that a statutory offer to compromise made pursuant to Code of Civil Procedure Section 998 was not premature even though it was made shortly after Bender filed suit. It reasoned that Bender’s acquittal in the criminal trial preceded the statutory offer by three days; the three deputies and Bender testified in the criminal trial; and defense counsel was aware that the jury found contrary to the deputies’ testimony.

Further, the sheriff’s department had internally investigated the incident and its findings were available to defense counsel.

The court held that the trial court had not abused its discretion in permitting Bender to recover costs for “trial presentations” in the forms of a “Trial Video Computer, PowerPoint Presentation and Videotaped Deposition Synchronizing” and the cost of a trial technician for nine days of trial. It rejected the defendants’ reliance on the case of Science Applications Internat. Corp. v. Superior Court, 39 Cal.App.4th 1095 (1995). It reasoned:

Almost 20 years have passed since Science Applications was decided, during which time the use of technology in the courtroom has become commonplace (including a technician to monitor the equipment and quickly resolve any glitches), and technology costs have dramatically declined. In a witness credibility case such as this, it would be inconceivable for plaintiff’s counsel to forego the use of technology to display the videotapes of plaintiff’s interviews after his beating, in the patrol car and at the sheriff’s station, and key parts of other witnesses’ depositions. The court in Science Applications was “troubled by review of a case in which a party incurred over $2 million in expenses to engage in high-tech litigation resulting in recovery of only $1 million in damages.” This is not such a case.

 

Costs Of Suit Were Recoverable

Williams v. Chino Valley Independent Fire District
(Cal. Ct. of App., 4th Dist.), filed July 23, 2013, published July 23, 2013

Loring Williams sued the Chino Valley Independent Fire District for employment discrimination under the California Fair Employment and Housing Act. The Fire District moved for summary judgment and won. It then sought costs.

The trial court then granted Williams’s motions to tax costs in part and entered an order granting the Fire District costs of $5,368.88. Williams appealed from that order, contending that no costs should have been allowed.

The Court of Appeal affirmed. It rejected Williams’s argument that the Fire District, as the prevailing defendant, must show that his claim was frivolous, unreasonable, or groundless in order to recover costs in an action for employment discrimination under FEHA. It ruled that to the extent a prevailing defendant sought attorney’s fees as costs, it had to show the claim was frivolous, unreasonable, or groundless. However, to recover “regular” costs, it did not need to do so.

 

Interest Was Not Recoverable

Boeken v. Philip Morris USA, Inc.
(Cal. Ct. of App., 2d Dist.), filed July 9, 2013, published July 9, 2013

Richard Boeken brought an action against Philip Morris USA, Inc. seeking damages for lung cancer he developed from smoking Philip Morris cigarettes. A jury awarded him compensatory and punitive damages. However, Boeken died while the verdict was on appeal.

After Boeken died, Dylan Boeken, Richard Boeken’s son, brought a wrongful death action against Philip Morris for Richard’s death. A jury awarded him $12.8 million for loss of consortium.

Philip Morris appealed the verdict. Dylan Boeken cross-appealed the trial court’s refusal to award certain costs.

Philip Morris argued that the trial court failed to instruct the jury on the proper measure of Dylan Boeken’s damages. It argued that based on Blackwell v. American Film Co., 189 Cal. 689 (1922), when a personal injury plaintiff who was fully compensated in a lawsuit for his injuries and resulting physical incapacity dies from those injuries, a surviving child’s wrongful death loss of consortium damages are measured from the decedent’s post-injury diminished condition at the time of death.

The Court of Appeal rejected this argument.

It reasoned that: “Reasonably read, the holding by the court in Blackwell applies to lost economic support and not to lost consortium.”

As to Dylan Boeken’s cross-appeal, the court held “he may not recover interest on his award because his Code of Civil Procedure section 998 offer of settlement did not include the statutorily required ‘provision that allows the accepting party to indicate acceptance of the offer by signing a statement that the offer is accepted.’”

