Key Decisions

February 2013 – All Articles

(filed under: Key Decisions | February 22, 2013)

Law Or Ordinance Exclusion Bars Coverage

Reichert v. State Farm General Insurance Company
(Cal. Ct. of App., 4th Dist.), filed December 28, 2012 

KEY FACTS

Eric and Lizbeth Reichert attempted a remodel of their newly-purchased house.  Although the city approved the remodel plan, the work did not actually conform to the plans.

Before construction was finished, city building inspectors discovered the project did not conform to the plans or to floodplain regulations, and ordered the property to be demolished.  The Reicherts sued their architect and their contractor, and also presented a claim under their homeowners’ insurance policy issued by State Farm.

The Reicherts’ policy contained an exclusion, referred to as the law or ordinance exclusion.  It stated:  “We do not insure under any coverage for any loss which is caused by one or more of the items below, regardless of whether the event occurs suddenly or gradually, involves isolated or widespread damage, arises from natural or external forces, or occurs as a result of any combination of these:  a. Ordinance or Law, meaning enforcement of any ordinance or law regulating the construction, repair or demolition of a building or other structure.”

State Farm denied the Reicherts’ claim based on this exclusion.  The Reicherts sued.  The trial court granted State Farm’s motion for summary judgment.

HOLDING & REASONING

The Court of Appeal affirmed.  It found that demolishing the Reicherts’ house was the direct result of the enforcement of a law or ordinance.

In concluding that the loss was not covered, the court recognized that the intent of the law or ordinance exclusion is to exclude loss when it is the law or ordinance itself — as distinct from another peril, such as a fire — that is the cause of the loss.

The court rejected the Reicherts’ argument that the loss was actually caused by the negligence of their architect or contractor in failing to build according to the approved plans.  It noted:  “The Reicherts’ other argument against application of the law or ordinance exclusion is a riff on the topic of concurrent causation, which has bedeviled insurance law in California courts for over a hundred years since the 1906 San Francisco earthquake.”

The court explained:  “It is understandable the Reicherts should point to third-party negligence as the cause of their loss, since over the years, the focus of many first party property damage causation cases turned precisely on whether third party negligence — usually builder negligence — was itself a covered peril under an all-risk policy.”  However, the court reasoned, “[A]ctions can generate reactions, especially in insurance law.  Insurers responded to the case law holding third party negligence to be a covered peril by adding broad language to their policies excluding losses from third-party negligent conduct.”  The Reicherts’ policy included this language and, therefore, precluded coverage even on a third-party negligence theory.

ANALYSIS

The court did not address the trial court’s alternative holding — that there was no “accidental direct physical loss.”  That issue would have been interesting, especially since the construction conduct involved appeared purposeful, rather than accidental.

 

 

Primary Assumption Of Risk Doctrine Extended

Nalwa v. Cedar Fair, L.P.
(Cal. Sup. Ct.), filed December 31, 2012

KEY FACTS

Dr. Smriti Nalwa took her nine-year-old son and six-year-old daughter to Great America amusement park, owned and operated by Cedar Fair, L.P.

Nalwa and her children went on the park’s bumper car ride.  The ride consisted of small, two-seat, electrically powered vehicles that moved around a flat surface.  Each car was ringed with a rubber bumper and had a padded interior and seat belts for both the driver and passenger.  The driver of each car controlled its steering and acceleration.

Nalwa rode as a passenger in a bumper car her son drove.  They bumped into several other cars during the course of the ride.  Toward the end of the ride, their bumper car was bumped from the front and then from behind.  While bracing herself, Nalwa broke her wrist.

In the ensuing lawsuit, the trial court granted Cedar Fair’s motion for summary judgment.  It found that the primary assumption of risk doctrine barred recovery for negligence because Nalwa’s injury arose from being bumped — a risk inherent in the activity of riding bumper cars.  The trial court found that the heightened duty of care for common carriers did not apply because Cedar Fair had no control over the steering and orientation of the individual bumper cars, nor was there any willful misconduct as Cedar Fair did not act with knowledge or reckless disregard of a likely injury.

The Court of Appeal reversed.  It held that the public policy of promoting safety at amusement parks precludes application of the primary assumption of risk doctrine.  It also held that the doctrine was inapplicable to bumper car rides in particular because that activity was “too benign” to be considered a “sport.”

HOLDING & REASONING

The California Supreme Court reversed.  It concluded the primary assumption of risk doctrine, although most frequently applied to sports, also applies to certain other recreational activities, including bumper car rides, where the activity’s nature involves an inherent risk of injury to voluntary participants and the risk cannot be eliminated without altering the activity’s fundamental nature.

People generally owe a duty of due care not to cause an unreasonable risk of harm to others.  However, some activities — and, specifically, many sports — are inherently dangerous.  Imposing a duty to mitigate those inherent dangers could alter the nature of the activity or inhibit vigorous participation.  The primary assumption of risk doctrine was developed to avoid such a chilling effect.

