Money Too.

Kwan Software Eng’g, Inc. v. Hennings, No. H042715 (D6 Dec. 2, 2020)

After a years-long record of fraud on the court, false testimony, and spoliation of evidence, the trial court dismissed Plaintiffs complaint in this case as a terminating sanction. It declined, however, to award Defendants’ monetary sanctions under the discovery act. As we recently discussed, the Discovery Act requires an award of monetary sanctions as compensation in the form of reasonable costs unless the non-prevailing party was substantially justified or an award would be unjust. See Code Civ. Proc. § 2023.030(a). 

In the course of issuing terminating sanctions, the trial court made findings from which it is clear that a substantial justification was not present. Nor would it be unjust—that other sanctions were awarded did not render it unjust to also require plaintiffs to compensate Defendants for the increase expense incurred as a result of Plaintiffs’ discovery misconduct. So the trial court abused its discretion by not awarding monetary sanctions.

Sanctions were not merited, however, against Plaintiffs’ former attorneys. The record established that that the attorneys had not “advised” their clients to engage in discovery abuse, which precludes any award under § 2033.030(a).

Reversed in part.

Font Failure Dooms Arb Clause, for Now

Domestic Linen Supply Co. v. L.J.T. Flowers, Inc., No. B292863 (D2d6 Dec. 4, 2020)

The arbitration clause in the parties’ contract in this case was set out in paragraph 15 of the text of the contract. It appeared in ordinary type on the back of the document, while the parties’ signatures were on the front. Under the California Supreme Court’s opinion in Sanchez v. Valencia Holding Co., LLC, 61 Cal. 4th 899, 914 (2015), that might be evidence of some procedural unconscionability, but it’s not per se fatal. Indeed, a per se rule like that would probably be preempted by the FAA. See Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 684, 687–688 (1996) (FAA preempted state statute requiring arbitration clause to be in underlined capital letters on the first page of a contract).  

The Court of Appeal here, however, doesn’t do an unconscionability analysis. In a brief analysis short on citations to authority, it finds, instead, that the appearance of the clause in boilerplate on the backside of the contact supports the trial court’s finding that the defendant, who signed the contract, never actually agreed to arbitrate. There’s no discussion of substantive unconscionability at all. And in getting there, the court further suggests that the constitutional right to jury trial means that any doubts should be resolved against waiver, i.e., against arbitration. That, of course, is contrary to the settled rule that ambiguities in an arbitration agreement are to be construed in favor of arbitration.

The Court further affirms a contractual attorney’s fee award in favor of defendant. Although there are cases that say a party that defeats a motion to compel isn’t entitled to a separate prevailing party fee award divorced from the underlying merits, the Court says this case is different because the trial court was dealing with a freestanding petition to compel. Arbitration, in such cases, is the whole show. Since the case was done once the petition was denied, there was no underlying merits case to prevail in. In those circumstances, the party who prevails on the petition is the winner, entitled to fees under a prevailing party fee contract.

Affirmed.

I’m not exactly enthusiastic about the current trends towards forcing everyone into arbitration based on pre-dispute agreements. Were arbitration truly mutually advantageous, parties would agree to it even after a dispute arises. But the first part of this opinion is pretty far over the line. I would not be surprised to see a petition granted. Or perhaps more likely, a grant and transfer.

American Pipe Tolling Does Not Require Precognition

Hildebrandt v. Staples the Office Store LLC, No. B294642 (D2d3 Dec. 4, 2020)

The trial court granted summary judgment on the statute of limitations in this wage and hour case. Plaintiff argued that two prior class actions in which class cert was ultimately denied tolled the statute under the American Pipe doctrine. The trial court disagreed, finding that because class cert was denied on commonality grounds, Plaintiff had no reasonable basis to wait to file sue in reliance on the prior cases.

