Key Decisions

July 2013 – All Articles

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

An Insurer’s Reservation of Rights Pertaining to Independent Contractors Created a Conflict of Interest Under Civil Code Section 2860.

Schaefer v. Elder
(Cal. Ct. of App., 3d Dist.), filed May 16, 2013, published June 12, 2013

KEY FACTS

Steve Schaefer contracted with Kelly Elder, doing business as Elder Construction, to design and build a house.  Later, Schaefer sued Elder, for breach of contract, negligence, breach of implied warranty, strict liability, money lent, diversion of funds, failure to enter into a written contract, and excessive down payment.

Elder asked his insurer, CastlePoint National Insurance Company, to defend.  CastlePoint reserved its rights and appointed counsel to defend Elder.  CastlePoint’s reservation of rights was based on a policy provision, referred to as the contractor’s special condition.  It provided that the policy would not cover work independent contractors performed unless those independent contractors agreed to indemnify Elder and provided a certificate of insurance.

Elder engaged independent counsel and moved to disqualify the firm CastlePoint had appointed.  Elder also sought a determination that CastlePoint had a duty to provide “Cumis” counsel.  The trial court granted Elder’s motion.

HOLDING & REASONING 

The Court of Appeal affirmed.

The court concluded that CastlePoint’s reliance on the contractor’s special condition as a basis for reserving its rights created a conflict of interest between it and Elder.

In the case against Elder, the status of workers on the job was at issue.  They might have been Elder’s employees or might have been independent contractors.  If they were employees, then Elder’s policy would have covered his liability.

If they were independent contractors it would not.  It was in Elder’s interest to argue that the workers were employees while it was in CastlePoint’s interest to argue they were independent contractors.  Since appointed counsel would have to advise Elder on what to argue regarding the workers, there was a conflict of interest.

Elder was therefore entitled to “Cumis” counsel.  Because the firm CastlePoint appointed had represented both Elder and CastlePoint, it had to be disqualified.  The court noted that if the firm had represented only CastlePoint, it would have been permitted to continue to participate in Elder’s defense because Civil Code Section 2860 says:

“Where the insured selects independent counsel pursuant to the provisions of this section, both the counsel provided by the insurer and independent counsel selected by the insured shall be allowed to participate in all aspects of the litigation.”

ANALYSIS

This decision is likely to cause controversy, particularly with respect to the disqualification.  Insurer retained counsel usually represents the policyholder.  To “participate in all aspects of the litigation,” an attorney typically associates in as an attorney of record for the policyholder.  Where the reservation of rights creates a conflict of interest, independent counsel protects the policyholder by providing advice and exercising control over defense strategy issues.  This approach avoids interpreting Civil Code Section 2860 to allow disqualification of insurer-retained defense counsel.

 

An Insurer Can’t Seek Reimbursement From Civil Code §2860 “Cumis” Counsel

J.R. Marketing, LLC v. Hartford Casualty Insurance Company
(Cal. Ct. of App., 3d Dist.), filed May 17, 2013, published June 11, 2013

KEY FACTS

Hartford issued a commercial general liability policy to Noble Locks Enterprises, Inc.  It also issued one to J.R. Marketing, L.L.C.  Under these policies, Hartford promised to defend and indemnify claims against the named insureds for certain business-related damages subject to various exclusions.

When the insureds were sued, they tendered the defense to Hartford.  Hartford refused to defend.  This refusal led the insureds to hire attorneys to defend them. The insureds also sued Hartford.

In the action against Hartford, the court found a duty to defend and a duty to provide “independent” or “Cumis” counsel.  The court ordered Hartford to pay the insureds’ outstanding invoices within 15 days and to pay “all future reasonable and necessary defense costs within 30 days of receipt.”  It acknowledged that Hartford might have a right to reimbursement, saying:  “[t]o the extent Hartford seeks to challenge fees and costs as unreasonable or unnecessary, it may do so by way of reimbursement after resolution of the Avganim matter.”

The order provided that, while the insured’s attorney’s bills had to be reasonable and necessary, Hartford was barred from invoking the protective provisions afforded insurers under Civil Code Section 2860 because it “has breached and continues to breach its defense obligations by (1) failing to pay all reasonable and necessary defense costs incurred by the insured and by (2) failing to provide Cumis counsel.”  These protective provisions included that “Cumis” counsel’s hourly rate may be no more than what is charged by attorneys regularly retained by the insurer to defend its insureds.

