Litigation Update

Litigation Section News: April 2017

 • Senior Editor, Eileen C. Moore, Associate Justice, California Court of Appeal, Fourth District
 • Managing Editor, Reuben Ginsburg
 • Editor, Jessica Riggin

Table of Contents of This Issue                                                                 

image box ad for trial lawyer hall of fame nominationsUnauthorized Discovery Order Reversed. 

A defendant in a personal injury accident successfully prevailed upon the trial judge to order the injured plaintiff to undergo a vocational rehabilitation examination by defendant’s vocational expert. Plaintiff sought extraordinary relief by filing a petition for writ of mandate with the Court of Appeal. The appellate court analyzed Code of Civil Procedure section 2019.010, which sets forth six methods of civil discovery: (a) oral and written depositions; (b) interrogatories to a party; (c) inspections of documents, things, and places; (d) physical and mental examinations; (e) requests for admissions; and (f) simultaneous exchanges of expert trial witness information. The appellate court found, “section 2019.010 does not authorize a defense vocational rehabilitation examination, since that is not one of the methods of discovery enumerated in the statute.” In granting the writ petition, the appellate court stated: “The contention that a defense vocational rehabilitation examination should be an available discovery method as a matter of fundamental fairness where the plaintiff seeks compensatory damages for wage loss and loss of earning capacity is better addressed to the Legislature.” (Haniff v. Superior Court (Cal. App. 6th Dist., Mar. 1, 2017) 9 Cal.App.5th 191.)

Public Employees’ Emails and Texts About Public Business Made Through Personal Accounts Must Be Disclosed Under the Public Records Act. 

image box for new Committee on Military and Veterans' AffairsA man requested public records from a city, redevelopment agency, and public officials pursuant to the California Public Records Act (CPRA; Govt. Code, § 6250 et seq).  Defendant city disclosed written communications made using the city’s telephone numbers and email accounts, but did not disclose communications made using the individuals’ personal accounts. The man argued that his request encompassed all communications about official business, regardless of how they were created, communicated, or stored. The trial judge agreed and ordered all such communications disclosed, after which the city sought extraordinary relief. The Court of Appeal issued a writ of mandate. The man sought relief from the California Supreme Court, which noted: “This case concerns how laws, originally designed to cover paper documents, apply to evolving methods of electronic communication. It requires recognition that, in today’s environment, not all employment-related activity occurs during a conventional workday, or in an employer-maintained workplace.” In reversing the Court of Appeal, the California Supreme Court held: “Consistent with the Legislature’s purpose in enacting CPRA, and our constitutional mandate to interpret the Act broadly in favor of public access (Cal. Const., art. I, § 3, subd. (b)(2)), we hold that a city employee’s writings about public business are not excluded from CPRA simply because they have been sent, received, or stored in a personal account.” (City of San Jose v. Superior Court (Cal., Mar. 2, 2017) 2 Cal.5th 608.)

Another Twist on Legal Malpractice Statute of Limitations. 

A law firm moved to withdraw from a client’s case. The trial court granted the motion. The client sued the former law firm for malpractice more than one year after the motion to withdraw was made, but less than one year after the motion was granted.  The trial court granted the law firm’s motion for summary judgment based upon the one-year statute of limitations set forth in Code of Civil Procedure § 340.6. The Court of Appeal affirmed the grant of summary judgment, stating: “Once the former counsel told the client, via the motion to withdraw, that the case had already been handed off to another attorney, the client was on notice that former counsel was no longer working for him. As we will explain, because this lawsuit was filed more than one year after that time, no triable issue of fact remains as to the statute of limitation defense, and we shall affirm the judgment.” (Flake v. Neumiller & Beardslee (Cal. App. 3rd Dist., Jan. 31, 2017) 9 Cal.App.5th 223.)

The Civil Discovery Act Applies to California Public Records Act Actions. 

A woman requested, pursuant to the California Public Records Act (CPRA; Govt. Code, § 6250 et seq.) that a city disclose electronically stored documents and data containing information relating to vehicles impounded by the city’s police department. The city that argued a private third party owned the documents, such that they were not public records. Prior to the hearing on the CPRA petition, the woman served discovery requests on the city. The city contended in response that the Civil Discovery Act did not apply to actions brought under the CPRA. The trial court held that the Civil Discovery Act applies to CPRA actions, ordered the city to respond to the discovery requests, and sanctioned the city in the amount of $5,560.00. The Court of Appeal agreed that the Discovery Act applies to CPRA actions, but granted the writ with regard to the trial court’s ordering the city to respond to the discovery and pay sanctions. On remand, the trial court must permit the city to assert objections to the discovery requests.  (City of Los Angeles v. Superior Court (Cal. App. 2nd Dist., Div. 7, Mar. 2, 2017) 9 Cal.App.5th 272.)