The Court rejected Nalwa’s argument that the doctrine applies only to “active” sports.  Not only did the Court’s language in the seminal case on the doctrine, Knight v. Jewett, 3 Cal.4th 296 (1992) [injury during a touch football game], contain language supporting its application to more than just sports, subsequent cases also applied it to other activities.

Amezcua v. Los Angeles Harley-Davidson, Inc., 200 Cal.App.4th 217 (2011), applied the doctrine to an organized, noncompetitive motorcycle ride.  Beninati v. Black Rock City, LLC, 175 Cal.App.4th 650 (2009), applied it to participation in fire ritual at the Burning Man festival. Moser v. Ratinoff, 105 Cal.App.4th 1211 (2003), applied it to an organized, noncompetitive group bicycle ride.  Record v. Reason, 73 Cal.App.4th 472 (1999), applied it to “tubing” (i.e., riding an inner tube towed by a motor boat).

Regarding bumper cars, the court noted:  “Low-speed collisions between the padded, independently operated cars are inherent in — are the whole point of — a bumper car ride.”

The Court also rejected Nalwa’s contention that because amusement park rides are the subjects of state regulations for safety and inspection, and because operators of some rides have been considered common carriers for reward, that public policy precludes applying the primary assumption of risk doctrine to amusement park rides.

ANALYSIS

As primary assumption of the risk is extended beyond traditional sporting activities, it becomes more and more difficult for courts to decide where to draw the line.

 

Primary Assumption Of The Risk Applies To Alzheimer’s Caregivers

Gregory v. Cott
(Cal. Ct. of App., 2d Dist.), filed January 28, 2013 

KEY FACTS

Bernard Cott contracted with a home care agency to provide an in-home caregiver for his wife, defendant Lorraine Cott, who suffered from Alzheimer’s disease, was combative, and prone to violent outbursts.

The agency sent Carolyn Gregory to be the in-home caregiver.  Gregory said that she had training in dealing with clients suffering from Alzheimer’s disease and had provided services for Alzheimer’s patients in the past.  When Gregory started working for the Cotts, she was aware that Lorraine had Alzheimer’s and knew that Alzheimer’s patients could become violent.  She understood that one of her duties in dealing with Alzheimer’s patients was to provide “constant supervision for [the] protection [of] . . . patients, family members, [and] the caregiver.”  She had been injured by an Alzheimer’s patient in the past.

Bernard informed Gregory at the outset that Lorraine was combative and engaged in “biting, kicking, scratching, [and arm] flailing.”  As time went on and as Lorraine’s disease progressed, she became “more combative physically.”

Lorraine injured Gregory, who sued Lorraine for battery and Lorraine and Bernard for negligence and premises liability.

The Cotts moved for summary judgment based on the doctrine of primary assumption of the risk.  The trial court granted the motion.

HOLDING & REASONING

The Court of Appeal affirmed.  It found that the doctrine applied to caregivers for Alzheimer’s patients.

As a general rule, persons have a duty to use due care to avoid injury to others, and may be held liable if their willful or negligent conduct injures another person.  There are exceptions to this rule based on statute or public policy.  One exception is the doctrine of primary assumption of risk, which bars recovery based on policy factors involving of the nature of the activity involved and the parties’ relationship to the activity.

The doctrine is most often applied to sporting activities in which there is an inherent risk of injury, and eliminating the risk would change the activity’s entire nature.  It is also applicable to other recreational activities where there is an inherent risk of injury, and eliminating the risk would change the activity’s entire nature.

The California Supreme Court has not disapproved extending the doctrine to activities outside of sports and recreational activities.  Although, it has said that the doctrine does not apply to every activity in which there is an inherent risk of injury.

In view of the foregoing, the court found that the primary assumption of risk doctrine can be applied to those whose occupation is caring for Alzheimer’s patients, since some patients can pose physical risks of injury.  The court based its decision on the fact that it is consistent with decisions from other jurisdictions, and is supported by California law holding that a caregiver in an in-patient facility is subject to the doctrine.

It also noted the public policy behind applying the doctrine to Alzheimer’s patients.  The court noted that according to the Yale Law Journal, “Tort law should not impose unnecessary burdens upon the mentally disabled who seek appropriate and necessary care.”  And, it observed:  “Caretakers generally may look to other sources of available compensation rather than to the victim of a debilitating disease or to a spouse who has undertaken to care for the Alzheimer’s patient at home and must endure the patient’s misfortune.”

ANALYSIS

A very strong dissenting opinion, again, demonstrates the challenges inherent in applying primary assumption of the risk.

 

A Legal Malpractice Action Was Maliciously Prosecuted

Silas v. Arden
(Cal. Ct. of App., 2d Dist.), filed December 31, 2012 

KEY FACTS

Attorney Martina Silas represented Ross Gunnell in a personal injury action against Metrocolor Laboratories, Inc., which owned a facility to develop and process movie and television film.  Gunnell worked as an unskilled laborer on a cleaning project at the facility.  He was injured by toxic chemicals provided to him by Metrocolor, which did not provide him with warnings or proper protective equipment.  To avoid the bar of the workers’ compensation laws, Silas, on behalf of Gunnell, relied on two exceptions to exclusivity.  One was based on the theory that Metrocolor committed a willful battery by providing the chemicals which touched Gunnell during the cleaning process.  The other was that Metrocolor fraudulently concealed the injury that Gunnell was suffering.

