HIGHLIGHTS
OF CALIFORNIA AND FEDERAL
LEGAL
DEVELOPMENTS IN 2007
Anti-SLAPP Litigation
Arbitration
Employment (includes Class Actions and Wage & Hour Litigation)
Insurance
Intellectual Property
Federal Civil Procedure
Premises Liability
Privette Doctrine
Punitive Damages
Toxic Torts
State Civil Procedure
Unfair Competition/Consumer Actions
Courts of Appeal Continue to Wrestle With Application of Anti-SLAPP Statute to Lawsuits Against Lawyers
One of the most interesting developments during 2007 involving the anti-SLAPP statute was the continued deepening of a split of authority between the appellate courts on the important question of whether a lawsuit against a lawyer for malpractice and other torts arising out of the lawyer's prior legal representation is subject to an anti-SLAPP motion. In 2007, the Court of Appeal, Fourth District, Division One, held that such claims do not involve a protected right subject to the protection of the anti-SLAPP statute. (Freeman v. Schack (2007) 154 Cal.App.4th 719, 729-732 & fn 9.) In doing so, the Court of Appeal agreed with the prior holdings by the Fourth District, Division Three in Kolar v. Donahue, McIntosh, & Hammerton (2006) 145 Cal.App.4th 1532 and the Second District, Division Four's opinion in Benasra v. Mitchell Silberberg & Knupp LLP (2004) 123 Cal.App.4th 1179. The Freeman court also explicitly disagreed with the holding in Jespersen v. Zubiate-Beauchamp (2003) 114 Cal.App.4th 624 which held that the anti-SLAPP statute would apply to a malpractice claim alleging the attorney filed an answer omitting a critical defense, but would not apply where the attorney failed to file an answer at all because the failure to act does not involve the right to petition. The Freeman court then distinguished the First District, Division Three's opinion in Peregrine Funding Inc. v. Sheppard, Mullin, Richter & Hampton (2005) 133 Cal.App.4th 658, where the court had held the anti-SLAPP statute applied to a claim by a former client against a lawyer on the basis that there was insufficient petitioning activity to warrant application of the anti-SLAPP statute under the facts in Freeman. In short, there is tremendous uncertainty as to whether tort claims against lawyers arising from a prior representation can be subject to an anti-SLAPP motion. While the Supreme Court denied review in Freeman, it seems likely the court will need to resolve this important conflict in the near future.
California Supreme Court Addresses Enforceability of Arbitration Provisions
Last year the California Supreme Court issued two important decisions addressing the enforceability of arbitration agreements. These decisions follow the recent judicial trend enforcing arbitration agreements between parties of relatively equally bargaining power, while being especially critical of provisions in employment arbitration agreements.
• Wagner Construction Company v. Pacific Mechanical Corp. (2007) 41 Cal.4th 19: The California Supreme Court held that an arbitrator, not the trial court, should decide the applicability of a statute of limitations affirmative defense. A statute of limitations defense, therefore, can no longer serve as the basis for the trial court to refuse to compel arbitration. Whether a party has delayed unreasonably in demanding and seeking arbitration, however, remains a decision for the trial court.
• Gentry v. Superior Court (2007) 42 Cal.4th 443: In a split decision, the California Supreme Court made it more difficult for employers to enforce pre-dispute employment arbitration agreements in two respects. First, the Court held that class action arbitration waiver provisions in overtime cases may be contrary to public policy. The test for enforceability is now whether class arbitration would be a more effective way of vindicating employees’ rights. Although the court’s holding was indecisive, it appears that the factors crafted for making this determination favor allowing class arbitration in nearly all wage and hour cases. Second, the Court concluded the pre-dispute arbitration agreement was procedurally unconscionable, even though employees were given 30 days to opt out of arbitration. The court found that because the employees were not provided information about the disadvantages of arbitration, combined with the likelihood that they felt some pressure not to opt out, their consent was not informed. Since an opt out provision will no longer guarantee the validity of a pre-dispute arbitration agreement, employers should review their arbitration agreements for substantive and procedural unconscionability.
Finally, important developments are on the horizon in 2008. Both the United States Supreme Court and California Supreme Court are set to decide whether parties can agree to have courts review arbitration awards for legal error. In Hall Street Associates v. Mattel, Inc., the United States Supreme Court will decide this issue as it pertains to the Federal Arbitration Act. The California Supreme Court will hear argument in Cable Connection, Inc. v. DirecTV, Inc. in early February on this issue in the context of the California Arbitration Act.
