Thursday, April 14, 2016

Class Action Objectors Get No Ticket to the Appellate Party

Hernandez v. Restoration Hardware, No. D067091 (D4d1 Mar. 14, 2016)

Plaintiff won a $36.4 million bench verdict in a rare class action that actually went to trial. The court awarded 25 percent of the judgment as a fee award to the plaintiffs’ attorneys. Subject to the parties post-trial “clear sailing” agreement, the Defendant didn’t contest the award. But a class member objected, both on the basis that the court didn’t give the class notice of the fee hearing, and on the merits of the award itself. The trial court rejected the objection and entered a judgment including the 25 percent award. The objector appealed.

Wednesday, April 13, 2016

Net Monetary Recovery II

DeSaulles v. Comty. Hosp. of the Monterrey Peninsula, No. S219236 (Cal. Mar. 10, 2016)

The Supreme Court granted review of the DeSaulles case that I posted about a little less than two years ago. As a quick recap, the parties entered a settlement where the plaintiff got some cash, but a zero-dollar judgment was entered for Defendant. (The weird setup permitted the manufacture of a judgment so Plaintiff could appeal an unfavorable in limine ruling.) The settlement agreement didn’t say anything about costs. So the question was, who was the prevailing party under Code of Civil Procedure § 1032? Given that the statute describes the prevailing party as someone who wins a “net monetary recovery,” it was unsurprising (to me at least) that it was Plaintiff. But in getting to that result, the Court of Appeal disagreed with some earlier inconsistent precedent. Hence the granted review.

The Court, with Justice Liu writing for a 5-2 majority, affirms the Court of Appeal. “Net monetary recovery” is a pretty broad concept that can include a payment of cash under a settlement. The Court further rejects the argument that § 1032(a)(4)’s alternative definition—a “defendant in whose favor . . . dismissal is granted”—applies to cases where a judgment of dismissal is entered as part of a settlement where defendant nonetheless pays plaintiff some money. Reviewing the history of that language, the court finds that it was intended to ensure that a defendant could recover costs if plaintiff unilaterally dismissed. It was not intended to apply when the dismissal was accompanied by a monetary payment.

Justice Kruger dissents, joined by Justice Werdegar. She agrees that a plaintiff who gets a settlement has won a net monetary recovery. But she’s not so comfortable ignoring what she reads as the plain meaning of the § 1032(a)(4)’s reference to a defendant who obtains a dismissal. This case was, in fact, dismissed. (Given the payment of cash, the majority responds that this is form over substance.) That, of course creates a conundrum, because it would effectively mean that both parties meet different definitions of
prevailing party.

But Justice Kruger reads the next sentence in § 1032(a)(4) to solve that problem. It says that “in situations other than as specified, the ‘prevailing party’ shall be as determined by the court, and under those circumstances, the court, in its discretion, may allow costs or not and, if allowed may apportion costs between the parties on the same or adverse sides pursuant to rules adopted under Section 1034.” So, according to the dissent, if both sides meet the definition of prevailing, the trial court has the discretion to decide who prevailed and how to allocate costs between the parties. The dissent would thus remand for such a determination in the first instance.


Tuesday, April 12, 2016

Sargon v. Asbestos Litigation Science

Davis v. Honeywell Int’l, No. B256793 (D2d4 Mar. 3, 2016)

This case addresses the admissibility of expert testimony on an issue that likely comes up in many of the wave of asbestos cases that are currently working their way through California courts. The testimony is based on the “every exposure” theory. The gist of the theory is that asbestos is so toxic that every exposure to it beyond the background level present in the ordinary atmosphere can potentially be a substantial factor in causing mesothelioma. Some states have rejected expert testimony on the theory, others have not. The court here finds that the testimony is sufficiently reliable under the relatively new Sargon standard, which permits courts to reject expert testimony that is: “(1) based on matter of a type on which an expert may not reasonably rely, (2) based on reasons unsupported by the material on which the expert relies, or (3) speculative.” According to the court, while there isn’t any scientific consensus on the theory, there is enough scientific support on the side of the every exposure theory that it should not be precluded as too unreliable for a civil trial.


Monday, April 11, 2016

Pre-Offer Expert Fees Unrecoverable Under § 998.

Toste v. Calportland Constr., No B256946 (D2d6 Mar. 2, 2016)

Plaintiff appeals on a grab-bag of issues after a defense verdict in a wrongful death case. The jury found one defendant negligent but no causation for any of them. There are two procedural issues: a new trial motion based on jury misconduct and the rejection of a § 998 offer.

Friday, April 8, 2016

Scapels and Sledgehammers

Mountjoy v. Bank of America, No. C077283 (D3 Feb. 29, 2016)

Although trial courts get a lot of deference in fee award decisions, that deference is not unlimited. The court here decided that 70 percent of the entries in plaintiff’s bills were problematic in one way or another. So it just lopped 70 percent off the total hours when it did its lodestar analysis, even though there was no evidence that the allegedly problematic entries made up 70 percent of the time. Although the Court of Appeal rejects most of plaintiff’s specific assertions of error, it finds the 70 percent across-the-board reduction to be arbitrary and thus an abuse of discretion.