During discovery in the personal injury action, Silas learned that Gunnell had reported skin irritation problems to his doctor at or about the time he was doing the cleaning project and attributed this to the cleaning solution.  Since this negated the fraudulent concealment theory, she dropped it.

Silas, on behalf of Gunnell, proceeded to trial only on the willful battery theory.  A jury awarded substantial compensatory and punitive damages against Metrocolor.  Pursuant to Metrocolor’s motion for judgment notwithstanding the verdict based on the holding of Johns-Manville Products Corp. v. Superior Court, 27 Cal.3d 465 (1980), the trial court ruled that worker’s compensation was Gunnell’s exclusive remedy.  This decision was upheld on appeal.

Gunnell then sued Silas for legal malpractice.  His action was based on two theories.  One was that Silas should not have abandoned the fraudulent concealment theory.  The other was that Silas had misappropriated funds that had come from settlements with other defendants in the Metrocolor action.  In connection with the latter theory, he asserted that Silas forged Gunnell’s name on settlement documents and settlement checks.

After filing the malpractice action, Gunnell engaged attorney James Arden and his law firm, Scott, Arden & Salter, to represent him.  Arden then prosecuted Gunnell’s action.

Silas moved for summary judgment on the ground that abandoning the fraudulent concealment theory did not constitute legal malpractice as the undisputed facts and law, which she had researched before abandoning it, established it was untenable.

The trial court agreed and entered summary judgment in her favor.  The Court of Appeal affirmed.

Silas then filed a malicious prosecution action.

At trial, Silas argued that (1) Arden lacked probable cause for prosecuting the malpractice action because Silas was not negligent in failing to present the jury in the Metrocolor action with a theory not supported by the law; and (2) the facts did not support Gunnell’s misappropriation claim.  Silas also argued that Arden harbored malice based on his lack of research into the law relative to the fraudulent concealment theory and his failure to review the trial testimony in the Metrocolor action.  Silas argued that the evidence supported an inference based on this lack of research that Arden prosecuted the malpractice action to extract a nuisance settlement from Silas.

After closing arguments, Arden filed an amended answer, asserting a statute of limitations defense based upon the recent decision of Vafi v. McCloskey, 193 Cal.App.4th 874 (2011), which held that a one-year statute of limitations applied to a malicious prosecution action against an attorney.

A jury awarded Silas $145,756 in legal fees and costs, $30,000 in noneconomic damages, and $125,000 in punitive damages.  The special verdict form asked the jury whether Arden prosecuted the malpractice action for a purpose other than succeeding on the merits of the claim.  They answered “yes.”

The trial court denied Arden’s motion for judgment notwithstanding the verdict.

HOLDING & REASONING

The Court of Appeal affirmed.

The court first held that Vafi did not apply to Silas’ case against Arden.  At the time Silas commenced her action, the prevailing view, as evidenced by judicial decisions, was that the two-year statute of limitations applied to malicious prosecution actions.  Vafi was decided more than three years after Silas commenced her action, and more than five years after the cause of action accrued with the favorable termination of the malpractice action in her favor.  The court reasoned that even assuming Vafi correctly decided the issue, there was no reason to apply it to Silas’ action, where in the face of the unforeseen change brought by Vafi, Silas’ reliance on a two-year statute was “manifestly reasonable.”

The court then turned to the sufficiency of the evidence that Arden maliciously prosecuted Gunnell’s action against Silas.

To establish a cause of action for malicious prosecution, a plaintiff must prove that the underlying action was (1) terminated in the plaintiff’s favor; (2) prosecuted without probable cause; and (3) initiated with malice.  A claim for malicious prosecution need not be directed to an entire lawsuit.  It may be based on only some of the causes of action alleged in the underlying lawsuit.

The existence or absence of probable cause is a question of law to be determined by the court from the facts established in the case.  This is because “[c]ounsel and their clients have a right to present issues that are arguably correct, even if it is extremely unlikely that they will win.”  Therefore, the court “must properly take into account the evolutionary potential of legal principles” and determine, in light of the facts known to counsel, “whether any reasonable attorney would have thought the claim tenable.”

The malice element of the malicious prosecution tort goes to the defendant’s subjective intent.  It is not limited to actual hostility or ill will towards the plaintiff.  It can exist where the proceedings are initiated for the purpose of forcing a settlement which has no relation to the merits of the claim.  A lack of probable cause is a factor that may be considered in determining if the claim was prosecuted with malice.  Because “parties rarely admit an improper motive, malice is usually proven by circumstantial evidence and inferences drawn from the evidence.”

