Tuesday, December 30, 2014

No Demand Needed to Compel Arbitration

Hundai Amco Am., Inc. v. S3H, Inc., No. G049204 (D4d3 Dec. 17, 2014)

Section 1281.2 of the Code of Civil Procedure says that “[o]n petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists[.]” The court here reads “a party thereto refuses to arbitrate such controversy” to mean that a defendant moving to compel arbitration needs to establish that it previously served an arbitration demand on the plaintiff. But the fact that a plaintiff has sued on open court is—at least implicitly—pretty obvious evidence of a refusal to arbitrate the dispute. So showing that a (futile) demand has been made is unnecessary.


Interpleader Action Dodges SLAPP Motion

Southern California Gas Co. v. Flannery, B249616 (D2d5 Dec. 16, 2014)

After a utility settled a case against two individuals, their former joint counsel began demanding a share of the settlement proceeds. He put a lien on any recovery. To resolve the dispute, the utility filed an interpleader and deposited the settlement res with the court. At a status hearing that was attended by counsel for the former attorney, the court set a hearing for the utility’s motion for discharge. The attorney didn’t oppose the discharge motion, but the day before the hearing was to occur, he filed an anti-SLAPP motion, which was technically his first appearance in the case.  Both motions were continued to a later hearing, and the trial court ultimately granted the discharge, awarded attorneys’ fees under Code of Civil Procedure § 386.6, and denied the anti-SLAPP motion. The attorney appealed.

In a somewhat unusual move, the court of appeal ducks the first part of the anti-SLAPP analysis—whether the interpleader action arise from protected petitioning activity—and finds that the utility established it was likely to succeed on the merits. Indeed, not only did the utility show a probability of prevailing, it actually prevailed in the interpleader. That being the case, there was no reason* to reach the first issue.

Here, the standards for interpleader were met. There were disputed claims to the settlement funds and a risk of multiple liability. Because the attorney had put a lien on the proceeds, the utility risked liability for tortious interference if it just paid the funds to the individuals and their new attorneys. Further, the utility disavowed any further interest in the funds. It was not required to settle the differences between the various claimants to the fund.

Finally, the discharge and fee award were proper. The attorney was not denied due process by the timing of the motion. His counsel was at the hearing where the motion was set and received service of the notice papers. He had ample time to oppose the motion. And although he never did, the court addressed his arguments anyway, since they were all raised in his anti-SLAPP papers. The fact that he didn’t formally appear until he filed the anti-SLAPP motion was of no moment. The court thus had authority to enter the discharge order and award fees under § 386.6, even though the dispute between the claimants was ongoing. And as to the fee award, the $81k awarded by the trial court was reasonable.


*Although, following a bunch of recent anti-SLAPP cases involving activities that don't arise frombut are tangentially related tolitigation, it would not have been too hard to say that an interpleader does not arise from protected activity because the liability-creating conduct at issue is just competing claims to the same pot of money. That those claims are based on settlement proceeds does not bring this case into the ambit of a SLAPP.

Laches Applied to Evidentiary Exclusion Arising from 2003 Disqualification Order

City & County of San Francisco v. Cobra Solutions, No. A136679 (D1d5 Dec. 15, 2014)

In an earlier appeal—decided eight years ago!—the California Supreme Court held that the San Francisco City Attorney’s office was disqualified from representing the city and county in this case because City Attorney Dennis Herrera represented the defendant while in private practice. On remand, Cobra moved in limine to preclude the city from using any evidence obtained by the City Attorney’s Office during the three-year window between when it was DQed by the trial court and when the order was affirmed on appeal. The trial court denied the motion as untimely. The city proceeded to win a $24,000 verdict on its claims and a defense victory on Cobra’s cross-claims. Cobra appealed.

After noting an absence of California authority on the issue, and canvassing the law of other states, the court of appeal holds that “motions seeking to restrict the use of evidence, work product, or pleadings developed by disqualified counsel must be timely filed.” Here, Cobra could have sought restrictions back in 2006, right after the Supreme Court affirmed the disqualification. Based on the record evidence, Cobra knew that the City Attorney continued to participate in the case, albeit somewhat peripherally, from 2003 to 2006. Cobra’s delay raising the issue until the eve of trial six years later was unreasonable and to the prejudice of the city, which would have been deprived of alternative avenues of obtaining virtually all the evidence it needed to prove its case.


