Key Decisions

November 2012 – All Articles

(filed under: Key Decisions Archive | November 20, 2012)

A Co-Insurer That Fails To Defend Takes On The Burden Of Showing It Had No Ultimate Duty To Indemnify

St. Paul Mercury Insurance Company v. Mountain West Farm Bureau Mutual Insurance Company
(Cal. Ct. of App., 2d Dist.), filed October 25, 2012 


Jacobsen Construction Company, Inc. was the general contractor on a construction project.  St. Paul Mercury Insurance Company insured Jacobsen in a series of general liability policies.

Teton Builders, Inc. was the framing contractor on certain parts of the project.  Mountain West Farm Bureau Mutual Insurance Company insured Teton.  Its policies named Jacobsen as an additional insured.

The project owner sued Jacobsen in a construction defects case.  Jacobsen tendered its defense to both St. Paul and Mountain West.  St. Paul defended Jacobsen.  Mountain West would not defend.

The case settled in two phases.  St. Paul paid the settlement of one phase.  St. Paul and Mountain West contributed to the settlement of the other.

After the construction defect litigation was over, St. Paul sued Mountain West for contribution.  The trial court found St. Paul was entitled to reimbursement for a portion of the defense costs and the settlement.  It also found St. Paul was entitled to prejudgment interest.


The Court of Appeal affirmed as to contribution, but reversed as to prejudgment interest.

The main issue was who had the burden of proof.  The court found that Mountain West had a duty to defend as there was a potential for an award of covered damages.  It also found that although Mountain West contributed to the settlement, it did not defend.  Therefore, the court concluded that Mountain West was a nonparticipating insured.  As a result, St. Paul had the burden to show a duty to defend and that Mountain West had the burden to show there was no duty to indemnify.

St. Paul met its burden, but Mountain West did not.  As such, the trial court correctly found Mountain West was liable for contribution to both defense costs and the settlement.

The court found that the trial court had not abused its discretion in allocating the contribution shares as they were not out of reason.  However, St. Paul was not entitled to prejudgment interest.


This case offers another example of the enhanced risk an insurer takes when it refuses to defend an insured.  Typically in a case an insurer defends, the burden of proving actual coverage falls on the party seeking coverage — not the defending insurer.


Advertising A Competing Product With A Similar Name Does Not Disparage It Or Trigger A Duty To Defend Under An Insurance Policy’s Advertising Injury Coverage

Hartford Casualty Insurance Company v. Swift Distribution, Inc.
(Cal. Ct. of App., 2d Dist.), filed October 29, 2012 


Swift Distribution, Inc., dba Ultimate Support Systems, Inc., advertised its product the “Ulti-Cart,” which resembled the “Multi-Cart” sold by Gary-Michael Dahl.  Although the names were similar, Ultimate’s advertisement did not identify Dahl’s cart expressly and did not disparage Dahl’s cart.

Dahl sued Ultimate for patent and trademark infringement, unfair competition, and misleading advertising.

Ultimate was insured under a Hartford Casualty liability insurance policy.  The policy covered “advertising injury,” defined as injury arising out of publication of material that disparaged a person’s or organization’s goods, products, or services.  Ultimate tendered the defense of the Dahl action to Hartford.  Hartford refused to defend Ultimate.

In the ensuing coverage litigation, the trial court granted a summary judgment in Hartford’s favor based on its determination that the Dahl action did not seek covered damages.


The Court of Appeal affirmed.  It held that because the advertisement did not identify Dahl’s product, and contained no matter derogatory to Dahl’s title to its property, its quality, or its business, no disparagement occurred. Therefore, it held there was no potential for an award of covered damages and Hartford had no duty to defend.

The court reasoned that the policy covered product disparagement, which is “an injurious falsehood directed at the organization or products, goods, or services of another . . . .”  Disparagement, or injurious falsehood, may consist of publication of matter derogatory to plaintiff’s title to his property, its quality, or his business.  Tortious product disparagement involves publication to third parties of a false statement that injures the plaintiff by derogating the quality of goods or services.