Since the fraudulent concealment theory that Silas abandoned before the trial of the Metrocolor action was untenable under the law, Arden did not have a basis for believing that she was negligent for having abandoned it.  Moreover, once Silas presented Arden with settlement documents from the Metrocolor action which had Gunnell’s signature notarized, and endorsed checks which admittedly all contained Gunnell’s genuine signature, Arden could have had no factual basis for believing Gunnell’s misappropriation claims were meritorious.

With respect to malice, the court held:  “the evidence established Arden’s failure to investigate the merits of applicability of the fraudulent misrepresentation exception and his failure to withdraw allegations of misappropriation even when confronted with unequivocal evidence the allegations were not supported by the facts.”  If found, this constituted sufficient evidence to support the jury’s verdict.

ANALYSIS

The court’s decision is significant in that it demonstrates what a plaintiff in a malicious prosecution action needs to establish to show lack of probable cause and malice.

 

Insurer Not Liable For All Defense Fees

 National Union Fire Insurance Company of Pittsburgh, PA v. Seagate Technology, Inc.
(U.S.D.C., N.D. CA.), filed January 25, 2013, published January 25, 2013

KEY FACTS

In 2000, Convolve, Inc. and Massachusetts Institute of Technology filed a lawsuit in the Southern District of New York against Seagate Technology, Inc.  Seagate tendered the defense of the lawsuit to its liability insurance carriers, National Union Fire Insurance Company of Pittsburgh, PA, American International Underwriters Insurance Company, and American International Specialty Lines Insurance Company.

In 2004, the insurers filed a declaratory relief action in which they sought an adjudication that they had no duty to defend.  The District Court ruled that the insurers had a duty to defend the action from November 1, 2000, until July 18, 2007.  Although Seagate appealed the ruling, National Union stopped paying for Seagate’s defense.

In January 2012, the Ninth Circuit Court of Appeals reversed.  It found that National Union did have a duty to defend.

Based on the Ninth Circuit’s ruling, Seagate demanded that National Union reimburse it for its legal fees and expenses from 2007 to 2012.  Seagate also demanded that National Union pay prejudgment interest on this sum.

National Union took the position that Civil Code §2860 limits an insurer’s obligation to pay legal defense fees to rates it pays attorneys it retains “in the ordinary course of business . . . in similar actions.”  As such, National Union paid only part of Seagate’s legal bills and paid prejudgment interest on the reduced amount.

Seagate took the position that the appellate decision converted National Union’s reliance on the lower court rulings into a breach of the insurance contract retroactively to 2007.  Seagate also took the position that National Union could not rely on §2860 and must pay the full fees as well as prejudgment interest on the full amount due.

HOLDING & REASONING

In ruling on motions for summary judgment, the District Court agreed with National Union.  It ruled that National Union did not act wrongfully when it chose to rely on the district court’s prior judgment.  The court reasoned that to hold that National Union was committing a breach of contract all along would convert a final judgment under the federal summary judgment rule into a provisional one.

ANALYSIS

Given that this is a District Court opinion, Seagate may appeal to the Ninth Circuit Court of Appeals.

However, some California courts have held that reliance on an erroneous trial court ruling does not necessarily negate “bad faith” liability.

In Filippo Industries, Inc. v. Sun Ins. Co., 74 Cal.App.4th 1429 (1999), the court held that just because a trial court finds that there was no coverage, if that finding is reversed on appeal, it does not preclude a finding, on remand, that the insurer acted unreasonably in denying coverage.

In Kapsimallis v. Allstate Ins. Co., 104 Cal.App.4th 667 (2002), the Court of Appeal rejected the insurer’s argument that even if the trial court’s judgment in its favor was reversed as to the coverage issue, it should be affirmed as to the “bad faith” claim. The insurer argued that two federal district courts and the trial court had reached the same conclusion as it had regarding coverage and that, as a result, this established that it had not been unreasonable. Citing Filippo Industries, the court stated: “That the trial court erred by not applying Prudential-LMI to the instant case cannot shield Allstate from allegations of bad faith at this stage of the litigation.”

 

Employee’s Termination Was Not Wrongful

McGrory v. Applied Signal Technology, Inc.
(Cal. Ct. of App., 6th Dist.), filed January 24, 2013 

KEY FACTS

John McGrory worked for Applied Signal Technology, Inc.  He was hired as a section manager and promoted to department manager, reporting directly to the chief financial officer.  A dozen employees reported directly to McGrory.

McGrory gave one of the employees who reported to him, Dana Thomas, a written warning over poor work performance.  Thomas responded to the warning by filing a complaint accusing McGrory of discriminating against her based on her gender and sexual orientation.  She did not complain of sexual harassment.

Applied Signal Technologies engaged an outside attorney to investigate the complaint.  She concluded that McGrory had not discriminated against Thomas on the basis of her gender or sexual orientation.  However, she also concluded that in other ways McGrory had violated Applied Signal Technology’s policies on sexual harassment and business and personal ethics and he had been uncooperative and deceptive during the investigation.  Based on this latter finding, Applied Signal Technologies fired McGrory.

McGrory sued for wrongful termination and defamation.

