Key Decisions

September 2012 – All Articles

(filed under: Key Decisions Archive | September 26, 2012)

In Long-Tail Property Damage Claims, All Policies On The Risk Owe Indemnity Up To Their Limits And The Limits Stack

State of California v. Continental Insurance Company
(Cal. Sup. Ct.), filed August 9, 2012


The State of California operated the Stringfellow Acid Pits, an industrial waste disposal facility from 1956 to 1972. Due to various negligent acts and omissions, waste from the site leaked into the groundwater. This leakage was continuous from the time the site opened to the time it was closed.

The State was subject to a federal court-ordered cleanup of the Stringfellow Acid Pits. The State sought indemnity under the policies for the cost of the cleanup.

The State was insured under a variety of comprehensive general liability (CGL) insurance policies, issued by a variety of insurers between 1964 and 1976.

Various insurers agreed “[t]o pay on behalf of the Insured all sums which the Insured shall become obligated to pay by reason of liability imposed by law . . . for damages . . . because of injury to or destruction of property, including loss of use thereof.” Liability limits were a specified dollar amount of the “ultimate net loss [of] each occurrence.” “Occurrence” was defined as meaning “an accident or a continuous or repeated exposure to conditions which result in . . . damage to property during the policy period . . . .” In addition, “ ‘ultimate net loss’ [was] understood to mean the amount payable in settlement of the liability of the Insured arising only from the hazards covered by this policy after making deductions for all recoveries and for other valid and collectible insurances . . . .”


The California Supreme Court ruled that (1) every insurer that had issued a policy to the State during the period of the loss was liable, up to its policy limits; (2) the limits on the policies “stacked;” and (3) the insurers could seek contribution from each other to the extent any of them felt it was paying more than its fair share.

In reaching this conclusion, the Court noted that it is often “virtually impossible” for an insured to prove what specific damage occurred during each of the multiple consecutive policy periods in a progressive property damage case and that if the insured had to do so, an insured who had procured insurance coverage for each year during which a long-tail injury occurred likely would be unable to recover from any of the insurers. Since the particular policies did not include language addressing such injuries or addressing stacking of limits, the equitable thing to do was to hold all insurers liable and to let them sort it out among themselves.

As to stacking, the Court stated:

An all-sums-with-stacking rule has numerous advantages. It resolves the question of insurance coverage as equitably as possible, given the immeasurable aspects of a long-tail injury. It also comports with the parties’ reasonable expectations, in that the insurer reasonably expects to pay for property damage occurring during a long-tail loss it covered, but only up to its policy limits, while the insured reasonably expects indemnification for the time periods in which it purchased insurance coverage. All-sums-with-stacking coverage allocation ascertains each insurer’s liability with a comparatively uncomplicated calculation that looks at the long-tail injury as a whole rather than artificially breaking it into distinct periods of injury.


While this result seems to follow naturally from cases such as Montrose Chem. Corp. v. Admiral Ins. Co., 10 Cal.4th 645 (1995), the Court’s opinion does go further in terms of protecting policyholders where the only uncertainty relates to the covered period damage actually occurred in.

As the Court noted, however, “The most significant caveat to all-sums-with-stacking indemnity allocation is that it contemplates that an insurer may avoid stacking by specifically including an ‘antistacking’ provision in its policy.”


Failing To Renew An Employee’s Contract For An Additional Period Does Not Support A Cause Of Action For Wrongful Termination

Touchstone Television Productions v. Superior Court
(Cal. Ct. of App., 2d Dist.), filed August 16, 2012


Touchstone Television Productions hired actress Nicollette Sheridan to appear in the first season of the television series Desperate Housewives. The agreement gave Touchstone the option to renew Sheridan’s services on an annual basis for up to six more seasons. Touchstone renewed Sheridan’s services up to and including Season 5. During Season 5, Touchstone informed Sheridan it would not renew her contract for Season 6.

Sheridan sued Touchstone for wrongful termination. She alleged that Touchstone had fired her because she had complained about a battery allegedly committed upon her by Desperate Housewives’ creator Marc Cherry.


The Court of Appeals held that when an employer hires an employee for a specific period of time and then elects not to renew an employee’s contract for an additional period of time, there is no firing and therefore no cause of action for wrongful termination. However, there may be a cause of action under Labor Code section 6310.