That’s not really the test, though. So long as Plaintiff can ascertain that she falls within the prior class definition, and so long as she’s bringing more or less the same claims, American Pipe applies. The Court of Appeal addresses Jolly v. Eli Lilly & Co., 44 Cal. 3d 1103 (1988), in which the California Supreme Court generally adopted the American Pipe analysis, while deciding that it didn’t apply to the facts of that case, which was a mass tort. In particular, Jolly held that tolling didn’t apply in because: (a) the class definition was somewhat fail-safe, such that a Plaintiff could not know she was a class member without first having key liability issues decided in her favor; and (b) the class plaintiff did not bring damages claims, which were the crux of Plaintiff’s case. In those circumstances, a plaintiff can’t reasonably rely on the prior class action in deferring her decision to sue. 

But those weren’t the case here. Plaintiff fell within the general class definition and had basically the same claims. Defendant says the exceptions in Jolly nonetheless apply because Plaintiff could not have predicted that her claims were sufficiently common with the named class plaintiffs to know she was in a certifiable class in the prior case. But requiring a predictive exercise like that is contrary to the whole point of American Pipe and Jolly, which is to preserve the utility of the class action device by not requiring any and all potential class members to rush to the courthouse to avoid the limitations period. 

In reaching its result, the court disagreed with Batze v. Safeway, Inc., 10 Cal. App. 5th 440 (2017), which suggested a presumption against tolling when class cert in the prior case is denied on lack commonality. 

Reversed.

Tenants Are Neccessary Parties in Landlords’ Rent Control Lawsuit

Pinto Lake MHP LLC v. Cnty of Santa Cruz, No. H045747 (D6 Oct. 30, 2020)

The Owner of a mobile home park sought administrative permission to raise rents under Santa Cruz County’s mobile home rent control ordinance. As contemplated by the ordinance, the Tenants participated in that proceeding as an adverse party. When that was denied, the Owner sought review by administrative mandamus against the County. But it didn’t join the Tenants in the Superior Court proceedings. The County demurred for failure to join the tenants under Code of Civil Procedure § 389, and the trial court sustained the demurrer.

The Court of Appeal affirms. Tenants’ rights under the Ordinance were to be adjudicated in the mandamus proceeding. The Ordinance made them parties to the administrative case, and they elected to participate in that capacity. Under the circumstances, Tenants had claimed an interest relating to the subject of the administrative mandamus proceeding and failure to join them would impair their ability to protect their rights under the Ordinance. That made them “necessary” parties whose joinder was required if feasible under § 389(a)(2)(i). In particular, the Court notes that the County’s participation in was an inadequate proxy for the Tenants. 

The superior court, however, never conducted the second part of the test under § 389 because it ordered Owner to join Tenants, and when Owner refused, the superior court granted the demurrer. But a dismissal is proper only after an analysis under § 389(b)—a determination that “equity and good conscience” do not permit the case to go forward even in the absence of the necessary parties. So the Court of Appeal remands for that purpose.

Affirmed in part and remanded.

The NRLA Doesn't Make PAGA Claims Arbitrable

Olson v. Lyft, No. A156322 (D1d2 Oct. 29, 2020)

In Iskanian v. CLS Transp. L.A., LLC, 59 Cal.4th 348 (2014), the California Supreme Court held that PAGA claims are not arbitrable. Employer here acknowledges that rule, but argues that Iskanian was implicitly overruled by the U.S. Supreme Court in Epic Sys. Corp.v. Lewis, 138 S. Ct. 1612 (2018). Epic held that § 7 of the National Labor Relations Act—which guarantees certain employee rights to collective action—was not in conflict with the FAA and thus that employment claims are generally arbitrable. But that doesn’t undermine Iskanian. Iskanian is not premised on labor law, but on the fact that the State, which never agreed to arbitrate, is technically the plaintiff in a PAGA case. The Court of Appeal already made that point in Correia v. NB Baker Elec., Inc., 32 Cal. App. 5th 602 (2019), and the Court here sees no good reason to decide otherwise.

Affirmed.

Tolling Statute Violates Dormant Commerce

Arrow Highway Steel, Inc. v. Dubin, No. B303289 (D2d2 Oct. 29, 2020)

Plaintiffs here have a super-old judgment that they never bothered to renew under Code of Civil Procedure § 683.110, 683.120. But they argue that the ten-year limit on time to bring a collections action in § 337.5, should be tolled under § 351, which tolls limitations while the defendant is not present in California. Defendants, however, argue that § 351 is unconstitutional under the dormant commerce clause. The trial court agreed, and so does the Court of Appeal.