At the conclusion of the case against the insureds, Hartford filed a cross-complaint in the coverage action.  In its cross-complaint, Hartford sought reimbursement for what it considered unreasonable or unnecessary work.  It sued both the insureds and their attorney.  Hartford also sought reimbursement from Scott Harrington, one of the individuals that the insureds’ attorney was defending, but who was not even an insured under its policies.  It sued Harrington for the benefits received by virtue of having been defended at Hartford’s expense.

The trial court sustained demurrers by both the insured’s attorney and Harrington.

HOLDING & REASONING

The Court of Appeal affirmed.

The court first considered if Hartford had a quasi-contractual right rooted in common law to maintain a direct suit against the insured’s “independent” or “Cumis” counsel for reimbursement of excessive or otherwise improperly-invoiced defense fees and costs.

There is no attorney-client relationship between the insurer and “independent” or “Cumis” counsel.  Any right to dispute fees charged by such counsel comes from Civil Code Section 2860.  However, to take advantage of that section, the insurer must fulfill its duty to defend.

When the insurer fails to meet its duty to defend, it forfeits the protections of §2860, including its statutory limitations on fee rates and resolution of fee disputes.

Because Hartford failed to defend, it could not use Section 2860’s rate cap.

The fact that Hartford forfeited its rights under Section 2860 did not mean it forfeited its right to reimbursement for costs attributable to claims that could not possibly have resulted in a covered liability.  That right was established in Buss v. Superior Court, 16 Cal.4th 35 (1997), where the California Supreme Court held that if there was a potential for a covered liability, the insurer had to defend all claims against the insured, but could seek reimbursement of fees attributable to claims that, if asserted by themselves, would not trigger a defense duty.

The remaining issue was who Hartford could sue to obtain reimbursement.  The court held that Hartford could seek reimbursement from its insureds, not their counsel.

The court reasoned that Hartford was seeking restitution and the fact that one person benefits is not, by itself, sufficient to require restitution.  Rather, the person receiving the benefit is required to make restitution only if the circumstances are such that, as between the two individuals, it is unjust for the person to retain it.  Since the insureds hired counsel to defend them after Hartford failed to do so, and had obligated themselves to pay counsel, there was nothing unjust about counsel being paid what the insureds had agreed to pay him.

This left just the insureds as sources of recovery of excessive or improperly-invoiced fees and costs attributable to the defense of claims that did not otherwise trigger a duty to defend.

The court then turned to the question of whether Hartford had a quasi-contractual right against Harrington, who had received the benefit of the defense for which Hartford paid, even though he was not an insured.

The court affirmed the dismissal of Hartford’s claim against Harrington without actually deciding if Hartford had a right as against him.  It did so because in its complaint, Hartford failed to allege that any fees or costs were incurred or legal services provided solely for Harrington’s defense (as opposed to for one or more of the insured cross-defendants).  This failure supported the trial court’s ruling that Hartford had failed to state a cause of action.

ANALYSIS

The court’s holding had one important caveat:

“[W]e have no reason to, and do not, take a position as to whether an insurer would have the right to maintain a direct suit against independent counsel for fraudulent billing practices in connection with the underlying defense of its insured.”

Significantly, this case expressly holds that Civil Code Section 2860’s rate cap will not apply when the insurer refuses to defend.

 

A Hospital Must Prove Services Were Reasonable And Necessary

State Farm Mutual Automobile Insurance Company v. Huff
(Cal. Ct. of App., 4th Dist.), filed June 11, 2013, published June 11, 2013

KEY FACTS

Michael Huff sustained serious injuries in a motor vehicle collision involving Steven and Matthew Wilkins.  Huff was taken to Pioneers Memorial Hospital.  Huff received treatment for his injuries over the course of seven days.  At the time of discharge, Huff owed the hospital $34,320.86 for medical services.  The hospital never received payment for these services.

Huff sued the Wilkinses and was awarded $356,587.92 in damages.  The jury found that Huff’s past medical expenses totaled $232,708.80.