Applied Signal Technology filed a motion for summary judgment or summary adjudication.  It asserted there was no evidence that it terminated McGrory for an impermissible reason and that it could not be liable in defamation for privileged statements of opinion on a topic of mutual interest.  The trial court granted summary judgment.

HOLDING & REASONING

The Court of Appeal affirmed.

As an at-will employee, McGrory could be terminated by Applied Signal Technology, except for a reason that violates a fundamental public policy recognized in a constitutional or statutory provision.  One of these is on the basis of sex.

There was no evidence that McGrory was fired because of his sex.

Being uncooperative or deceptive in an employer’s internal investigation is not a protected activity under state or federal law.  Therefore, Applied Signal Technology was within its rights and the law to fire McGrory for being uncooperative in connection with its investigation of Thomas’ complaint.

ANALYSIS

Many employees believe that unfair or bad termination decisions justify lawsuits.  This case reminds us that when employment is at-will, only terminations that violate public policy will typically sustain a lawsuit.

 

Doctor’s Misconduct Not Necessarily Professional Services

 So v. Shin
(Cal. Ct. of App., 2d Dist.), filed January 3, 2013 

KEY FACTS

On September 30, 2008, Yun Hee So underwent a dilation and curettage procedure following a miscarriage.  She claimed that she was administered inadequate anesthesia and awoke during the procedure.  When she later confronted the anesthesiologist, the anesthesiologist became angry and shoved a container filled with her blood and tissue at her.  The anesthesiologist then urged So not to report the incident.

In August 2010, So sued the anesthesiologist and her medical group, as well as the hospital, asserting that the anesthesiologist’s conduct constituted negligence, assault and battery, and intentional infliction of emotional distress, and that the hospital and medical group were liable to her directly and through the doctrine of respondeat superior.

The trial court sustained the demurrers to the causes of action for assault and battery and intentional infliction of emotional distress.  It later granted motions for judgment on the pleadings as to the cause of action for negligence.

HOLDING & REASONING

The Court of Appeal reversed.

The issue as to So’s negligence claim was whether the one-year statute of limitations for professional negligence or the two-year statute of limitations for other negligence applied.

Courts have broadly interpreted the phrase “in the rendering of professional services.”  They have concluded that a negligent act that occurs in the rendering of services for which the health care provider is licensed is professional negligence.  Providing 24 hour inpatient care for a patient with shingles was clearly within the scope of services for which the hospital was licensed and was a “professional service.”  So, too, was driving an ambulance.  However, a physician’s sexual relationship with his patient did not come within the statutory language.

An anesthesiologist’s responsibility to a patient does not necessarily end when the patient leaves the operating room.  The anesthesiologist may have a continuing responsibility to monitor the anesthesia’s postoperative effects on the patient.  An anesthesiologist’s presence in the recovery room with a patient may be consistent with the role of an anesthesiologist in aiding the patient’s recovery from anesthesia.  However, while an anesthesiologist’s postsurgical contact with a patient may be for the purpose of rendering professional services, it is not necessarily professional services.  Given the allegation that the anesthesiologist’s conduct in putting the container of blood in front of So was to persuade So not to report to the hospital or medical group that she had awakened during surgery, that conduct was not in the scope of professional services.  Therefore, it was subject to the two-year statute of limitations.

Although the two-year statute of limitations applied to So’s claims against the anesthesiologist, her claims of direct negligence against the hospital were subject to the one-year statute of limitations.  The hospital’s direct negligence consisted of not adequately screening the anesthesiologist.  That was within the scope of “professional services.”

The court held that there were sufficient facts that, if true, would have supported causes of action for assault and battery, and intentional infliction of emotional distress.

ANALYSIS

The case demonstrates one of the downsides of challenging a complaint by way of demurrer or motion for judgment on the pleadings:  If the challenge fails, the court may give a very strong indication as to the defendant’s potential liability.  Here, in holding that So had stated viable claims, that is just what happened.  The question, of course, remains whether So can prove what she has alleged.

 

Bystander Could Not Recover For NIED

Fortman v. Förvaltningsbolaget Insulan AB
(Cal. Ct. of App., 2d Dist.), filed January 10, 2013 

KEY FACTS

Barbara Fortman and her brother, Robert Myers, were scuba diving.  A few minutes into the dive, Myers signaled to Fortman that he wanted to ascend.  Fortman put her hand on Myers’ arm when they began their ascent, but she realized that despite kicking they were no longer ascending.  Fortman stopped kicking, and they sank to the bottom of the ocean floor where Myers landed on his back.  Myers’ eyes were wide open, but he was not responsive.  It was unclear whether Myers was still breathing.

Fortman then began to ascend with Myers, but Myers remained unresponsive during the ascent and approximately half way to the surface, Myers’ regulator fell out of his mouth.  Upon arriving to the surface, Fortman summoned help.  Myers was transported to the USC Hyperbaric Dive Chamber at Two Harbors on Catalina Island where he was pronounced dead.

Fortman thought Myers had a heart attack.  After an investigation into the incident, Fortman learned that her brother’s equipment malfunctioned due to a defect in one of the valves.

