The State Doesn’t Arbitrate

Cal. ex rel. Aetna Health of Cal., Inc. v. Pain Mgm’t Specialist Med. Grp., No. B299025 (D2d6 Dec. 21, 2020)

I’ve written probably fifty posts on cases that explain that PAGA claims can’t be compelled to arbitration because, as quasi-qui tam proceedings, the real plaintiff is a state agency that never consented to arbitrate. Well, what’s true of quasi-qui tam cases is equally true of actual qui tam cases. In a False Claims Act case, the real plaintiff is the state, even if the AG has not decided to take over the litigation. So FCA claims aren’t arbitrable even if the relator and the defendant are parties to an agreement to arbitrate.

Affirmed.

Service Clock Runs if Nobody Is Stopping You

California ex rel. Edelweiss Fund, LLC v. JP Morgan Chase & Co., No. A158728 (D1d4 Dec. 22, 2020)

Code of Civil Procedure § 583.210 requires the plaintiff to serve a defendant within three years of filing. This, however is a California False Claims Act case, where the complaint stays sealed for at least 60 days while the AG or a local prosecutor decides to intervene. See Gov. Code § 12652(c)(8)(D). Since the point of sealing is to avoid tipping off the defendant, service of process is not permitted until the complaint is unsealed. Gov. Code § 12652(c)(2).

The AG got a number of extensions (which are permitted) and ultimately declined to intervene about 15 months after the complaint was filed. Unusually, Plaintiff then sought to extend the sealing for another nine months, ostensibly so it could reach out to other local prosecutors to see if they wanted to get involved. And then it extended the extension. And then Plaintiff just let the case sit without seeking an order unsealing for another year. 

Finally, almost four years after filing, Plaintiff asked the court to unseal the case. But it did so in a CMC statement, not by filing a motion. This exacerbated the problem because San Francisco being a master calendar court, the CMC statement went to a different department than the department responsible for unsealing. After that was finally worked out, the complaint was finally unsealed and Plaintiff started serving defendants—nearly four and a half years after the complaint was filed.

Defendants moved to dismiss under § 583.210, and the trial court agreed. The Court of Appeal affirms. The time for service is tolled during any period service is “impossible, impracticable, or futile due to causes beyond the plaintiff’s control.” § 583.240(d). That merited tolling during the window up till when the AG declined to join because service before that is prohibited by statute. 

After that, however, the ongoing sealing of the complaint was under Plaintiff’s control. Plaintiff could have asked the court to unseal—and the court would have agreed—any time after the AG declined to intervene. The fact that it would have taken a motion to lift the sealing does not change that. And since without that tolling, Plaintiff is past three years, the complaint was properly dismissed.

Affirmed.

The Man Doesn't Arbitrate, for One or For Many

Provost v. Yourmechanic, Inc., No. D076569 (D4d1 Oct. 15, 2020)

Defendant here tried to compel arbitration over the issue whether plaintiff was an “aggrieved employee” with standing to bring a PAGA representative action. Its theory is that plaintiff has both an individual PAGA claim and a representative one, and the former can be arbitrated. The problem with that theory is that it is wrong. All PAGA claims, representative or not, are brought on behalf of the state. And the state has not agreed to arbitrate. End of story.

Affirmed.

The Perils of PAGA

Starks v. Vortex Indus., Inc., No. B288005 (D2d1 Aug. 25, 2020)

Yet again, the Court of Appeal finds that a judgment in a PAGA case is res judicata to another PAGA case alleging the same violations by a different aggrieved employee. That’s not particularly controversial.

This case, however, illustrates how treating PAGA claims as a qui tam and not a class action can yield some pretty funky results. Plaintiff #1 and Plaintiff #2 both have PAGA claims over the same violations. Because Plaintiff #1 was the first to file by about six monts, Plaintiff #2’s case got stayed. 

During the stay, Plaintiff #1 settled. The settlement should have raised some red flags. Plaintiff #1’s lawyers got $630k. Plaintiff #1 got a $10k incentive award. And then $25k was allocated as the penalty for the PAGA violation, which get split 75/25 between the LDWA and the aggrieved employees. So that’s $18,750 for the LWDA and $6,250 for the aggrieved employees, with each aggrieved employee getting $33.30 each. Suffice it to say, a settlement like that that would probably never get approved for a class action. 