According to the court, “the injurious falsehood must specifically refer to the derogated property, business, goods, product, or services either by express mention or reference by reasonable implication.”  However, “Dahl’s complaint, application for a temporary restraining order, and responses to Ultimate’s discovery [did] not allege that Ultimate’s advertisements specifically referred to Dahl by express mention.”

The court rejected Ultimate’s argument that Dahl’s complaint alleged that Ultimate’s use of “Ulti-Cart” (similar to Dahl’s “Multi-Cart”) referred to Dahl and Dahl’s product by reasonable implication.  The court also determined that although Dahl’s complaint alleged that similarity of the names misled the public into believing that Ultimate’s products were the same as Dahl’s, were approved by Dahl, or were affiliated with Dahl’s “Multi-Cart” products, there was still no disparagement of “Multi-Cart.”

The court stated:

Disparagement involves “an injurious falsehood directed at the organization or products, goods, or services of another….” The injurious falsehood or disparagement may consist of matter derogatory to the plaintiff’s title to his property, its quality, or to his business in general.  The advertisements for the “Ulti-Cart” did not include any of these derogations.  Ultimate’s advertisements referred only to its own product, the Ulti-Cart, and did not refer to or disparage Dahl’s Multi-Cart.  Dahl’s complaint alleged that by using a product name (Ulti-Cart) that was very similar to Dahl’s Multi-Cart product, Ultimate deceived the public that Ultimate was the originator, designer, or authorized manufacturer and distributor of its infringing products.  This, however, was not disparagement.  Because Dahl did not allege that Ultimate’s publication disparaged Dahl’s organization, products, goods, or services, Dahl was precluded from recovery on a disparagement theory.

The court chose not to follow the holding in the recent case of Travelers Property Casualty Co. of America v. Charlotte Russe Holding, Inc., 207 Cal.App.4th 969 (2012).  It noted that Ultimate’s advertisement did not refer to Dahl’s product as did the advertisement in the Charlotte Russe case.  It also said it disagreed with the conclusion reached in that case that advertising a product that was “on sale” implied it was of poor quality.


Inasmuch as Ultimate’s advertisement did not reference Dahl’s product, directly or by implication, the court’s decision makes sense.  However, it would appear that if Ultimate had used the exact name of Dahl’s product, for its own allegedly inferior product, the court would have reached a different result.

This case seems to depart from some of the reasoning of Charelotte Russe and Atlantic Mut. Ins. Co. v. J. Lambe, Inc., 100 Cal.App.4th 1017 (2002).  It will be interesting to see how courts resolve future cases involving similar issues.


It Was Not Error To Instruct The Jury That “Motivating Reason” Is The Standard Of Causation In A Wrongful Termination Case

Alamo v. Practice Management Information Corporation
(Cal. Ct. of App., 2d Dist.), filed September 24, 2012

Lorena Alamo sued her former employer, Practice Management Information Corporation (PMIC), for pregnancy discrimination and retaliation in violation of the California Fair Employment and Housing Act (FEHA) and wrongful termination in violation of public policy.  A jury awarded Alamo compensatory damages, but no punitive damages.  The court then awarded her attorney’s fees.

PMIC appealed.

PMIC argued that the trial court committed prejudicial error in instructing the jury pursuant to CACI Nos. 2430, 2500, 2505, and 2507, that Alamo had to prove her pregnancy-related leave was “a motivating reason” for her discharge rather than that she would not have been fired “but for” it.  PMIC also argued that the trial court committed prejudicial error in refusing to instruct the jury pursuant to BAJI No. 12.26, that PMIC could avoid liability under a mixed motive defense by proving it would have made the same discharge decision in the absence of any discriminatory or retaliatory motive.  PMIC also argued that the trial court erred in awarding attorney’s fees to Alamo as the prevailing plaintiff under FEHA.  It based this on the assertion that the general verdict form failed to specify whether the jury’s verdict was based on the statutory FEHA claim or the common law wrongful discharge claim.