Government Claims Requirements Complicated and Tough. 

A high school student was hurt in a high school football game.  Although a trainer advised the coach that the player might have suffered a concussion, he was permitted to participate in a full contact practice a few days later and was subsequently diagnosed with double concussion syndrome. The court held that the player’s personal injury action accrued on the day of his diagnosis—October 31, 2011— and that he did not file a claim (indeed, nor did he even retain counsel) until after the six-month claim period under Government Code § 911.2 had elapsed. Counsel then presented a timely application to file a late claim on October 24, 2012, pursuant to Government Code § 911.4. Under Government Code § 911.6, subdivision (c), if a public entity does not act on a late claim application (as here), it is deemed denied on the 45th day after it is presented. Here, the application for a late claim was deemed denied on December 8, 2012, after the district took no action. On October 28, 2013, counsel petitioned the superior court for relief from its obligation to present a claim before bringing suit, which petition must be filed within six months of the denial of a claim, pursuant to Government Code § 946.6, subdivision (b). The trial court found that the petition was not timely filed, and the Court of Appeal and Supreme Court affirmed, disapproving of the holding in E.M. v. Los Angeles Unified School District (2011) 194 Cal.App.4th 736, which would have held otherwise.  (J.M. v. Huntington Beach Union High School Dist. (Cal., Mar. 6, 2017) 2 Cal.5th 648.)

Transgender Bathroom Issue. 

In 2015, a transgender Virginia high school student brought an action against a school board under the Equal Protection Clause and Title IX of the Education Amendments of 1972, challenging the school board’s restroom policy requiring students to use a restroom consistent with their birth-assigned gender and requiring schools to provide an “alternative appropriate private facility” for any “students  with gender identity issues.” A federal trial court dismissed the Title IX claim and denied the student’s request for a preliminary injunction. The Fourth Circuit Court of Appeals concluded that the Title IX regulations were ambiguous as applied to transgender individuals and that the Department of Education’s interpretation of its own regulations was entitled to deference, and reversed the dismissal of the Title IX claim.  The Fourth Circuit also concluded that the district court abused its discretion by denying the student’s request for a preliminary injunction without considering the student’s proffered evidence, and therefore vacated the dismissal and remanded the matter for the district court to consider the evidence. (G.G. v. Gloucester County School Board (4th Cir., 2016) 822 F.3d 709.) On remand, the district court granted a preliminary injunction allowing the student to use the boys’ restroom, consistent with the student’s gender identity. On August 3, 2016, while the U.S. Supreme Court was in its summer recess, the high court granted a stay of the preliminary injunction in order to maintain the status quo until the high court considered a writ of certiorari. On October 28, 2016, the U.S. Supreme Court granted a petition for writ of certiorari. On February 22, 2017, the U.S. Departments of Justice and Education (under the Trump administration) withdrew two guidance documents (prepared under the Obama administration) that took the position that Title IX’s prohibitions against discrimination on the basis of sex require treating transgender students on the basis of their gender identity, including on the issue of bathroom access. On March 6, 2017, the U.S. Supreme Court issued this order: “The judgment is vacated, and the case is remanded to the United States Court of Appeals for the Fourth Circuit for further consideration in light of the guidance document issued by the Department of Education and Department of Justice on February 22, 2017.” (Gloucester County School Board v. G.G. (U.S., Mar. 6, 2017) 2017 U.S. LEXIS 1626, 2017 WL 855755.)

Looking Into How Jury Deliberated Regarding Ethnicity/Race. 