Section 6310 permits an action for damages if an employee is discharged, threatened with discharge, or discriminated against by his or her employer because of the employee’s complaints about unsafe work conditions. To prevail on such a claim, the plaintiff must prove that, but for his or her complaints about unsafe work conditions, the defendant would have renewed the employment contract. Damages are limited to lost wages and work benefits.

Since Sheridan had requested leave to amend, the court ordered that she be permitted to amend to allege a cause of action under section 6310.


This opinion shows that in many circumstances, a decision not to renew a contract will be treated differently than mid-term termination of a contract.


When A Non-Competition Agreement In An Agreement To Sell A Business Was Different From One In An Employment Agreement, The Latter Was Unenforceable

Fillpoint, LLC v. Maas
(Cal. Ct. of App., 4th Dist.), filed August 24, 2012


Michael Maas was employed by Star Video Games, and owned stock in Star Video Games’s parent company, Crave. In 2005, Handleman acquired Crave. Maas and the other Crave stockholders, including Taghavi, sold their stock to Handleman. The purchase agreement included a covenant not to compete that prohibited Maas, as well as the other former Crave stockholders, from engaging in the business of distribution and publishing of video games for 36 months after the sale.

About a month after the purchase agreement was signed, Maas entered into an employment agreement with Crave, agreeing to work for Crave for three years. The employment agreement also included a covenant not to compete or solicit for one year after expiration of the employment agreement or after the earlier termination of Maas’s employment.

Taghavi resigned from Crave in December 2006. Maas resigned from Crave in November 2008, after satisfying the three-year covenant not to compete contained in the purchase agreement, and fulfilling the three-year term of the employment agreement.

In February 2009, Fillpoint acquired Crave’s assets. In April 2009, Crave assigned Maas’ employment agreement to Fillpoint.

In June 2009, Maas became the president and chief executive officer and a shareholder of Solutions 2 Go, a company owned by Taghavi. Solutions 2 Go is a competitor of Crave.

Fillpoint sued Maas for breach of the employment agreement, and sued Taghavi and Solutions 2 Go for tortious interference with the employment agreement.

The trial court granted a nonsuit in favor of Maas, Taghavi and Solutions 2 Go based on its conclusion that the non-competition agreement in Maas’ employment agreement was unenforceable as being contrary to public policy.


The Court of Appeal affirmed.

Under the general rule in California, covenants not to compete are unenforceable. To protect an acquired business’s goodwill, an exception to this rule allows such covenants in connection with the sale of a business. This exception, however, is limited.

The court found that the three-year covenant not to compete in the stock purchase agreement was designed to protect the goodwill of the business being sold. Handleman and its successor in interest, Fillpoint, received the full benefit of that covenant for three years following Handleman’s acquisition of Maas’ Crave stock.

The covenant Fillpoint sought to enforce by way of its lawsuit was a separate non-competition and non-solicitation covenant in the employment agreement, which could only be triggered when Maas left Crave’s employ. It was designed to protect a different interest than the covenant in the stock purchase agreement, i.e. something other than the company’s goodwill. As such, it was void and unenforceable under California law.


This opinion offers a good summary of California law pertaining to non-compete agreements.


California No Longer Follows The Common Law “Release Rule”

Leung v. Verdugo Hills Hospital
(Cal. Sup. Ct.), filed August 23, 2012


Six days after his birth, Adrian Ming-Ho Leung suffered irreversible brain damage. Through his mother, he sued his pediatrician and the hospital in which he was born.

Before trial, Leung and the pediatrician agreed to a settlement of $1 million, the limit of the pediatrician’s malpractice insurance policy. The trial court denied the pediatrician’s motion for a determination that the settlement was made in “good faith.” It found the settlement to be “grossly disproportionate to the amount a reasonable person would estimate” the pediatrician’s share of liability would be.

At trial, a jury awarded plaintiff both economic and noneconomic damages. The jury found that the pediatrician was 55 percent at fault, the hospital 40 percent at fault, and Leung’s parents 5 percent at fault.

The hospital filed an appeal. One of its major contentions was that under the common law “release rule,” Leung’s settlement with the pediatrician also released it from liability for Leung’s economic damages. The Court of Appeal reluctantly agreed. It observed that although the California Supreme Court “has criticized the common law release rule,” it “has not abandoned it.” It therefore reversed the judgment.


The California Supreme Court reversed the decision of the Court of Appeal and remanded for further consideration. It held that the “release rule” no longer applies in California. It also held that, subject to a set-off for the amount the pediatrician paid, the hospital was liable for all of Leung’s economic damages and that it had the right to seek contribution from the pediatrician for his share of the damages.