EMPLOYMENT (Including Class Actions and Wage and Hour Litigation)
California Supreme Court Upholds Profit-Based Employee Bonus Plans
In Prachasaisoradej v. Ralphs Grocery Co., Inc. (2007) 42 Cal.4th 217, the Supreme Court has upheld a profit-based incentive employee bonus plan under the California labor laws. The plan at issue promised grocery store employees a bonus, the amount of which would be determined based on a comparison of overall store profitability to a profitability target set by the employer. Depending on how much overall store profitability lagged behind or exceeded the target, the employee's bonus could range from nothing to 150 percent of a "target bonus," which was defined as a fixed percentage of the employee's regular wages.
The plaintiff argued the bonus plan violated the labor laws insofar as the determination of overall store profit took into account costs of workers' compensation and cash and merchandise shortages. The plaintiff claimed this amounted to the unlawful recovery of business expenses out of an employee's wages.
In a majority opinion joined by three other justices, Justice Baxter held the employees had no expectation of ascertainable compensation amounting to a wage until store profit was calculated by deducting store expenses from store sales. Taking costs of workers' compensation and cash and merchandise shortages into account to determine store profit could not, therefore, be a deduction from the employee's wage. Once profit was determined, the employees received the bonus they had a right to expect, calculated according to the formula in the plan.Horvitz & Levy LLP represented Ralphs Grocery Company in the Supreme Court.
Court of Appeal Holds that a Defendant May Be Ordered to Disclose the Contact Information of its Current and Former Employees to Plaintiffs in a Putative Wage-and-Hour Class Action Under Certain Circumstances
In Belaire-West Landscape, Inc. v. Superior Court (2007) 149 Cal.App.4th 554, the Second Appellate District, Division Seven, approved a trial court's order directing a defendant to send a notice to its current and former employees informing them that their addresses and telephone numbers would be provided to counsel for the plaintiffs in a putative wage-and-hour class action unless they completed and returned a post card enclosed with the notice. The Court of Appeal denied the defendant's writ petition challenging the order, holding that: (1) the defendant's former and current employees could reasonably be expected to want their information disclosed to a class action plaintiff who might ultimately recover unpaid wages for them; (2) the opt-out notice did not involve a serious invasion of privacy because the contact information was not particularly intrusive and the court's order imposed vital limits requiring written notice of the proposed disclosure and providing former and current employees with an opportunity to object to the release of their information; and (3) a balancing of opposing interests supported the opt-out notice because the defendant's employees were percipient witnesses to the defendant's employment and wage practices and because California's fundamental policy favoring the prompt payment of wages was at stake.
Ninth Circuit Allows District Court to Certify Largest Class Action in History
In Dukes v. Wal-Mart, Inc., 509 F.3d. 1168 (9th Cir. 2007), the Ninth Circuit affirmed a district court's decision to certify what the parties agreed was the largest class action in history. Dukes arose when the plaintiffs filed a class action alleging that Wal-Mart engaged in sexual discrimination in violation of Title VII of the Civil Rights Act of 1964. On appeal from the order granting class certification in part, the Ninth Circuit (in an opinion written by Judge Pregerson in which Judge Hawkins concurred) determined that the district court did not abuse its discretion by certifying the class under Rule 23(b)(2) of the Federal Rules of Civil Procedure, which requires plaintiffs to show that the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making final injunctive relief with respect to the class as a whole appropriate. However, the Ninth Circuit held that those putative class members who were not Wal-Mart employees at the time the plaintiffs filed their complaint did not have standing to pursue injunctive or declaratory relief. But the court determined that this did not defeat class certification altogether, holding that class certification was still appropriate for those putative class members who were Wal-Mart employees when the complaint was filed and therefore did have standing to pursue injunctive and declaratory relief. Judge Kleinfeld dissented from the majority's decision. Wal-Mart has since petitioned the Ninth Circuit for rehearing en banc.
California Supreme Court Decides that Payments for Missed Meal Periods and Rest Breaks are Wages, Not Penalties
In Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, the California Supreme Court decided that the statutory remedy afforded by Labor Code section 226.7 for missed meal and rest periods were premium wages rather than penalties. Murphy arose after the former manager at a retail clothing store asked a trial court to review the Labor Commissioner's ruling on his wage claims and, in doing so, raised for the first time new claims for meal and rest break violations. The Supreme Court concluded that, in light of the plain language of Labor Code section 226.7, the administrative and legislative history, and the compensatory purpose of section 226.7's remedy, the payments imposed by section 226.7 are premium wages, not penalties. The Court also held that a plaintiff could raise additional, related wage claims during a de novo appeal to a trial court from an administrative hearing before the Labor Commissioner even if those claims were not raised in the hearing.