A criminal defendant with a Hispanic name was convicted of a sex offense in Colorado. He was placed on probation and ordered to register as a sex offender. After the jury was discharged, but before jurors left the courtroom, defense counsel spoke with a few of the jurors. Two jurors relayed that another juror said during deliberations: “I think he did it because he’s Mexican and Mexican men are physically controlling of women because of their sense of entitlement.” They also relayed that the juror did not believe the defendant’s alibi witness because he was “an illegal,” despite the fact that the witness testified he was in this country legally. The defendant’s motion for new trial was denied by the trial judge, and the Colorado appellate court, in a split decision, affirmed the conviction. The Colorado Supreme Court affirmed the judgment of conviction by a vote of four to three. Eventually the case landed in the United States Supreme Court. Justice Kennedy described the issue: “This case lies at the intersection of the Court’s decisions endorsing the no-impeachment rule and its decisions seeking to eliminate racial bias in the jury system.” The Supreme Court, in a 5-to-3 decision, reversed the defendant’s conviction, stating: “[T]he Court now holds that where a juror makes a clear statement that indicates he or she relied on racial stereotypes or animus to convict a criminal defendant, the Sixth Amendment requires that the no-impeachment rule give way in order to permit the trial court to consider the evidence of the juror’s statement and any resulting denial of the jury’s trial guarantee.” (Pena-Rodriguez v. Colorado (U.S., Mar. 6, 2017) 2017 U.S. LEXIS 1574, 2017 WL 855760.)

No Arbitration in PAGA Action. 

In this wage and hour case, the plaintiff alleged one cause of action: enforcement of the Labor Code under the Private Attorneys General Act (PAGA; Lab. Code, § 2698). The defendant employer moved to compel arbitration, and the trial court denied the petition, holding that a PAGA claim is not subject to a predispute agreement to arbitrate. In affirming the denial of defendant’s motion to compel arbitration, the Court of Appeal stated that had the California Attorney General filed a lawsuit against defendant for the alleged Labor Code violations, defendant would not have been able to rely on its predispute arbitration agreement, and in this case plaintiff is suing on behalf of the state. (Betancourt v. Prudential Overall Supply (Cal. App. 4th Dist., Div. 2, Mar. 7, 2017) 9 Cal.App.5th 439.)

Notice to Quit May be Served Before Title Is Recorded. 

A purchaser at a foreclosure sale sought to evict the tenant as soon as possible. The purchaser served a notice to quit after the sale but before recording title to the property.  The trial court found the notice to quit was valid. Citing Code of Civil Procedure § 1161a and U.S. Financial, L.P. v. McLitus (2016) 6 Cal.App.5th Supp. 1, the Court of Appeal affirmed, stating: “Here we reject the occupant’s claim that the notice to quit is premature, and hold that Code of Civil Procedure section 1161a does not require that title be recorded before the notice to quit is served.” (Dr. Leevil, LLC v. Westlake Health Care Center (Cal. App. 2nd Dist., Div. 6, Mar. 7, 2017) 9 Cal.App.5th 450.)

Evidentiary Issues in Motion to Appoint Receiver in Action Involving City Code Enforcement at Rundown Motel.

After years of trying to get a rundown motel up to code, a the city finally filed a lawsuit. At the outset of a hearing on the city’s motion to appoint a receiver to oversee code compliance, the trial court noted the parties’ evidentiary objections and stated: “[G]enerally these objections go to the weight to be given to the evidence, not to its admissibility, so I’ve read and considered each of the pleadings filed.” The court appointed a receiver. On appeal, the motel owner challenged the trial court’s evidentiary rulings by simply asking the appellate court “to rule on each of these objections as should have been done by the trial court.” The Court of Appeal found the challenge to the court’s not ruling on the objections to be forfeited because “[i]f a party contends that an evidentiary objection was improperly overruled by the trial court, the party must identify the specific objection, provide legal argument explaining why the trial court’s ruling was in error, and support that argument with citation to pertinent legal authority.” The motel owner also contended the trial court erred in not taking live testimony at the hearing. The Court of Appeal found no error because the motel owner had not followed the procedure set forth in California Rules of Court, rule 3.1306(b) for requesting live testimony. The appellate court affirmed the order appointing a receiver. (City of Crescent City v. Reddy (Cal. App. 1st Dist., Div. 4, Feb. 16, 2017)
9 Cal.App.5th 458.)

Unclear if Unlimited vs. Limited Civil Action Vis-à-vis Attorney Fees in Labor Action. 