Under the traditional common law rule, a plaintiff’s settlement with, and release from liability of, one joint tortfeasor also releases from liability all other joint tortfeasors. The rationale for the rule was that there can be only be one compensation for a single injury and because each joint tortfeasor is liable for all of the damage, any joint tortfeasor’s payment of compensation in any amount satisfies the plaintiff’s entire claim.

The “release rule” can lead to harsh results because, for example, a plaintiff might have settled with one tortfeasor for a sum far less than the plaintiff’s damages because that is all the tortfeasor can afford to pay.

In an effort to avoid an unjust and inequitable result in such a situation, California courts hold that a plaintiff who settled with one of multiple tortfeasors could, by replacing the word “release” in the settlement agreement with the phrase “covenant not to sue,” and by stating that the agreement applied only to the parties to it, preserve the right to obtain additional compensation from the nonsettling joint tortfeasors.

In 1957, the California Legislature Code of Civil Procedure section 877 modified the common law “release rule” by providing that a “good faith” settlement and release of one joint tortfeasor, rather than completely releasing other joint tortfeasors, merely reduces, by the settlement amount, the damages that the plaintiff may recover from the nonsettling joint tortfeasors, and that such a good faith settlement and release discharges the settling tortfeasor from all liability to others. However, the statute governed only good faith settlements.

Section 877 did not apply to Leung’s lawsuit because the trial court determined that the pediatrician’s settlement was not in “good faith.”

Recognizing that settlements might occur even though they did not fully compensate an injured plaintiff, the fiction used by the courts to avoid the “release rule” and rejecting the hospital’s contention that in enacting section 877, the Legislature signaled an intent to preclude future judicial development of the law pertaining to settlements involving joint tortfeasors. The Court held that the “release rule” would no longer be followed in California.

The Court then turned to the question of the apportionment of liability among joint tortfeasors when one tortfeasor settles, but the settlement has been made in “good faith” under section 877. (When there is a finding of “good faith,” the settlement discharges the settling tortfeasor from liability for contribution.)

The Court noted that there were three possible ways of apportioning liability: (1) applying a set-off for the amount paid by the settling tortfeasor and allowing a contribution action; (2) applying a set-off for the amount paid by the settling tortfeasor and not allowing a contribution action; and (3) payment of just the tortfeasor’s proportionate share of the damage award.

The Court summarily rejected the option of a set-off without contribution as that was reserved for when there was a finding of “good faith.”

The Court then compared the remaining options and concluded that considerations of practical utility and fairness dictated that a set-off with contribution be used.


The release rule created a potential trap for settling plaintiffs, and any corresponding utility was not readily apparent to the Supreme Court. This decision certainly adds clarity to California law.


The Spouse Of A Worker Injured By A Power Press Cannot Maintain An Action For Loss Of Consortium As That Spouse’s Claims Are Limited By The Workers’ Compensation Laws

LeFiell Manufacturing Co. v. Superior Court
(Cal. Sup. Ct.), filed August 20, 2012


O’Neil Watrous was injured while operating a power press while working for his employer, LeFiell Manufacturing Company. O’Neil sued LeFiell for damages for negligence, products liability, and a violation of Labor Code section 4558 (for failing to have a proper guard on the power press). His wife, Nidia, sought damages for loss of consortium based on O’Neil’s injuries.

LeFiell challenged the legal sufficiency of the complaint, asserting the O’Neil’s causes of action for negligence and products liability were barred by the exclusivity rule of the workers’ compensation laws. It also contended Nidia lacked standing to pursue or join in any cause of action for tort damages arising from the power press injury, and that her loss of consortium claim for damages was barred by the exclusivity rule and did not fall within any of the recognized statutory exceptions to that rule.

The trial court overruled LeFiell’s challenge to O’Neil’s causes of action for negligence and products liability. It sustained the challenge to all of Nidia’s causes of action except her claim for loss of consortium. It concluded that because O’Neil had pleaded sufficient facts to support the “power press exception” to the exclusivity rule, Nidia could properly assert a claim at law for loss of consortium.

The Court of Appeal directed the trial court to vacate its order overruling LeFiell’s challenge to O’Neil’s negligence and products liability causes of action, and to enter a new order dismissing those causes of action. It concluded that although there was an exception to the exclusivity rule for injuries involving power presses, to establish liability, an injured employee had to prove all of the elements of the exception, not just that the employer was negligent or that the product was defective.