 

Expert Fees May Be Recoverable

Mon Chong Loong Trading Corp. v. Superior Court
(Cal. Ct. of App., 2d Dist.), filed July 23, 2013, published July 23, 2013

Defang Cui sued Mon Chong Loong Trading for injuries sustained in a slip and fall.

Mon Chong Loong Trading served a demand for exchange of expert witness lists and reports. It then served a demand for an independent medical examination (IME) to be conducted by one of its experts. And, it made a statutory offer to compromise under Code of Civil Procedure Section 998. Cui did not respond to the offer, did not appear for the IME, and did not participate in the exchange of expert witness lists and reports.

After the time had passed for Cui to participate in the expert witness information exchange, Mon Chong Loong Trading filed a motion in limine to preclude Cui from calling any expert witnesses or offering any expert testimony.

Cui did not oppose the motion, but the day before opposition was due, Cui voluntarily dismissed the matter without prejudice.

Mon Chong Loong Trading filed a cost bill that included $3,600 for expert witness fees incurred preparing for trial. Cui moved to tax costs. The trial court awarded Mon Chong Loong Trading its costs, but disallowed the expert witness fees. The trial court concluded that under the law, the voluntary dismissal without prejudice did not trigger a right to expert fees despite the Section 998 offer.

Mon Chong Loong Trading appealed.

The Court of Appeal held that since the case was concluded by way of a dismissal rather than a judgment, Mon Chong Loong Trading had no right to appeal. However, it concluded it had discretion to treat the appeal as a petition for a writ of mandate. It then did so.

The Court of Appeal directed the trial court to vacate its order and to consider whether, under the circumstances, Mon Chong Loong Trading should receive its expert witness fees.

The court reasoned that a plaintiff may voluntarily dismiss a complaint by written request to the clerk at any time prior to the commencement of trial, upon payment of costs. As the statute expressly states, a party in whose favor such a dismissal is entered is entitled to recover its costs. However, these costs do not include the fees of experts not ordered by the court.

Although costs generally do not include expert witness fees, such fees may be recoverable following a valid Section 998 settlement offer that is not accepted.

The court noted: “A plaintiff may fail to obtain a more favorable judgment or award by failing to obtain any award at all, as in the case of voluntary dismissal.” This simple truth is already part of California law by virtue of the fact that the dismissal statute provides that a plaintiff must pay costs when it dismisses.

Therefore, when a plaintiff voluntarily dismisses after the defendant makes a Section 998 offer, a trial court must consider whether expert fees are appropriate under the circumstances.

 

Notice Is Satisfactory When Given To An Attorney Who Demands That Communications Go Through the Attorney

Eucasia Schools Worldwide, Inc. v. DW August Co.
(Cal. Ct. of App., 2d Dist.), filed July 24, 2013, published July 24, 2013

Eucasia Schools Worldwide leased premises from DW August Co. The relationship was a strained one and, as a result, DW August dealt with Eucasia Schools Worldwide through its attorney.

DW August listed the premises for sale with a real estate broker. In conjunction with that, it wanted to have a building inspector inspect the premises.

The lease provided that DW August had the right to inspect the premises “at reasonable times after reasonable notice.” The lease provided that all notices must be in writing and delivered or mailed to the premises.

DW August’s counsel wrote a letter to Eucasia Schools Worldwide concerning the security deposit and guarantor of the lease. As required by the lease, he sent the letter to Eucasia Schools Worldwide at the premises. At that time attorney Dennis Balsamo represented Eucasia Schools Worldwide. In reply to the letter from DW August’s counsel, Balsamo’s legal assistant wrote: “Please have NO DIRECT CONTACT with our client without the express permission of this office.”

DW August’s counsel wrote a letter to Balsamo noting that DW August had the right to inspect the premises at reasonable times after reasonable notice and inquired about an inspection. Balsamo did not respond. Several months later, without having received any sort of response, DW August’s counsel wrote Balsamo to advise DW August was going to inspect the premises.

DW August performed an inspection of the premises.