Shortly after entry of judgment, a collection agency acting on behalf of the hospital sent the Wilkinses’ insurer, State Farm, a written notice pursuant to the Hospital Lien Act that the hospital was claiming a lien in the amount of $34,320.86 on any damages State Farm might pay Huff.  Huff disputed the amount of the lien and demanded that State Farm pay the entire judgment amount to him and his attorneys.

State Farm filed an interpleader action to see who was entitled to the disputed funds.  The trial court ruled in favor of the hospital.

HOLDING & REASONING

The Court of Appeal reversed.

The court observed that the Hospital Lien Act does not specify who has the burden of proving what services were reasonable and necessary.  However, relying on basic principles of law, it ruled that the hospital was required to prove the charges for the services it provided Huff were reasonable and necessary.

The court held that putting the burden on a hospital would not impair its lien rights.  It noted that “[w]ith ready access to the injured person’s medical records and to health care professionals and others competent to assess the need for and cost of medical treatment (and in some cases to evidence on these matters introduced in a related personal injury action), the hospital should have little difficulty meeting that burden.”

Since the hospital submitted no evidence to establish the reasonableness or necessity of its charges, it had not met its burden and was not entitled to payment.

ANALYSIS

This case may make it more costly for medical providers to recover for services.  It could also give personal injury plaintiffs added leverage in negotiating lien claims.

 

Payment Was Available Under Med-Pay Coverage

Barnes v. Western Heritage Insurance Company
(Cal. Ct. of App., 3d Dist.), filed June 18, 2013, published June 18, 2013

KEY FACTS

Justin Barnes, then 11 years old, was injured in 2001 when a table fell on his back during a recreational program co-sponsored by the Shingletown Activities Council.  Justin made a claim against the Activities Council.

At the time the Activities Counsel was an insured under a policy issued by Western Heritage Insurance Company.  The policy provided that Western Heritage would “pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.”  The policy also provided coverage of up to $5,000 per person for medical expenses, provided that, among other things, the medical expenses were incurred and reported to Western Heritage within one year of the date of the accident.  The obligation to pay for medical expenses under the medical payment provision was regardless of fault.

More than one year after the accident, Justin asked Western Heritage for payment for consultation with a medical specialist.  Western Heritage denied the request based on its position that claimed medical expenses had to be reported to it within one year of the accident.

Barnes settled a separate personal injury lawsuit against the Activities Council and other local entities regarding his medical expenses.  Western Heritage was not a party to that lawsuit.

Five years later, Barnes sued Western Heritage for breach of contract and breach of the implied covenant of good faith and fair dealing based on the denial of his request for medical payment coverage.

The trial court granted summary judgment in favor of Western Heritage.  Among other things, the trial court ruled:  (1) Barnes’ lawsuit against Western Heritage was barred by collateral estoppel because he settled his claims in the underlying personal injury action, including any claim for medical expenses; (2) allowing Barnes to recover under the medical payment provision of the policy would result in impermissible double recovery; and (3) Western Heritage was not equitably estopped to assert the policy’s one-year deadline as a defense because Western Heritage had no duty to disclose the deadline to Barnes and Barnes did not rely to his detriment on any failure to disclose.

HOLDING & REASONING

The Court of Appeal reversed.  It held the trial court erred in granting Western Heritage summary judgment.

The court concluded that collateral estoppel did not bar Barnes’ action against Western Heritage because the issues asserted in it were not litigated or determined in the prior personal injury action.  The issues in a personal injury action are liability for an injury and its value.  Personal injury actions generally do not resolve insurance coverage issues.  Barnes’ action against the Activities Counsel was for his personal injuries.  His action against Western Heritage was as a beneficiary of the contract of insurance.

The court also ruled that a recovery in Barnes’ action against Western Heritage would not amount to an impermissible double recovery because Barnes was suing Western Heritage alleging that it breached its direct duty to him under the medical payment provision of the insurance policy — a duty distinct from the obligation Western Heritage owed the Activities Council under the liability provision of the policy.  The court noted:  “[N]o language in the policy evinces the intent that payment under the liability provision extinguishes Western Heritage’s obligation under the medical payment provision.”

In addition, the court ruled there was a triable issue of material fact regarding whether Western Heritage was equitably estopped from asserting the policy’s one-year deadline as a defense.