But this isn’t a class action. PAGA requires notice to the LDWA and that the court  review and approve any settlement. See Labor Code § 2699(l)(2). So after the deal was struck, Plaintiff #1 mailed the settlement agreement to the LDWA. None of the other aggrieved employees got notice. The parties moved for approval of the settlement on an ex parte basis. The ex parte didn’t explain the potential value of the claims and it did not give any information that would have permitted a loadstar calculation for Plaintiff #1’s attorney’s fees. And it included a specific request that Plaintiff #2 didn’t need to be informed of the settlement. The LDWA never objected, and the trial court approved the settlement and entered judgment. 

Eventually Plaintiff #2 got word of the settlement. About three weeks after the judgment effectuating the settlement had been entered, Plaintiff #2 filed a motion to vacate under Code of Civil Procedure § 663. A few days later, he also filed a motion to intervene. While all this was going on, the LDWA cashed its $18,750 check. Also, Plaintiff #2’s wife got his $33.30 check in the mail and cashed it without telling Plaintiff #2.

The trial court denied Plaintiff #2’s intervention motion as untimely. It denied his § 663 motion because the LDWA—on whose behalf Plaintiff #2 was purporting to act—had cashed its check and thus waived any ability to object to the judgment. And then it granted summary judgment in Plaintiff #2’s case on because of the preclusive effect of the judgment in Case #1. 

Plaintiff #2 appeals in both cases. The Court of Appeal affirms. If you think of a PAGA as a qui tam, each step of its analysis basically makes sense. It’s generally not ok to wait till judgment to intervene. And if a principal (LDWA) accepts the benefit of a settlement, it should not be able to object through some other agent (like Plaintiff #2). And as I said at the top, the res judiciata effect over successive PAGA actions based on the same violations is not controversial.

But treating the analysis as a purely qui tam question leaves out one group of constituents: the other aggrieved employees, who split 25 percent of the penalties. In this case, they got screwed. Because the LDWA is chronically underfunded, it does not have the resources to examine the merits of proposed settlements. So nobody, at any point in the case, was looking out for the interests of the other aggrieved employees. Indeed, although they had money on the line, they didn’t get so much as a notice.

That, generally, is the gist of Justice Bendix’s dissent. She agrees that the intervention was untimely, but she thinks the court should have reached the merits of the § 663 motion and vacated the judgment. As she sees it, because the LDWA is so understaffed, its cashing of a settlement check isn’t really indicative of approval of anything. It is certainly not knowing and voluntary enough to make out a waiver. Nor, for that matter, was Plaintiff #2’s wife’s act of cashing his check enough to show that Plaintiff #2 knowingly accepted the settlement’s benefits. 

And given that Plaintiff #2 had a pecuniary interest that was affected by the terms of the settlement, he should have been considered a “party aggrieved” for both the purposes of § 663 and § 902, which governs standing on appeal. So his objections should have been taken on the merits. And given that the terms of the settlement were so uneven they suggested collusion, the trial court abused its discretion by failing to “review and approve” the agreement. Thus, the trial court should have vacated the judgment and conducted further inquiry. And without that judgment, nothing precluded Plaintiff #2’s case.

I get the feeling that a petition for review is in the future here.

Affirmed.

§ 47(b) Privilege Yields to the Insurance Fraud Prevention Act

People ex re Alzayat v. Hebb, No. E066471 (D4d2 Dec. 19, 2017)

In this case, Plaintiff has brought a qui tam case alleging that his employer and a supervisor violated the Insurance Frauds Prevention Act by making false statements in an incident report and lying in a deposition in worker’s comp proceeding. Generally, that kind of statement is protected by the litigation privilege in Civil Code 47(b). But the Court here finds that the IFPA is a specific statuary scheme that foresees assigning liability based on false statements made in connection with, among other things, workers’ comp proceedings. Under those circumstances, § 47(b) would make the IFPA inoperable in significant part. When that happens, courts have found § 47(b)’s general privilege to yield to the more specific statutory scheme where the Legislature expressed an intent that liability for the statement should, in fact, apply.

Reversed.

And Now for Some Qui Tam . . .

People ex rel Allstate Ins. Co. v. Dahan, No. B259799 (D2d3 Sept. 15, 2016)

This is kind of interesting. A relator wins a false claims act case in which the government declined to intervene. The losing defendant tries to argue that its liability on the judgment is improperly allocated between the relator and the government. But, as the court holds here, the defendant/debtor doesn’t have standing to complain about that. Regardless of who it owes to, its still owes. So it isn’t aggrieved by the allocation.

Appeal dismissed.