Generally, there are three tests that determine whether a state law violates the commerce clause: (1) laws that purposefully discriminate against out of state persons; (2) laws that do so in “practical effect”; and (3) laws that, while not necessarily discriminatory, burden interstate commerce to an extent that can’t be justified by their utility. Nobody here is arguing that § 351 is a (1) or a (2). That is, § 351 applies equally to toll the statute when a Californian leaves as it does when a Nevadan comes here to commit a tort and then leaves the state. So the issue is the balancing test.

Which is not the clearest of tests in the con law casebook. Applying both U.S. Supreme Court and California state precedent, the Court of Appeal holds that § 351 subjects defendants to an unreasonable burden of having to choose between remaining present in California to permit the statute to run and being out of state to conduct their affairs, including interstate commerce. That is particular so given the minimal need for tolling in an era where out of state defendants are readily subject to long arm jurisdiction and out of state service of process.

Affirmed.

If You Move and Don't Tell the Court, It's Your Fault if You Don't Get Mail

Kramer v. Traditional Escrow, Inc., No. G058522 (D4d3 Oct. 20, 2020)

After Defendants’ lawyer in this wage and hour case quit, they stopped participating in the case. They missed depos, ignored correspondence, and got sanctioned for it a couple of times. Eventually they wound up in default. They sought relief. Their excuse was that their principal had moved, but failed to tell the court. Also the principal’s divorce attorney had some confusing back and forth with Plaintiff’s attorney about the status of the case. 

Although that was good enough for the trial court, it’s not good enough for the Court of Appeal. As the Court puts it, “Defendants cannot deliberately neglect this lawsuit and go off-grid, so to speak, and then complain that they lacked notice of the proceedings.” 

Reversed.

Kurt Weldon Gets 419'ed

Luxury Asset Lending, LLC v. Phila. Tel. Network, Inc., No. G057766 (D4d3 Oct. 29, 2020)

This one is a doozy. Two connected Boomers from Philly—one of whom is my parents’ former congressman—get roped into an investment scam involving a purported former Libyan oil minister, a $350 million wealth fund, some Ghanian royalty and/or government officials, boxes of $100 million in $100 bills, and whole lot of other sketchy stuff that would raise red flags to most individuals of ordinary curiosity. When their adventure started to go south, an apparent White Knight stepped in to offer the Boomers high interest loans to throw good money after bad. It would later come to pass that White Knight’s principal was closer to the underlying scam than he let on. 

Boomer #2—not the congressman—was the apparent CEO and largest shareholder PTNI, a company that ran low-power TV station. He secured his loans from White Knight, not only with his own shares in PTNI, but also by pledging PTNI’s assets as collateral. (He was not actually allowed to do either—his stock was restricted and he didn’t own PTNI’s assets.) 

White Knight eventually got a $3.8 million default judgment in OC Superior against the Boomers and PTNI. (The service on PTNI was only on Boomer #2 in his capacity as CEO, which is not proper service.) Boomer #2 subsequently went BK, while Boomer #1 got sidetracked into an arbitration. White Knight then assigned the judgment to an affiliate, which then started to go after PNTI’s assets. It obtained an order under Code of Civil Procedure § 708.510 assigning both Boomer #2’s shares, as well as all ownership and control over PTNI and all of its assets. 

At this point, PTNI figured out what was going on and tried to fight back. It objected to the transfer of its broadcast license with the FCC. There were some receivership proceedings in the Court of Common Pleas in Philadelphia and some other inconclusive litigation in the OC. Eventually, PTNI moved to vacate the $3.8 million default judgment under § 473.5 and on non-statutory equitable grounds. The trial court denied relief, but the Court of Appeal—in a very funny and well-crafted opinion by Justice Bedsworth—reverses.