The Court of Appeal concluded that Nidia’s loss of consortium claim fell outside the workers’ compensation laws and the exclusivity rule did not bar her claim.


The California Supreme Court held that the Labor Code’s “power press exception” to the exclusivity rule applied to injured workers, or in the event of their death, to their heirs, but did not apply to a spouse’s claim for loss of consortium when the worker did not die. As a result, the Court held that the trial court should have dismissed Nidia’s loss of consortium claim as any such claim was subject to the exclusivity of the workers’ compensation laws.


Workers’ compensation exclusivity issues are frequently litigated. This time, the Supreme Court refused to establish another exception to exclusivity.


A Witness Qualified As An Expert And His Declaration Established A Sufficient Foundation For His Opinions

Howard Entertainment, Inc. v. Kudrow
(Cal. Ct. of App., 2d Dist.), filed August 22, 2012


Actress Lisa Kudrow entered into an oral agreement with Scott Howard under which Howard would be her personal manager. For his services, Howard would receive a percentage of Kudrow’s income.

Kudrow terminated Howard’s services. However, Howard claimed that he should continue to receive payment for engagements that Kudrow undertook while he was her personal manager. Howard relied upon custom and usage in the industry to support his claim.

Kudrow moved for summary judgment. She asserted that there was no agreement that Howard would receive compensation once his engagement as personal manager ended.

Howard opposed Kudrow’s motion. To show a triable issue of material fact, Howard attempted to show that the custom and usage in the industry was that personal managers would receive post-termination compensation for engagements undertaken during the term of their employment. To show custom and usage in the industry, Howard submitted a declaration of Martin Bauer. Bauer purported to be an expert on such matters.

Kudrow objected to much of Bauer’s declaration, claiming it lacked foundation. The trial court sustained her objections and granted her motion.


The Court of Appeal reversed. It held that Bauer’s declaration should have been admitted in evidence.

Custom and usage may be looked to, both to explain the meaning of language and to imply terms, where no contrary intent appears from the terms of the contract. Thus, custom and usage in the entertainment industry could become part of the oral agreement between Kudrow and Howard to explain whether Howard was entitled to receive post-termination compensation.

Expert testimony is admissible to prove custom and usage in an industry. However, such testimony can be challenged for lack of foundation. The lack of foundation for an expert’s testimony can be based on things such as the expert not being qualified, the invalidity of the principles or techniques upon which the expert relied, or as to the lack of reliability and relevance of the facts upon which the expert relied.

The foundation required to establish the expert’s qualifications is a showing that the expert has the requisite knowledge of, or was familiar with, or was involved in a sufficient number of transactions involving the subject matter of the opinion.

The court found that Bauer’s declaration established his qualifications as an expert. It found that the fact that Bauer was not a personal manager at the time Howard and Kudrow made their oral agreement was not fatal to his qualifications as an expert. It noted:

[W]e conclude the additional Bauer declaration demonstrated, for purposes of opposing Kudrow’s motion for summary judgment, that Bauer had the requisite knowledge of, or was familiar with, or was involved in a sufficient number of transactions to establish a sufficient foundation for his qualifications to opine that it was the custom and usage during the relevant period of time to pay to personal managers post-termination commissions on engagements entered into and services rendered during the representation.

An expert may rely upon experiences and conversations he or she has had and information he or she has obtained without the necessity of providing the specifics of such experiences and conversations. For example, a gang expert may rely on conversations with gang members, his or her personal investigations of gang-related crimes, and information obtained from colleagues and other law enforcement agencies. Therefore, the trial court improperly concluded that Bauer’s lack of specificity as to his experiences rendered his opinions inadmissible.

The court noted that “Bauer’s testimony might be discounted at trial;” but that it was admissible and something the trier of fact was entitled to consider.


The admissibility of expert opinions may be critical at trial, or earlier in conjunction, with summary judgment motions. This opinion helps clarify the acceptable basis for some expert opinions.


Even Though The Trial Court Found A Plaintiff Was Not Entitled To Certain Discovery, The Plaintiff Was Substantially Justified In Moving To Compel

Diepenbrock v. Brown
(Cal. Ct. of App., 1st Dist.), filed July 31, 2012


Claire Diepenbrock sued Kyle Brown and others for serious personal injuries she suffered when struck on her bicycle by a car driven by Kyle Brown. She did not, however, sue Derek Brown, Kyle’s husband. After Kyle pleaded guilty in separate criminal proceedings to the felony of driving under the influence of a prescription medication, the trial court permitted Diepenbrock to amend her complaint to add a claim for attorney fees under Code of Civil Procedure section 1021.4. The trial court also granted Diepenbrock’s motion for discovery relative to Kyle’s financial condition.