Although Western Heritage had paid some of Barnes’ medical payment expenses, the court held:  “Western Heritage was required to provide [Barnes] with actual notice of the one-year time limit for making additional claims.”  However, to ultimately prevail, Barnes would have to establish that Western Heritage’s omission caused him to refrain from filing a timely claim, and that his reliance was reasonable.

ANALYSIS

Although it reversed the summary judgment, the court did not express an opinion whether Barnes would ultimately prevail on his claims against Western Heritage.  This is another case addressing the possible impact of an insurer’s failure to warn about impending deadlines.  See, e.g., Spray, Gould & Bowers v. Associated Internat. Ins. Co., 71 Cal.App.4th 1260 (1999).

 

Expert Fees Were Recoverable Despite Multiple 998 Offers

Martinez v. Brownco Construction Company, Inc.
(Cal. Ct. of App., 2d Dist.), filed June 10, 2013, published June 10, 2013

KEY FACTS

Raymond Martinez was injured in an electrical explosion at work.  He and Gloria, his wife, sued Brownco Construction Company, which had performed demolition work at the job site, for negligence and loss of consortium. 

Raymond served Brownco with a statutory offer to compromise pursuant to section 998 in the amount of $4,750,000.  Gloria offered to compromise for $250,000.  Brownco neither accepted nor rejected the offers, and they expired.

Some time later, Raymond offered to compromise for $1,500,000.  Gloria’s offer was $100,000.  Brownco took no action on these offers either, and they expired.

At trial, the Martinezes presented excerpts from the videotaped deposition of Brownco’s foreman, Dwayne Taylor, who could not be located.

During closing argument to the jury, Martinez’ counsel used a PowerPoint presentation.

Judgment was entered awarding Raymond $1,646,674 and Gloria $250,000.

After trial, the Martinezes sought $561,257.14 in itemized costs, including $11,956 for editing and presenting video excerpts of Taylor’s deposition, $87,282.86 for the PowerPoint presentation used during closing argument, $188,536.86 in expert fees incurred after their first section 998 offers but before their second offers, and $64,555.45 in expert fees incurred after the second set of offers.

Brownco moved to tax the cost items for the video presentation of Taylor’s deposition, the PowerPoint, and the $188,536.86 in expert fees incurred between first and second offers.  It argued the recording of Taylor’s deposition was not reasonably necessary for trial, because attorneys could simply have read the questions and answers into the record, as is normally done when a witness is unavailable for trial.  Brownco argued the PowerPoint presentation was similarly unnecessary.  Brownco also argued Gloria was not entitled to expert fees incurred before her second 998 offer to compromise.

The Court of Appeal held that it was not an abuse of discretion for the trial court to have allowed the cost of editing Taylor’s deposition.  It noted that the trial court asked the jury whether it preferred to have the deposition transcript read or to see video excerpts and that it responded that having the transcript read was “boring.”  It also noted in connection with the motion to tax costs, the trial court observed, among other things: (1) it is important to keep the jury’s attention, and (2) in reading a transcript, “you don’t get the same intonation and inflections as the original testimony, you get somebody who is supposed to read the testimony dry.”  The cost of editing the video was reasonably necessary to enable the parties to expediently and effectively present just the relevant portions of Taylor’s testimony and to ensure that only pre-approved portions of it were played.

The court disallowed the cost of the PowerPoint presentation.  It found that although the presentation was helpful to the Martinezes, it was not necessary.  Only the cost of “[m]odels and blowups of exhibits and photocopies of exhibits,” are allowed when they are merely helpful, but not necessary.  The court distinguished cases involving the presentation of evidence to the jury from the one before it, where the presentation was only part of argument.

The court allowed the experts’ fees incurred between Gloria’s first settlement offers in addition to those incurred after the second one.  It reasoned that when the first offer lapsed, Gloria’s right to expert fees “vested,” and nothing — other than not obtaining a better result — could deprive her of the benefit gained from having made the offer.  The court noted that its ruling would promote early settlements and that if the trial court felt that the offering party was engaging in gamesmanship in making early offers, it had discretion not to allow certain fees.

HOLDING & REASONING

The California Supreme Court granted review.  It framed the question as:  “When a plaintiff serves two unaccepted offers to compromise pursuant to section 998, and the defendant fails to obtain a judgment more favorable than either offer, does the plaintiff’s last offer extinguish the first offer for purposes of expert fee recovery under section 998?”

