Andrea Rice Newsletter

LIABILITY UPDATE
December 21, 2007

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In Dodson v. J. Pacific, Inc. 2007 Daily Journal D.A.R 13199, the Second Appellate District of the California Court of Appeal held that where a plaintiff has undergone surgery in which a herniated disc is removed and a metallic plate inserted, and the jury has expressly found that the defendant’s negligence was a cause of plaintiff’s injury, the failure to award any damages for pain and suffering results in a damage award that is inadequate as a matter of law.

Major Dodson (Dodson) was self-employed in the scrap metal business. He sued J. Pacific, Inc. for general negligence and premises liability in connection with an incident that occurred on December 12, 2002, while J. Pacific’s employees were loading large cylindrical pieces of scrap metal onto Dodson’s flatbed truck. During the loading process, a metal cylinder, weighing between four and five thousand pounds, slipped from the prongs of the forklifts, and fell onto and rolled off Dodson’s truck. Dodson, who was standing behind the truck when the cylinder slipped and began to roll, ran to avoid the rolling cylinder, tripped on pea gravel on the ground, and fell. He slid into several steel posts and struck the left side of his back and neck on the posts.

After the incident, the loading process, which took another hour and a half or so, was completed, and Dodson drove his loaded truck to his scrap metal yard and then to his home. The following day, he drove the loaded truck to Atlas Iron & Metal, where the scrap metal was unloaded.

Five days later, Dodson saw his primary physician, Dr. Tanya Arvan. Arvan’s notes showed Dodson stated that he had “pain in the knees and the knees give out,” but showed no other complaint. Dodson did not tell Dr. Arvan about his fall because he “didn't think it was that serious.” Some time later, he spoke to the manager at J. Pacific, telling him he thought he might need to see a doctor. The manager referred Dodson to a Superior Care facility. The facility took x-rays of Dodson’s neck, arms, legs and back. Dodson received physical therapy (heat treatments) for a month or so, and was referred to another doctor. Dodson continued experiencing pain, and fell on two additional occasions, on January 7, 2003 and January 24, 2003. On the latter occasion, Dodson was taken to the hospital and came under the care of Dr. Sasan Yadegar, a neurosurgeon. Dr. Yadegar recommended surgery and, on February 4, 2003, removed the herniated disk and arthritic joints and inserted a metallic plate. After the surgery, Dodson experienced a loss of equilibrium and “a lot of pain” in his arms, knees, neck and back, and used a walker for about nine months. Since then, he has used a cane. Dodson received physical therapy from June 2003 to May 2004, consisting of heat treatments and massages to the neck, back and knees.

In April 2004, Dodson filed this lawsuit. At the conclusion of trial, the jury rendered a special verdict. It found J. Pacific was negligent, and its negligence was a cause of Dodson’s injury. It further found Dodson suffered economic damages of $16,679 caused by the accident, but suffered no non-economic damages. The jury also found that 50 percent of the negligence causing Dodson’s injury was attributable to Dodson. Judgment was entered for Dodson in the sum of $8,339.50.

Dodson filed a motion for a new trial on the issue of non-economic damages or, in the alternative, an additur to the judgment in the amount of $150,000. The trial court denied the motion, ruling that the verdict “did not leave [Dodson] with an inadequate recovery on a fair consideration of the evidence”; no facts suggested passion, prejudice or corruption on the part of the jury; and Dodson “had a fair trial, and the jury awarded an ample sum in consideration of the entire record.” Dodson appealed, and the Court of Appeal reversed.

The court observed that, in some cases, courts have found jury awards which fail to compensate for pain and suffering inadequate as a matter of law. (E.g., Haskins v. Holmes (1967) 252 Cal.App.2d 580, 585-586 (Haskins ) [award insufficient where plaintiff sustained severe head injuries necessarily requiring surgery, but the trial judge awarded only $88.63 in excess of the plaintiff’s actual medical expenses, in effect “allowing nothing for pain and suffering”; it was “patently obvious” that “substantial pain, suffering, shock and inconvenience” necessarily and inevitably accompanied the injuries].) The courts have also stated, however, that an award that does not account for pain and suffering is “not necessarily inadequate as a matter of law”(id. at p. 586), and that “[e]very case depends upon the facts involved.” (Miller v. San Diego Gas & Elec. Co. (1963) 212 Cal.App.2d 555, 558 (Miller ).)

