Tuesday, September 19, 2017

So Much for Expedient, Efficient, and Cost Effective

Harshad & Nasir Corp. v. Global Sign Systems, No. B269429 (D2d1 Aug. 15, 2107)

The posture here is pretty odd. SignCo sued BurgerCo over $100k in unpaid invoices. The case went all the way through discovery, but three weeks before trial, the parties agreed to arbitrate whatever amounts BurgerCo owed SignCo for services rendered, with the arbitrator to act as if he were a superior court judge subject to the Code, and that the arbitrator’s award would be reviewed just as if it were the judgment of the superior court. Basically, they agreed to an arbitration that had all of the characteristics of a judicial reference.

Monday, September 18, 2017

§ 998 Shifts Costs in FEHA and POBRA Cases

Sviridov v. City of San Diego, No. D069785 (D4d3 Aug. 15, 2017)

The general rule in California is that a prevailing defendant can recover its costs. See Cal. Code Civ. Proc. § 1032(a). But there are various statutes that create an exception to that rule, permitting cost-shifting only when the claim is objectively devoid of merit. Two such statutes implicated here: The Fair Employment and Housing Act and the Public Safety Officers Procedural Bill of Rights Act. But in this case, costs weren’t awarded just because Defendant prevailed. They were awarded because Plaintiff rejected several offers of judgment under Code of Civil Procedure § 998 and failed to best the offers at trial. In a terse analysis, the Court of Appeal holds here that the FEHA and POBRA do not create exceptions to cost-shifting when it is imposed under § 998(c)(1), as opposed to § 1032.

Affirmed.

Friday, September 15, 2017

Reverse Veil Piercing for Alternative Entities

Curci Inv., LLC v. Baldwin, No. G052764 (D4d3 Aug. 10, 2017)

As we’ve discussed (on one occasion at very great length), under California law, a creditor can “pierce the corporate veil” of a corporate debtor to get at the assets of its “alter ego” owners. The creditor can do so when the company and the owners share a unity of ownership and interest and when the ends of justice require ignoring the separation between the company and the owners. 

But what about when the owners are the debtors? Can a creditor use veil piercing in a downward direction to get at the assets of a company owned by a debtor? This is generally called “reverse piercing” and one California court rejected it, at least for corporations. Postal Instant Press, Inc. v. Kaswa Corp., 162 Cal. App. 4th 1510 (2008). The court there reasoned that ordinary creditors’ remedies permit creditors to seize shares of corporate stock directly from the debtor. So the creditor does that, and then assumes whatever position the debtor had vis-a-vis the company. Viz., it gets dividends, votes at meetings, has the right to initiate derivative litigation, and can presumably sell the stock to someone else. Maintaining that separation protects other innocent stockholders from an attack on corporate assets due to the malfeasance of some other stockholder.

But here, the company is an LLC, and very closely held one at that. It’s 99 percent owned by debtor and 1 percent by his wife. That, in the courts view, is a crucial difference, because creditors’ remedies don’t permit seizure of an LLC member’s equity in the entity. The best a creditor can get is a charging order redirecting any distributions out of the LLC to the creditor. But if the LLC is still owned and controlled by the debtor, the debtor can avoid the charging order by simply causing the LLC to stop making distributions. 

That’s what happened here. Debtors’ LLC paid out $178 million in the six years before the judgment. But since the $7.2 million judgment in this case issued, no distributions have been made. (Presumably the debtors aren’t having too hard of a time living off their $178 mil.)

The court here finds the corporate/LLC distinction significant in way that can make reverse piercing equitable for LLCs in a way it is not for corporations. The court isnt saying that the veil should be reverse pierced in this case, just that it can be. So it reverses and remands for the trial court to conduct a full blown alter ego analysis.

Reversed.

Thursday, September 14, 2017

Bad Faith ≠ No PC

Parrish v. Latham & Watkins, LLP, No. S228277 (Cal. Aug. 10, 2017)

In order to bring a claim of malicious prosecution, a plaintiff needs to show that the underlying claim was brought without probable cause. Under the so-called interim adverse judgment rule, if the defendant prevailed on a hearing on the merits in the underlying case, probable cause exists, even if that ruling is later contradicted by a later trial court ruling or overturned on appeal, unless it was obtained by fraud or perjury. The point of the rule is that if the case was good enough to convince someone to rule favorable on the merits, there must be some merit in the claim. Generally ruling denying a motion for summary judgment, a non-suit, or a directed verdict counts.

This case—a trade secrets case—has a bit of twist. The trial court in the underlying case denied a summary judgment motion. But after trial, it ruled that the case had been brought in “bad faith,” for the purpose of awarding defendant attorneys’ fees under the CUTSA. According to the Supreme Court, in a unanimous opinion by Justice Kruger, that doesn’t merit an exception to the application of the interim adverse judgment rule to summary judgment denials.

That’s because objective component of the bad faith analysis applies a somewhat lower standard than lack of probable cause. One can, it appears, show objective bad faith by “objective speciousness,” which does not require that any reasonable attorney would agree that the case is totally and completely without merit. But one can only prove lack of probable cause by showing just that.

So in the absence of a showing that the summary judgment denial was procured through fraud or perjury, the interim adverse judgment rule applied. As there was no such showing here, plaintiff could not establish a lack of probable cause.

Court of Appeal affirmed.

Wednesday, September 13, 2017

Sounds More Like Garth Knight to Me

Cross v. Facebook, Inc., No. A148623 (D1d2 Aug. 9, 2017) 

Plaintiff here is Jason Cross, aka, Mikel Knight. No, not Michael Knight—a young loner on a crusade to champion the cause of the innocent, the helpless, the powerless, in a world of criminals who operate above the law. It’s Mikel Knight, a performer of really awful Country/Rap music, who (if one believes the internets) goes around the country with his “Maverick Dirt Road Street Team,” using aggressive and sometimes violent tactics to peddle his merch, harass women, and get in all kinds of traffic accidents.

Tuesday, September 12, 2017

Iskanian Applies Only to the Man's Bread

Esparza v. KS Indus., LP, No. F072597 (D5 Aug. 2, 2017)

In the Iskanian case, the California Supreme Court held that claims brought under the Labor Code Private Attorney General Act are not arbitrable because, although they are litigated by private parties, the relief sought in them—civil penalties—belongs to the state, which never agreed to arbitrate. That includes PAGA “representative actions,” where an employee can seek penalties arising from her employer’s violations involving other employees. Given the US Supreme Court’s upholding of arbitration clause class action waivers in the Concepcion case, Iskanian has had the effect of pushing a lot of formerly class action employment litigation into the PAGA realm. 

Monday, September 11, 2017

Where's Your Interim Award Now, Flanders...

Kaiser Foundation Heath Plan v. Superior Court, No. B272284 (D2d7 Jul. 31, 2017) 

This is a very complicated-seeming healthcare reimbursement litigation between some Hospitals and an Insurer. The parties ultimately agreed to arbitrate the dispute. A big issue in the arbitration was whether some of Hospital’s claims were preempted by provisions of the Medicare Act. The arbitrator found they were not and issued a “Partial Final Award” saying so.

Insurer asked the superior court to vacate the award. But instead, the superior court confirmed it. Insurer now appeals.

But thats dead end.