The Court of Appeal affirmed.

The court noted that the question of the proper standard of causation in a FEHA claim, including the availability of a mixed motive defense, is currently pending before the California Supreme Court in Harris v. City of Santa Monica, review granted April 22, 2010, S181004 (Harris).  It noted that language in other cases suggested that “a motivating reason” was the proper standard.  As a result, pending further guidance on this issue by the Supreme Court, we conclude that the trial court did not commit any instructional error.

As to whether the trial court should have given a “mixed motive defense” instruction, the court held that because this case was tried by both parties as a single motive, it was not a mixed motive case.

As to PMIC’s assertion of error in the attorney’s fees award, the court ruled it was barred by the doctrine of invited error.  Additionally, given the relationship between the causes of action, it was not an abuse of discretion for the trial court to award attorney’s fees.


An Insurer Must Show Prejudice Resulting From An Insured’s Failure To Submit A Timely Proof Of Loss or Promptly Report A Loss If It Wishes To Deny Coverage For That Failure

Henderson v. Farmers Group, Inc.
(Cal. Ct. of App., 2d Dist.), filed October 24, 2012


Ocie E. Henderson, Anthony Wallace, Roscoe and Edna M. Allen, and John and Sharon Billingslea made claims to their homeowners’ insurance carrier, Fire Insurance Exchange (“FIE”) for smoke damage allegedly arising from a wildfire.  FIE sent experts to inspect the various policyholders’ homes to determine if there was smoke damage.  The experts determined that there was less than a threshold amount of smoke particles in some homes and more than the threshold in others.

FIE denied all of the claims.  Its reasons variously included that there was insufficient smoke particles present to constitute a loss, that the policyholders had not submitted timely proofs of loss, and that the policyholders had not timely reported their claims.

The policyholders sued FIE for breach of contract, breach of the implied covenant of good faith and fair dealing, and unfair business practices under Business and Professions Code section 17200, et seq.  Besides FIE, they sued Farmers Group, Inc. (Farmers Group); Farmers Insurance Exchange; Fire Underwriters Association (FUA); Mid-Century Insurance Company; Truck Insurance Exchange; and Truck Underwriters Association.  They alleged that these entities collectively denied or underpaid valid claims for property damage sustained in the fire.

FIE moved for summary adjudication based on the fact that Henderson, Wallace and the Allens failed to submit proofs of loss within the time frame set in their policies and therefore had not satisfied conditions precedent to payment.  FIE moved for summary adjudication based on the fact that the Billingsleas failed to promptly report the claimed loss and therefore had not satisfied conditions precedent to payment.  FIE also asserted that under the holding in Moradi-Shalal v. Fireman’s Fund Ins. Co., 46 Cal.3d 287 (1988), it could not be liable for unfair business practices.  The other defendants moved for summary judgment based on the fact that they were not contracting parties and therefore could not be liable.

The trial court granted the motions.


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

It held that for an insurer to prevail on a defense based on the policyholder’s failure to submit a proof of loss, it must establish prejudice as a result of that failure and that in its motions FIE failed to do so.  The court explained that proofs of loss are intended to assist the insurer in its investigation and to help it ferret out fraudulent claims.  It reasoned that in terms of accomplishing this, there is no difference between a proof of loss that is submitted a day early and one submitted a day late.  It also reasoned that in the context of the particular claims, timely proofs of loss would add nothing to the insurer’s investigation.

The court held that FIE had established prejudice based on the Billingsleas’ late reporting, and it had waived its right to deny the Billingsleas’ claim based on late reporting because it did not object to the Billingsleas’ delayed notice until the lawsuit.

The court held that even though there is no private right of action for violation of the Unfair Claims Practices Act embodied in Insurance Code section 790.03, acts constituting a breach of contract could support a cause of action under the Business and Professions Code.