Monday, December 29, 2014

On the Elements of Equitable Estoppel

J.P. v. Carlsbad Unified School District, No. D062912 (D4d1 Dec. 12, 2014)

This is a case against a school for failing to stop one of its teachers from sexually abusing several students. During the investigation of the incident, school officials and the DA told the victim and her family that they shouldn’t talk to anyone concerning the incident, lest it endanger the criminal prosecution of the teacher. The parents scrupulously followed that advice, which—arguably as the school sees it—led to them never hiring a lawyer and thus blowing their deadline to file a Government Code claim against the school.

A Federal Pair

This month, the U.S. Supreme Court ruled on two significant federal procedure cases. Although they don't directly involve procedure in California, they bear in it, so they are worth a read, even for mostly state court practitioners.

Warger v. Shauers, No. 13-517 (U.S. Dec. 9, 2014)

Although it’s outside the regular scope of my coverage, in this unanimous opinion by Justice Sotomayor, the U.S. Supreme Court interprets Federal Rule of Evidence 606(b) to preclude the use of a juror’s affidavit on a motion for new trial on the grounds that a juror lied during voir dire. The rule limits juror evidence to “extraneous” matters and “outside influence[s].” A juror’s unrevealed bias is not either of those. Notably, this very sensible rule is contrary to the completely insane practice in California’s state courts, where jurors are regularly hounded to present affidavits in order to show “jury misconduct,” which seems to include deliberations that didn’t go down the way the losing party wanted them to.

Dart Cherokee Basin Operating Co. v. Owens, No. 13-719 (U.S. Dec. 15, 2014)

In another federal opinion of note, the Court holds that a notice of removal is a pleading, and thus that a case is not subject to remand for failure to include evidence in the notice that substantiates the amount in controversy for diversity purposes. The notice needs only contain a plausible allegation that the amount exceeds the jurisdictional threshold. In passing, the court notes that there is no presumption against removal when the defendant invokes federal jurisdiction under the Class Action Fairness Act.

Not Exactly an Intuitive Rule on Appellate Jurisidiction

Pacific Corporate Group Holdings, LLC v. Keck, No. D062277 (D4d1 Dec. 12, 2014)

Under Code of Civil Procedure § 904.1(a)(4), orders granting new trial motions or denying JNOVs are appealable, independent of an appeal of the underlying judgment. This rule, which is different than most jurisdictions, creates some tricky issues of appellate jurisdiction, this case shows.

A former employee won a $170k jury verdict for an unpaid comp. Both parties moved for new trial, and the employer also moved for JNOV.  The court denied the employer’s motions. But it granted the employee’s new trial motion on inadequate damages because it believed that the jury’s verdict did not reflect certain bonus money to which the employee was entitled under his contract with the employ. The court issued an additur, giving the employer the option of between a $330k judgment and a new trial on damages. The court further denied both parties motions for attorneys’ fees. The employer rejected the additur and appealed the denial of its post-trial motions, the granting of a new trial, and several other orders that were subsumed into the judgment. Both parties appealed the denial of their fee motions.

On the merits, the court here affirms both the orders denying the employer’s JNOV and granting the employee’s new trial. This has the effect of wiping out the judgment entered by the trial court, which means that there is no remaining judgment for the employer to appeal. The court thus would not reach the merits of the employer’s appeal of the judgment, which would have to await an appeal of a final judgment entered after the new trial on damages is held. Similarly, the court lacked jurisdiction to address the fee appeals because with the judgment vacated by the affirmed new trial order, the orders could not be considered as postjudgment orders, subject to appeal under § 901(a)(2).

Affirmed in part and otherwise dismissed.