The Labor Commissioner awarded $6,000 for unpaid wages to an employee. Pursuant to Labor Code § 98.2, the employer filed an unlimited civil case, which is actually a trial de novo pursuant to § 98.2, subdivision (a). In this de novo action, the Labor Commissioner gave notice that it would represent the employee, but the caption on that notice, as well as other documents filed by both parties, indicated the de novo action was a limited civil case. Later, the superior court ordered discovery to proceed under limited civil jurisdiction statutes, Code of Civil Procedure §§ 94−96. Fifty-eight days after the employee prevailed again, the employee moved for attorney fees pursuant to Labor Code § 98.2, subdivision (c), which was within the permissible 60 days for an unlimited action, but not within the permissible 30 days for a limited civil action. The superior court awarded the employee $31,365 in attorney fees. In affirming the award of fees, the Court of Appeal noted there was evidence the employer intentionally withheld wages from the employee, and that the claim had a potential of a $60,000 recovery. (Beck v. Stratton (Cal. App. 2nd Dist., Div. 4, Feb. 14, 2017) 9 Cal.App.5th 483.)

Anti-Retaliation Provision in Dodd-Frank Act Protects Whistleblower Employees Who Make Internal Disclosures About Securities Irregularities. 

Plaintiff, a company vice president, reported several times to senior management that the company possibly was violating securities laws, and was fired. The Dodd-Frank Act (15 U.S.C. § 78u-6(h)(1)(A)(iii)) has a provision stating in essence that employers may not retaliate against employees who report irregularities. There has been a split within the federal courts whether that anti-retaliation provision protects only employees who make reports to the Securities and Exchange Commission (SEC) or also protects employees who make internal reports, such as plaintiff here. Both the federal trial court and the Ninth Circuit Court of Appeals concluded the anti-retaliation provision reflects congressional intent to provide protection for those who make internal disclosures as well as those who make disclosures to the SEC. (Somers v. Digital Realty Trust, Inc. (9th Cir., Mar. 8, 2017) 2017 U.S. App. LEXIS 4079.)

Huge Verdict; Juror Problems: Reversed to the Extent Excusing a Juror was Prejudicial.  

After 90 minutes of deliberations in a wrongful death action against the State of California and a driver, juror no. 2 reported that juror no. 7 was not deliberating. The court and counsel questioned two jurors, but NOT juror no. 7. The court thereafter excused juror no. 7 and replaced her with an alternate. The jury then returned a verdict of $12,690,000 against the state. The Court of Appeal reversed, noting that, at a minimum, there must be an inquiry of more than the complaining jurors, and concluding: “[T]he record lacks sufficient evidence to show as a demonstrable reality that Juror No. 7 was unable to perform her duty as a juror.” However, the reversal was only to the extent that the state was prejudiced as a result of the loss of juror no. 7. Since the jury decided on the damages by an 11 to 1 vote and unanimously found the highway was in a dangerous condition, but decided by 9 to 3 that the state was 90% at fault, the matter was remanded for a retrial on the allocation of fault only.  (Shanks v. Department of Transportation (Cal. App. 2nd Dist., Div. 6, Mar. 9, 2017) 2017 Cal.App. LEXIS 202.)

Comparative Fault Instruction in Legal Malpractice Case. 

A man and a woman married but kept separate estates. She hired a lawyer recommended by him. After a long term marriage, they divorced. Some of her separate property ended up being community property, and she had to pay him $260,000 of what would have been her separate property. She sued the lawyer, and the judge gave a comparative fault instruction. The jury returned a verdict in the amount of $260,000, assessing 90 percent fault to the lawyer and 10 percent fault to her. She appealed, contending that applying the principle of comparative fault “defies reason” because of the great disparity in knowledge and experience between lawyers and their clients. In concluding the trial court properly gave the comparative fault instruction, the Court of Appeal stated: “In this case, the facts and circumstances recounted above, as well as her testimony that she had made an egregious error in her first marriage by allowing property to be transmuted to community property status, constituted sufficient evidence that the issue of comparative fault was properly placed before the jury.” (Yale v. Bowne (Cal. App. 2nd Dist., Div. 2, Mar. 10, 2017) 2017 Cal.App. LEXIS 210.)

Attorney Fees Losing Party School District Must Pay After Wrongfully Terminating Employee. 