Diepenbrock noticed Derek’s deposition and requested production of, among other things, documents relating to the Browns’ financial condition. Derek appeared at the deposition and answered some questions. However, the deposition was adjourned after the attorneys could not reach an agreement regarding the scope and applicability of the marital privilege. Derek asserted the marital privilege and refused to answer such questions as whether the vehicle involved in the accident was purchased with community assets, whether he had any concerns about his wife driving because of her existing medical conditions, and whether he ever discussed with his wife that she was abusing prescription medication.

Diepenbrock filed a motion to compel Derek to answer the disputed questions. In response, Derek sought a protective order precluding his further examination on the ground that the information is protected by the marital privilege. Both motions sought sanctions against the opposing party.

The trial court granted Derek’s request for a protective order and entered an order awarding sanctions against Diepenbrock and her attorney in favor of Derek Brown and his attorney.


The Court of Appeals reversed the sanction award.

The court first held that although an order or judgment imposing sanctions in an amount of $5,000 or less is ordinarily not appealable until entry of a final judgment, the one before it was appealable as a final judgment on a collateral matter. The court reasoned that the order finally resolved all issues between Diepenbrock and her attorney on the one hand and Derek and his attorney on the other.

The court then turned to the question of sanctions. The answer turned on whether Diepenbrock was “substantially justified” in making a motion to compel and opposing Derek’s motion for a protective order.

“Substantial justification” as used in the discovery statutes means a justification that is “well-grounded in both law and fact.”

The court found that the law regarding implied waiver of the marital privilege when one spouse is suing or being sued and community assets are at stake was unsettled and Diepenbrock and her attorney’s argument was based on available authority. As a result Diepenbrock’s position was not unreasonable. Even though the trial court rejected Diepenbrock’s position, she did not act without substantial justification.


Although the court ruled on the propriety of sanctions, it did so based only on the fact that Diepenbrock’s motion was well-grounded in both law and fact. The court did not consider whether the trial court erred in denying Diepenbrock’s motion to compel as that issue was not properly before it.


A Proposed Arbitrator In A Legal Malpractice Case Properly Disclosed Any Matter He Was Required To Disclose

Nemecek & Cole v. Horn
(Cal. Ct. of App., 2d Dist.), filed July 23, 2012


Henry and Janelle Hoffman hired attorney Steven Horn to represent them in a lot line dispute with their neighbors. The Hoffmans lost at trial. They hired a different attorney to represent them on appeal. The judgment was reversed on appeal.

Horn sued the Hoffmans for unpaid fees and the Hoffmans counter-claimed for fraud, alleging that Horn materially misrepresented his experience in real estate matters, improperly billed the Hoffmans and failed to timely tender a cross-complaint to their homeowners insurance.

Horn retained Nemecek & Cole to represent him in the matter against the Hoffmans. The jury returned a verdict of $42,282.56 to Horn on his fee claim against the Hoffmans and an identical amount to the Hoffmans on their fraud action against Horn.

The Hoffmans appealed. The Court of Appeal determined that they were entitled to attorney fees from Horn since they were the prevailing defendants on Horn’s complaint. On remand, the trial court ordered Horn to pay approximately $380,000 in attorney fees to the Hoffmans.

Horn believed Nemecek’s negligence was the cause of the “disastrous results” in his claim against the Hoffmans. He demanded Nemecek submit to arbitration with the Judicial Arbitration and Mediation Service (JAMS) as specified in their retainer agreement. Nemecek filed a counter-claim against Horn for unpaid attorney fees and costs.

The parties chose retired U.S. District Judge George Schiavelli as the arbitrator. The arbitrator presented his disclosure statement to the parties and Horn requested additional disclosure of all matters in which Nemecek appeared before the Arbitrator. JAMS responded that no case was found.

The evidentiary hearing lasted five days, with each party submitting testimony and briefing. In an extensive opinion, the arbitrator noted that issues of credibility were very important and “found Horn’s credibility lacking.” The arbitrator ordered the parties to take nothing on their respective claims but allowed either party to claim attorney fees if they wished to do so.

Both parties submitted claims for attorney fees. The arbitrator found Nemecek was entitled to $289,028.85 in attorney fees as the prevailing defendant.