The Benefits and Burdens of Mega-Litigation

Petersen v. Bank of America, No. G048387 (D4d3 Dec. 11, 2014)

In a colorful majority opinion in 2-1 split decision reversing the trial court, the court of appeal holds that 818 individual plaintiffs can permissively join their mortgage-related claims under § 378 of the Code of Civil Procedure.  Taking some good-natured jabs at the “rococo” allegations of the voluminous Third Amended Complaint
in which “[r]hetorical flourishes abound”Justice Bedsworth’s twenty-page majority opinion references William Jennings Bryan, Aristotle, Cicero, and Herman Melville. It’s a little over the top, perhaps on purpose. But it does read like the Justice had a good time writing it and the analysis doesn’t suffer for the style. Indeed, the opinion devotes the bulk of its discussion to analysis and forgoes the needless but all too typical recitation of the parties’ arguments and other procedural minutiae from the case below. That all said, this one seems like a pretty close call, or at least it seems so to me.

Wednesday, December 17, 2014

Back to the Memory Hole

J.B.B. Inv. Partners, Ltd. v. Fair, No. A140232 (D1d2 Dec. 5, 2014)

This was an interesting and novel opinion that addressed whether a party’s alleged email assent to a settlement agreement complied with California’s Uniform Electronic Transactions Act, Civil Code §1633.1, et seq.  Suffice it to say, the body of law interpreting that Act is rather thin. The statute is barely mentioned in passing a couple of published cases. Indeed, the only published decision of substance addresses a not-generally-applicable issue regarding whether an electronic signature can be used on an ballot initiative petition. Notably, the statute is not all that clear on the key question at issue in this case: when and how can people bind themselves to a contract by email. The issue would seem to come up all the time, but it is unaddressed by any citable California case.

It was thus puzzling, to say the least, that a few hours after this erstwhile published decision was posted, the court issued a modified opinion claiming that it “does not meet the standard for publication as set forth in rule 8.1105(c) of the California Rules of Court” and thus that it should be withdrawn from publication. Apparently, Rule 8.1105(c)(4), which requires publication when an opinion “[a]dvances a new interpretation, clarification, criticism, or construction of a provision of a . . . statute,” doesn’t mean what it says.

There’s clearly a back story here. But on the face of it, it seems fishy.

Tuesday, December 16, 2014

Uninsured and Unascertainable

Hale v. Sharp Healthcare, No. D064023 (D4d1 Dec. 5, 2014)

In this UCL and CLRA case brought as a putative class action, plaintiff alleges that defendant, a hospital group, charged her and her fellow class members higher fees for medical services because they were uninsured. The trial court initially certified a class based on a common question: whether the defendant represented to uninsured patients that they would be charged “regular rates,” but failed to do so.

But defendant later filed a motion to decertify.  It claimed that the class was not ascertainable, because its members could not be identified without an individualized examination of 120,000 patients’ billing records. Further, it said that class treatment was not a superior method to litigate the case because there was no manageable way to determine class-wide entitlement to damages. The trial court granted the motion and the plaintiff appealed.

The court of appeal affirms on both grounds. Because of the way the class was defined and the hospital’s practice of not obtaining insurance information until after treatment was provided, the class was unascertainable. The evidence showed that in many instances, uninsured patients ultimately paid rates that were far below what the hospital obtained from insurance companies, Medicare, and Medicaid. This could be due to rate reductions, charity payments, undiscovered coverage, or payments by third parties. But the hospital didn’t maintain information on ultimate payment outcomes on an aggregate basis, and, despite their efforts, the parties were unable to come up with a methodology for identifying patients who paid more than insured payments.

Further, there was a lack of predominance of common issues as to whether the class members were entitled to damages. In coming to this result, the court distinguishes a number of wage and hour cases requiring certification where the common issue is whether the employer maintained an unlawful policy. According to the court, these cases might have differed in the amount of damages, but if the plaintiff theory proved correct, the fact of damages could be determined on a classwide basis.  In contrast, in this case, whether or not each plaintiff was damaged at all required a case-by-case assessment, which precluded any liability determination on a classwide basis.

This result seems mostly reasonable. But I don’t know if I’m entirely comfortable with a ruling that denies class certification based largely on the fact that the defendant maintained its business records in a way that makes it tough to ascertain who is in a plaintiff class. Seems like a bad incentive. 


More SLAPP Sanity

Drell v. Cohen, No. B253688 (D2d8 Dec. 5, 2014)

An attorney who represented a plaintiff in obtaining a settlement sued the plaintiff’s former counsel to obtain a ruling on the validity of prior counsel’s attorney’s lien on the settlement proceeds. Defendants filed an anti-SLAPP motion, contending that the case arose from protected activity in the form of the letter they sent plaintiff asserting their rights under the lien. 