Fortman sued the manufacturer of the valve for negligent infliction of emotional distress.  It responded by filing a motion for summary judgment.  In its motion, the manufacturer argued that Fortman had no viable claim against it because she could not establish a contemporaneous awareness of the causal connection between the injury-producing event and the resulting injury.  The manufacturer maintained that while Fortman may have seen her brother suffer injuries, she could not have perceived that he was being injured by a defect in its product.

The trial court granted the motion.

HOLDING & REASONING

The Court of Appeal affirmed.

Negligently causing emotional distress is not an independent tort; it is the tort of negligence to which traditional elements of duty, breach of duty, causation, and damages apply.  When emotional distress is the only injury a plaintiff alleges, the courts have determined that whether the plaintiff may recover emotional distress damages depends upon whether the defendant owes a duty to the plaintiff.

In terms of whether a defendant owes a bystander a duty of care, the California Supreme Court has ruled that:  “[A] plaintiff may recover damages for emotional distress caused by observing the negligently inflicted injury of a third person if, but only if, said plaintiff:  (1) is closely related to the injury victim; (2) is present at the scene of the injury-producing event at the time it occurs and is then aware that it is causing injury to the victim; and (3) as a result suffers serious emotional distress — a reaction beyond that which would be anticipated in a disinterested witness and which is not an abnormal response to the circumstances.”

Fortman was present when the valve failed, but was unaware of the failure or that it caused the injury.  Therefore, she did not satisfy the second requirement for maintaining an action for negligent infliction of emotional distress as a bystander.

Although the court ruled that Fortman could not state a cause of action under the particular circumstances, it was still possible for a bystander to state a cause of action for negligent infliction of emotional distress when an injury is the result of a defective product.  As examples, the court described a person present at a backyard barbecue who observed a propane tank connected to the barbecue explode and injure a close relative, and a person who observed a ladder collapse and injure a close relative.  It reasoned that “[s]uch accidents would not be beyond the plaintiff’s contemporaneous, understanding awareness of the event (i.e., product failure) inflicting harm to the victim.”  It reasoned “the plaintiff need not know the cause of the propane tank explosion or why the ladder collapsed. . . .  But the plaintiff must have a contemporaneous awareness of the causal connection between the defendant’s product as causing harm and the resulting injury to the close relative.”

ANALYSIS

The court’s ruling turned on a distinction other decisions have recognized. Nonetheless, the court did not seem to be happy with the result, commenting:

As we have stated, under the current state of the law, Fortman cannot recover for NIED.  But merely because the law denies compensation for Fortman’s injury, it does not mean her emotional injury is any less grievous than that of a plaintiff who is allowed to obtain legal redress.  To be sure, personally observing a loved one suffer injuries that result in his death can be emotionally devastating, irrespective of whether one is contemporaneously aware of the precise etiology of the loved one’s death.  Nonetheless, Thing [v. La Chusa (1989) 48 Cal.3d 644] drew a line by limiting the class of potential plaintiffs in NIED cases, precluding recovery when the bystander lacks contemporaneous awareness of the injury-producing event.  The Supreme Court in Thing admittedly created an arbitrary restriction on bystander recovery, stating “drawing arbitrary lines is unavoidable if we are to limit liability and establish meaningful rules for application by litigants and lower courts.”  Unless and until the Supreme Court revisits Thing, it is binding on this court.

 

A Settlement Offer Was Reasonable

Whatley-Miller v. Cooper
(Cal. Ct. of App., 2d Dist.), filed January 15, 2012 

KEY FACTS

Thomas Miller died on December 8, 2006.  On February 22, 2008, his widow, Susanne Whatley-Miller, and his two daughters, Holly Elizabeth Miller and April Ann Miller, filed a complaint for medical negligence and wrongful death.

On June 20, 2008, plaintiffs served Dr. Collin Cooper with an offer to compromise pursuant to Code of Civil Procedure section 998.  In it, plaintiffs agreed to resolve all claims against Dr. Cooper for $950,000 with each side to bear its own costs.  At the same time, plaintiffs served Dr. Cooper with a document entitled “Acceptance of Plaintiffs’ Offer to Compromise Pursuant to [Section] 998 and Civil Code [Section] 3291.”  It provided:  “The Clerk of the Court is hereby authorized and directed to enter Judgment against [Dr. Cooper] on the Complaint of Plaintiffs . . . in the amount of NINE HUNDRED FIFTY THOUSAND DOLLARS ($950,000.00) pursuant to Plaintiffs’ Offer to Compromise which is attached hereto.  Costs to be submitted pursuant to cost bill filed by plaintiff[s] within ten (10) days after entry of said Judgment.”  Under this recital was a place for the signature of Dr. Cooper’s attorney and the date of signing.

Dr. Cooper did not accept the offer.

Plaintiffs prevailed at trial.  They then filed a memorandum of costs.  It included expert fees of $108,191.  It also included prejudment interest from June 20, 2008, the date of the compromise offer, through April 29, 2011.