An employee of a school district was terminated. She sought a hearing before an administrative body, which ruled in her favor. Pursuant to Education Code § 44944, subdivision (f), the employee sought attorney fees. The school district asked the court to limit the attorney fees order to the amount the employee agreed to pay her own lawyers in their fee agreement.  The agreement between the employee and her counsel stated that the lawyers would be entitled to their prevailing hourly rates only if the employee prevailed before the Commission and the school district became obligated to pay. The trial court determined that a lodestar calculation was the appropriate mechanism to determine the reasonable fees to be recovered, and that the rates the employee requested were reasonable market rates. The Court of Appeal agreed, and remanded the matter for the employee to recover her costs as well as reasonable fees. (Walent v. Commission on Professional Competence of the LAUSD (Cal. App. 2nd Dist., Div. 7, Mar. 13, 2017) 2017 Cal.App. LEXIS 221.)

Elder Abuse in Nursing Home, Compensatory, Statutory and Punitive Damages. 

A jury found that a nursing home committed 382 violations of a patient’s rights under the Patients Bill of Rights (Health and Saf. Code, § 1430). The jury awarded $95,500 in statutory damages, which amounted to $250/violation, and $100,000 in compensatory damages resulting from negligence. The jury also found defendants acted with malice, oppression, or fraud, but the trial court found there was insufficient evidence to support that finding and refused to permit plaintiff to argue for punitive damages. The court awarded plaintiff attorney fees of $368,755.00. Health and Safety Code § 1430 provides for statutory damages of up to $500/violation. However, Nevarrez v. San Marino Skilled Nursing & Wellness Centre (2013) 234 Cal.App.4th 860 held those statutory damages cannot total more than $500 per lawsuit, no matter how many violations are found. The Court of Appeal in the present action disagreed with that holding: “We conclude that a plaintiff may recover up to $500 per cause of action prosecuted under the statute.” But the appellate court stated that in the present case, the defendants made no effort at trial to quantify how many causes of action had been proven such that the court could not conclude the statutory damages awarded were excessive. Finally, the Court of Appeal noted the sheer number of violations provided a sufficient basis to infer that defendants acted with a conscious disregard of the patient’s rights, and that the facility’s director of nursing qualifies as a managing agent for purposes of the punitive damages statute, Civil Code § 3294. Ultimately, the case was remanded to the trial court for the sole purpose of conducting proceedings to establish the amount of punitive damages as a result of the 382 violations. (Jarman v. HCR Manorcare, Inc. (Cal. App. 4th Dist., Div. 3, Mar. 14, 2017) 2017 Cal.App. LEXIS 228.)

City Contends It Did Not Pick Off the Class Representative to Win the Entire Class Action. 

In 2012, a city settled a previous class action challenging its practice of charging a trash disposal fee to residents of multi-unit dwellings who received no trash disposal services from the city. Plaintiffs in the presend action allege the city continued the same practice after settling the prior action . But the named plaintiff in the present class action did not opt out of the previous one, and the city successfully moved for summary judgment. The trial court, however, permitted an amendment to the complaint and two new class representatives were added. They both claimed the city continued to charge them for trash disposal even after the previous class action was settled. The city thereafter issued a $980 credit to the DWP account of one of the new class representatives and a $1,500 credit to the other. The city then moved for summary judgment, and the trial court granted it, rejecting plaintiff’s “pick off” theory, and noting the city’s payments were mandatory under the previous settlement, not voluntary.  In affirming the grant of summary judgment, the appellate court found that in crediting the named class representatives’ accounts, the city was fulfilling its duties under the previous settlement. (Schoshinski v. City of Los Angeles (Cal. App. 2nd Dist., Div. 8, Mar. 14, 2017) 2017 Cal.App. LEXIS 226.)

Client Sues Law Firm. Client Ends Up With Multi-Million $$$ Award…AGAINST CLIENT. 

The client sued its former two law firms for legal malpractice, etc. The law firms moved to compel arbitration. Shortly before the arbitration, one of the law firms settled. The arbitrator awarded the other law firm $7 million for attorney and expert fees and costs incurred in the arbitration. The trial court confirmed the award. On appeal, the client argued the arbitrator violated the rules regarding mandatory disclosure because he did not disclose his involvement with a previous arbitration involving a member of the law firm. The arbitrator had been asked to disqualify himself, but did not, stating “he was unaware that an attorney from [the law firm] had been listed as counsel in an uncontested, documents only domain name dispute arbitration in which [he] served as an arbitrator five years previously.” The Court of Appeal affirmed confirmation of the arbitration award because the arbitrator was not aware of the previous involvement with the lawyer and because the trial court apparently found the arbitrator made a reasonable effort to inform himself of matters he was required to disclose, stating: “[Code of Civil Procedure] Section 1286.2, subdivision (a)(6)(A), requires actual awareness, not inquiry or constructive awareness.” (ECC Capital Corporation v. Manatt, Phelps & Phillips, LLP (Cal. App. 2nd Dist., Div. 7, Mar. 15, 2017) 2017 Cal. App. LEXIS 230.)