But that’s not really the case. The case does not allege that the defendants engaged in wrongful conduct in the assertion of their lien. It instead seeks a declaratory judgment on the lien’s validity. There’s nothing expressive or petitioning-related to the question of whether the defendants have the right to get paid out of the settlement fund. 

The court goes on to find that the plaintiff waived his right to contest the trial courts denial of attorney fees when he failed to cross-appeal on the issue. And as to fees on appeal, although the court finds the appeal “has no merit whatsoever and is poorly conceived,” the court is not convinced that it is entirely frivolous, so no fees will be awarded.


A Bit Too Clever ...

Lyons v. Santa Barbara Cnty. Sheriff’s Office, No. B256041 (D2d6 Dec. 3, 2014)

Unsurprisingly, you can’t file a taxpayer action under Code of Civil Procedure § 526a to collaterally attack an unlawful detainer judgment on the grounds that the decision was unconstitutional.

An Arbitrator Is Free to Make Legal Errors

Safari Assocs. v. Superior Court, No. D065684 (D4d1 Dec. 2, 2014)

In awarding attorneys’ fees to the plaintiff in a breach-of-contract arbitration, an arbitrator declined to apply the agreement’s definition of prevailing party in favor of that provided in § 1717 of the Civil Code. According to the arbitrator,  the Code trumps any conflicting definition in a private agreement
. The defendant moved the superior court to have the award corrected on the basis that the arbitrator exceeded his powers by ignoring the contractual definition in making the award. See Cal. Code Civ. Proc. § 1286.6. The trial court agreed; the award was amended. But the court of appeal here grants a writ reversing that decision. The arbitrator’s decision about the fee award was within the scope of his authority. His decision about what definition of prevailing party applied was, at worst, a legal error that is not subject to review by the court.

Writ granted.

Monday, December 15, 2014

Arbitrators Can Decide Ripeness

Bunker Hill Park Ltd. v. U.S. Bank Nat’l Assoc., No. B256822 (D2d4 Nov. 26, 2014)

A commercial landlord filed a petition to compel its tenant into an arbitration in order to seek declaratory relief involving a lease dispute. The trial court denied the petition, reasoning that declaratory relief was unavailable because the parties’ dispute hadn’t sufficiently ripened into an actual controversy. But, the court here says, ripeness is a jusiciability concept that applies to a judicial forum. Parties are free to agree to arbitrate unripe controversies. So unless the matter falls outside of the scope of the parties agreement to arbitrate, there isn’t a freestanding justiciablity exception to an otherwise valid arbitration agreement. Here, the parties’ agreement was very broad. Nothing in it suggests that the arbitrator would be limited to deciding ripe controversies, and thus that unripe ones aren
’t arbitrable. Of course, the tenant is free to argue in the arbitration, that there isn’t enough of an actual controversy to merit an award of declaratory relief under Code of Civil Procedure § 1060. But that’s a merits argument it can make to the arbitrator.


Privilege for the Attorneys' Attorneys

Edwards Wildman Palmer v. Superior Court, No. B255182 (D2d3 Nov. 25, 2014)

In this malpractice case, the trial court granted a motion to compel ordering a law firm to disclose intrafirm communications between various firm lawyers and the firm’s in house general and claims counsel. The emails related to potential malpractice claims threatened by a then-current client, who has now brought malpractice claims against the firm.

The court of appeal grants a writ. Although there are federal cases that rely on the ethical obligations of attorneys to their clients to create an exception to the privilege for intra-firm advise on potential malpractice issues, California does not afford a statutory exception on those grounds. As California courts have made clear, the attorney-client privilege is a creature of statute, and subject only to those exceptions that the legislature chooses to enact into law. Indeed, under somewhat different circumstances, the California Supreme Court rejected the argument that a fiduciary cannot assert the attorney client privilege against its beneficiary over its communications with its own counsel. Wells Fargo Bank v. Superior Court, 22 Cal. 4th 201 (2000). Because there was no statutory exception on this basis, the court would not create one.