The court rejected FIE’s contention that it was entitled to an adjudication, that it was not liable for bad faith because it relied on an interpretation of the proof of loss condition that is subject to dispute. The court reasoned that any evidence that FIE relied on judicial authority in denying coverage was undercut by evidence that FIE’s practice was to only require proofs of loss on valid claims. The court said that a jury could conclude that FIE acted unreasonably and used the failure to provide timely notice or proof of loss, not because it believed these were required under California law, but as a shield to deny meritorious claims.

The court affirmed as to the remaining defendants.  It found that there was uncontroverted evidence that negated a basis for holding them liable.


Although the policyholders won this battle, that does not mean they will win the case.  Nothing precludes FIE from establishing prejudice due to late or absent proofs of loss.  Nor does anything preclude FIE from establishing that the presence of minute numbers of smoke particles does not amount to a loss or a loss in excess of the applicable policy deductibles.

The court provided a road map for insurers that are part of a group of related companies to extricate those related companies when they are sued.


An Insurer May Elect To Pay For Repairing Damaged Property Rather Than Declaring It A Total Loss

Carson v. Mercury Insurance Company
(Cal. Ct. of App., 4th Dist.), filed September 24, 2012


Melody Carson was involved in an automobile accident with a third party, shortly after buying a new car.  At the time of the accident, Carson’s vehicle had a market value of $25,000.  Her Mercury Insurance Company automobile insurance policy gave Mercury the option of repairing or paying for Carson’s vehicle, subject to several express liability limitations and exclusions.  One limitation was that diminution in value was not covered.

Rather than declaring the car a total loss and paying Carson $25,000 to replace the vehicle, Mercury elected to pay to repair the car.  The initial repair estimates were approximately $8,000.  Carson picked the shop that repaired the vehicle.  During the repair process, the shop discovered additional damages and Mercury paid a total of $18,774 to repair the vehicle.

Carson was unhappy with Mercury’s decision to repair the car, and unsatisfied with the work performed at the repair shop.

Carson sued Mercury for breach of contract and breach of the implied covenant of good faith and fair dealing.  She asserted Mercury should have taken into consideration her financial interests, specifically that her repaired vehicle would have a diminished stigma value.  In addition, she asserted her vehicle was constructed in a way that could never be repaired to its safe preaccident condition and value.  Carson alleged Mercury was obligated to declare the car a total loss.  She also asserted Mercury wrongfully asserted subrogation rights against the at-fault driver.

Mercury prevailed at trial.


The Court of Appeal affirmed.

The court ruled that the policy gave Mercury the option of paying for repairs or declaring the car a total loss.  It had the right to pay for repairs.  Carson failed to show Mercury failed to pay to repair her car.  Although Carson showed the car had not been repaired properly, she failed to show it could not have been repaired properly.  Moreover, she selected the shop that did the repair.

The court rejected Carson’s argument that the policy was ambiguous as to what it meant to repair a damaged car and that as such it should have been interpreted as meaning to perfect, factory new condition.  It also rejected her argument that not covering diminution in value was against public policy.

As a result, Mercury did not breach the contract of insurance.  Moreover, Mercury did not breach the implied covenant of good faith and fair dealing as it did not deprive Carson of any of the expected benefits of the contract.


This case largely follows Ray v. Farmers Ins. Exch., 200 Cal.App.3d 1411 (1998).

One significant aspect of this case is the court’s suggestion that insurers consider changing their policies to include damages for diminution in value due to a collision.


An Employee Was Not In The Course Of Employment When Returning From A Medical Appointment

Fields v. State of California
(Cal. Ct. of App., 5th Dist.), filed September 20, 2012


Linda Gadbois worked as a prison cook for Avenal State Prison.  She was injured on the job and sought treatment through her employer’s workers’ compensation network.  Gadbois later exercised her right to see another doctor because she was dissatisfied with her original treating doctor.  She asked the return-to-work coordinator at the prison for a different physician, and received a list of other doctors from which she chose one.  She attended an appointment and scheduled a follow-up.  Gadbois was scheduled to work the day of the follow-up, but received permission to take time off to go to it.  Gadbois went from her home to her appointment.  After meeting with her doctor, Gadbois telephoned her supervisor and told her that she was on her way to work at the prison.