California Supreme Court to Consider Scope of Administrative Exemption to Overtime Requirements
The California Supreme Court has granted review in Harris v. Superior Court (2007) 154 Cal.App.4th 164, review granted Nov. 28, 2007, S156555, involving application of the "administrative" exemption to California's overtime requirements. Harris arose from several coordinated class actions brought by insurance claims adjusters who alleged that the defendant insurance companies that employed them improperly classified them as exempt from California's overtime requirements. The defendants maintained that the adjusters were covered by the "administrative" exemption to the overtime requirements. The Court of Appeal in Harris held that the plaintiffs were not exempt "administrative" employees because the work performed by the adjusters (i.e., investigating and estimating claims, making coverage determinations, setting reserves, negotiating settlements, making settlement recommendations for claims beyond their settlement authority, and identifying potential fraud) was merely part of the day-to-day operations of the insurance companies' business and not carried on at the level of management policy or general operations. The California Supreme Court granted review to decide whether claims adjusters fall within the "administrative" exemption.
California Supreme Court Confirms Validity of "Genuine Dispute" Doctrine
On November 29, 2007, the California Supreme Court issued its opinion in Wilson v. 21st Century Insurance Company (2007) 42 Cal.4th 713, an insurance bad faith action by an insured (Wilson), who was injured in a car accident, against her underinsured motorist (UIM) insurer. After the insurer rejected Wilson's policy limits demand on the basis that she had already received adequate compensation from the other driver's insurer for her injuries, Wilson sued for bad faith, asserting unreasonable denial of policy benefits. The trial court granted summary judgment for the insurer on the ground that a reasonable dispute existed between Wilson and the insurer regarding the extent of Wilson's injuries. After the Court of Appeal reversed, the Supreme Court granted review and confirmed that an insurer may properly obtain summary judgment based on the "genuine dispute" doctrine when, under all the circumstances, there is no triable issue regarding the reasonableness of the insurer's conduct. In so ruling, the Court confirmed the doctrine is applicable to disputes about factual as well as legal matters. The Court also disagreed with the Court of Appeal's assertion that insurers must always involve doctors in the adjustment of bodily injury claims, holding no general rule of reasonable claim adjustment can be stated, and that, in the proper case, an adjuster's review of the insured's medical records can be an adequate investigation.
Horvitz & Levy LLP represented 21st Century Insurance Company in the Supreme Court.
California Supreme Court Addresses Single-Publication Rule
In Hebrew Academy of San Francisco v. Goldman (2007) 42 Cal.4th 883, the Supreme Court decided the question of whether the single-publication rule should apply to publications having only a limited distribution. (Under the single-publication rule, the statute of limitations for publication-based torts begins to run at the time of the first general distribution of the publication to the public.) The plaintiff in Hebrew Academy was allegedly defamed in an oral history transcript prepared from statements made by the defendant. In response to defendant's argument that plaintiff's defamation claims were time-barred under the single-publication rule because he did not sue until almost a decade after approximately 10 copies of the oral history were disseminated to several libraries nationwide, the plaintiff argued that the single-publication rule should apply only to "mass-media" publications. The Court held that the single-publication rule did apply to plaintiff's claims, affirming that the single-publication rule applies not only to "books and newspapers that are published with general circulation," but also to publications "that are given only limited circulation and, thus, are not generally distributed to the public," so long as they are not published in an "inherently secretive manner." (Id. at p. 890.)
Horvitz & Levy LLP represented a large group of amici curiae in this case and presented oral argument in the Supreme Court.
During 2007 the Supreme Court granted review in another interesting single-publication rule case, Christoff v. Nestlé USA, Inc. (2007) 152 Cal.App.4th 1439, review granted Oct. 31, 2007, S155242, involving whether the single-publication rule applies to a right of publicity claim asserted under Civil Code section 3344. The jury's $15.6 million verdict in the case generated international media attention in 2005 after an unknown male model, Russell Christoff, sued Nestlé USA, Inc. for its unauthorized use of his image on the label of its Taster's Choice coffee jar. The Court of Appeal reversed the entire $15.6 million judgment, holding that the single-publication rule applies to right of publicity claims such as those asserted by Christoff. The Supreme Court will now decide whether the Court of Appeal was correct in holding that the single-publication rule applies to a "right of publicity" claim that is based on the unauthorized use of a person's photograph on a product label.
Horvitz & Levy LLP represents Nestlé USA, Inc. in the Supreme Court.
Federal Appellate Courts Emphasize and Expand Procedural and Jurisdictional Barriers to Suit
In 2007, several important United State Supreme Court and Ninth Circuit Court of Appeals decisions expanded the grounds for dismissing cases and appeals. It has never been more important for parties to work with counsel familiar with the federal rules at a very early stage to map a strategy to ensure compliance with the forum's unique procedural requirements.
• Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007): The U.S. Supreme Court gave defense counsel a powerful new weapon to seek dismissal of a complaint at the pleading stage. It held that, in order to survive a motion to dismiss, a complaint must now plead facts showing the plaintiff's entitlement to relief is plausible, not merely speculative or conceivable. Defendants in federal court may utilize this opinion to seek dismissal of complaints whose factual allegations are implausible in the context of the claims pleaded.