Thursday, April 7, 2016

Court for Me, but Arb for You, Means Court for Everyone.

Carbajal v. CWSP, Inc., No G050438 (D4d3 Feb. 26, 2016)

The Court of Appeal here affirms a trial court’s denial of a motion to compel arbitration based on a finding that the arbitration provision was unconscionable. The clause was contained in an adhesive employment contract, which made it mildly procedurally unconscionable. That was made worse by the fact that it called for the use of “the rules of AAA,” without identifying which of the 100+ sets of AAA rules were to apply. Nor did it include or provide a means of accessing the applicable rules. 

But what really kills the deal is the one-sidedness of the substance. It let only the employer go to court to get injunctive relief, and specifically waived any bond requirement in doing so. And it waived the employee’s right to get statutory fees on her Labor Code claims. Balancing the procedural and substantive unconscionability, the trial court did not err in declining to enforce the provision. Nor did it abuse its discretion in declining to sever the problematic terms for the rest of the agreement. Given the number of substantively unconscionable terms, it was reasonable for the trial court to find the unconsionability to be too pervasive to merit severance.


Wednesday, April 6, 2016

Extrinsic Mistake Relieves Trustee of Default

Bae v. T.D. Service Co., No. B262921 (D2d4 Feb. 25, 2016)

Trustee to the deed of trust on a property gets sued in a real estate foreclosure dispute. Because trustees often get sued as relief-only defendants in cases where the title to property is at issue, Civil Code § 2924l sets forth a procedure permitting them to file a “declaration of non-monetary status” which absolves the trustee from participating in the litigation in any way unless some other party files an objection showing that some conduct by the trustee is really at issue. Trustee here served a § 2924l declaration, which was never opposed.

But Plaintiff put Trustee into default anyway, ultimately obtaining a $3 million default judgment more than two years later, Trustee, having become the subject of some collections efforts, moved for relief from default. The trial court granted the motion. Plaintiff appeals.

What makes this tricky are the time limits in the statutes that generally afford relief from default. Section 473(b) gives six months to move for relief on the grounds of mistake, inadvertence, or excusable neglect. Section 473.5 gives up to two years to obtain relief from a default that was entered without actual notice to the defendant.  

That all said, courts also have the inherent equitable power to vacate default judgments on grounds such as extrinsic fraud or extrinsic mistake. The court here focuses on the latter, which applies when some fact outside of the four corners of a default judgement led a court to mistakenly enter it. Courts generally apply a three-element test. The defaulted party seeking relief must: (1) show it has a meritorious case; (2) articulate a meritorious excuse for why it failed to defend the original case; and (3) that it acted diligently to set aside the default once discovered.

That test was met here. Trustee’s § 2924l declaration was timely and set out facts that showed a good faith belief that the trustee would was not liable for any act or omission of its own. No objection was ever filed, which should have absolved the trustee from answering and precluded any monetary liability. Trustee thus had a meritorious defense. 

Trustee also had a good excuse. It should have been able to rely on its filing of unchallenged § 2924l declaration in believing that it had no further obligation to participate in the case. In the absence of an objection, it was erroneous for the court to permit an entry of a default or default judgment against Trustee for failing to participate. 

Finally, Trustee acted diligently to set aside the default after learning about it. In addition to its reasonable reliance on its § 2494l declaration, Plaintiff made a bunch of service errors in prosecuting the default. In particular, Plaintiff failed to serve Trustee’s attorney with any of the default papers, including the default judgment, in violation of various statutes and rules governing the default procedure. In particular, Plaintiff violated Code of Civil Procedure §587 by failing to file an affidavit proving that a copy of the motion for entry of default had been mailed to the defaulting party’s attorney. It was thus not unreasonable that Trustee’s lawyer first learned of the default judgment when plaintiff tried to collect by levying its bank accounts. Which made Trustee’s lack of awareness pretty reasonable.


Tuesday, April 5, 2016

To Stop the Clock, It Better Be a Full Stay

Gaines v. Fidelity Nat’l Ins. Co., No. S215990 (Cal. Feb. 25, 2016)

This is the Supreme Court’s review of the Gaines case I wrote about back in the tail-end of 2013. The interesting and fundamental point about the nature of the abuse of discretion standard raised by Justice Rubin’s dissent gets shrugged away in footnote 8. But distilled, the issue comes down to the circumstances when Code of Civil Procedure § 583.310’s rule requiring dismissal of any case not brought to trial within five years should be tolled.

Saturday, April 2, 2016

Sworn Hearsay Permitted in SLAPP Step Two

Sweetwater Union Sch. Dist. v. Gilbane Bldg. Co., No. D067383 (D4d1 Feb. 24, 2016)

A School District sued a contractor to void some contracts it alleged were corruptly procured by the contractor’s wining and dining of various district officials. The contractor moved to strike the case under the anti-SLAPP statute. The trial court denied the motion under Flatley v. Mauro, i.e., it held that the conduct alleged was illegal as a matter of law, and thus that the anti-SLAPP motion can’t apply.