Gadbois was killed, and Kenneth Fields was injured, in a car accident that occurred while she was on her way to work.

Gadbois was paid for the day of her death pursuant to a prison death benefit policy that provides if an employee dies on a regular work day, whether at work, on the way to work, or on paid vacation or leave, the employee will be compensated without using leave credits.  Gadbois received her full salary for the day of the accident and was not paid from workers’ compensation or annual leave funds.

Gadbois was not driving a State-owned vehicle at the time of the accident.  Nor was she required to drive her own vehicle to work, and none of her duties as a cook required her to drive a vehicle.  She was not conducting State business prior to her trip to her medical appointment or her commute to work on the day of the accident.

Following presentation of Fields’ case, the State moved for nonsuit, claiming Gadbois was not acting within the scope of her employment at the time of the accident.  The trial court granted the motion.


The Court of Appeal affirmed.

Under the respondeat superior theory, an employer is vicariously liable for an employee’s torts committed within the scope of employment.  An employee is generally outside the scope of employment while engaged in the ordinary commute to and from the workplace under the “going-and-coming rule.”  However, an exception is made to the going-and-coming rule when the employee’s trip involves an incidental benefit to the employer.  Payment for travel time and expenses or travel to accomplish a special errand at the request of the employer may indicate such a benefit.

The court rejected Fields’ assertion that the State’s payment to Gadbois of her salary for the day of her death evidences that Gadbois was acting within the scope of employment when the accident occurred.   It refused to equate the payment of death benefits to reimbursement of travel expenses.


The nuances of the going-and-coming rule can be complicated and leave room for debate.  While this opinion offers guidance, the factual particulars of each case must be closely scrutinized.


Sellers Of Liquor Are Not Liable For Injuries Caused By Those Who Drink It

Ruiz v. Safeway, Inc.
(Cal. Ct. of App., 1st Dist.), filed October 12, 2012


Michael and Lydia Ruiz’s son, Alexander, was killed when his car was struck by a vehicle driven by an 18-year-old drunk driver named Dylan Morse.  Morse had been drinking beer that his friend Ryne Spitzer had bought at a Safeway store using a fake driver’s license.

The Ruizes sued Safeway alleging it was liable because it violated section Business and Professions Code section 25602.1, which makes it illegal to sell or give alcohol to an obviously intoxicated minor.  They asserted Safeway violated the statute by selling beer to a minor.

Safeway moved for summary judgment.  It argued that (1) it did not furnish or cause beer to be furnished to Morse, and (2) even if it did, neither Morse nor Spitzer was “obviously intoxicated” when Spitzer purchased the beer.

The trial court ruled there was a triable issue of fact as to whether Morse or Spitzer were “obviously” intoxicated.  However it also ruled that by selling beer to Spitzer, Safeway had not furnished it to Morse.  Summary judgment was granted.


The Court of Appeal affirmed.

By statute, serving alcoholic beverages is not the proximate cause of injuries inflicted upon another by the person to whom they were served.  There is an exception for one who provides such beverages to an obviously intoxicated minor.

The evidence showed Safeway’s checker sold beer to Spitzer.  But nothing about that sale constituted an affirmative act directly related to a sale to Morse, or an act that necessarily would have resulted in Spitzer furnishing or giving that beer to Morse.  The court concluded there was no evidence that Safeway caused beer to be furnished or given to Morse.


The court’s opinion reiterates the important distinction between selling alcohol to a minor, and selling alcohol to an obviously intoxicated minor who causes injury.


