Key Decisions

December 2012- All Articles

(filed under: Key Decisions | December 19, 2012)

Misrepresentations Justify Adverse Summary Judgment Ruling In Bad Faith Suit

Hodjat v. State Farm Mutual Automobile Insurance Company
(Cal. Ct. of App., 2d Dist.), filed October 19, 2012

KEY FACTS

Allen Hodjat owns a used car business.  He and his wife purchased a damaged BMW at an auction with the intention of repairing and selling it.  They insured the car with State Farm.  The Hodjats’ policy required them to cooperate with State Farm in any claim and provided that “[t]here is no coverage under this policy if you or any other person insured under this policy has made false statements with the intent to conceal or misrepresent any material fact or circumstance in connection with any claim under this policy.”

Hodjat reported the BMW stolen.  State Farm investigated the theft.  Hodjat and his wife submitted several statements regarding the theft and condition of the car.  They repeatedly contradicted themselves.

State Farm declined the claim because the Hodjats had failed to cooperate in the investigation and had made material misrepresentations regarding their claim.

The Hodjats sued State Farm.  State Farm moved for summary judgment, asserting that it could not be liable because it reasonably denied coverage based on the Hodjats having made material misrepresentations regarding their claim.  In opposing the motion, the Hodjats objected to State Farm’s evidence and put their objections into their separate statement.

The trial court refused to rule on the Hodjats’ objections and granted State Farm’s motion.

HOLDING & REASONING

The Court of Appeal affirmed.

The court first addressed the Hodjats’ assertion that the trial court erred in refusing to rule on their objections to evidence submitted by State Farm in support of its motion.  California Rules of Court, rule 3.1354(b) dictates the format in which evidentiary objections must be submitted.  It states:

All written objections to evidence must be served and filed separately from the other papers in support of or in opposition to the motion.  Objections on specific evidence may be referenced by the objection number in the right column of a separate statement in opposition or reply to a motion, but the objections must not be restated or reargued in the separate statement.

Since the Hodjats’ objections did not comply with this requirement, the trial court properly refused to rule on them.  The trial court was not required to give the Hodjats leave to correct their opposition papers.

The court then turned to the merits of the motion.  It ruled State Farm met its initial burden of showing that the denial of the Hodjats’ claim was justified under the terms of the policy. State Farm presented evidence demonstrating numerous instances of material misrepresentations and several inconsistencies by the Hodjats.  According to the court, Hodjat changed the price of the BMW three times and misrepresented the extent of the damage to the car, where he had the car fixed, the amount of money he paid to have it fixed, and the last time he saw the BMW before it was stolen.  The Hodjats also failed to cooperate with State Farm’s  investigation when they failed to provide requested documentary evidence in support of their claims.

Because State Farm had met its initial burden, the Hodjats had the burden of showing a triable issue of material fact.  They accused State Farm of manipulating facts, hiring dishonest investigators, and relying on unreasonable legal advice to deny their claim.  However, they failed to provide any facts, much less citations to evidence in the record, to support these accusations.  As a result, they failed to satisfy their burden of raising a triable issue of material fact as to their claims or as to State Farm’s defenses.

ANALYSIS

This case reiterates the importance of supporting arguments with evidence in opposing a motion for summary judgment.  The Hodjats failed to show that there was evidence that would have allowed the trier of fact to accept their arguments.  The Hodjats made arguments but did not offer evidence to support the arguments.

This case also shows that when the facts are egregious enough, misrepresentations can be decided by summary judgment motion.

 

 

Expert’s Declaration Contained Sufficient Detail To Make It Admissible And To Raise A Triable Issue Of Material Fact

Garrett v. Howmedica Osteonics Corporation
(Cal. Ct. of App., 2d Dist.), filed November 27, 2012

KEY FACTS

Todd Garrett was treated for cancer in his left thigh bone.  Jeffrey Eckardt, an orthopedic surgeon, ordered and implanted a prosthetic device to replace the middle portion of the thigh bone.  Howmedica Osteonics and Stryker Corporation were involved in the design or manufacture of the prosthesis.