Eucasia Schools Worldwide responded by suing it. All of the causes of action arose from the inspection. The complaint asserted that, without giving any prior required notice to it, and without its consent, DW August had unlawfully and forcibly entered the premises.

A jury returned a special verdict in DW August’s favor. DW August then sought attorney’s fees as the prevailing party. The trial court awarded it $124,997.

The Court of Appeal affirmed. It ruled that when Eucasia Schools Worldwide’s attorney advised DW August not to communicate directly with Eucasia Schools Worldwide and to communicate only with his office, and DW August then sent notice of the inspection to him, it had satisfied its obligation under the lease. Thus, DW August was entitled to have prevailed at trial and was entitled to fees.

In addition to affirming, the Court of Appeals directed that DW August was entitled to attorney’s fees incurred in connection with the appeal.

 

Deficiency Judgments Are Prohibited

Enloe v. Kelso
(Cal. Ct. of App., 2d Dist.), filed July 3, 2013, published July 3, 2013

James and Margaret Enloe owned a single-family residence. They agreed to sell it to Casey Lee Kelso and Joseph R. Jaeger for $1.9 million. The Enloes agreed to carry back a second deed of trust in the amount of $93,750. However, due to some oddities in connection with the financing, the carry-back was in the form of a third deed of trust and was not executed until immediately after the close of escrow.

Sometime after the close of escrow and the execution of the third deed of trust, Kelso and Jaeger sold the property as a “short sale.” They paid a portion of the note secured by the third deed of trust. However, they did not pay the whole thing. As a result, the Enloes sued.

The trial court granted a summary judgment in favor of Kelso and Jaeger based on the fact that the promissory note secured by the third deed of trust amounted to a purchase money loan.

The Court of Appeal affirmed. It held, “When sellers of real estate accept a deed of trust from the purchasers to secure the purchase price, Code of Civil Procedure section 580b prohibits the sellers from obtaining a deficiency judgment in the event the purchasers default. It matters not that such a trust deed is given to sellers after the close of escrow. Timing does not change its character.”

 

The Anti-Deficiency Law Applies To A Short Sale

Coker v. JP Morgan Chase Bank, N.A.
(Cal. Ct. of App., 4th Dist.), filed July 23, 2013, published July 23, 2013

Carol Coker owned a house. To purchase it, she obtained a $452,000 loan that was secured by a deed of trust.

Coker stopped paying on the loan and Chase Bank, the original lender’s successor in interest, filed a notice of default and election.

To avoid a foreclosure, Coker negotiated a sale of the property to a third party, but the sale price was less than the outstanding balance under the loan. Coker asked Chase Bank to agree to the sale.

Chase Bank approved the sale subject to several conditions, one of which stated that the amount of the sale proceeds paid to Chase Bank was for the release of Chase Bank’s security interest only, and Coker was still responsible for any deficiency balance remaining on the loan after application of the proceeds received by Chase Bank.

The sale closed and Chase Bank received the agreed upon proceeds from the sale. After the sale closed, Chase sought payment of $116,686.89, which was the unsatisfied portion of the loan. In response, Coker filed a complaint for declaratory relief. In it she sought an adjudication that, under Code of Civil Procedure, Sections 580b and 580e, Chase Bank was prohibited from collecting a deficiency based on the loan.

The trial court sustained Chase Bank’s demurrer without leave to amend. It found that the protections of Section 580b applied only to foreclosures, not to agreed sales.

The Court of Appeal reversed, concluding Section 580b’s protections did apply in the particular situation.

The court reasoned that Section 580b advances public policy by preventing a deficiency judgment in connection with a loan that is used to purchase real property. It does so by shifting the risk of falling property values to the lenders. In particular, it prevents sellers from overvaluing their properties and at the same time minimizes the impact of a general economic decline by preventing buyers whose economic circumstances cause them to lose their homes from also becoming personally indebted on top of that.

Against this background, nothing in Section 580b requires that it only be applied in the context of a foreclosure or precludes it from being applied to a short sale.