Wrongful Death Award Affirmed. 

Defendant, owner of a brake manufacturing company, challenged a judgment of over $5.8 million, including punitive damages, in an asbestos case. Defendant asserted three different reversible errors, all of which the Court of Appeal discussed at length before affirming the award. First, defendant argued the jury’s verdict was inconsistent. The appellate court stated: “We conclude it is possible for a jury to find that the design of the Bendix brakes was an insubstantial factor in causing Phillips’s mesothelioma and that negligence and the failure to warn were substantial factors in causing the illness.” Second, defendant argued the court erred when it declined to give its special instruction, but the appellate court found the instruction that was given is consistent with Rutherford v. Owens-Illinois, Inc. (1997) 16 Cal.4th 953, which held a plaintiff need not prove a defendant’s asbestos fibers were the ones that began the malignant cellular growth. Third, defendant argued the trial court erred by admitting a copy of a sarcastic 1966 letter into evidence. The author of the letter stated: “If you have enjoyed a good life while working with asbestos products, why not die from it. There’s got to be some cause.” The appellate court ruled the letter was circumstantial evidence that defendant was aware of the danger of asbestos, and the trial court’s limiting instruction cured any possible prejudice. (Phillips v. Honeywell International, Inc. (Cal. App. 5th Dist., Mar. 17, 2017) 2017 Cal.App. LEXIS 248.)

No Class Certification in Wage and Hour Case Against Hospital.

Labor Code §§ 512 and 516 require two meal periods for shifts longer than 12 hours. But an Industrial Welfare Commission (IWC) order authorizes employees in the health care industry to waive one of those two required meal periods on shifts longer than 8 hours. In a wage and hour case, the trial court granted summary judgment in favor of a hospital and denied a petition to certify the case as a class action. In 2015, the Court of Appeal concluded the IWC order was partially invalid to the extent it authorized second meal break waivers on shifts longer than 12 hours. Two things happened thereafter.  First, as emergency legislation, the Legislature amended Labor Code § 516 to say the meal period waiver provided in the IWC order is valid and enforceable, and second, the California Supreme Court ordered the Court of Appeal to reconsider its cause in light of the change. The Court of Appeal, now concluding the IWC order is valid, affirmed the judgment and orders of the trial court. (Gerard v. Orange Coast Memorial Medical Center (Cal. App. 4th Dist., Div. 3, Mar. 21, 2017) 2017 Cal.App. LEXIS 255)

Design on Cheerleader Uniform Qualifies for Copyright Protection. 

Congress has provided copyright protection for original works of art, but not for industrial designs. A designer obtained copyright registrations for designs appearing on cheerleading uniforms. The designer sued a marketer of other cheerleading uniforms for infringing on its copyrights in the five designs. A federal district court granted summary judgment in favor of the defendant, concluding the designs did not qualify for protection. The Sixth Circuit Court of Appeals reversed, finding the graphics involved were separately identifiable because they could be displayed on different types of garments or hung on a wall and framed as art. The United States Supreme Court upheld the judgment of the Court of Appeal, stating: “We hold that a feature incorporated into the design of a useful article is eligible for copyright protection only if the feature (1) can be perceived as a two- or three-dimensional work of art separate from the useful article and (2) would qualify as a protectable pictorial, graphic, or sculptural work—either on its own or fixed in some other tangible medium of expression—if it were imagined separately from the useful article into which it is incorporated. Because that test is satisfied in this case, we affirm.” (Star Athletica, LLC v. Varsity Brands, Inc. (U.S., Mar. 22, 2017) 2017 U.S. LEXIS 2026.)

How Much of a Spendthrift Trust May Be Accessed By Bankruptcy Trustee?