Sometime later, Garrett reported pain in his thigh.  Eckardt investigated and detected a fatigue fracture in the prosthesis.  Eckardt replaced it.

Garrett sued Howmedica and Stryker for (1) strict products liability based on manufacturing and design defects; (2) strict products liability based on failure to warn; (3) breach of express warranty; and (4) negligence.

Howmedica and Stryker moved for summary judgment.  They argued that the evidence presented in support of their motion showed that the prosthesis was not defective and that they had no duty to warn as a matter of law.  They filed a declaration by a mechanical engineer, stating his opinion that the prosthesis was not defective in design or manufacture, that the fracture was caused by a cyclical rotational force resulting from normal human activity and that the force simply exceeded the load that the product could bear over time.

Garrett opposed the motion, except that he did not oppose the attack on his count for strict products liability based on failure to warn.  Garrett filed a declaration by Lawrence Kashar, a metallurgist, stating that he had determined through destructive testing and other examinations that the portion of the prosthesis that suffered a fracture “was softer tha[n] the minimum required hardness in two of the three ASTM specifications that cover Cobalt‑28% Chromium‑6% Molybdenum alloy for use as an implant material, and was less than the expected hardness of the third specification.”  Kashar stated that (1) hardness was a direct indication of the strength of the material; (2) a portion of the prosthesis was not made from the cobalt-chromium-molybdenum alloy, but instead was made from a titanium alloy; and (3) he had detected “a layer of polymeric‑like material” in holes surrounding the cross-pins and noted that the defendants’ deponent had “stated that no polymeric material should be involved with this implant.”  Kashar characterized these as “anomalies” and stated his opinion that, based on these purported anomalies, the prosthesis was defective in manufacture and/or design and that there were “strong arguments” that the purported defect had caused the prosthesis to fail.

Howmedica and Stryker filed evidentiary objections to most of the substantive portions of the Kashar declaration, including lack of expert qualification, lack of an explanation or reasoning to support an expert opinion.  The trial court sustained the objections, found there was no triable issue of material fact and granted the motion.

HOLDING & REASONING

The Court of Appeal reversed the judgment with specific directions to the trial court.  It held:  (1) the doctrine of strict products liability based on a design defect is inapplicable to implanted medical devices available only through the services of a physician and cannot provide a basis for the defendants’ liability, (2) the exclusion of portions of Garrett’s expert’s declaration was error, and (3) that declaration raised triable issues of fact precluding summary adjudication on the manufacturing and design defects and the negligence claims.

As to the strict products liability claim, the court explained that the doctrine of strict products liability imposes strict liability in tort on the manufacturer of a defective product and others in the product’s chain of distribution to ensure that the loss is borne not by injured consumers but by manufacturers, retailers and others in the chain of distribution who are better able to reduce the risks of injury and can equitably distribute the loss to the consuming public.

A product is defective in design if the benefits of the design do not outweigh the risk of danger inherent in the design or if the product fails to perform as safely as an ordinary consumer would expect when used in an intended or reasonably foreseeable manner.  However, the manufacturer of prescription drugs cannot be strictly liable for a design defect because these considerations are inappropriate for prescription drugs.  First, an ordinary consumer would have no safety expectations with respect to a prescription drug apart from the information provided by his or her physician.  Second, the benefit of making such drugs available outweighs the risks as a matter of public policy.  The same reasoning applies to manufacturers of prosthetic devices that are selected and implanted by a physician.

Thus, Howmedica and Stryker cannot be strictly liable for a design defect.  Nonetheless, they could be liable for a manufacturing defect.

The trial court erred in excluding Garrett’s expert’s declaration.

The expert declared that he “conducted extensive examinations of the portions of the prosthetic device that were removed from Mr. Garrett using visual examination, optical microscopic examination, x-ray radiography, fluorescent dye penetrant examination, scanning electron microscopy, and such destructive testing as hardness testing, micro hardness testing, microstructural analysis, and chemical analysis.”  He declared that he had determined, based on his examinations, that the fractured portion of the prosthesis was softer than the “minimum required hardness” in two of the three ASTM specifications covering the alloy for use in an implant and was less than the “expected hardness” of the third specification.