Horn hired a private investigator to determine whether there existed any undisclosed relationships between the arbitrator and Nemecek, its counsel or its witnesses. The private investigator discovered the following: the arbitrator and the head of Nemecek’s appellate department, Mark Schaeffer, were both members of the Los Angeles County Bar Association’s Appellate Executive Committee Section; the arbitrator and Edith Matthai, Nemecek’s expert witness in the arbitration, appeared together as panelists for various seminars and were both members of the board of governors of the Association of Business Trial Lawyers; the arbitrator was employed as an attorney at the firm of Brown, White & Newhouse, which represents lawyers in malpractice actions; and Nemecek attorneys appeared before the arbitrator when he was a district court judge in 2006. Based on these “undisclosed relationships,” Horn petitioned to vacate the arbitration award. The trial court entered judgment in favor of Nemecek.


The Court of Appeal affirmed.

The court recognized that a proposed neutral arbitrator must disclose to the parties within 10 days of being chosen “all matters that could cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial[.]” These disclosures include “[a]ny professional or significant personal relationship the proposed neutral arbitrator or his or her spouse or minor child living in the household has or has had with any party to the arbitration proceeding or lawyer for a party.”

The court then turned to Horn’s specific complaints. They were that the arbitrator was required, but failed, to disclose: (1) his professional relationship with Mark Schaeffer; (2) his professional relationship with Edith Matthai; (3) Nemecek’s appearance before him while he was a district court judge; and (4) his work for Brown, White & Newhouse.

The court concluded the arbitrator’s participation in the Los Angeles County Bar Association’s Appellate Executive Committee Section, a group comprised of 186 members, of which Schaeffer was one, did not require disclosure. It concluded that the arbitrator’s membership with Schaeffer in the committee was too “slight or attenuated” to require disclosure. And, it noted that there was no indication of any personal or other professional relationship between them.

The court held that the arbitrator’s participation in the same panels or bar association committees as Edith Matthai or her late husband, Jim Robie, did not provide a credible basis for inferring an impression of bias.

The court next held that the arbitrator’s role as “of counsel” at Brown, White & Newhouse was not a basis for vacating the arbitration award. The evidence was that Brown, White & Newhouse handles criminal defense and civil litigation and, since its founding, had represented plaintiffs in two legal malpractice cases and a defendant in one other and the arbitrator had not worked on any legal malpractice matter for that firm.

The court rejected Horn’s argument that the arbitrator should have disclosed that Nemecek attorneys had appeared before him in one case while he was on the district court bench, saying that it “borders on frivolous.”


This opinion seems to recognize that if arbitrator conflicts are taken to an extreme, few people will be able to serve as arbitrators.


Other Cases Of Interest

An Insured Was Entitled To A Jury Trial In An Insurer’s Action For Declaratory Relief Regarding Coverage

Entin v. Superior Court
(Cal. Ct. of App., 2d Dist.), filed August 20, 2012

Allen Entin owned two disability income insurance policies. In 2009, Entin filed a claim asserting that migraine headaches had rendered him totally disabled. Entin’s insurer, Provident Life and Accident Insurance Company, agreed to pay Entin benefits while investigating his claim. At the conclusion of its investigation, Provident filed a declaratory relief action seeking a determination that Entin was not totally disabled within the meaning of his policies.

In its complaint, Provident stated that it would continue to pay Entin benefits during the pendency of the action and would not seek reimbursement of those payments.

Entin requested a jury trial. The trial court denied the request, concluding that Provident’s claim was equitable in nature because it sought only a declaration of rights and because Provident was continuing to pay Entin disability benefits during the pendency of the action.

The Court of Appeal issued writ of mandate directing the Superior Court to grant Entin’s request for a jury trial. It held that in the context of declaratory relief actions, the right to a jury trial depends on whether the issues raised in the complaint are legal or equitable in nature. It also held that Provident’s declaratory relief claim raised factual questions pertaining to contractual rights, which were legal in nature. Although Provident had elected to pay Entin benefits while pursuing the action, that did not transform the nature of the dispute into one arising in equity. Entin was therefore entitled to a jury trial.


A Choice Of Law Provision In An Indemnity Agreement Was Not Against Public Policy

Maxim Crane Works v. Tilbury Constructors
(Cal. Ct. of App., 3d Dist.), filed August 8, 2012

Steven Gorski sued Maxim for personal injuries arising from a worksite injury. Maxim cross-complained against Tilbury Constructors, Gorski’s employer, seeking indemnity. Maxim’s indemnity claim was based on a contract between it and Tilbury. The contract, which used a preprinted form supplied by Maxim, provided that it would be governed by Pennsylvania law. The contract provided that in the event Maxim had to sue on the contract, it would be entitled to attorney’s fees.