One Who Endorses A Check Can Be Liable For Conversion Regardless Of Whether He Knows Of An Equitable Lien Or Even Receives The Proceeds

Los Angeles Federal Credit Union v. Madatyan
(Cal. Ct. of App., 2d Dist.), filed October 11, 2012


The Los Angeles Federal Credit Union financed Areg Khachikian’s $136,126 purchase of a 2000 Bentley.  The loan agreement provided that the car was collateral for the loan and required Khachikian to maintain insurance for the car with the Credit Union as an additional insured.  However, Khachikian failed to name the Credit Union as an additional insured on the Allstate insurance policy that covered the vehicle.

After an accident damaged the Bentley, Khachikian took his car to an auto body shop to get a repair estimate.  Elvis Madatyan owned, and Edgar Madatyan managed, the shop.  Allstate Insurance Company sent Khachikian a $39,697.35 check to cover the damage, naming Khachikian and the shop as payees, but not the Credit Union.

Khachikian took the insurance check to the shop and asked Edgar to endorse it.  Edgar went with Khachikian to Bank of America to obtain a signature guarantee of Edgar’s endorsement.  Edgar endorsed the check on behalf of the shop.  Khachikian left the bank without cashing the check.  Edgar did not know Khachikian before Khachikian brought his car to the shop.  Edgar did not know that the Credit Union had a lien on Khachikian’s car before he endorsed the check.

Khachikian cashed the check, but did not have the Bentley repaired.  He paid nothing to the shop.  He also stopped paying on the loan.  He later filed bankruptcy.

The credit union sued the only solvent potential defendants, the shop and the Madatyans.  The trial court found that by assisting Khachikian in negotiating the insurance check, defendants “interfered with the [Credit Union’s] right” and therefore were liable for conversion.


The Court of Appeal affirmed.  It rejected the defendants’ contention that they could not have converted the Credit Union’s property because they did not receive and were never in control of the proceeds of the insurance check.  It also rejected their contentions a check cannot be converted solely by the act of endorsing it, the Credit Union had no interest in the check as the check was made payable to the shop and Khachikian, and did not know of the Credit Union’s existence.

Conversion is the wrongful exercise of dominion over the property of another.  The elements of a conversion claim are:  (1) the plaintiff’s ownership or right to possession of the property; (2) the defendant’s conversion by a wrongful act or disposition of property rights; and (3) damages.  Conversion is a strict liability tort.  The defendant’s good faith, lack of knowledge, and motive are ordinarily immaterial.

A lender has an equitable lien against insurance proceeds when its loan agreement calls for it to be named as an insured.  As such the Credit Union had an interest in the insurance proceeds.

By endorsing the draft, the defendants interfered with the Credit Union’s interest in the proceeds.


While the result is welcomed by lenders, the court’s decision raises several interesting issues.

The court relied on the case of McCafferty v. Gilbank, 249 Cal.App.2d 569, (1967), for the proposition that endorsing a check can constitute conversion.  However, there, the endorser knew of the lien on the proceeds.

Because equitable liens can arise in many circumstances, under the Court’s ruling, anyone who either signs off on a check or receives a check in payment of something can be liable for conversion to an unknown lien holder.  Here, the shop appreantly gave an estimate, but never actually worked on the Bentley.  Would it still be liable if it had repaired the car and received the check proceeds in payment?  Of course, if the Bentley had been repaired the lender’s security interest would not have been impaired.

Additionally, the opinion does not directly address how the shop’s conduct was a cause of the Credit Union’s damage.  Allstate put the shop’s name on the check only because it understood the shop was doing the work and would claim a lien.  The shop had no right to the proceeds unless it actually did the work.  Arguably, Khachikian’s decision to take insurance money without authorizing repairs was the sole cause of harm to the credit union (along with the failure to identify the credit union as a loss payee on the insurance policy).