The court of appeal affirms, but for different reasons. First off, for some strange reason, the district basically concedes that bribery of public officials “arises from protected activity.” The court cursorily notes that since lobbying local government entities is generally protected by the First Amendment, unless the district can show that the Flatley exception applies, the conduct counts as protected under Code of Civil Procedure § 425.16(b)(1). 

Notably, there’s essentially no analysis in the opinion as to which of the four categories of “protected activity” listed in § 425.16(e)(1)-(4) is implicated here. Political bribery isn’t a “statement” as the term is used in the definitions in categories (1) to (3). (FWIW, that readily distinguishes the only case cited on the point, DuPont Merck Pharmaceutical Co. v. Superior Court, 78 Cal. App. 4th 562, 566 (2000), which dealt with a drug company’s statements in advertising, marketing, and public relations campaigns.) The only potential applicable category that reaches conduct that does not require a written or oral utterance is the “other conduct in furtherance” catchall in § 425.16(e)(4). And as I’ve noted elsewhere, the (e)(4) catchall has led to anomalous results and an unresolved split in authority, with no case articulating a satisfying theory of how (e)(4) should be applied to activity that pretty clearly isn’t First-Amendment protected—stuff like bribery in furtherance of litigation, racial, gender, and age discrimination in media employment and tenure decisions, and litigation-related wiretapping—but can arguably be crammed into the linguistic formulation of “other conduct in furtherance” of some speech or petitioning interest.

In any event, the court goes on to decide that the Flatley exception doesn’t apply. The exception is very narrow, applying only when (1) the defendant admits the illegality of its conduct; or (2) the evidence is sufficient to establish the illegality of the conduct as a matter of law. While the District here alleges that the contract was engaged in illegal bribery, the contractor didn’t admit it, and the District’s evidence wasn’t so strong as to prove bribery as a matter of law, even though several employees of the District and the Contractor had pleaded guilty. So to avoid having its claim stricken as a SLAPP, the district needs to show a probability of prevailing. And to do that, it needs to come forward with prima facie evidence for each element on its claim.

The District, however, did meet its burden. The relevant statute—Government Code § 1090—permits a public entity to sue to cancel a contract when the people who awarded it were financially interested. And “interested” has been interpreted to include receiving bribes in exchange for approving a deal. On this issue, the District put forth a bunch of evidence, especially materials from prior criminal cases. The Contractor’s appeal argues that the trial court erroneously considered this evidence.

The Court of Appeal notes the generally applicable rule that evidence submitted in opposition to an anti-SLAPP motion needs to be admissible under the Evidence Code. But like on summary judgment, this rule recognizes a narrow exception: although technically hearsay, affidavits and declarations can be used in lieu of live testimony. The gist of the point is generally that a declaration simply puts potential trial testimony in a form that can be considered as part of a law and motion matter without holding an evidentiary hearing.

The problem is that the evidence doesn’t consist of affidavits or declarations prepared for this case. It consists instead of sworn change of plea documents from the convicted individuals and grand jury transcripts. The court nonetheless finds that these documents fall within the exception because—notwithstanding whether the declarants would or could ever attend a trial in the case—the statements and testimony were sworn under penalty of perjury. It getting to its result it confronts a split of authority addressing the admissibility of prior case testimony in the summary judgment context. 

One case—Gatton v. A.P. Green Services, Inc., 64 Cal. App. 4th 688, 694 (1998)—holds that because prior-case testimony is not the functional equivalent of an affidavit or declaration, it is admissible on a summary judgment only only if the foundational elements of the prior testimony exception to the evidence code are present. I.e., that the witness is unavailable and a party to the prior case had a similar motive an opportunity to cross. See Cal. Evid. Cod § 1292(a). Notably Gatton specifically declined to follow the other case—Williams v. Saga Enterprises, Inc., 225 Cal. App. 3d 142, 149 (1990)—which permitted use of prior case depo testimony on SJ without satisfying § 1292(a), because it was under oath and its “effect” was functionally “the same as would be a declaration supplied by [the witness] in this case.”

The court here decides Williams has the better argument. So since the evidence at issue—change of plea documents and grand jury testimony—were signed or verbally sworn under penalty of perjury, the trial court could consider it as the functional equivalent of a declaration. And that was the case even if the District couldn’t satisfy the requirements of some other hearsay exception or otherwise show that the witnesses could or would testify to those facts at some later trial. (Indeed, given the witnesses’ potential incarceration, presumably they would not.) The court notes that a technical relaxation of the hearsay rule is particularly sensible on an anti-SLAPP motion, where the plaintiff is constrained in being required to gather evidence to substantiate a prima facie case without the benefit of any discovery.

So, considering the objectionable evidence, the District set out a prima facie case, satisfying its burden under the second step of the anti-SLAPP analysis. The motion was thus properly denied.