Dr. Cooper filed a motion to strike and tax costs.  He asserted that the compromise offer did not meet the procedural requirements of Section 998, which required that the one making the offer include a form for the responding party to sign if it is accepted.  He also argued that because the offer was made only two months after the lawsuit was filed, it was not a good faith offer.  Dr. Cooper also argued that expert fees were not recoverable because the court had not ordered that the parties engage experts.

The trial court denied Dr. Cooper’s motion.

HOLDING & REASONING

The Court of Appeal affirmed.

The California Judicial Council has made available a form setting forth the elements of an offer to compromise and an acceptance under Section 998.  Although using this form may be for the convenience of the litigants, Section 998 makes it clear this form is not the one and only way to comply with the offer and acceptance requirements of that statute. Compliance with the procedural aspects of Section 998 may be satisfied by an offer of compromise that includes a statement of the offer and a separate document of acceptance that is to be signed by counsel for the accepting party, or the accepting party if not represented.  Accordingly, the plaintiffs’ offer complied with Section 998’s requirements.

Regarding whether the offer was in good faith — to be in good faith, the offer must carry with it some reasonable prospect of acceptance.  Whether the offer is reasonable depends upon the information available to the parties as of the date the offer was made.  Generally, reasonableness “is measured, first, by determining whether the offer represents a reasonable prediction of the amount of money, if any, defendant would have to pay plaintiff following a trial, discounted by an appropriate factor for receipt of money by plaintiff before trial, all premised upon information that was known or reasonably should have been known to the defendant.”

The court found that the trial court did not abuse its discretion in finding that the offer was reasonable because in its written ruling, the trial court laid out in considerable detail information regarding Miller’s annual income and the financial impacts of his death that had been provided to Dr. Cooper before the plaintiffs made their offer.  The trial court also pointed out that the offer was within Dr. Cooper’s insurance policy limits.  Moreover, Dr. Cooper did not seek additional time to consider the offer.

ANALYSIS

This case demonstrates both the importance of following the rules when making an offer to compromise under Section 998, and of making an offer that is reasonable and carries with it the potential of being accepted.

 

A Release Released Everyone

Rodriguez v. Oto
(Cal. Ct. of App., 6th Dist.), filed January 15, 2013

KEY FACTS

A vehicle operated by Takeshi Oto collided with a vehicle operated by Heriberto Ceja Rodriguez.  Unbeknownst to Rodriguez, Oto was driving from an event related to his employment by Toshiba America, Inc.  While Oto had rented his vehicle from Hertz, Toshiba ultimately reimbursed him for the rental.  The rental was governed by an agreement between Hertz and Toshiba, setting forth terms on which Toshiba employees could rent vehicles on company business.

Rodriguez hired an attorney the day after the accident.  He settled with Hertz for $25,000, the limit of its coverage for bodily injury or death.  As part of the settlement, he executed a written release in favor of “Takeshi Oto and The Hertz Corporation, its employees, agents, servants, successors, heirs, executors, administrators and all other persons, firms, corporations, associations or partnerships (hereafter Releasees).”

Rodriguez did not believe he was releasing Oto’s employer from responsibility for the accident.

Rodriguez sued Oto and Toshiba, alleging that Oto injured the plaintiff through negligent operation of a vehicle, and that Oto and Toshiba, “and each of them,” negligently “owned, operated, used, drove, maintained, loaned and/or entrusted their motor vehicle,” so as to cause his injuries.  Oto and Toshiba answered the complaint, asserting the release as an affirmative defense.

Oto and Toshiba moved for summary judgment on this basis.  Rodriguez opposed the motion on the merits, but also requested a continuance to conduct discovery.  The trial court granted summary judgment, finding that the undisputed evidence established that the release explicitly exonerated Oto from further liability and that it also extended to Toshiba.

HOLDING & REASONING

The Court of Appeal affirmed.  It reasoned that “As a matter of plain logic, Toshiba — along with every other person or corporation in the universe —

belongs to the class thus absolved of liability.  The question is whether this logic alone is enough to establish, in the absence of countervailing evidence, that Toshiba is entitled to the protection of the release.”  The court ruled it was enough.

The court rejected Rodriguez’s argument that a defendant who is asserting a defense based on a release must present additional evidence, extrinsic to the written agreement of the parties’ “actual intent to benefit the third party.”  The court held that insofar as some language in the cases might appear to support such a rule, such a rule arises from, and should be confined to, the distinct issue of whether a stranger to a contract, who stands to benefit from its performance, is an “incidental” beneficiary, rather than an “intended” one entitled to enforce its terms.

ANALYSIS

This case emphasizes the care that should be taken when analyzing or drafting release agreements.

 

 

Other Cases Of Interest

 

Declarations Must Be Detailed

Aber v. Comstock
(Cal. Ct. of App., 1st Dist.), filed December 18, 2012

Lisa Aber sued her employer and two of its employees based on an alleged sexual assault by the employees.  Michael Comstock, one of the employees, filed a cross-complaint against Aber, alleging claims for defamation and intentional infliction of emotional distress.  Aber filed a special motion to strike the cross-complaint under the anti-SLAPP statute (Code Civ. Proc. section 425.16).  The trial court granted the motion and dismissed the cross-complaint.