A Law Firm Cannot Recover Legal Fees As A Prevailing Party When It Is Represented By Attorneys Who Are “Of Counsel” To It

Sands & Associates v. Juknavorian
(Cal. Ct. of App., 2d Dist.), filed October 10, 2012


Martin Juknavorian retained the law firm of Sands & Associates in a marital dispute.  The retainer agreement recited that any dispute concerning billing, the agreement, or the representation of Juknavorian would be submitted to binding arbitration.  The agreement informed Juknavorian of his right under the Mandatory Fee Arbitration Act (MFAA) (Bus. & Prof. Code sections 6200-6206) to require that an attorney fee dispute be arbitrated in accordance with a program established by a local bar association.  The agreement also provided:  “The arbitrator(s) shall have the discretion to order that . . . reasonable attorney’s fees shall be borne by the losing party.”

A dispute arose between the Sands firm and Juknavorian over attorney fees.  Juknavorian invoked his right to arbitration under the MFAA.  The Sands firm had Leonard Sands and Heleni Suydam, who were “of counsel” to it, handle the matter. The Sands firm prevailed.

Juknavorian then filed a legal malpractice action against the firm.  The firm filed a demurrer, contending the action was barred by the statute of limitations.  The superior court concluded the action was time-barred and dismissed it.  This was affirmed on appeal.

The Sands firm petitioned to confirm the arbitration award.  The trial court granted the petition.  This, too, was affirmed on appeal.

The Sands firm, represented by its “of counsel”, filed a motion for attorney fees pursuant to the prevailing party clause in the retainer agreement.  In his opposition papers, Juknavorian argued that “of counsel” were actually members of the Sands firm and that because the firm was self-represented in the litigation, it could not recover attorney fees.  The trial court granted the motion and awarded fees to the firm.

In the ensuing appeal, the Court of Appeal framed the issue as whether a law firm can recover attorney fees under a “prevailing party” clause when the firm is a successful litigant represented by “of counsel.”

In ruling that it could not, the court stated:

Our analysis is based on two well-settled principles.  First, when a law firm is the prevailing party in a lawsuit and is represented by one of its partners, members, or associates, it cannot recover attorney fees even though the litigation is based on a contract with a prevailing party clause.

Second, the relationship between a law firm and “of counsel” is “‘close, personal, continuous, and regular.’”  “‘[T]o the extent the relationship between [an attorney] or law firm and another [attorney] or law firm is sufficiently “close, personal, regular and continuous,” such that one is held out to the public as “of counsel” for the other, the . . . relationship must be considered a single, de facto firm for purposes of [avoiding the representation of adverse interests].’”

Similarly, because the relationship between a law firm and “of counsel” is close, personal, regular, and continuous, we conclude that a law firm and “of counsel” constitute a single, de facto firm, and thus a law firm cannot recover attorney fees under a prevailing party clause when, as a successful litigant, it is represented by “of counsel.”


This decision essentially applies the rule that a law firm that represents itself cannot recover “prevailing party” attorneys’ fees to an “of counsel” arrangement.


An Allegation Of Compliance With A Statutory Requirement May Suffice To Keep A Case In Court

Perez v. Golden Empire Transit District
(Cal. Ct. of App., 5th Dist.), filed October 5, 2012


Maria Perez was a passenger on a bus operated by Golden Empire Transit District.  She was injured while exiting the bus due to the carelessness of the bus driver.

Perez made a claim as required by the Government Claims Act, embodied in Government Code section 810, et seq.  After the Transit District rejected her claim, Perez filed a lawsuit.

The Transit District challenged the lawsuit with a demurrer.  It asserted that Perez’s claim was defective because (1) it failed to include the date of the occurrence, which is required by the Government Claims Act; (2) Perez was notified of the omission; and (3) Perez failed to file an amended claim to cure the omission.

Perez amended her complaint to allege that a representative of Transit District called her representative, stated no date was included in the claim, and requested the date of the incident be provided.  She also alleged she “subsequently provided the date of the incident to said representative, thus complying with the requirements of the government tort claim statute.”

The trial court sustained the demurrer and dismissed Perez’s lawsuit.


The Court of Appeals reversed.  It ruled that Perez’s allegations were legally sufficient to state a claim and if proved would support a verdict in her favor.