Finding RFF Family Partnership, LP v. Burns & Levinson, LLP, 465 Mass. 702 (2013) to be persuasive, the court considers four (non-exclusive) factors that are germane to whether firm in-house attorneys can maintain an attorney-client relationship with other firm lawyers for the purpose of claiming privilege. These factors include: (1) whether certain lawyers have been designated to represent the firm as in-house or ethics counsel; (2) whether these attorneys have provided prior advice to the potentially adverse client; (3) whether the time spent on the internal communications is billed to the client; and (4) whether the communications are made in confidence and kept confidential.  Applying these considerations, the petitioner established an attorney-client relationship under the facts of the case.

Finally, the court holds that the exceptions to the attorney client privilege in Evidence Code §§ 958 (communications related to breach of duty) and 962 (joint client) are inapplicable.  The breach of duty exception applies only to otherwise privileged communications between attorney and her client insofar as they related to an attorney-client dispute. It does not apply to communications between an attorney and its own separate counsel.  Nor were the plaintiff and the attorneys joint clients. They were not co-parties in any case and they did not retain the firm jointly on a matter of common interest.

Writ granted.

Anti-anti-SLAPP Sanctions

Ben-Shahar v. Pickart, No. B250728 (D2d1 Nov. 24, 2014)

As is well-settled, actions challenging wrongful evictions generally do not arise from protected activity for the purposes of the anti-SLAPP analysis, even though the eviction and unlawful detainer processes involve certain litigation-related conduct, like servicing a notice to quit. Numerous published cases explain that unless the sole basis of liability asserted in a complaint is the landlord’s prosecution of an unlawful detainer action, the complaint does not fall within the ambit of the anti-SLAPP statute. Defendant here did not heed this advice. For that—on top of a published opinion affirming the denial of their anti-SLAPP motion—he also gets a remand for the trial court to decide whether to order him to pay plaintiff’s fees because the motion was effectively frivolous.

Affirmed in part.

Saturday, December 13, 2014

Objector Overruled...

Laffitte v. Robert Half Intern., No. B249253 (D2d7 Nov. 21, 2014)

An objector appeals from an order approving a settlement in a wage and hour class action. The court of appeal affirms, finding each of the objections without merit.

First, the objector complained that the notice to the class, which explained that the plaintiffs’ attorneys were seeking a fee award of 33 percent of the $19 million settlement fund, was improper because the attorneys had not yet filed their fee motion.  Although having a fee motion on file before objections are due is required under the federal rules, see Fed. R. Civ. P. 23(h); In re Mercury Interactive Corp. Secs. Litig., 618 F.3d 988 (9th Cir. 2010), the California Rules of Court contain no such requirement. While a California notice must generally explain the settlement terms—including the fees sought by the attorneys—nothing in the rules requires that the fee motion to be on file at the time the notice is sent or before objections are due.

Second, the objector complained that the court’s fee award—calculated as a third of the common fund and cross-checked with a lodestar analysis—was improper. But nothing about the methodology was improper. California courts can permissibly use the percentage of fund calculation in a class action settlement and the 33 percent figure—while on the high end—was within the trial court’s discretion to award. Further the trial court’s award was bolstered by its lodestar analysis. In conducting that analysis, the court was permitted to rely upon general summaries of the plaintiffs attorneys’ rates and the number of hours worked on the ligation. The court did not abuse its discretion by failing to require the plaintiffs’ attorneys to submit detailed billing documents. And the lodestar multiplier that was arrived at by the court—2.13—was within the norm for a reasonable attorneys

Finally, the objector was dissatisfied that the settlement agreement included a clear sailing provision—an agreement that defendants would not object to a fee award within a negotiated limit. But California law does not prohibit clear sailing provisions, and in the absence of any evidence of collusion between the defendant and the plaintiff’s lawyer, there was nothing improper about agreeing to one in this case. Notably, the cases in which clear sailing clauses have come under fire involve non-monetary settlements for the plaintiff class. In contrast, this case entailed a significant monetary award to the plaintiff class so there was no reason to believe that the only beneficiary of the litigation would be the plaintiff lawyers.


**Update: The Supreme Court granted review of this case on Feb. 26, 2015.

Split Decision on Scope of Fee Clause

Mountain Air Enters. v. Sundowner Towers, LLC, No. A138306 (D1d3 Nov. 20, 2014)

The parties in this case were signatories to an illegal real estate contract that was unlawful under the Subdivision Map Act. The court here holds that defendant cannot obtain an award of attorneys’ fees under that contract because, as a sophisticated party that was in pari delicto to the illegality, defendant was not in a position to enforce any part of the void contract.