The Court of Appeal affirmed.  It found that Aber established that her conduct fell within the scope of the protection of the anti-SLAPP statute and that Comstock did not establish a likelihood of prevailing.

Although the court recognized that Comstock’s burden in showing a likelihood of prevailing was not great, the court found that his declarations were insufficient.  The court found that statements in Comstock’s declarations were too conclusory.  It also refused to draw inferences from what Comstock actually did declare.

Among other things, although Comstock declared that Aber made false statements about him having sexually assaulted her, the court declined to infer that Comstock actually denied having sexually assaulted Aber.  It noted that it would have been simple enough for Comstock to have expressly declared that he had not done so.

 

Documents Were Privileged

Bank of America, N.A. v. Superior Court
(Cal. Ct. of App., 4th Dist.), filed January 15, 2013 

Bank of America and Pacific City Bank found themselves embroiled in a dispute over their respective interests in a piece of property on which they each held security interests.

Bank of America made a claim under a lender’s title policy issued by Fidelity National Title Insurance Company insuring a deed of trust in favor of Bank of America.  Fidelity retained the law firm of Gilbert, Kelly, Crowley & Jennett LLP (GKCJ) to prosecute, on B of A’s behalf, the underlying lawsuit for equitable subrogation, injunctive relief, declaratory relief, and fraud.

Pacific City Bank served subpoenas duces tecum on Fidelity’s parent company and Lawyers Title Insurance Company, requesting the production of documents, including communications between GKCJ and Fidelity, regarding the litigation between B of A and Pacific City Bank.  B of A moved to quash or modify the subpoenas on the ground that they sought confidential communications and documents protected by the attorney client privilege or attorney work product doctrine.

The trial court denied the motions to quash or modify, and B of A and Fidelity filed a petition for writ of mandate or prohibition to challenge the court’s order.

The Court of Appeal granted the petition and held that the trial court erred.

When an insurer retains counsel to defend its insured, a tripartite attorney client relationship arises among the insurer, insured, and counsel.  As a consequence, confidential communications between either the insurer or the insured and counsel are protected by the attorney client privilege, and both the insurer and insured are holders of the privilege.  In addition, counsel’s work product does not lose its protection when it is transmitted to the insurer.

The same tripartite attorney-client relationship arises when a title insurer retains counsel to prosecute an action on behalf of the insured pursuant to a title insurance policy.

 

Parol Evidence Is Admissible When There Is Fraud

Riversland Cold Storage, Inc. v. Fresno-Madera Production Credit Association
(Cal. Sup. Ct.), filed January 14, 2013 

The parol evidence rule protects the integrity of written contracts by making their terms the exclusive evidence of the parties’ agreement.  An established exception to the rule allows a party to present extrinsic evidence to show that the agreement was tainted by fraud.  However, in 1935 the California Supreme Court adopted a limitation on this exception.  It ruled that evidence offered to prove fraud “must tend to establish some independent fact or representation, some fraud in the procurement of the instrument or some breach of confidence concerning its use, and not a promise directly at variance with the promise of the writing.”

When it was called upon to reconsider the limitation, the California Supreme Court overruled itself.  It reasoned that the limitation finds no support in the language of the statute codifying the parol evidence rule and the exception for evidence of fraud.  Moreover, the limitation is difficult to apply and conflicts with the doctrine of the restatements, most treatises, and the majority of sister-state jurisdictions.  Furthermore, while intended to prevent fraud, the limitation may actually provide a shield for fraudulent conduct.

 

Treble Damages Were Recoverable

Bell v. Feibush
(Cal. Ct. of App., 4th Dist.), filed January 15, 2013 

Igal Feibush induced Sharon Bell to loan him $202,500 based on a false pretense.  When he refused to repay the loan, Bell sued him.

Based on Feibush’s alleged abuse of the discovery process, the trial court struck his answer and entered his default.  It then entered a default judgment, awarding Bell damages of $202,500 plus prejudgment interest on her breach of contract and fraud causes of action, and awarding her treble damages of $607,500 based on a cause of action under Penal Code section 496(a).

Penal Code section 496(a) makes receiving or buying property “that has been obtained in any manner constituting theft” a criminal offense punishable by imprisonment.  Subdivision (c) provides that any person “who has been injured by a violation of [section 496(a)] . . . may bring an action for three times the amount of actual damages, if any, sustained by the plaintiff, costs of suit, and reasonable attorney’s fees.”

Feibush appealed.  He asserted that because he had not been convicted of violating Section 496(a), the trial court could not impose treble damages against him.

The Court of Appeal affirmed.  It held that based on the statutory language, a criminal conviction under Section 496(a) was not a prerequisite to recovery of treble damages under Section 496(c).  It also held that the phrase “any manner constituting theft” under Section 496(a) included theft by false pretense.