The controlling rule, we believe, was best stated in Miller, which affirmed a jury verdict that made no allowance for pain and suffering. Miller distilled this principle from the precedents it reviewed: Cases finding an award inadequate for failure to account for pain and suffering “ involved situations where the right to recover was established and . . . there was also proof that the medical expenses were incurred because of defendant’s negligent act.” (Miller, supra, 212 Cal.App.2d at p. 558.) In such situations, Miller concluded, “[i]t is of course clear that ... a judgment for no more than the actual medical expenses occasioned by the tort would be inadequate.” (Ibid.) On the other hand, a verdict may properly be rendered for an amount less than or equal to medical expenses in cases where, “even though liability be established, a jury . . . may conclude that medical expenses paid were not occasioned by the fault of the defendants.” (Id. at p. 559; see also Haskins, supra, 252 Cal.App.2d at p. 586 [an award “for the exact amount of, or even less than, the medical expenses is not necessarily inadequate as a matter of law, because in the majority of cases there is conflict on a variety of factual issues – whether plaintiff received any substantial injury or suffered any substantial pain, or whether the medical treatment was actually given or given as a result of the injuries, or reasonable or necessary”].)

The court’s review of the foregoing precedents lead it to conclude that this case fell squarely among those in which the jury verdict was found to be inadequate as a matter of law. “In Dodson’s case, the factual conflicts that Miller and Haskins tell us may justify the jury’s failure to award non-economic damages – whether the plaintiff received any substantial injury or suffered any substantial pain; whether medical treatment was actually given or was given as a result of the injuries; and whether the medical treatment was reasonable or necessary – were resolved by the jury in its special verdict. In Dodson’s case, we know – because the jury expressly decided – that J. Pacific’s negligence was a cause of Dodson’s injury, and that Dodson suffered economic damages ‘caused by the accident. . . .’ We know that he underwent surgery in which a herniated disc was removed and replaced with a metallic plate. We know the jury awarded damages, at least in part, for Dodson’s surgical expenses. A plaintiff who is subjected to a serious surgical procedure must necessarily have endured at least some pain and suffering in connection with the surgery. While the extent of the plaintiff’s pain and suffering is for the jury to decide, common experience tells us it cannot be zero.”

Because the award of damages was inadequate as a matter of law, the denial of a new trial on the issue of damages was an abuse of the trial court’s discretion. Accordingly, the judgment must be reversed and the matter remanded for a new trial limited to the issue of the amount of Dodson’s damages.

----Andrea Lynn Rice

Andrea Rice December 14th Newsletter

LIABILITY UPDATE
December 14, 2007

In Philipson & Simon v. Gulsvig 2007 Daily Journal D.A.R 13383, the Fourth Appellate District of the California Court of Appeal held that each of a law firm’s causes of action fell within the protection of the anti-SLAPP statute, where each of them was based substantially upon a client’s petitioning activity—first her initiation of a fee arbitration proceeding under the Mandatory Fee Arbitration Act (“MFAA”), and then her initiation of a cross-complaint against the law firm in the present action.

Lori Gulsvig was a shareholder, officer and employee of California Shirt Sales, Inc., a California Corporation (CSS California). CSS California entered into an agreement with Tultex, Inc., pursuant to which CSS California sold assets to Tultex. Tultex formed a Virginia corporation, also called California Shirt Sales, Inc. (CSS Virginia) for the purpose of owning those assets. Prior to the asset sale, CSS California had an account receivable, owed by a company called Color Spot, and hired defendant, the law firm of Philipson & Simon (Philipson), to collect it. Philipson was able to obtain a judgment against Color Spot on behalf of CSS California. In October of 2001, Philipson obtained a settlement of the Color Spot judgment. The total amount to be paid by Color Spot was $85,000, of which $15,000 was designated as “attorney fees.” Philipson remitted $70,000 of the funds to Gulsvig, and made clear its intention to keep the remaining $15,000 for itself.

After Gulsvig filed her request to arbitrate the dispute, Philipson informed her that it questioned her right to retain any part of the settlement funds, and further that Campbell Advisors, P.C. (the plaintiff in this case) had asserted its own claim to the funds as successor in interest to Tultex. Philipson requested that Gulsvig remit back to it the $70,000 she had already received from the Color Spot settlement, and offered to retain those funds in its trust account pending a determination of which party was entitled to them.