The court found that this explanation was sufficient to support his opinion for purposes of opposing the summary judgment motion.  The expert’s failure to describe the particular testing processes that he used to arrive at his conclusions regarding the hardness of the prosthesis and his failure to more particularly describe the results of that testing did not indicate that his conclusions are speculative, conjectural or lacked a reasonable basis.

Likewise, his failure to identify the particular ASTM specifications that he considered did not render the declaration conclusory and could not justify the conclusion that there was no reasonable basis for his opinion.

With the declaration in evidence, a trier of fact could have found that the prosthesis was not manufactured according to specifications.  Thus, it was improper to grant a summary adjudication on the manufacturing defect claim.

ANALYSIS

This case provides useful guidance as to a manufacturer’s liability for an allegedly defective prosthesis.  The court’s analysis of the admissibility of the expert’s declaration also shows the importance of fully developing declarations filed in opposition to a summary judgment motion.

 

 OTHER CASES OF INTEREST

Agent Or An Independent Contractor Is A Question Of Fact

Monarrez v. Automobile Club of Southern California
(Cal. Ct. of App., 2d Dist.), filed November 20, 2012

Ruben Monarrez requested roadside assistance from the Auto Club for a flat tire. Auto Club dispatched a flat bed car carrier driven by Juan Felix.

Felix worked for Hirad, Inc., dba AM/PM Towing & Auto Repair.  He drove a truck insured under Hirad’s $1 million commercial policy, but considered himself to be an Auto Club technician.  Auto Club controls many details as to how tow operators help its members.

When Felix arrived, he found Monarrez standing near the front of his car on the right shoulder of the Long Beach freeway.  Felix decided to transport Monarrez’s car to the next exit and change the tire off the freeway.  He backed his truck up toward Monarrez’s vehicle, got out, and obtained Monarrez’s Auto Club card and identification.  Felix’s truck was encroaching onto the slow lane of the freeway.

Felix told Monarrez of his plan to move the car and said, “Can you go into my tow truck?”  Monarrez replied, “Okay.”  After their brief conversation, Felix dropped his clipboard in the truck and saw Monarrez near the guardrail, toward the back of the disabled car.  While Felix positioned the car on his truck, he did not keep an eye on Monarrez, but was aware that Monarrez did not pass him on the way to the front of the truck.  When he was done loading the car, Felix found Monarrez lying next to the tow truck in the slow lane of the freeway, in a fetal position, after being struck by a motorist.

Monarrez suffered serious brain and orthopedic injuries, and requires 24-hour skilled nursing care for life.

Monarrez, through his guardian at litem, sued the Auto Club.  He alleged that Felix was inadequately trained in safety procedures, and negligently allowed Monarrez to remain in a dangerous and vulnerable location on the freeway shoulder, contrary to industry custom and safe practice.  This negligence led to Monarrez’s injuries.

The Auto Club moved for summary judgment, arguing that it had no duty to Monarrez because Felix worked for an independent contractor.  The Auto Club insisted that it merely provides “orientation on proper personal grooming and greeting” and did not control the method of towing and servicing vehicles.  Monarrez responded that there were triable issues as to whether Hirad was the employee, agent, or ostensible agent of the Auto Club, which exerts “tremendous control over every detail” of its relationship with Hirad.

The trial court granted the motion because the contract between the Auto Club and Hirad “expressly defines their relationship as that of independent contractor.”

The Court of Appeal reversed.  It held that there were triable issues of material fact relative to the relationship between the Auto Club and Hirad.

The court held that the language in the contract between the Auto Club and Hirad, referring to Hirad as an independent contractor, did not create an open and shut case.  It noted that “The label placed by the parties on their relationship is not dispositive . . . .”