The Everfull California Sandbag

People ex rel GEICO v. Cruz, No. D067061 (D4d1 Feb. 17, 2016)

An Insurance Company brings brings a qui tam against alleging fraudulent insurance billing practices in auto accident claims in violation of the Insurance Fraud Prevention Act. Relatively early in the case, a Chiropractor defendant served a raft of requests for admission, including requests that the Carrier admit it didn’t suffer any damages. As is common in state court practice, the RFAs were accompanied by Form Interrogatory 17.1, which requires a responding party to state the facts and identify any evidence upon which any RFA response other than an unqualified admission is based. The Insurer’s first set of responses to the form rog simply claimed that discovery was ongoing and that it reserved a right to supplement. 

The Chiro moved to compel. In the interregnum between filing the motion and a decision, the Insurer supplemented its responses with some—albeit relatively general—information, reiterating that discovery was ongoing. The trial court granted the motion and awarded sanctions based on the inadequacy of the original responses. At the hearing, the Chiropractor also took issue with the Insurance Company’s supplemental responses on damages. The Insurer’s, however, explained that the supplemental contained all relevant information that it could be located to that point, subject to being augmented by a damages expert. 

The Chiropractor subsequently moved for summary judgment based on the Insurer’s failure to identify or calculate its damages. During the lengthy window between the motion and the due date on the opposition, see Cal. Code Civ. Proc. § 437c(a), the Carrier again supplemented its responses, adding further detail, including some additional facts about alleged up-charging that formed the basis of its damages. 

The Chiropractor objected and filed a motion to have the Insurer bound to its first set of supplemental responses under § 2030.310(b). The trial court granted the motion, holding that the Insurer was bound to the prior responses and further that, in opposing the motion, it could not use any undisclosed information it knew of when it filed the supplemental responses or, for that matter, any other discovery derived from such information. Unsurprisingly perhaps, the Insurer’s opposition was full of information that was not presented in its original supplemental responses. The court granted the Chiropractor’s evidentiary objections, struck the evidence, and granted summary judgment. The Insurance Company appeals.

The Court of Appeal holds that it was error to bind the Insurer to its original responses. Under the plain text of § 2030.310(c)(1)–(3), a moving party seeking to bind a respondent to rog responses bears the burden of showing: 1. that it was substantially prejudiced by the failure to answer; 2. that the responding party failed to show substantial justification for the original answer; and 3. that the prejudice isn’t curable through a continuance for additional discovery or the use of the original responses for impeachment purposes.The court here holds that the first and third elements were not established. 

On the first element, the Chiropractor claimed that, in reliance on the Insurer’s representations that the responses were complete, he ceased the meet and confer process on the supplemental responses or moving to compel on them. But the court here does not find that prejudicial enough. Even had the Chiropractor gone that route, a successful discovery motion would have just resulted in further supplemental responses along the lines of what the Insurer ultimately served anyway.

On the third, the Chiropractor argued that although trial was still a ways off, failing to bind Insurer would permit it to weasel out of the rule that a summary judgment movant can rely on the non-moving party’s factual deficient interrogatory responses it meeting its initial burden. But the court here doesn’t agree. Without further elaboration, it just states that “rewarding” a non-moving party for sandbagging on interrogatory responses until after a summary judgment motion is filed “has no bearing on whether [the moving party] suffered incurable prejudice.” 

And because the motion to bind was erroneously granted, it was further error to reject the Insurer’s other evidence based on that ruling. 

The court goes on to find that the record, including the evidence rejected by the trial court, showed triable issues thus that summary judgment should have been denied.

Reversed.

I have to say, I don’t find this analysis very satisfying. As I pointed out back in 2014, the fact that California’s summary judgment rules put an affirmative burden on the moving party and require a lengthy window between motion and opposition present a timing conundrum. The case law says the movant can rely on factually devoid interrogatory responses to meet an initial burden. But permitting the non-moving party to amend or supplement those responses after a motion is filed potentially creates an unfair, moving-target type situation. At minimum, fairness seems to require a court to measure a moving party’s initial burden based on discovery responses that are effective as of the date the motion is filed. Although it appears that in the absence of the three factors in § 2030.310(c), the non-moving party can’t be bound to its original responses in meeting its own burden to show a disputed issue of fact, that should come into play only after the burden has shifted. 

Now, when it gets to the merits, the court here seems to be focused on whether the Insurer met its burden as the non-moving party. That is, it seems to assume that the Chiropractor’s initial burden was met without getting into the issue. So the ruling may well be right on the merits. But by dismissing out of hand the potential prejudice that arises from the amendment of interrogatory responses once a summary judgment motion is filed, the court fails to grapple with an important procedural issue, and indeed, potentially makes it even more unclear.