When Gulsvig did not accede to Philipson’s request that she return the settlement funds she had already received, it threatened her with a lawsuit, and even provided her with a proposed complaint. The complaint accused Gulsvig of breach of contract, conversion and fraud, and sought damages stemming from her retention of settlement funds which allegedly belonged to Campbell. Approximately three months later, Philipson itself, then acting as counsel for Campbell, filed the complaint against Gulsvig. Gulsvig responded with a demurrer and a motion to disqualify Philipson from further representing Campbell. Gulsvig also filed a cross-complaint against Philipson, alleging causes of action for breach of fiduciary duty, negligence, breach of contract and conversion.

Philipson then filed its own cross-complaint against Gulsvig. It is the second-amended version of that cross-complaint that is at issue in this appeal. Gulsvig responded to Philipson’s second amended cross-complaint by a motion to strike it, and each of the causes of action contained in it, as a SLAPP action. The trial court denied the motion. Gulsvig appealed and the Court of Appeal ordered the trial court to grant the motion as to Philipson’s fraud and negligent misrepresentation causes of action.

Code of Civil Procedure section 425.16, subdivision (b)(1), requires a two-step process for determining whether a defendant’s section 425.16 motion to strike should be granted. “First, the court decides whether the defendant has made a threshold showing that the challenged cause of action is one arising from protected activity. The moving defendant’s burden is to demonstrate that the act or acts of which the plaintiff complains were taken ‘in furtherance of the [defendant]’s right of petition or free speech under the United States or California Constitution in connection with a public issue,’ as defined in the statute.” (Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 67.) Then, if the court finds that such a showing has been made, the burden shifts to plaintiff to demonstrate “there is a probability that the plaintiff will prevail on the claim.” (§ 425.16, subd. (b)(1).)

The court began its de novo review with the proposition that filing a lawsuit does qualify as “petitioning” under the anti-SLAPP law. (Chavez v. Mendoza (2001) 94 Cal.App.4th 1083, 1087.) “Further, we have little trouble concluding that the initiation of a State Bar sponsored fee arbitration proceeding is likewise covered; after all, it is an official proceeding established by statute to address a particular type of dispute.” Next, the court noted that “where a cause of action alleges both protected and unprotected activity, the cause of action will be subject to section 425.16 unless the protected conduct is ‘merely incidental’ to the unprotected conduct [citation].” “Here, Philipson alleges as part of its fraud and negligent misrepresentation causes of action, that as a result of Gulsvig’s misepresentations, it had been ‘sued in this action,’ and was facing ‘possible exposure, attorneys fees and costs.’ . . . Of course, the only one who has sued Philipson is Gulsvig herself, and thus these damage allegations are based on Gulsvig’s own petitioning activity. . . .”

The court next turned to the issue of whether Philipson sustained its burden of demonstrating a probability of success on the merits of these causes of action. This means it must demonstrate it has “ ‘stated and substantiated a legally sufficient claim.’ ”

The court first considered Philipson’s fraud and negligent misrepresentation causes of action and found that this claim was insufficient to state a cause of action for fraud. “What Philipson alleges here is that Gulsvig consistently represented to it, after the sale of CSS California to Tultex, that Tultex owned the Color Spot receivable. . . . [¶] We cannot view this story, as told by Philipson in its own pleading, as demonstrating anything like ‘reasonable reliance.’ Philipson’s role, as Tultex’s attorney, simply does not allow it to unquestioningly abandon its professional obligations to that client, simply because an officer of the company (who has previously stated consistently that a particular asset belongs to Tultex) suddenly claims that she has personally owned that asset all along. . . . This is exactly the sort of case in which we can ‘ “ ‘determine whether, on the facts pleaded, there is any foundation, prima facie at least, for the charge of fraud.’ [Citation.]” ’ . . . There is not. Any reliance would have been unreasonable.”

Addressing the contract causes of action, the court reached a different conclusion. The court found that Philipson had failed to properly serve Gulsvig with the required arbitration notice. It nonetheless concluded that Gulsvig waived her right to arbitrate those distinct fee claims. Under subdivision (d) of Business and Professions Code section 6201, a client waives her arbitration rights under the statute by “commencing an action or filing any pleading seeking either of the following: [¶] (1) Judicial resolution of a fee dispute to which this article applies. [¶] (2) Affirmative relief against the attorney for damages or otherwise based upon alleged malpractice or professional misconduct.” (Italics added.) “In this case, Gulsvig had already filed her own cross-complaint, seeking affirmative relief against Philipson based upon various alleged breaches of professional obligations, when Philipson filed its second amended cross-complaint. As the trial court pointed out, the contract claims stated in Philipson’s second amended cross-complaint may be properly used to offset the damage claims alleged against it by Gulsvig, and are thus a proper subject for inclusion in the same lawsuit. (§ 426.30.)”