“An agent is one who represents another, called the principal, in dealings with third persons.”  (Cal. Civ. Code § 2295.)  An “actual” agency occurs when the agent “is really employed by the principal.”  (Cal. Civ. Code § 2299.)  An “ostensible” agency occurs “when the principal intentionally, or by want of ordinary care, causes a third person to believe another to be his agent who is not really employed by him.”  (Cal. Civ. Code § 2300.)  Agency may be implied from the facts and proved by circumstantial evidence.  Inferences may be drawn from the conduct of the parties.

The primary test for agency is control.  If one of the parties has the right to control and supervise the actions of another, there is an agency, not an independent contractor relationship, even if the right to control is not exercised and there is no actual supervision of the agent’s work.

In contrast to an agent, an independent contractor is “a person who is employed by another to perform work; who pursues an ‘independent employment or occupation’ in performing it; and who follows the employer’s ‘desires only as to the results of the work, and not as to the means whereby it is to be accomplished.’”  The person hiring an independent contractor has no right of control as to the mode of doing the work contracted for.

Under these standards, the evidence would allow a finder of fact to determine that Hirad was actually the Auto Club’s agent.

 

 

Proving Settlement Value Of An Underlying Case Can Be Difficult In A Legal Malpractice Case

Filbin v. Fitzgerald
(Cal. Ct. of App., 1st Dist.), filed November 20, 2012

Attorney Herman Fitzgerald represented James and Carolyn Filbin in a condemnation action in which the County sought to acquire land the Filbins owned.  As the trial date approached, Fitzgerald advised the Filbins that they were required to make a settlement offer that was below the amount to which their real estate appraiser would testify the property was worth.  This advice led to a breakdown in the attorney-client relationship and to the Filbins replacing Fitzgerald.

The Filbins, represented by new counsel, settled with the County.  They then sued Fitzgerald.  They alleged that Fitzgerald committed legal malpractice and that this resulted in their having to settle for less than their property was actually worth.

The trial court found that Fitzgerald gave the Filbins erroneous legal advice when he advised them that they were required to make a settlement offer and that, in doing so, he breached a duty of care to them.  However, it found that up until that time, Fitzgerald had performed in a competent manner.  Based on its finding that Fitzgerald had breached his duty of care, the trial court awarded the Filbins damages based on the difference between what they settled for and what they should have been able to settle for.

The Court of Appeal reversed.  It found that there was no substantial evidence connecting the alleged malpractice to the allegedly inadequate settlement.  In doing so, the court noted that in a “settle and sue” case, the manner in which the underlying lawsuit was concluded will often make proof of causation and damages challenging.  It also said:  “The requirement that a plaintiff need prove damages to ‘a legal certainty’ is difficult to meet in any case.  It is particularly so in “settle and sue” cases.”

Although the court noted the problem of establishing causation and damages, it declined to make a per se rule precluding “settle and sue” cases.  As such, it did leave open the possibility of such a case.

As to Fitzgerald, the trial court found that there was no malpractice before the erroneous advice about the Filbins being required to make a settlement demand. It said:  “[N]o part of Fitzgerald’s strategy or tactical decisions prior to his discussion with the Filbins on July 31, 2007 can figure in the determination of whether Fitzgerald committed malpractice.”

As to the erroneous advice, the court said:  “[W]hen replacement counsel took over the case on August 3, it was with no lingering impairment at Fitzgerald’s hands.  When it came time for the Filbins to consider whether to settle the case some two and a half months later, in mid-October, they were free agents.  No past decision by Fitzgerald hobbled them.  Nothing prevented their new counsel from giving them impartial advice.  No one would stop them from going to trial.  Their decision to settle was theirs and theirs alone, made with the assistance of new counsel, with no input from Fitzgerald.  The consequences of that decision are likewise theirs alone.”

In addition, the court held that “There is nothing in the record which proves either that the County would have paid a dollar more than it did, or why the Filbins’ new counsel did not secure the higher settlement the Filbins implicitly assume they would have pocketed had Fitzgerald remained as their counsel.  Thus, and dispositively, the Filbins introduced no evidence that a greater settlement could have been negotiated from the County.”