• Bowles v. Russell, 127 S. Ct. 236 (2007): The U.S. Supreme Court held a notice of appeal is untimely when filed after the statutory deadline—even if the district judge gives permission for the late filing. By relying on the district judge's incorrect calculation of the time to file the notice of appeal, the appellant lost his day in court. It is therefore essential to independently assess, and strictly adhere to, the time periods for a notice of appeal set forth in federal statutes, and in the Federal Rules of Appellate Procedure.
• Nitco Holding Corp. v. Boujikian, 491 F.3d 1086 (9th Cir. 2007): In a case involving a significant procedural trap for the unwary, the Ninth Circuit held that a party forfeits the right to appeal the legal insufficiency of the evidence to support the verdict unless he first files both a pre-verdict motion for judgment as a matter of law and a post-verdict renewed motion for judgment as a matter of law. See Fed. R. Civ. P. 50. Nitco overrules prior precedent permitting limited review of such claims even where parties had failed to bring Rule 50 motions. These requirements must now be followed strictly to preserve the right to argue on appeal that the verdict was not supported by substantial evidence. (Note that the Ninth Circuit's approach is the opposite of the California rule that allows parties to raise substantial evidence arguments on appeal whether or not they previously moved for judgment notwithstanding the verdict.)
Finally, a restyled version of the Federal Rules of Civil Procedure took effect on December 1, 2007. (Click here to access the new rules.) The new rules apply in all pending and future cases. See Fed. R. Civ. P. 86(a). Although the changes are intended to be stylistic only, many commentators doubt that a rule's words can be changed without changing its meaning. Thus, questions may now arise about whether to follow the plain meaning of a new Rule or the meaning courts have given the old Rule. Either position can be defended, so it is good practice to compare the old and new Rules to ascertain if one is more favorable in a given case.
California Supreme Court Limits Landowner Liability For Third-Party Criminal Conduct
In Castaneda v. Olsher (2007) 41 Cal.4th 1205, the California Supreme Court issued an important decision in the area of landowner liability for third party criminal conduct. The Court's decision dealt with gang-related violence and a landowner's duty to protect against such violence occurring on his or her premises.
In Castaneda, plaintiff was injured by a stray bullet from a gang shooting that occurred on defendant's property, a mobile home park. At trial, plaintiff presented evidence of two prior shootings near the premises, one of which may have been gang related, as well as complaints by tenants and the manager about suspected gang members living in the mobile home park. Plaintiff also presented evidence of prior property-related crimes, assaults, and drug sales occurring on the premises. Plaintiff presented no evidence, however, that the residents involved in the shooting that caused plaintiff's injuries were involved in the prior two shootings, the property-related crimes, the assaults or drug sales. The trial court granted non-suit for the defendant landowner and the Court of Appeal reversed.
The Supreme Court reversed the Court of Appeal and reinstated the grant of non-suit for the defendant. In the first part of the Court's three-part decision, it held that a landowner does not have a duty to refuse housing to suspected gang members "absent circumstances making gang violence extraordinarily foreseeable." Although the Court did not elaborate on what type of evidence would make gang violence "extraordinarily foreseeable" in this context, the opinion makes clear that looking and dressing like a gang member is insufficient. In the second part of the Court's decision, it held that a duty to evict a vicious or dangerous tenant exists only in cases where violence is highly foreseeable. Although there was evidence of property-related crimes, assaults, and a nearby gang-related shooting, plaintiff's injury was not highly foreseeable because these prior crimes were not committed by the residents who took part in the shooting that injured plaintiff. In the third section, the Court held that security guards and additional lighting would have been ineffective in preventing the type of escalation and shooting that occurred in this case.
Over the last several years, the Court has taken a keen interest in the area of premises liability. This decision continues the Court's measured and thoughtful approach toward landowner liability for third party criminal conduct.
Horvitz & Levy LLP represented the prevailing landowner, George Olsher in the Supreme Court.
California Appellate Courts Continue to Refine the Privette Doctrine
In a series of cases beginning with Privette v. Superior Court (1993) 5 Cal.4th 689 (Privette), the California Supreme Court has limited the scope of liability of landowners and others to contractors’ employees for injuries arising from the negligent manner in which the contractor and its employees perform their work. Under this line of authority, the Supreme Court has held generally that a hirer cannot be liable for failing to take precautions on behalf of contractor’s employees absent some “affirmative contribution” by the hirer to the employee’s injury.