----Andrea Lynn Rice

Los Angeles Attorney Newsletter

LIABILITY UPDATE
December 7, 2007
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In Fairbanks v. Superior Court 2007 Daily Journal D.A.R 12788, the Second Appellate District of the California Court of Appeal held that insurance is neither a “good” nor a “service” within the meaning of the Consumer Legal Remedies Act (Civ. Code, §§ 1750 et seq. [“CLRA”]), a pro-consumer statute intended to protect low-income consumers from deceptive or unfair business practices that prohibits specific deceptive or unfair acts in the sale or lease of goods and services.

Pauline Fairbanks purchased from Farmers New World Life Insurance Company (“Farmers”) a Flexible Premium Universal Life policy. The Flexible Premium Universal Life policies sold by Farmers were represented to be permanent insurance. When she was sold such a policy, Fairbanks was informed that she could keep the policy in full force indefinitely by paying a stated premium amount. In reality, this premium amount was insufficient to keep the policy in force to maturity. Fairbanks alleged in her complaint that Farmers’ policies were misrepresented and that Farmers engaged in deceptive and unfair practices in the design and marketing of the policies.

Fairbanks, on behalf of herself and others similarly situated, sued Farmers in November of 2003. Farmers moved for a dismissal of the CLRA cause of action, arguing that it had no merit because insurance is neither a “good” nor a “service” within the meaning of the CLRA. The superior court granted the motion. The Court of Appeal denied plaintiffs’ petition for writ of mandate.

The court observed that the CLRA is a statute that regulates any “transaction intended to result or which results in the sale or lease of goods or services to any consumer.” (Civ. Code, § 1770 subd. (a).) It lists 23 “proscribed practices,” a few of which “could conceivably apply to insurance. For instance, ‘[r]epresenting that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities which they do not have’ is prohibited under this act. (Civ. Code, § 1770 subd. (a)(5).) Additionally, ‘[r]epresenting that goods or services are of a particular standard, quality, or grade, or that goods are of a particular style or model, if they are of another’ is prohibited. (Civ. Code, § 1770, subd. (a)(7).) ‘Representing that the subject of a transaction has been supplied in accordance with a previous representation when it has not,’ (Civ. Code, § 1770 subd. (a)(16)), and ‘[i]nserting an unconscionable provision in the contract,’ (Civ. Code, § 1770, subd. (a)(19)), are additional acts proscribed by the CLRA that could arguably relate to insurance. . . .”

The court pointed out that portions of the Insurance Code also regulate unfair and deceptive practices in the business of insurance. The Unfair Insurance Practices Act (“UIPA”) prohibits the making, issuance or circulation of “any estimate, illustration, circular or statement misrepresenting the terms of any policy issued or to be issued or the benefits or advantages promised thereby or the dividends or share of the surplus to be received. . . .” (Ins. Code, § 790.03, subd. (a)). In addition, the UIPA proscribes the knowing misrepresentation of “pertinent facts or insurance policy provisions relating to any coverages at issue,” (Ins. Code, § 790.03 subd. (h)(1)), and any attempts “to settle a claim by an insured for less than the amount to which a reasonable person would have believed he or she was entitled by reference to written or printed advertising material accompanying or made part of an application.” (Ins. Code, § 790.03, subd. (h)(7)). “We here consider whether the generally-applicable provisions of the CLRA override the insurance-specific provisions of the UIPA, and provide for a private right of action where the UIPA provides only for administrative enforcement.” The court concluded that it does not.
The court first found that the plain language of the CLRA indicates that insurance is not a “good.” “Goods” are defined as tangible chattels bought or leased for personal, family or household use. (Civ. Code, § 1761, subd. (a).) “Insurance is not a tangible item. Thus it cannot be a ‘good.’ It follows that the pertinent issue here is whether insurance can be considered a ‘service’ under the CLRA.”

The CLRA defines “Services” as “work, labor, and services for other than a commercial or business use, including services furnished in connection with the sale or repair of goods.” Insurance is defined by the Insurance Code as “a contract, whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.” (Ins. Code, § 22). “Obviously, insurance contracts are not work or labor. Nor can these indemnification agreements easily be described as personal services or services ‘furnished in connection with the sale or repair of goods.’ . . .”