Under the terms of a spendthrift trust established by his parents, defendant is entitled to receive over a million dollars, all to be paid out of trust principal. Defendant filed for bankruptcy before the trust‘s first payment, and the bankruptcy trustee seeks to determine what interest the bankruptcy estate has in the trust. The trust is governed by California law. Probate Code § 15306.5 appears to limit the bankruptcy estate to 25 percent of the beneficiary’s interest; other provisions of the Probate Code suggest no such limitation. The Ninth Circuit asked the California Supreme Court whether the Probate Code limits a bankruptcy estate’s access to a spendthrift trust to 25 percent of the beneficiary’s interest, where the trust pays the beneficiary entirely out of principal. The California Supreme Court responded to the Ninth Circuit: “We hold that the Probate Code does not impose such an absolute limit on a general creditor’s access to the trust. With limited exceptions for distributions explicitly intended or actually required for the beneficiary’s support, a general creditor may reach a sum up to the full amount of any distributions that are currently due and payable to the beneficiary even though they are still in the trustee’s hands, and separately may reach a sum up to 25 percent of any payments that are anticipated to be made to the beneficiary.” (Carmack v. Reynolds (Cal., Mar. 23, 2017) 2017 Cal. LEXIS 2092.)

Special or General Reference…It Makes a Difference. 

The parties stipulated to have a referee decide all discovery matters. The reference gave the referee “the authority to set the date, time, and place for any hearings determined by the discovery referee to be necessary, to preside over hearings, to take evidence if the referee so determines, and to rule on discovery objections, discovery motions, and other requests made during the course of the hearing.” The reference was ordered by the superior court. The referee ordered a party to pay discovery sanctions of $100,000, which ordinarily would be a directly appealable order, if issued by the court, pursuant to Code of Civil Procedure § 904.1, subdivision (a)(12). The parties agreed that if the reference was a general reference, the referee’s sanctions ruling stands as one of the court andis directly appealable pursuant to Code of Civil Procedure  §§ 638, subdivision (a), 644 and 645. They also agreed that if the reference was a special reference pursuant to Code of Civil Procedure §§ 638, subdivision (b) or 639, the referee’s ruling is not appealable because the court did not  independently review and adopt the ruling. Finding it to be a general reference, the Court of Appeal stated: “The language of the reference, expressly made under Code of Civil Procedure section 638, subdivision (a), and the actions of the parties, the referee and the court, indicate that the reference was a general reference.” As such, the referee’s sanctions order was appealable, but the appellate court affirmed the award of $100,000 in sanctions. (Lindsey v. Conteh (Cal. App. 4th Dist., Div. 3, Mar. 23, 2017) 2017 Cal.App. LEXIS 263.)

Read the Release Before Your Client Signs It. 

A severely injured plaintiff settled his case against an auto dealership for policy limits of $1,000,000, and when he did, he signed a release. The release included the defendants’ “affiliates” and “all other persons, firms, or corporations with whom any of the former have been, are now or may hereafter be affiliated,” and stated: “. . . including, without limitation, any and all known or unknown claims . . . .”  Three months after settling the case, plaintiff brought the instant action against the owner of the land where the auto dealership does business, which is where the damaging incident took place. Defendant filed a motion for summary judgment, claiming he is an affiliate of the auto dealership for purposes of the release. Defendant’s counsel also represented the auto dealership in the first case. Counsel submitted a declaration stating he “intended the release in the first action’s settlement agreement to be a general release applicable to all persons, known and unknown, who were associated in any manner with the accident, including defendant.” The trial court granted defendant’s motion for summary judgment, concluding defendant was an affiliate for purposes of the release as a matter of law. In reversing, the Court of Appeal stated: “We conclude as a matter of law defendant was not a protected ‘affiliate,’ as that term is commonly understood.” (Iqbal v. Ziadeh (Cal. App. 3rd Dist., Mar. 24, 2017) 2017 Cal.App. LEXIS 270.)

Confidential Corporate Records of HOA. 

A member of a homeowner’s association (HOA) sought the membership list and other books and records of the HOA. The HOA believed the records were sought for use as evidence against the HOA in an ongoing dispute with a business. The trial court agreed that the member sought the list, not for purposes reasonably related to his interests as a member of the HOA as required by Corporations Code § 8330, subdivision (b)(1), but for improper purposes. However, the trial court ordered the records produced nonetheless because the HOA did not timely file its challenge to production.  The Court of Appeal, while agreeing with the trial court that the records were being sought for an improper purpose, reversed, after finding the HOA’s challenge was timely filed. (Tract No. 7260 Association, Inc. v. Parker (Cal. App. 2nd Dist., Div. 8, Mar. 24, 2017) 2017 Cal.App. LEXIS 265.)

Business Model: Lie to Your Insurer and Save $$ on Premiums. 