The trial court found the indemnity agreement under which Maxim was suing, was inapplicable to Gorski’s claim. It based this finding on Pennsylvania law.

The trial court then awarded Tilbury its attorney’s fees in full, without apportioning them between defending against the indemnity contract and defending against Gorski’s underlying claim.

On appeal, Maxim contended the trial court should not have applied Pennsylvania law to the dispute between it and Tilbury. Maxim also challenged the award of attorney fees.

The Court of Appeal affirmed.

The court first found that Maxim and Tilbury were free to select whose law to apply and that since Maxim was a Pennsylvania company and its contract provided that Pennsylvania law governed, it was reasonable to apply Pennsylvania law. It then rejected Maxim’s argument that applying Pennsylvania law was contrary to California public policy. Since the issue was how liability should be shared as between Maxim and Tilbury, California’s public policy of ensuring injured workers were compensated was not in issue.

The court next found that the trial court had not abused its discretion in awarding Tilbury its attorney’s fees without trying to apportion between those incurred in challenging Gorski’s injury claims and Maxim’s indemnity claims. The court ruled that since Maxim had conceded that California law made the attorney’s fee clause in its contract reciprocal, Maxim could not challenge the application of California law to the fee issue. It then ruled that given the interrelationship between Gorski’s injuries, Maxim’s liability for those, and Tilbury’s potential liability for indemnifying Maxim, the trial court could properly award Tilbury its fees without apportionment.


Sums Promised To Be Paid In Settlement Of A Lawsuit Were Subject To The Anti-Deficiency Statute Because The Settlement Effected Only A Modification Of A Promissory Note

Weinstein v. Rocha
(Cal. Ct. of App., 2d Dist.), filed August 1, 2012

Alan and Dorina Weinstein purchased real property from Juan Rocha. The primary financing was supplied by a third-party who was given a promissory note and a first trust deed. However, part of the financing was provided by Rocha who was given a promissory note and a second deed of trust.

The Weinsteins sued Rocha. They alleged that Rocha had failed to make proper disclosures in connection with the sale. The Weinsteins and Rocha settled the lawsuit. The settlement provided for a reduction of the promissory note and deed of trust in favor of Rocha.

Sometime later, the Weinsteins stopped paying on Rocha’s note. Rocha sued on the note and obtained a judgment against them for the note’s entire balance.

The Weinsteins appealed, asserting that the anti deficiency statute embodied in Code Civil Procedure section 580b should have limited Rocha’s relief to foreclosing on the promissory note’s security.

The Court of Appeal held that Rocha’s right to recover on the secondary lien was limited by the anti deficiency statute. It reasoned that the settlement agreement was not an ordinary settlement agreement that might be enforced, but rather effected a modification of the promissory note, and it was still subject to the anti-deficiency statute.


Becoming Domestic Partners Requires Certain Specific Acts

Burnham v. California Public Employees’ Retirement System
(Cal. Ct. of App., 3d Dist.), filed August 31, 2012

James Burnham and Kathleen Honeyman wanted to become domestic partners. On a Saturday morning, they completed a notarized declaration of domestic partnership. Later that afternoon, Burnham died. The following day, Honeyman presented the declaration to the Office of the Secretary of State, and the clerk filed it.

Honeyman applied for Burnham’s state pension survivor benefits. The administrative board of the state pension system ruled Honeyman was entitled to the benefits, but the trial court held she was not because Honeyman and Burnham were not domestic partners at the time he died.

The Court of Appeal affirmed. The Legislature by statute has enumerated the requirements for establishing a domestic partnership. The statute states in relevant part, “A domestic partnership shall be established in California when both persons file a Declaration of Domestic Partnership with the Secretary of State . . . , and, at the time of filing . . . [b]oth persons are capable of consenting to the domestic partnership.”

The court held that presenting a declaration of domestic partnership for filing with the Secretary of State was a necessary prerequisite for a valid domestic partnership, and that at the time of presentation, both individuals to the partnership must be capable of consenting. Because Burnham was deceased when Honeyman presented the declaration for filing, Honeyman and Burnham never became domestic partners. Therefore, Honeyman was not entitled to Burnham’s state pension survivor benefits.