The court pointed out that, in an analogous decision, one court held that issuance of a credit card is not a “service” under the CLRA. (Berry v. American Express Publishing, Inc. (2007) 147 Cal.App.4th 224, 229-230). “The Berry court reasoned that the extension of credit is not a ‘service,’ especially when it is an extension of credit unconnected to a specific sale or lease transaction. A similar analysis applies to insurance, which is an essentially financial transaction, completely unrelated to the sale or lease of any identifiable consumer good or service.”

Further, in determining whether the CLRA applied to credit cards, the Berry court found significant the exclusion of the words “money” and “credit” from the definition of “consumer” in the CLRA. “Similarly, . . . although ‘insurance’ was indisputably a part of the model rule on which the CLRA was based, insurance was not included in the final draft of the act.” “The legislative history of the CLRA indicated that it was adapted in large part from provisions contained in the National Consumer Act (‘NCA’), a model rule proposed by the National Consumer Law Center at Boston College. The NCA’s definition of ‘services’ specifically includes insurance. . . . Yet, when the California Legislature adapted the NCA to enact the CLRA, it omitted insurance from the definition of ‘services.’ The obvious conclusion is that the Legislature intentionally omitted insurance because it did not intend for the CLRA to apply to insurance. . . .”

“Policy considerations” also confirmed the court’s conclusion. “In a practical sense, allowing for a CLRA remedy for insurance fraud would wreak havoc on the established code and decades of case history. Although, at one time, private actions were considered permissible under Insurance Code section 790.03, subdivision (h) (Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880), the California Supreme Court held in 1988 that the enforcement of section 790.03(h) was limited to administrative sanctions by the Insurance Commissioner, and that the Legislature had never intended, by its enactment of the UIPA, to create a private right of action. (Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287, 303-304.)”

It is clear that, if insurance were considered a “service” under the CLRA, many of the unfair and deceptive practices prohibited by the UIPA would also constitute “proscribed practices” under the CLRA. . . . Thus, allowing a private right of action under the CLRA would, in effect, undermine the holding in Moradi-Shalal and allow a private right of action for UIPA violations. This private right of action would be based not on any express grant of the right in clear, understandable, unmistakable terms, but on a conclusion that, although the CLRA was silent on the matter of insurance, it was intended to create a private right of action for insurance practices already regulated elsewhere. Indeed, interpreting the CLRA to apply to insurance would, in effect, swallow the UIPA whole by allowing a private right of action where the courts have explicitly held that a private right of action under that statute was never intended.

----Andrea Lynn Rice

November 30th Newsletter

LIABILITY UPDATE
November 30, 2007

In Ra v. Superior Court 2007 Daily Journal D.A.R 12413, the Second Appellate District of the California Court of Appeal held that, with respect to a bystander claim for negligent infliction of emotional distress, the requirement of “contemporary sensory awareness of the causal connection between the negligent conduct and the resulting injury” limits recovery to a plaintiff who clearly and distinctly perceived the injury being inflicted.

Michelle Ra (Ra) and her husband, Dr. Phil Jae Ra, were shopping in an Armani Exchange in Old Town Pasadena. Ra was looking at merchandise in the women’s section while her husband examined the men’s sweater display some 10 to 15 feet away. Ra was not facing her husband when she heard “a loud bang.” The sound caused Ra “to fear for my own safety and that of my husband.” In fact, a large, overhead store sign had fallen, striking Dr. Ra on the head. After hearing the loud bang, Ra turned in the direction of the noise and saw her husband with his hand to his head, bending at the knees and apparently in pain. Ra did not see the sign strike her husband, nor did she notice the sign on the ground after looking at her husband and walking toward him.

In September 2005 Dr. Ra and Ra sued Presidio Intentional, Inc. (Presidio), which owns Armani Exchange, for premises liability; negligent infliction of emotional distress to a bystander as to Ra, with a related claim by Dr. Ra for loss of consortium; and negligent infliction of emotional distress as to Ra as a direct victim in the zone of danger, also with a loss of consortium claim by Dr. Ra. Ra asserted, as a result of Presidio’s negligence, she had suffered severe emotional distress. Within 10 days of the incident Ra suffered a miscarriage, which she also attributed to the emotional distress caused by the accident.

Presidio moved for summary adjudication as to Ra’s bystander claim, arguing Ra’s discovery responses established she was not aware of her husband’s injuries at the time of the accident, but only learned afterward the overhead sign had fallen and struck him. The trial court granted Presidio’s motion for summary adjudication, finding that the evidence submitted over Ra’s opposition established she had not contemporaneously perceived the injury to her husband. Ra and Dr. Ra then filed a petition for writ of mandate, which the appellate court denied.