The Court of Appeal has recently considered application of the Privette doctrine in the context of a claim by a contractor’s employee that a hirer has breached a nondelegable duty of care by failing to assure the contractor’s compliance with a specific duty imposed by a Cal-OSHA provision or other statute or regulation. In several cases, the Courts of Appeal have held that hirers may not be held liable on a nondelegable duty theory absent evidence that the hirer’s conduct affirmatively contributed to the employee's injury. (See, e.g., Millard v. Biosources, Inc. (2007) 156 Cal.App.4th 1338, 1352 (Fourth District, Division One) ["safety regulations may be admissible in actions by employees of subcontractors brought against general contractors that retain control of safety conditions, but only where the general contractor affirmatively contributed to the employee's injury” (emphasis added)]; Park v. Burlington Northern Santa Fe Railway Co. (2003) 108 Cal.App.4th 595, 606-610 (Fourth District, Division Two) [same].) In the latter two cases, the courts further held, as a matter of law, that evidence of noncompliance with the statute or regulation was in itself insufficient evidence of affirmative contribution by the hirer.
In another recent case, however, the Court of Appeal held that an injury to a contractor's employee arising from a violation of a statute or regulation gave rise to a triable issue whether the hirer affirmatively contributed to the employee's injury—merely by failing to assure compliance with the regulation at issue in that case. (Evard v. SoCal Edison (2007) 153 Cal.App.4th 137, 148 (Second District, Division Three).)
Under Evard, hirers may find it difficult to obtain summary judgment where a contractor's employee asserts injury arising from a violation of a regulation or statute—even where the hirer has retained the contractor, based upon the contractor's specialized expertise, to assure compliance with a particular statutory or regulatory duty. After Evard, the stage has been set for the Supreme Court to clarify the difficult issue of the scope of a hirer's liability to contractor's employees under the nondelegable duty theory of liability.
U.S. Supreme Court Imposes Further Constitutional Limits On Punitive Damages
The Supreme Court's decision in Philip Morris USA v. Williams (Feb. 20, 2007, No. 05-1256) ___ U.S. ___ was easily the most significant decision of the year for punitive damages litigation in California. In a nutshell, the Court held that juries must be instructed not to punish a defendant for conduct directed towards nonparties. The Court allowed juries to consider such conduct for the limited purpose of evaluating the reprehensibility of the defendant's behavior, but the Court held that if such evidence is admitted at trial, the court must give a limiting instruction explaining that conduct involving others is relevant only to the issue of reprehensibility and should not be used as a basis for imposing punishment.
As a result of Williams, plaintiffs can no longer rely on the defendant's conduct towards others as a basis for imposing punitive awards that are out of proportion to the plaintiff's actual harm. For example, if a plaintiff presents evidence that the defendant caused the plaintiff $100,000 in actual harm, and also presents evidence that the defendant caused similar harm to nine nonparties, the jury could consider the harm to others to determine that the defendant's conduct was more reprehensible, and therefore worthy of a higher ratio of punitive to compensatory damages (e.g., a three-to-one ratio instead of a one-to-one ratio). But the jury could apply the three-to-one ratio multiplier only to the plaintiff's actual harm ($100,000), not the total harm allegedly caused to the plaintiff and all the nonparties ($1 million).
Williams has enormous practical consequences, given the number of cases in which plaintiffs use evidence of conduct involving nonparties to justify a large punitive damages award. The Ninth Circuit has already issued two post-Williams cases reversing punitive damages awards that were improperly based on harm to others, and there are at least three pending appeals raising this same issue in the California Court of Appeal, with decisions expected by the end of March in all three cases.
Aside from Williams, there were few noteworthy 2007 decisions affecting California punitive damages litigation. The Ninth Circuit's latest decision in the Baker v. Exxon Mobil Corp. (9th Cir. 2007) 490 F.3d 1066) grabbed headlines for its approval of a $2.5 billion punitive damages award. But the United States Supreme Court granted certiorari, limiting its review to several issues of maritime law. If the Supreme Court's opinion discusses only those maritime issues, the decision is not likely to have much impact on California punitive damages.
Other notable punitive damages decisions from 2007:
Walker v. Farmers Insurance Group (2007) 153 Cal.App.4th 965 [affirming trial court's reduction of excessive punitive damages; ratio of punitive to compensatory damages reduced from a 5.6-to-1 ratio down to a 1-to-1 ratio]
Jet Source Charter, Inc. v. Doherty (2007) 148 Cal.App.4th 1 [reducing a punitive damages award from a 4-to-1 ratio down to a 1-to-1 ratio because the compensatory damages were substantial, the harm involved was purely economic, and the plaintiff was not particularly vulnerable]For the latest developments affecting punitive damages litigation in California and elsewhere, visit our blog at www.calpunitives.com.