Advocating Novel Interpretations Of The Law Is Commendable, But One Must Be Wary Of Going Too Far

Fluor Corporation v. Superior Court
(Cal. Ct. of App., 4th Dist.), filed August 30, 2012

Fluor Corporation was insured by Hartford Accident and Indemnity Company. After a complex corporate restructuring that resulted in an entirely new and different Fluor Corporations, a dispute arose over Hartford’s duty to defend. In the ensuing coverage litigation, Hartford asserted that anti-assignment language in its policies precluded coverage for the new entity. Fluor sought to dispose of this assertion by way of a motion for summary adjudication. The trial court denied Fluor’s motion.

The Court of Appeal denied Fluor’s petition for a writ of mandate, explaining:

Ostensibly, this would be an open-and-shut case, at least for purposes of the instant motion for summary adjudication. In Henkel Corp. v. Hartford Accident & Indemnity Co., (2003) 29 Cal.4th 934 (Henkel), our Supreme Court enforced an identical consent-to-assignment clause under a similar fact pattern. As a result, a company that acquired a policyholder’s assets and liabilities could not receive the benefits of the policyholder’s “occurrence-based” liability coverage.

However, regardless of the facts that (1) the California Supreme Court decided the Henkel case and (2) lower courts are obligated to follow the law as established by the California Supreme Court, Fluor wanted the Court of Appeal to reach a different result. The Court of Appeal said:

But, we are told, the Supreme Court did not have access to all the pertinent facts. Despite the case’s high visibility, drawing amicus briefs on both sides, the decision is described as having been “announced in ignorance” as a result of a “remarkable failure of the adversary system.” Even the “integrity of that proceeding” is called into question.

The court continued:

Why are we urged to ignore this controlling decisional law? According to petitioner [Fluor], we must do so because the Legislature has adopted a contrary rule — a “statutory directive” which “conclusively draws the line . . . .”

Petitioner [Fluor] has unearthed this legislative pronouncement in a statute originally enacted in 1872, which provides: “An agreement not to transfer the claim of the insured against the insurer after a loss has happened, is void if made before the loss . . . .” (Cal. Ins. Code § 520.) It calls this statute a “controlling pronouncement of the law,” which announces an “expressed legislative will.”

Of this “controlling pronouncement of the law,” the court observed:

During the 130 years since its enactment, the 1872 statute has been cited only once. No one raised it in Henkel. This decision will be the second judicial opinion in the history of the state to even mention the statute, and the first to address it.

There is a logical reason for this obscurity. The 1872 statute can have no bearing as a “clear” or “controlling” legislative expression on the assignability of liability insurance for the simple reason that liability insurance did not exist in 1872. We will not ascribe to the dead hand of the 1872 Legislature controlling power over a medium that had yet to come into being.

Elsewhere in its opinion, the court said of this “controlling pronouncement of the law”:

Insurance Code section 520’s obscurity survived through the appellate proceedings in Henkel. Despite Henkel’s notoriety, and the national attention it drew, no litigant or amici so much as mentioned the supposed centrality of section 520, either before or after the decision’s issuance. Fluor-2 is mystified by this omission and can offer no rational explanation for this “failure of the adversary system” which it characterizes as both “remarkable” and “unique.” “[Fluor-2] has been unable to identify another instance in which the parties, numerous amici curiae, the trial court, a Court of Appeal [citation], and finally our Supreme Court, all failed to identify a California statute squarely controlling the legal issue presented in a case — much less a case of major economic importance and national visibility.” (Fn. omitted.)

We have a more mundane explanation why Insurance Code section 520 has remained hidden for so long. There is less to the statute’s supposed significance regarding assignability of liability insurance than meets the eye.

The court reasoned: “It is a fundamental doctrine of statutory interpretation that statutes are to be construed in the context in which they were written.” Thus, it looked at the context in which the statute was written:

Insurance Code section 520, as we have noted, was first adopted in 1872, when the industrial revolution and California statehood were in their childhood, seven years before California adopted its current constitution in 1879. At the time, liability insurance did not even exist as a concept. Insurance provided protection against first party marine, fire, and property damage losses.

As such, the concept of “loss,” to which the 1872 statute referred, is easily identifiable for first-party property damage coverage.

The concept of “loss” for purposes of a liability insurance policy, particularly in the context of injuries that do not manifest for years or decades after the wrongful act, is entirely different. This difference gives rise to different interests relative to the assignability of policies. Since the Legislature could not have considered the difference or different interests, it could not have intended the statute to apply to liability insurance policies.