In Thing v. La Chusa (1989) 48 Cal.3d 644, 667 (Thing), the Supreme Court held to recover for negligent infliction of emotional distress as a bystander the plaintiff must plead and prove he or she “(1) is closely related to the injury victim; (2) is present at the scene of the injury-producing event at the time it occurs and is then aware that it is causing injury to the victim; and (3) as a result suffers serious emotional distress – a reaction beyond that which would be anticipated in a disinterested witness and which is not an abnormal response to the circumstances.” The second Thing requirement – the plaintiff was a percipient witness to the traumatic incident and was contemporaneously aware the event was causing injury to the victim – does not require visual perception of an impact on the victim. “A plaintiff may recover based on an event perceived by other senses so long as the event is contemporaneously understood as causing injury to a close relative.”

Ra contended that evidence that she knew where her husband was within the Armani Exchange store, heard a loud bang from that area and simultaneously knew it was “more likely than not” her husband had been injured by the event generating the sound was sufficient to establish the element of contemporary sensory awareness for a cause of action for negligent infliction of emotional distress to a bystander.

The appellate court observed that, although a plaintiff may establish presence at the scene through non-visual sensory perception, “someone who hears an accident but does not then know it is causing injury to a relative does not have a viable [bystander] claim for [negligent infliction of emotional distress], even if the missing knowledge is acquired moments later.” (Bird v. Saenz (2002) 28 Cal.4th 910, fn. 3, citing with approval Fife v. Astenius (1991) 232 Cal.App.3d 1090 (Fife).) In Fife, evidence a family had heard the sounds of a car collision, but did not realize a family member had been injured until they reached the scene of the accident moments later, was held insufficient to establish the second Thing requirement. The Fife court rejected the plaintiff’s contention the element of “contemporaneous” awareness did not require proof of “simultaneous” awareness. “Thus, under controlling Supreme Court precedent the absence of ‘contemporaneous sensory awareness of the causal connection between the [injury-producing event] and the resulting injury’ precludes recovery.”

Plaintiff relied, inter alia, on Wilks v. Horn (1992) 2 Cal.App.th 1264. In Wilks the court permitted recovery on a bystander claim asserted by a mother who, although she did not see or hear her daughters being harmed, was nonetheless aware an explosion she experienced (heard and felt) was simultaneously causing injury to her daughters: The mother knew her children’s exact location in their bedrooms immediately before the explosion and their proximity to the origin of the blast and was personally propelled from the house by the explosion; she felt the walls moving, heard the windows being blown out and saw a bright flash emanate from one of her daughters’ bedrooms. In that instant the plaintiff-mother “personally and contemporaneously perceived the injury-producing event and its traumatic consequences.” Notwithstanding the mother’s lack of visual or aural perception, she “instantly knew of the likely severe damage to the child.”

The court rejected Ra’s suggestion her own contemporaneous awareness of Dr. Ra’s location within the Armani Exchange store, the loud bang emanating from that part of the store and the likelihood of injury to Dr. Ra, like the mother’s knowledge of “likely severe damage” to her children in Wilks, sufficed to establish her bystander claim. “. . . Wilks used the word ‘likely’ only to characterize the probable severity of the injuries being inflicted, not to suggest the plaintiff-mother had anything less than a reasonable certainty some significant injury was occurring to her children. Indeed, the court expressly stated the mother ‘was sensorially aware, in some important way, of the accident and the necessarily inflicted injury to her child.’ ”

In restricting bystander claims to “closely related percipient witnesses,” the Supreme Court explained that “the traumatic emotional effect on the plaintiff who contemporaneously observes both the event or conduct that causes serious injury to a close relative and the injury itself” are the elements that “justify and simultaneously limit an award of damages for emotional distress.” “It is the traumatic effect of the perception of the infliction of injury on a closely related person (whether visual or not) that is actionable, not the observation of the consequences of the occurrence or the contemporaneous perception of endangerment, which, ‘while potentially stressful, is insufficient to cause legally cognizable harm.’ ”

Indeed, if Ra’s contemporaneous awareness of a traumatic event and her more-likely-than-not fear for the safety of her husband were sufficient to allow her to proceed to trial on her cause of action for negligent infliction of emotional distress – that is, if the stress caused by a reasonably based fear for a loved one occasioned by witnessing an accident were legally cognizable harm – there would appear to be no sound policy reason to deny recovery on the same basis to any percipient witness bystander who suffered severe emotional distress resulting from the reasonable fear a close relative had been injured by the negligent conduct of a defendant, whether or not the relative actually suffered any injury. Yet permitting bystander recovery when there is no direct victim defies common sense.