The parties, however, were also signatories to a second contract, which the trial court determined was a novation of the original illegal contract. That contract too had a provision awarding attorneys fees to the prevailing party. The court here determines that the novation defense to the enforcement of the first contract was sufficiently within the terms of the attorney fee clause in the second contract to warrant an award of fees to the defendant. Justice Richman dissents and disagrees. He finds the fee clause in the second contract to be narrower than those in the cases relied upon by the majority—sufficiently narrow that it should not permit a fee award when the second contract mattered only to the extent that it served as a defense to the enforcement of the first contract.

Affirmed in part and reversed in part.

Friday, December 12, 2014

Sanctions Procedure on Appeal

Saltonstall v. City of Sacramento, No. C077031 (D3 Nov. 20, 2014)

This is an appeal of a denial of a preliminary injunction in a CEQA case. I’m not touching the merits of a CEQA case with a ten-foot-pole. But the court does deny sanctions to the respondent because the sanctions request failed to comply with Rule of Court 8.276(b)(1). That rule requires a separate motion for sanctions to be filed within ten days of the due date for appellant’s reply brief, along with a declaration supporting the amount of attorneys fees sought. Because the respondent here just requested sanctions in its respondent’s brief, the sanctions request was denied.


In Limines ...

Scott v. C.R. Bard, Inc., No F066039 (D5 Nov. 19, 2014)

Defendant appeals a plaintiff verdict in a medical device defect case. Defendant moved in limine to keep out evidence regardling certain actions that the FDA took related to its product that occurred after plaintiff was injured. The trial court granted the motion. But then during opening statement, defense counsel made a big deal of the fact the FDA continued to monitor and regulate the product and had taken no action to recall it. The trial court decided that defendant had opened the door and let the post-injury FDA evidence come in. 

According to the court of appeal, the trial court didn’t abuse its discretion in doing so. Defendant’s own acts made the evidence relevant. It also was not excludable as a subsequent remedial measure under Evidence Code § 1151 because it did not concern acts by the defendant, to which the subsequent remedial measures rule is limited. Nor did § 352 merit exclusion. Plenty of context regarding the FDA’s actions was admitted, minimizing any risk of prejudice or confusion. And the court did not err by reversing its in limine ruling. In limine rulings are always provisional and subject to reconsiseration during trial.

The court also rejects a cross appeal by plaintiff on an asserted instructional error. The jury found that plaintiff’s doctor—who was not joined as a party—was forty percent at fault. But the jury wasn't actually instructed on the med-mal standard of care. Problem is, plaintiffs never requested such an instruction. Because properly instructing the jury on scope of the doctor’s duty of care was in the interest of plaintiffs, by failing to propose the instruction, plaintiffs invited the error and are estopped from asserting it on appeal.


Thursday, December 11, 2014

No Appeal for You!

Gwartz v. Weilert, No. F066581 (D5 Nov. 18, 2014)

After plaintiff obtained a money judgment on a real estate fraud claim, the trial court entered various post-trial orders preventing defendants from dissipating or concealing their assets. Defendants proceeded to violate these orders forty-seven different times by engaging in various transfers of assets and money to related entities. In a rare application of the disentitlement doctrine, the court of appeal dismisses defendants’ merits appeal of the fraud judgment due to defendants’ willful disobedience of of the trial court’s orders.

Network Capital Redux, Sans Attribution

Garden Fresh Restaurant Co. v. Superior Court, No. D066028 (D4d1 Nov. 17, 2014)

Consistent with the recent decision in Network Capital—which, of course, isn’t cited—the court here holds that, unless it is specifically delegated to the arbitrator, the issue of whether an arbitration agreement permits class action arbitration is for the court, not the arbitrator, to decide. The issues addresses substantive arbitrability, which generally lies in the ken of the court.

Writ granted.

In Collections, You've Lost if You've Already Won

Karton v. Dougherty, No. B24431 (D2d1 Nov. 14, 2014)

When a plaintiff sues to collect on a debt, but the debt has already been paid off, the defendant is the prevailing party for the purpose of awarding contractual attorneys’ fees under Civil Code § 1717 and Code of Civil Procedure
§ 1032.