The district attorney prosecuted a criminal action against the owner of an employment agency that misclassified nurses as computer programmers and underreported their payroll to an insurance company in order to reduce workers’ compensation insurance premiums. The defendant argued he did not violate the law because the Labor Code did not require him to provide workers’ compensation coverage to the nurses. The trial court conducted a restitution hearing pursuant to Penal Code § 1202.4 and ordered defendant to pay $37,000 to the insurance company as restitution for the amount of premiums it would have earned for premiums absent the misrepresentation. In affirming the judgment of conviction, the Court of Appeal stated: “The fact Riddles may have been able to establish that the Labor Code did not require that he provide workers’ compensation coverage for the nurses does not relieve him of responsibility for providing the insurer with a fraudulent application or alter the fact the nurses were covered by the policy he obtained.” (People v. Riddles (Cal. App. 4th Dist., Div. 1, Mar. 24, 2017) 2017 Cal.App. LEXIS 259.)

After Damages Portion of Judgment Satisfied & While Appeal Pending, No Bond Necessary for Judgment on Attorney Fees/Costs. 

Defendant filed a petition for extraordinary relief in the Court of Appeal while his appeal of the underlying judgment was pending. Defendant satisfied the damages portion of the judgment. His appeal relates solely to the awards of attorney fees and costs that followed the initial entry of judgment. Defendant did not satisfy those amounts or provide a bond. Plaintiff has been attempting to collect those amounts. The trial court denied defendant’s request to stay enforcement of the judgment. In his writ petition, defendant asks the court to issue a writ of supersedeas stating that the unpaid portions of the judgment are automatically stayed pending appeal. The Court of Appeal stated: “A judgment debtor must bond a money judgment to stay its execution pending resolution of an appeal. (Code Civ. Proc., § 917.1, subd. (a)(1).) ‘However, no undertaking shall be required . . . solely for costs awarded under’ section 1021 et seq. (§ 917.1, subd. (d).)” The appellate court concluded the attorney fees and costs qualify as “costs” under Code of Civil Procedure § 1021 et seq., and issued a writ of supersedeas staying enforcement of the remainder of the judgment pending resolution of the pending appeal. (Quiles v. Parent (Cal. App. 4th Dist., Div. 3, Mar. 27, 2017) 2017 Cal.App. LEXIS 273.)

After Firing CEO, Company Issues Press Release. 

CEO of company was terminated. The company issued the following press release: “As we have stated previously, our objective is to help American Apparel grow and succeed. We supported the independent, third-party and very thorough investigation into the allegations against Mr. Charney, and respect the Board of Directors’ decision to terminate him based on the results of that investigation.” The former CEO, now the plaintiff, brought suit against the company alleging several causes of action rooted in defamation. The trial court granted the company’s anti-SLAPP motion brought pursuant to Code of Civil Procedure § 425.16, and the plaintiff appealed. The plaintiff conceded that the causes of action arose from protected activity. The Court of Appeal affirmed, concluding that the plaintiff failed to satisfy his burden to present evidence showing that his action had minimal merit. (Charney v. Standard General, L.P. (Cal. App. 2nd Dist., Div. 5, Mar. 28, 2017) 2017 Cal.App. LEXIS 274.)

California Supreme Court Sides With the Environment. 

A city approved a project for the development of a parcel. A conservation entity opposed the project and sought a writ of mandate to set aside the approval. The project opponent alleged two grounds for relief: (1) the environmental impact report (EIR) was inadequate, and (2) the city violated a general plan provision by failing to work with the California Coastal Commission to identify wetlands and habitats. The trial court found the EIR sufficient, but granted relief on the ground that the general plan required the city to cooperate with the Coastal Commission before approving the project.  The Court of Appeal reversed, stating it agreed that the EIR complied with the requirements of the California Environmental Quality Act (CEQA), but it reversed on the general plan issue, accepting the city’s argument that the plan would be satisfied if the city worked with the commission after project approval. The California Supreme Court reversed the judgment of the Court of Appeal, stating: “The City’s EIR is inadequate because it omitted any consideration of potential ESHA [environmentally sensitive habitat areas] on the project site, as well as ESHA that were already identified. Because [the project opponent] is entitled to relief on its CEQA claims, we need not address the general plan issues.” (Banning Ranch Conservancy v. City of Newport Beach (Cal., Mar. 30, 2017) 2017 Cal. LEXIS 2327.)

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