California Supreme Court Dismisses Review Of Trial Court's Authority To Exclude Unfounded Expert Testimony
Horvitz & Levy LLP represented ExxonMobil and Unocal in the Lockheed Litigation Cases, California Supreme Court Case no. S132167, the latest in a series of mass toxic tort appeals arising from injuries allegedly suffered by some 640 plaintiffs following exposure to a variety of organic solvents. This case presented the Supreme Court with the opportunity to construe the scope of a trial judge's discretion under California law to exclude expert testimony that lacks a reliable foundation, an important issue in light of the ever-increasing use and complexity of expert testimony in the California courts. The Supreme Court described the issue as follows: "Does [California] Evidence Code section 801, subdivision (b), permit a trial court to review the evidence an expert relied upon in reaching his or her conclusions in order to determine whether that evidence provides a reasonable basis for the expert's opinion?"
The plaintiffs' petition for review was granted April 13, 2005. Briefing then proceeded over the next eight months. In addition to three merits briefs filed by the parties, 15 amicus briefs were filed. On November 1, 2007, approximately 30 months after accepting the case, the Supreme Court dismissed the grant of review because the court concluded that a majority of the members of the court had to recuse themselves from hearing the case.
The effect of the dismissal of review was to uphold the intermediate Court of Appeal decision in favor of the defendants' position on the inadmissibility of the plaintiffs' expert witness. Because of the importance of these issues, the defendants sought republication of the Court of Appeal's decision, which had been automatically depublished by the Supreme Court's decision to hear the case. On December 12, 2007, the Supreme Court denied the request for publication.
Court of Appeal Invalidates Pretrial General Order in Asbestos Litigation
Los Angeles Superior Court General Order 29 requires plaintiffs in asbestos cases to file a detailed pretrial case report that includes the plaintiff's medical record and exposure history and identifies all product identification witnesses and documents. A defendant can move to dismiss the plaintiff's case without prejudice on the basis of the plaintiff's case report. When the trial court granted defendant Caterpillar's motion to dismiss for lack of any evidence in the case report identifying Caterpillar products responsible for plaintiff's injury, plaintiff petitioned the Court of Appeal for relief by writ. In Snyder v. Superior Court (2007) 157 Cal.App.4th 1530, the Court of Appeal held General Order 29 is invalid because its requirement that the plaintiff disclose each product identification witness and document requires disclosure of nonexpert witnesses and their expected testimony, as well as identification of documents, in violation of the absolute work product privilege.
Judicial Council Issues New Appellate Rules
Traditionally, the new year brings new rules affecting California's courts. January 1, 2008 is no exception. Click here to see all the changes. Some of the highlights concerning the appellate courts are:
1. Amended rule 8.200(c)(1) for the first time provides a specific time limit for submitting an amicus curiae brief to a Court of Appeal. It requires a prospective amicus to submit an application to file an amicus curiae brief (along with the proposed brief itself) "[w]ithin 14 days after the last appellant's reply brief is filed or could have been filed." On a showing of good cause, the presiding justice has the authority to permit a later filing.
2. Under certain circumstances, the normal time to appeal from a judgment can be extended, such as when the trial court denies a new trial motion or a motion for judgment notwithstanding the verdict. Rule 8.108(b)(2) provides a new extension. When the trial court conditions the denial of a new trial motion on the non-moving party's acceptance of an additur or remittitur and that party accepts, the time to appeal from the judgment is now extended "until 30 days after the date the party serves the acceptance."
3. Amended rules 8.276(a)(3) and 8.490(n) now specifically authorize the imposition of sanctions for filing frivolous motions and writ petitions.
UNFAIR COMPETITION/CONSUMER ACTIONS
California Supreme Court to Address Myriad Procedural Issues Under Consumer Protection Statutes
Perhaps the most significant developments in consumer protection cases during 2007 were not the cases that were decided, but the many that were taken up for review and remain pending before the California Supreme Court.
First, in Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (First Transit, Inc.), No. S151615, the Supreme Court will decide whether the Unfair Competition Law (UCL), as amended by Proposition 64, requires that private representative claims meet all the procedural requirements applicable to class action lawsuits. In addition, the court will decide whether an individual with a right to pursue a statutory private representative action under either the UCL or another statute granting similar rights may assign those rights to a third party. In this case, the plaintiffs' action included claims under the Labor Code Private Attorneys General Act of 2004 (PAGA), which authorizes an aggrieved employee to bring a representative civil action on behalf of other current or former employees to recover civil penalties, and the plaintiff attempted to assign the action to labor unions. The trial court and court of appeal held the unions could not, through an assignment, gain standing to bring a statutory action that could not otherwise be prosecuted by the unions.