Wednesday, December 10, 2014

No Last Minute Jersey RICO Puzzle for Overstock.com

Overstock.com v. Goldman Sachs, No. A135682 (D1d1, as modified Nov. 25, 2014)

As discussed in my last post, this case involves allegations that Goldman Sachs and Merrill Lynch engaged in illegal naked short selling of shares of Overstock.com. The bulk of the opinion addresses merits arguments related to the trial court’s granting of summary judgment in favor of the defendants.
There is, however, one procedural point of note. 

Very late in the case, defendants stipulated to allow plaintiffs to amend their complaint to add a claim under New Jersey’s RICO act, subject to defendants’ demurrer. The trial court sustained a demurrer to the claim, finding it to be too vaguely pleaded to state a claim that sounds in fraud. The court upholds this ruling. In doing so, it notes that the complaint was defective because the count simply referred to “the actions described above” without assigning any particular act that constituted fraud in the offering, sale or purchase of securities—a key element of the claim. The decision can be fairly read as a rejection what is sometimes derisively called puzzle pleading—where the body of the complaint sets out a broad array of alleged acts which the counts incorporate wholesale, without any explanation as to which acts or statements satisfy the actual elements of the claim. Federal courts have caught on to this game, but California state courts, less so. See, e.g., In re Level 3 Commc'ns, Inc. Sec. Litig., 667 F.3d 1331, 1339 n.8 (10th Cir. 2012).

The trial court further denied plaintiffs leave to amend to fix the pleading issues. In affirming, the court explains some important principles. First, the fact that the plaintiff might be able to cure defects in a pleading does not automatically entitle it to amend. An opportunity to amend is “always of grace, not of right” and the trial court maintains significant discretion in affording or denying leave. 

 In addition to futility, the court can consider prejudice, the number of prior amendments, and the timing of the amendment is connection with the progress of the litigation.  Here, plaintiffs’ proposed amendment was based on “a fundamentally different and highly complex claim that could not fairly be injected into the case only two months before summary judgment motions were due and only six months before the already re-scheduled trial date.”  Under the circumstances, the trial court did not abuse its discretion in denying leave. 

Affirmed in part and reversed in part.

Seal Spiel

Overstock.com v. Goldman Sachs, No. A133487 (D1d1 Nov. 13, 2014)

This is a magnum opus on the handling of sealed files and a must-read for anyone who litigates complex business cases in state court. Sorry in advance for the overly detailed procedural setup—the last thing I want is for my posts to read like bench memos—but for once, the background is quite germane to understanding the ultimate ruling in the case.

No Breaks for Walgreen Break Class

In re Walgreen Company Overtime Cases, No. B230191 (D2d1 Nov. 13, 2014)

This is yet another class cert motion in wage and hour case employing the Brinker standard. Class cert was denied by the trial court, and, in what has been a somewhat rare occasion, the court of appeal affirms. Plaintiffs theory was that Walgreen had a permissible written meal and break policy but that it regularly deviated from that policy on a classwide basis. Plaintiff’s problem, however, is that his evidence didn’t jibe with his theory and was otherwise thoroughly uncredible.

First, plaintiff provided an expert declaration that assumed there was a Labor Code violation every time someone didn’t take a break. But that assumption doesn’t square with Brinker itself, which held that employers needed to have a policy that made breaks available to any employee who wanted to take one, but they were not required to ensure that every employee actually took his or her break. Because the testimony was founded on so crucially flawed of an assumption, it was correctly excluded.

Second, plaintiff submitted a bunch of emails from Walgreen execs, where they were all over store managers to make sure employees got their meals and breaks. Contrary to showing a bad policy, the emails showed that Walgreen corporate went to great lengths to ensure that their legal meal and break policy was actually followed in Walgreen stores.

Finally, plaintiff submitted forty-four form declarations from class members attesting that they didn’t get their scheduled breaks. Unfortunately, many of these class members admitted in their depositions that they signed them without reading them and, at bottom, they weren’t really true. Oops! As the court here warns, “[f]orm declarations present a problem. When witnesses speak exactly the same words, one wonders who put those words there, and how accurate and reliable those words are.”