In answering the question, the Court recited the purpose of section 998, which is to provide a financial incentive for litigants to make reasonable settlement offers and also to reasonably evaluate offers they receive.

The Court dis not hold that the last offer controls.   Rather, it observed that Brownco failed to get a better result than either of Gloria’s offers.

Section 998’s policy of encouraging settlements is better served by not applying the general contract principle that a subsequent offer entirely extinguishes a prior offer.  Not only do the chances of settlement increase with multiple offers, but to be consistent with Section 998’s financial incentives and disincentives, parties should not be penalized for making more than one reasonable settlement offer.  Nor should parties be rewarded for rejecting multiple offers where each proves more favorable than the result obtained at trial.  The Court held that where a plaintiff serves two unaccepted and unrevoked statutory offers, and the defendant fails to obtain a judgment more favorable than either offer, the trial court retains discretion to order payment of expert witness costs incurred from the date of the first offer.

ANALYSIS

Ultimately, the determination of the effect of multiple offers is left to the sound discretion of the trial court.  The trial court is in the best position to assess the offers, their timing, and the ultimate result of the trial — and to assess what is reasonable under the circumstances.  Such a result will likely reduce gamesmanship in connection with settlement offers.

 

Primary Assumption Of The Risk Applied

Cann v. Stefanec
(Cal. Ct. of App., 2d Dist.), filed June 24, 2013, published June 24, 2013

KEY FACTS

Scarlet Cann and Annie Stefanec were members of the UCLA women’s swim team.  The team lifted weights twice a week in the weight room for the purpose of improving strength to help in competitive swimming.  During one session, Stefanec began to lose her balance and dropped the weights with which she was working.  This was as per the coach’s prior instructions.  The weights rolled a few feet and hit Cann, who was doing pushups.

Cann sued for personal injuries.  Stefanec moved for summary judgment based on the doctrine of primary assumption of the risk.  The trial court granted her motion.

HOLDING & REASONING

The Court of Appeal affirmed.

The court first looked at the doctrine of primary assumption of the risk, noting that although people generally owe a duty of due care not to cause an unreasonable risk of harm to others, 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.  As a result, when one suffers an injury because of those inherent dangers, one generally has no recourse.

The court rejected Cann’s argument that the doctrine of primary assumption of the risk did not apply because she and Stefanec were not co-participants in a sport.  First, as a factual matter, they were co-participants in a training session consisting of a circuit of three exercises for the purpose of adding strength as swimmers.  Second, after the decision in Nalwa v. Cedar Fair, L.P., 55 Cal.4th 1148 (2012), it did not matter whether the circuit training by Cann and Stefanec was characterized as a sport or recreation, as the doctrine of primary assumption of the risk applies to both types of activity.

The court also rejected Cann’s argument that the doctrine did not apply because having a weight fall on her was not an inherent risk of swimming or weight training.  It said:  “we have no difficulty in making a judicial determination that weight lifting involves an inherent risk of injury to persons in the vicinity of lifters who drop weights because of a loss of balance, injury suffered during a lift, or other reasons.”  Dropping a weight that is too heavy is not outside the bounds for conduct in weight training.

Moreover, there was no evidence Stefanec acted recklessly in dropping the weights.  Doing so was per prior instruction and was commonly done when one was using too much weight or lost one’s balance.  The court had even noted that Cann had dropped weights when they were too much for her.

ANALYSIS

Although applying primary assumption of the risk can be difficult, in the context of two athletes lifting weights, its applicability seems well-grounded.

 

Other Cases Of Interest

 

Government Officials Acting in an Official Capacity Are Immune from Suit

McAllister v. Los Angeles Unified School District
(Cal. Ct. of App., 2d Dist.), filed  June 3, 2013, published  June 3, 2013

Patricia McAllister was a school teacher who worked as a substitute teacher for the Los Angeles Unified School District. McAllister attended a rally as part of the Occupy Los Angeles movement. She did so on her own time. While there, she was interviewed by the media.  She stated: “I think that the Zionist Jews who are running these big banks and our Federal Reserve, which are not run by the federal government, they need to be run out of this country.”

Public outcry over this racist remark resulted in the school district electing not to continue to use McAllister’s services.