Second, in Arias v. Superior Court, No. S155965, the Supreme Court will decide these questions: "(1) Must an employee who is suing an employer for labor law violations on behalf of himself and others under the Unfair Competition Law bring his representative claims as a class action? (2) Must an employee who is pursuing such claims under the Private Attorneys General Act bring them as a class action?" In this action asserting violations of wage-and-hour rules, the trial court struck the plaintiff's claims under both the UCL and the Private Attorneys General Act, or PAGA (Labor Code section 2698 et seq.), to the extent they were pursued in a representative capacity because the plaintiff did not comply with the pleading requirements for a class action. The Court of Appeal opinion that was taken up for review held (1) private parties asserting a representative UCL claim must bring that claim as a class action, but (2) a private party pursuing a representative wage-and-hour claim under the Private Attorneys General Act (PAGA), Labor Code section 2699 et seq., need not bring his or her PAGA claim as a class action.
Third, in Fairbanks v. Superior Court (Farmers New World Life Insurance Co.), No. S157001, the court will decide whether insurers are subject to suit for misrepresentation under the Consumer Legal Remedies Act (CLRA), which applies only to defendants who provide a "good" or "service." The plaintiff in this case claimed her purchase of a life insurance policy was induced by defendant's misrepresentations, and sued under the CLRA, which prohibits specific deceptive or unfair acts in the sale or lease of goods and services. The trial court granted defendant's "no merit" motion on the ground that the sale of life insurance is not the sale of a "good" or "service," and dismissed the claim. The Court of Appeal agreed that insurance is neither a "good" (i.e., a "tangible item") nor a "service" (i.e., a "work, labor, and services for other than a commercial or business use, including services furnished in connection with the sale or repair of goods"). The court further noted that the Unfair Insurance Practices Act provides administrative remedies for wrongs of the type alleged by plaintiff.
Fourth, in Meyer v. Sprint Spectrum, No. S153846, the court will decide whether a consumer who is a party to a consumer contract that contains an unconscionable term has standing to bring a UCL or CLRA action without pleading that the term was being enforced in a way that harmed the consumer. In this action, plaintiffs alleged that the defendant improperly included certain illegal and unconscionable terms in its customer service agreement, but plaintiffs "did not allege Sprint had asserted or threatened to assert those terms against them." The trial court sustained defendant's demurrer without leave to amend. The Court of Appeal affirmed, holding that Proposition 64 created a "two-part, statutory standing test" under the UCL based on the requirements that plaintiff suffer an "injury in fact" and prove he or she "lost money or property as a result of [the alleged] unfair competition." Here, "[p]laintiffs did not allege they suffered an injury in fact by the mere inclusion of the challenged terms in the customer service agreement, and they did not allege inclusion of the challenged contract terms caused them to lose money or property." The Court also held that the plaintiffs' CLRA claim failed: to have standing under that Act, an individual plaintiff must be a "consumer who suffers any damage as a result of" an act declared unlawful by Civil Code section 1770 (such as inclusion of an unconscionable provision in a contract is an unlawful act) and, while a plaintiff need not allege a monetary loss, "they must suffer some damage as a result of Sprint's conduct. As with the UCL claim, plaintiffs have failed to allege any damage caused by the inclusion of certain contract terms."Fifth, back in October 2006, the Supreme Court granted review in the In re Tobacco II Cases, No. S147345 to decide questions arising out of the voters' enactment of Proposition 64, which imposed certain standing requirements on consumer actions under the UCL. This case includes the following issues: (1) In order to bring a class action under Unfair Competition Law (Bus. & Prof. Code, section 17200 et seq.), as amended by Proposition 64 (Gen. Elec. (Nov. 2, 2004)), must every member of the proposed class have suffered "injury in fact," or is it sufficient that the class representative comply with that requirement? (2) In a class action based on a manufacturer's alleged misrepresentation of a product, must every member of the class have actually relied on the manufacturer's representations?
Appellate Courts Continue to Refine Standing Requirements Under Proposition 64
During 2007, a number of appellate courts struggled with implementing Proposition 64’s amendments to the UCL, and several have been taken up by the California Supreme Court on a "grant and hold" basis pending the outcome of In re Tobacco II. A few, however, have remained on the books while we await guidance from the California Supreme Court. Some of note are:
Buckland v. Threshold Enterprises, Ltd. (2007) 155 Cal.App.4th 798, holding that the Proposition 64 standing requirement under the UCL and the causation requirement under the Consumer Legal Remedies Act (CLRA) for claims based on marketing misrepresentations are lacking where the plaintiff's purchase of defendant's product was not the result of reliance on the allegedly deceptive marketing. The plaintiff in Buckland sought damages, restitution, and a preliminary injunction to prevent the defendant from selling its skin cream, which plaintiff alleged constituted a misbranded or mislabeled drug. But the plaintiff had purchased the defendant's products at a point when she already suspected the packaging and marketing contained false and misleading advertising, and she admitted she bought the products as potential targets for litigation. The trial court sustained defendant's demurrer and dismissed the action. On appeal, the court affirmed because the plaintiff did not actually rely on the claimed misrepresentations, and did not suffer an "injury-in-fact" as required for standing to sue under the UCL and FAL.