----Andrea Lynn Rice

November 23rd Newsletter

LIABILITY UPDATE
November 23, 2007

In Shirk v. Vista Unified School District 2007 Daily Journal D.A.R 12610, the Supreme Court of the State of California stated:

In 2002, the Legislature added a statutory provision that “revived” for the calendar year 2003 those causes of action for childhood sexual molestation that would otherwise have been barred “solely” by expiration of the applicable statute of limitations. (Code Civ. Proc., § 340.1, subd. (c).) Does that provision also apply when a plaintiff suing a public entity has failed to first present a timely claim to the entity, as required by the government claims statute (Gov. Code, § 911.2)? Our answer is “no.”

Plaintiff Linda Shirk was born in 1962. In September 1977, when she was 15 years old, the Vista Unified School District (School District) assigned her to an English class taught by Jeffrey Paul Jones (Jones). In May 1978, Jones initiated their first sexual encounter. Their last sexual contact occurred in November 1979. In the following months plaintiff neither notified the School District of her abuse nor presented a claim to it. In June 2001, when plaintiff’s daughter was attending Vista High School, plaintiff began to encounter teacher Jones at high school band tournaments.

On September 12, 2003, a licensed mental health practitioner interviewed plaintiff and concluded that she was still suffering psychological injury from her sexual abuse by Jones. That same day, plaintiff presented a claim to the School District for personal injury stemming from her sexual abuse by its employee Jones. On September 23, 2003, plaintiff, then 41 years old, sued teacher Jones and the School District. On a form complaint, plaintiff entered the date of the act complained of as “Sept. 12, 2003 (per CCP 340.1(c))” and she checked two boxes indicating compliance with the government claims statute.

The School District demurred on the ground that the negligence causes of action were barred by her belated claim presentation. The trial court agreed; it concluded that plaintiff’s causes of action accrued as of the last act of sexual molestation, which was in November 1979, but that they were barred because of plaintiff’s failure to first present a claim to the School District “at some point in 1980,” as statutorily required. Accordingly, the trial court sustained the demurrer without leave to amend, and it entered a judgment of dismissal as to the School District. Plaintiff appealed, arguing that she had “timely presented her government tort claim” to the School District on September 12, 2003, when her statutory cause of action under subdivision (c) of section 340.1 accrued, because it was only then that “she discovered the cause of her adult psychological injuries.”

The Court of Appeal agreed, but the California Supreme Court granted the School District’s petition for review to resolve a conflict between the decision of the Court of Appeal in this case and a nearly contemporaneous decision of a different Court of Appeal in County of Los Angeles v. Superior Court (2005) 127 Cal.App.4th 1263, 1269. That case held that the Legislature’s 2002 amendment of section 340.1 did not reflect the Legislature’s intent “to excuse victims of childhood sexual abuse” from complying with the government claims statute when suing a public entity defendant. “We reach the same conclusion here, thus reversing the Court of Appeal in this case.”

Plaintiff acknowledged that because of her failure to present a claim to the School District in 1980, her cause of action against the School District was extinguished in 1980. However, she argued that under section 340.1, subdivision (c), which revived for the year 2003 those childhood sexual abuse causes of action on which the statute of limitations had already lapsed as of January 1, 2003, her cause of action against the School District re-accrued on September 12, 2003, when she discovered that her present psychological injury was caused by teacher Jones’s sexual abuse of her some 25 years earlier. Alternatively, she argued that her duty to present her claim to the School District, as required under the government claims statute, first arose on September 12, 2003, when she discovered that her psychological injury was caused by the teacher’s sexual abuse and presented her claim to the School District. “We conclude that neither of her contentions is supported by the language and history of the legislative scheme, as we explain below.”

The court noted that, as amended in 2003, the pertinent language of subdivision (c) of section 340.1 reads: “[A] claim for damages” brought against an entity that owed plaintiff a duty of care and whose wrongful or negligent act was a legal cause of injury to plaintiff resulting from childhood sexual abuse, if the cause of action “would otherwise be barred as of January 1, 2003, solely because the applicable statute of limitations has or had expired is revived” (italics added), and the revived “cause of action may be commenced within one year of January 1, 2003.”