McAllister sued the school district and it’s superintendent for civil rights violations based on her having been terminated for exercising her right to speak.  The trial court sustained demurrers without leave to amend.

In the ensuing appeal, the Court of Appeal held that while McAllister may have had a viable cause of action against the superintendent in his individual capacity, her complaint alleged he acted in his official capacity and could not be read to include acts in his individual capacity.

Although the trial court was willing to let McAllister make an offer of proof of how she might amend, the record she provided on appeal did not reflect what had happened with that offer.  As a result, the court assumed McAllister’s offer was insufficient to support a cause of action.

 

Actual Notice, Even by E-mail, is Enough Notice to Terminate a Teacher

Grace v. Beaumont Unified School District
(Cal. Ct. of App., 4th Dist.), filed  June 4, 2013, published  June 4, 2013

Del M. Grace was a probationary school nurse with the Beaumont Unified School District.  On March 3, 2009, the District decided to terminate her employment for the 2009-2010 school year.

Grace was present at the school board meeting of March 3, 2009.  In open session, the board announced its decision to lay off 12 employees, identified by employee number.  Grace was one of these.

On March 11, Grace was sent an e-mail asking her to be available for a meeting that day.  She responded that she was unable to meet then and asked the purpose of the meeting.  The assistant superintendent for personnel services, responded that the purpose of the meeting was “to provide you notice that the district will not be offering you a contract for next school year.”  The e-mail said that, if Grace preferred, the District would mail her notice by certified mail.  Grace asked that the district notify her by certified mail.

Grace filed a petition for writ of mandate to compel her reinstatement, arguing that the notice of her termination was insufficient.  She asserted that under Education Code Section 44929.21(b), the governing board of a school district must notify a probationary teacher on or before March 15 of the teacher’s second complete consecutive school year of employment of the decision to reelect or not reelect the teacher for the next succeeding school year and that if the notice is not given, the teacher is deemed reelected for the next school year and must be classified as a permanent employee of the district at the commencement of that year.

The trial court found that an e-mail notice from the District’s head of human resources was sufficient notice and denied the petition.

The Court of Appeal affirmed.

Education Code Section 44929.21(b) does not say how notice must be given.  However, Hoschler v. Sacramento City Unified School Dist., 149 Cal.App.4th 258 (2007) had already resolved the matter.  It held that the notification requirement of Section 44929.21(b) contemplates personal service or some other method equivalent to imparting actual notice.

Since Grace had actual personal notification, her belated receipt of the certified letter did not preclude her termination.

 

State Law Was Not Preempted

Teva Pharmaceuticals USA, Inc. v. Superior Court
(Cal. Ct. of App., 4th Dist.), filed June 13, 2013, published June 13, 2013

Olga Pikerie used the prescription medication Fosamax and Alendronate sodium, its generic version, for the treatment and prevention of osteoporosis. Prolonged use of these was linked to fractures of the femur due to suppression of bone turnover.  Pikerie sued both the manufacture of Fosamax and of its generic version.

Although she asserted 11 separate causes of action, the gist of her claims against the various defendants was the same — they failed to produce a safe product, failed to adequately warn of the safety issues regarding the products, and failed to take other available steps within their control to warn plaintiff or protect her from injury.

The generic drug manufacturers demurred to Pikerie’s complaint, arguing that, under the United States Supreme Court’s decision in PLIVA, Inc. v. Mensing, federal law preempted all of Pikerie’s claims.

The trial court overruled the demurrer.

In the ensuing writ proceeding, the Court of Appeal held that Mensing was inapplicable and did not preempt California law.

The court reasoned that in Mensing, the United States Supreme Court held that federal law preempted any claims that a generic drug manufacturer should have included stronger warning labels than those approved for use on the equivalent brand-name drug.  The Supreme Court also held that a state could not require a generic drug manufacturer to provide information on its label in addition to information required on the brand-name drug’s label, because that would make it impossible for the generic drug manufacturer to comply with both its duty under federal law to match the brand-name label and any claimed duty under state law to do more.  As a result of this impossibility, such a state requirement would be preempted by federal law.

However, with respect to Pikerie’s action, she alleged that the brand-name drug label was updated, but the generic drug manufacturers failed to update their products’ labels accordingly.  Based on the allegation that the generic drug labels did not match the brand-name drug label, Pikerie’s claims were not preempted by federal law.  Therefore, the trial court correctly overruled the demurrer.