 

 

A Homeowner Seeking To Bring A Construction Defects Claim Must First Serve A Notice Of The Claim

Darling v. Superior Court
(Cal. Ct. of App., 1st Dist.), filed November 16, 2012

Armundo Darling and other homeowners sued Western Pacific Housing as a result of alleged construction defects in homes they purchased.  Western Pacific Housing petitioned the trial court for an order staying the lawsuit.  It argued that under the “Right to Repair Act,” commonly referred to as “SB 800,” embodied in Civil Code section 895, et seq., the homeowners were required to complete the statutory prelitigation procedure of Section 910, et seq., before they could bring a civil action.  The homeowners opposed the stay, arguing that Western Pacific Housing could not obtain a stay because it had failed to respond to the homeowners’ request for documents.  The trial court found that no response to the document request was necessary because the homeowners had not served their notice of a claim as required by Section 910.  As such, it granted the stay.

The Court of Appeal concurred.  It noted that the question of whether a homeowner must serve a notice of a construction defect claim under Section 910(a) before a builder is obligated to respond to a request for documents was one of first impression.

The court held that under the statutory scheme a notice of claim was required to start the process, and that since the homeowners had not served one, the builder was not required to provide documents, and, as a result, the builder was entitled to a stay until all procedures had been performed by the parties.

 

 

Lost Profits Need Not Be Proved With Mathematical Certainty, But Cannot Be Unduly Speculative

Sargon Enterprises, Inc. v. University of Southern California
(Cal. Sup. Ct.), filed November 26, 2012

Sargon Enterprises, was a small dental implant company that had net profits of $101,000 in 1998.  It sued the University of Southern California for breach of a contract under which the university was to clinically test a new implant Sargon had patented.  Sargon sought damages for lost profits beginning in 1998, ranging from $200 million to over $1 billion.  It claimed that, but for the university’s breach of the contract, the company would have become a worldwide leader in the dental implant industry and made many millions of dollars a year in profit.

Following an evidentiary hearing, the trial court excluded as speculative the proffered testimony of an expert to the effect that the university’s breach resulted in such lost profits.

The Court of Appeal reversed.

The California Supreme Court concluded that the trial court has the duty to act as a “gatekeeper” to exclude speculative expert testimony.  It held that lost profits need not be proven with mathematical precision, but they must also not be unduly speculative.  It also held that the court acted within its discretion when it excluded opinion testimony that the company would have become extraordinarily successful had the university completed the clinical testing.

 

 

The Honest Belief Defense In Inconsistent With Rights Under CFRA

Richey v. AutoNation, Inc.
(Cal. Ct. of App. 2d Dist.), filed November 13, 2012

Avery Richey was a sales manager at Power Toyota of Cerritos.  He went out on medical leave.  Four weeks before the expiration of his approved medical leave under the Moore-Brown-Roberti Family Rights Act (CFRA) (Cal. Gov. Code sections 12945.1, 12945.2) he was fired.  He was fired because his employer believed Richey was misusing his leave by working part-time in a restaurant he owned.

Richey sued Power Toyota’s parent companies, AutoNation, Inc., Webb Automotive Group, Inc., Mr. Wheels, Inc., and his direct supervisor, Rudy Sandoval, alleging his rights under CFRA had been violated.

Richey’s claims were submitted to arbitration under the terms of a mandatory employment arbitration agreement that provided, in part, “[r]esolution of the dispute shall be based solely upon the law governing the claims and defenses set forth in the pleadings.”

The arbitrator denied Richey’s CFRA claim based on the so-called honest belief or honest suspicion defense.  The trial court denied Richey’s motion to vacate the arbitrator’s decision and granted AutoNation’s petition to confirm the award.

The Court of Appeal reversed.  It held that the honest belief defense accepted by the arbitrator was incompatible with California statutes, regulations and case law and deprived Richey of his unwaivable statutory right to reinstatement under Section 12945.2(a).