Hall v. Time Warner, Inc. (Jan. 7, 2008, No. G038040), ___ Cal.App.4th ____ [08 D.A.R. 225, 2008 WL 68631] and see Hall v. Time Warner, Inc. 2008 WL 223249 (Cal.App. 4 Dist.) [order modifying opinion], holding a demurrer to UCL complaint was properly sustained where plaintiff failed to demonstrate standing to assert claims of misleading business practices relating to plaintiff's purchase of a book from the defendant: "A plaintiff must have suffered an injury in fact and lost money or property as a result of such unfair competition to have standing to pursue either an individual or a representative claim under the California unfair competition law, Business and Professions Code section 17200 et seq. (UCL). We hold the phrase as a result of in the UCL imposes a causation requirement; that is, the alleged unfair competition must have caused the plaintiff to lose money or property." The court further explained, "We use the word 'causation' to refer both to the causation element of a negligence cause of action [citation], and to the justifiable reliance element of a fraud cause of action [citation]. In a fraud case, justifiable reliance is the same as causation, thus, '[a]ctual reliance occurs when a misrepresentation is "'an immediate cause of [a plaintiff's] conduct, which alters his legal relations,'" and when, absent such representation,' the plaintiff '"'’would not, in all reasonable probability, have entered into the contract or other transaction.'"' [Citations.] Cases construing the Proposition 64 amendments to the UCL often use the terms 'causation' and 'reliance' together or interchangeably."
Trujillo v. First American Registry, Inc. (2007) 157 Cal.App.4th 628, affirming the trial court's grant of summary adjudication on a UCL claim because the plaintiff failed to raise a triable issue of fact as to whether, within the meaning of Proposition 64, he suffered injury in fact or lost money or property as a result of the defendant's alleged conduct. The plaintiffs were prospective tenants who alleged defendant credit reporting agency had prepared tenant screening reports that correctly showed unlawful detainer actions had been filed against plaintiffs, but that wrongly failed to note the actions had been dismissed or the resulting judgment had been satisfied. The plaintiffs could not, however, show their rental applications had been rejected on account of the reports.
Akkerman v. Mecta Corp. (2007) 152 Cal.App.4th 1094, affirming denial of class certification in a UCL case in part because "each class member would have to prove his individual claim for restitution by establishing reliance and causation."
Seastrom v. Neways, Inc. (2007) 149 Cal.App.4th 1496, holding the trial court properly denied class certification in a UCL action where claims of plaintiff product distributors were not typical of other class members' claims, in part because they were vulnerable to unique defenses that would likely become the focus of the litigation, and they would not adequately represent the class.
Schulz v. Neovi Data Corp. (2007) 152 Cal.App.4th 86, holding a plaintiff sufficiently pleaded unfair competition claim against two defendants based on aiding and abetting where he contended defendants knowingly and actively participated in and encouraged an unlawful venture. However, the complaint was insufficient against two other defendants as to whom plaintiff made only conclusory assertions of "substantial assistance or encouragement" of unlawful activity. Moreover, even as to the first two defendants, plaintiff's complaint, absent amendment, did not satisfy the new pleading requirements of Proposition 64, which (1) allow parties other than a public prosecutor to file UCL actions only if they suffered injuries in fact and lost money or property as a result of unfair competition and (2) compel private parties to comply with class action requirements to pursue claims on behalf of others.
Court of Appeal Reaffirms Trial Courts' Discretion to Abstain from Adjudicating Consumer Claims in Areas of Complex Economic Policy
Another UCL case of note that does not directly concern the Proposition 64 amendments is Alvarado v. Selma Convalescent Hospital ( 2007) 153 Cal.App.4th 1292. There, the Court of Appeal held the trial court properly abstained from adjudicating a UCL action against nursing care facilities where adjudicating the dispute would require the court to become involved in complex health care matters overseen by the Department of Health Services. Approving rejection of class treatment in an action seeking restitution and injunctive relief to require owners and operators of skilled nursing and intermediate care facilities to comply with certain nursing hour requirements set forth in Health and Safety Code section 1276.5, subdivision (a), the Court of Appeal held, "Adjudicating the alleged controversy would have required the trial court to become involved in complex health care matters concerning the staffing of skilled nursing and intermediate care facilities and assume regulatory functions of the Department of Health Services (DHS). In addition, granting and enforcing the requested relief would place an unnecessary burden on the trial court given the power of the DHS to monitor and enforce compliance with section 1275.6." The court emphasized the rule that "[j]udicial intervention in areas of complex economic policy is inappropriate" and that courts of appeal have "neither the power nor the duty to determine the wisdom of any economic policy; that function rests solely with the legislature."
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