 

Asking For A ZIP Code Was Permissible

Flores v. Chevron, USA, Inc.
(Cal. Ct. of App., 2d Dist.), filed June 20, 2013, published June 20, 2013

When customers at Chevron gas stations use their credit cards to buy gasoline, they can do so by presenting their cards to the cashier or by using automated readers at the pumps.  When they use automated readers at the pumps, in areas where there is a high incidence of credit card fraud, they may be asked to provide their zip codes.  This is as a way of reducing the chance that the card was stolen or forged.

On February 10, 2011, the California Supreme Court rendered its decision in the case of Pineda v. Williams-Sonoma Stores, Inc., 51 Cal.4th 524  (2011).  There, it held that ZIP codes constitute “personal identification information” within the meaning of the Song-Beverly Credit Card Act of 1971.  That act prohibits collecting “personal identification information” as a condition to accepting a credit card for payment.

Two weeks after the decision in the Pineda case, John Flores, filed a class action lawsuit against Chevron and other companies that operated gas stations where ZIP codes were requested for pay-at-the-pump transactions, for violation of the Song-Beverly Credit Card Act.

Shortly after Flores filed suit, the Legislature passed a series of amendments to the Credit Card Act.  It added a provision stating that the prohibition on requesting or requiring personal identification information does not apply if “[t]he person, firm, partnership, association, or corporation accepting the credit card in a sales transaction at a retail motor fuel dispenser or retail motor fuel payment island automated cashier uses the Zip code information solely for prevention of fraud, theft, or identity theft.”

Chevron moved for summary judgment based on evidence that it requested ZIP codes to help prevent fraud and that it did not retain the information once the transaction had been processed.

The trial court granted Chevron’s motion.  The Court of Appeal affirmed, finding that requesting ZIP codes to help prevent fraud at self-service islands was permissible.

 

One’s Status As A Putative Spouse Is Subjective

Ceja v. Rudolph & Sletten, Inc.
(Cal. Sup. Ct.), filed June 20, 2013, published June 20, 2013

Nancy and Robert Ceja were married by the pastor of a Pentecostal church in a big wedding ceremony attended by many guests.  Four years later, Robert Ceja was killed in an accident at work.  Nancy Ceja sued his employer for wrongful death.

Before filing the action, Nancy Ceja learned that her marriage was void because the wedding had taken place a few months before Robert Ceja’s divorce from his first wife became final.  Consequently, to establish her standing to sue, Nancy Ceja alleged that she was a “putative spouse” under Code of Civil Procedure Section 377.60.  That section defines a putative spouse as party to a void or voidable marriage who is found by the court to have “believed in good faith that the marriage . . . was valid.”

Robert Ceja’s employer moved for summary judgment claiming that Nancy Ceja did not qualify as a putative spouse.  The trial court agreed and granted summary judgment.  Applying an objective test for putative status, the court found that it was not objectively reasonable for Nancy Ceja to have believed that her marriage was valid.

The Court of Appeal reversed.  It concluded the trial court applied the wrong test.  It held that section 377.69 requires only that an alleged putative spouse “believed in good faith” that the marriage was valid.  It reasoned that the language of section 377.69 does not establish an objective standard.  Rather, it refers to the alleged putative spouse’s state of mind and asks whether that person actually believed the marriage was valid and whether he or she held that belief honestly, genuinely, and sincerely, without collusion or fraud.

The California Supreme Court affirmed the decision of the Court of Appeal.  It held:

We conclude section 377.60 contemplates a subjective standard that focuses on the alleged putative spouse’s state of mind to determine whether he or she maintained a genuine and honest belief in the validity of the marriage.  Good faith must be judged on a case-by-case basis in light of all the relevant facts, such as the efforts made to create a valid marriage, the alleged putative spouse’s background and experience, and the circumstances surrounding the marriage, including any objective evidence of the marriage’s invalidity.  Under this standard, the reasonableness of the claimed belief is a factor properly considered along with all other circumstances in assessing the genuineness of that belief.  The good faith inquiry, however, does not call for application of a reasonable person test, and a belief in the validity of a marriage need not be objectively reasonable.