The court noted that Perez’s allegation did not identify how the date of incident was provided to Transit District’s representative.  For instance, it did not state whether the date was provided by oral or written means, much less whether an amended claim form, a letter or some other document was used.  Nonetheless, the court reasoned that under the rules governing appellate review of a demurrer, it had to interpret Perez’s allegations that she subsequently provided the date to the Transit District, when combined with her allegations regarding compliance with the claim requirement, as being sufficient to mean that she amended her claim.


Winning a battle does not ensure one will win the war.  Perez may have alleged enough to keep her suit alive, but that does not mean she can prove she actually amended her claim.  The court’s opinion suggests that the case could easily be lost, depending on the evidence surrounding the purported amendment.



A Party Seeking A New Trial Based On Alleged Juror Misconduct Has The Burden Of Proving It

Barboni v. Tuomi
(Cal. Ct. of App., 4th Dist.), filed October 1, 2012

Jean Barboni sued Fred and Linda Tuomi for injuries she claimed to have suffered in a slip and fall on their driveway.  A jury ruled the Tuomis were not negligent.

Barboni made a motion for new trial based on juror misconduct.  She asserted that the jury wrongfully considered evidence of liability insurance against the court’s instructions.

The trial court denied her motion.

The Court of Appeal affirmed.  It concluded the trial court properly considered competing juror declarations and found Barboni failed to establish juror misconduct.

Juror misconduct is one of the specified grounds for granting a new trial.  The trial court must undertake a three-step process to evaluate a motion for new trial based on juror misconduct.  The trial court must first determine whether the affidavits supporting the motion are admissible.  Second, if the evidence is admissible, the trial court must determine whether the facts establish misconduct.  Third, assuming misconduct, the trial court must determine whether the misconduct was prejudicial.

Like any issue of admissibility, an appellate court must review rulings on admissibility for abuse of discretion.

As to the existence of misconduct, the moving party bears the burden of establishing juror misconduct and the appellate court must accept the trial court’s credibility determinations and findings on questions of historical fact if supported by substantial evidence.

As to prejudice, an appellate court reviews the entire record, including the evidence, and makes an independent determination as to whether the misconduct was prejudicial.

The court determined that there was substantial evidence from which the trial court could have found there as no juror misconduct.  Although Barboni provided a declaration by one juror saying that the jury considered the possibility of liability insurance and felt Barboni was seeking a double recovery, the Tuomis submitted declarations from other jurors to the contrary.  Their declarations also stated the jurors felt Barboni was at fault for her fall and had exaggerated her injuries and that this is why the declarants found against her.  This was sufficient to support the denial of Barboni’s motion.

The court also rejected Barboni’s claims that she was entitled to a new trial because the trial court permitted the Tuomis to belatedly designate their expert witnesses.  The court concluded the trial court did not abuse its discretion on this point, and even if there was error, it did not constitute a miscarriage of justice requiring a new trial.


The Assignment Of A Claim On A Contract Was Valid

Fink v. Shemtov
(Cal. Ct. of App., 4th Dist.), filed September 28, 2012

Stone Center Corporation extended credit to Moses Shemtov for the purchase of certain building materials.  When Shemtov failed to make any payments, Stone Center assigned its claims against him to David Fink.  In connection with the assignment, Fink agreed to pay half of any recovery to Stone Center.

Acting in propria persona, Fink sued Shemtov, S&E Stone, Inc. and others on those claims.

The trial court entered a judgment in favor of S&E based on its finding that the assignment to Fink was void as against public policy.  It reasoned the agreement between Stone Center and Fink was not an assignment, but rather a joint venture for the prosecution of a lawsuit and that, as such, Fink was practicing law without a license.

The Court of Appeal reversed in part and affirmed in part.  It concluded the assignment was valid as it completely transferred all of Stone Center’s claims.  The agreement to split the recovery did not change this.  Assignments are valid in collections cases and do not create an attorney-client relationship.  Therefore, S&E was not entitled to judgment.