Section 473.5 permits a court to vacate a default or default judgment when the defendant never received actual notice of the claims in time to defend against them. The motion needs to be brought within 180 days of proper service or 2 years of entry and the lack of notice can’t be due to the defendant’s efforts to avoid service or inexcusable neglect. 

Here, there never was any proper service on PTNI, so we’re in the two year window. Nor did PTNI have actual notice. Although there was some evidence that other PTNI execs knew of Boomer #2’s issues with White Knight, there’s no basis to believe that anyone knew PTNI itself or its assets were on the line.

Nor was there any unreasonable delay. The fact that it took some time for PTNI to move to vacate the judgment is unsurprising. It was a small company facing a three front war. It would be unfair to expect it to act maximally and immediately in every forum as it tried to sort out its avenue for relief.

Finally, White Knight’s Assignee argues that because PTNI only moved to vacate the default judgment and not the underlying default, it’s not entitled to any meaningful relief. But that’s kind a trifle under the circumstances here. It is true that if a party moves for pre-judgment relief from a default, and doesn’t get it, relief from the default judgment is not of any substance, since the only thing that could happen is reentry for another judgment. But here, there is no real issue that PTNI wasn’t also entitled to relief from the entry of default, it just did not say so in its notice of motion. The Court of Appeal is not going to let that stand in the way of relief here.

So far as equitable relief goes, California permits non-statutory relief from a default judgment in exceptional circumstances. These are generally when some fraud or mistake extrinsic to the proceedings themselves prevents the defendant from putting on a defense. Fraud generally requires the plaintiff to do something deceptive, while mistake generally arises from an excusable neglect that results in an unjust judgment. Generally, to get relief on either grounds, the defendant moving to vacate needs to show: (1) that it had a meritorious case; (2) that is has a satisfactory excuse for failing to present a defense; and (3) that it diligently sought relief once the mistake or fraud was discovered. All three elements were satisfied here.

Reversed.

FWIW, this classic article from The Atlantic on scamming the scammers is well worth a read, even 13 years later.

 

A Theory of Discovery Sanctions

Cornerstone Realty Advisors, LLC v. Summit Healthcare REIT, Inc., No. G057176 (D4d3 Oct. 28, 2020) 

Plaintiffs in this case refused to turn over some key financial records. Even after the trial court ordered them to. For that, they ultimately got hit with terminating sanctions. But that’s not the subject of this appeal. 

Post-Judgment Procedure for Referees

Yu v. Superior Court, No. B304011 (D2d3 Oct. 27, 2020)

The parties here agreed to resolve their dispute before a referee under a general judicial reference authorized by Code of Civil Procedure § 638(a). The referee issued an award of about $7 million to Plaintiff and submitted his findings and conclusions to the trial court. The trial court, however, found that the referee’s was tainted by legal error. Before judgment was entered, the court ruled that a new trial would be permitted and that the new trial would be before the court, not the referee. Plaintiff took a writ.

Anti-Slapp Coverage Is Close, But Not the Same, as Civil Code § 47

RGC Gaslamp v. Ehmcke Sheet Metal Co., No. D095615 (D4d1 Oct. 23, 2020)

As a step generally predicate to litigation, the recording of a mechanic’s lien constitutes “protected activity” under the anti-SLAPP statute. See Code Civ. Proc. § 425.16(e)(1), (2). As the Court of Appeal here explains, that’s the case even if the recording was somehow defective under the mechanic’s lien statutes. Nor, in meeting its initial burden, does the party seeking anti-SLAPP relief need to show that the lien, in actuality, relates to litigation that is contemplated in good faith and under serious consideration. That, no doubt, is a requirement for the protection of pre-litigiation communications under the litigation privilege in Civil Code § 47(b). But that’s an anti-SLAPP step 2 issue about the merits, not an issue over whether a claim “arises from protected activity” under step 1.

The Court of Appeal also finds that it was an abuse of discretion to strike evidence that the moving defendant submitted on reply. This wasn’t some brand new evidence that could have been included with the motion. It was, instead, supplemental to that offered in the opening papers, offered in order to rebut a specific argument raised in the opposition. Despite the common exhortations against reply evidence, that’s ok.

Affirmed.