Wednesday, December 3, 2014

Duran Didn't Change the Scene

Martinez v. Joe’s Crab Shack Holdings, No. B242807 (D2d7, as modified Dec. 3, 2014)

In this case, the panel had previously reversed a denial of class cert in an employment case. But after the California Supreme Court decided Duran— a case that involved proof by statistical sampling in the class action context—the Supreme Court, which had granted review, transferred the case back to the panel for reconsideration in light of its opinion. The court here modifies its prior option to address Duran but ultimately comes out the same door, particularly given the supreme court’s subsequent decision in Ayala.

A Not Quite Vexatious Duo

John v. Superior Court, No. B256604 (D2d7 Nov. 10, 2014)

California’s vexatious litigant statutes, Code of Civil Procedure § 319–319.8, apply in both trial court and on appeal. A pro se plaintiff who has been declared vexatious needs to get pre-filing permission from the presiding judge (for trial court) or the presiding justice (for appellate courts) before proceeding. But what the happens when a vexatious litigant get sued, loses, and then wants to appeal? Does she need leave from the presiding justice to pursue her appeal? The court here says no. Neither the language of the statutes, their purposes, or the legislative history warrant requiring pre-filing approval under such circumstances.

Writ granted.

**NOTE: The Supreme Court granted review of this case on February 11, 2015.

Garcia v. Lacey, No. F066681 (D5 Nov. 12, 2014)

Plaintiff in this prisoner case was declared a vexatious litigant under Code of Civil Procedure § 391, which, as I just said, requires any plaintiff who commenced at least five pro per litigations over the past seven years that resulted in adverse results to obtain the presiding judge’s permission before filing again. The defendant submitted court records about nine prior litigations, eight of which were filed in federal court. Five of the federal court cases were dismissed on pre-filing screening under the Prison Reform Litigation Act, which gives federal courts the authority to refuse to grant in forma pauperis applications from pro se prisoners when their complaints are facially meritless, and to refuse to accept the complaint for filing. See 28 U.S.C. §§ 1915, 1915A. In these cases, because no complaint was ever accepted for filing in the federal court, the five actions were never “commenced, prosecuted, or maintained” as required by § 391. Consequently, there were only four matters that actually satisfy the standard, so plaintiff doesn’t yet qualify as vexatious.


Tuesday, December 2, 2014

Defendant Gets Too Cute Ducking Service, Relief from Default Denied

Giorgio v. Synergy Mgmt. Grp., LLC, No. B248752 (Nov. 6, 2014)

Defendant allegedly submitted more than $250,000 in false expense reports to plaintiff. When it sued to recover, plaintiff made dogged efforts to serve defendant. They included personal service in an airport while defendant was traveling, service by various forms of mail in Amsterdam, hiring Dutch private eyes, various efforts at mail service at an address in LA—an address the USPS confirmed was a good address for the defendant—a stakeout at that same address, and service of the papers on attorneys who had previously represented the defendant in connection with the dispute. When of all that came to no avail, plaintiff moved for an obtained leave for service by publication, which the trial court granted. After plaintiff published the summons in the LA Daily Journal and defendant still did not respond, plaintiff put the defendant into default and moved for default judgment.

Five days later, the defendant—heretofore unreachable, but suddenly incredibly responsive—filed a motion for relief from default under Code of Civil Procedure § 473(b). He submitted a declaration attesting that he had not lived or worked in California since 2009. The trial court, finding that the defendant made a deliberate effort to skip out on service, declined to relieve him from default and entered a $250,000 default judgment.

The court of appeal explains that service by publication is a last resort after the others means have been exhausted and the defendant cannot be served otherwise with reasonable diligence. As the court recognizes, since nobody actually reads the notices in the back of the Daily Journal, service by publication is a fiction. “[T]here is really little expectation that a defendant so served will in fact acquire actual notice from the publication.”

In any event, the court finds that substantial evidence support the trial court’s finding that the defendant couldn’t be served personally or by mail despite reasonable diligence. Plaintiff submitted credible evidence attributing the LA address to the defendant. And because evidence showed defendant
s address in LA, publication in an LA newspaper was sufficient to meet the publication by service requirements.