The court found that the plain language of that provision expressly limited revival of childhood sexual abuse causes of action to those barred “solely” by expiration of the applicable statute of limitations. (§ 340.1, subd. (c).) It makes no reference whatsoever to any revival of the period in which to present a claim under the government claims statute. “That lack of reference led the Court of Appeal here to infer that because the Legislature must have been aware that by expressly reviving causes of action against entity defendants in general under subdivision (c), it implicitly revived the deadline for presenting a claim to public entity defendants. We are not persuaded.”

The legislative history of the 2002 amendment at issue here is virtually silent as to its impact on a public entity defendant; it mentions only the general principle that “a school district, church, or other organization engaging in the care and custody of a child owes a duty of care to that child to reasonably ensure its safety.” And the bill’s legislative history makes no mention of an intent to revive the deadline by which to present a claim to a public entity, nor have we found any mention of the potential fiscal impact of reviving public liability for incidents that occurred, as here, decades ago. Thus, the legislative history does not support the view of the Court of Appeal in this case that the Legislature’s revival of childhood sexual abuse causes of action otherwise barred solely by the lapse of the applicable statute of limitations also was intended to apply to the then-already-codified government claim presentation deadline. The Legislature is deemed to be aware of existing statutes, and we assume that it amends a statute in light of those preexisting statutes.

Plaintiff argued that the Legislature was well aware of the claim presentation deadline under the government claims statute, as indicated by section 340.1, subdivision (c)’s opening phrase, “Notwithstanding any other provision of law. . . .” “But that interpretation is inconsistent with the more specific language later in that same sentence expressly reviving only those causes of action ‘barred . . . solely because the applicable statute of limitations has or had expired’ as of January 1, 2003. As discussed earlier, before a plaintiff can bring a cause of action against a public entity, a timely claim must be presented to the entity; when no claim is timely presented, however, such a cause of action is not barred ‘solely’ by lapse of the applicable statute of limitations, the phrasing that the Legislature used in the revival provision of subdivision (c). . . . [T]he government claim presentation deadline is not a statute of limitations. Had the Legislature intended to also revive in subdivision (c) the claim presentation deadline under the government claims statute, it could have easily said so. It did not. We thus conclude that as of January 1, 2003, plaintiff’s causes of action against the School District were barred by expiration of the time for presenting a claim to the School District.”

----Andrea Lynn Rice

November 16th Newsletter

LIABILITY UPDATE
November 16, 2007

In Rohde v. Wolf 2007 Daily Journal D.A.R 12331, the Second Appellate District of the California Court of Appeal stated:

There were disputes, including threats of litigation, between a brother and sister concerning the distribution of their deceased father’s assets. During the period of the disputes, the attorney for the brother became dissatisfied when the proposed listing agent for one of the father’s real property assets, allegedly at the sister’s direction, failed to send the attorney a listing agreement for the property and a proposal from a potential buyer. The attorney left voicemail messages that accused the listing agent of conspiring with the sister to defraud the brother and that threatened to take “appropriate action.” The sister sued the brother’s attorney for defamation based on those messages. The attorney filed a motion to strike the sister’s complaint under the anti-SLAPP statute—Code of Civil Procedure section 425.16 (section 425.16). The trial court denied the motion, and the attorney appeals. In reversing, we hold that the messages, under these circumstances, are covered by the anti-SLAPP statute and the litigation privilege in Civil Code section 47, subdivision (b) (section 47), and that the lawyer’s anti-SLAPP motion should have been granted.

Peter Metsos died on March 29, 2004. He left a will, the Metsos Family Trust, and the Peter Metsos Trust. George Metsos (Metsos), Peter Metsos’s son, was appointed executor of the Peter Metsos Trust. From at least January 2006, Metsos and his sister, plaintiff Sophia Metsos Rohde (plaintiff), had a dispute concerning the distribution of their father’s assets. Defendant Michael Wolf (defendant), an attorney, and his law firm represented Metsos in that dispute.

On February 10, 2006, defendant wrote a letter to T. Randolph Catanese, plaintiff’s attorney, addressing a number of issues in the dispute. By letter dated that same day, Catanese responded, “Generally, when I receive letters of this type I do not respond with a letter, but rather with a lawsuit. It is readily apparent that you and your client have no desire to resolve the issues between our respective clients absent court intervention. Accordingly, the intended purpose of this letter is to apprise you and your client of what will be contained in a lawsuit, in part, when one is filed.”

On April 17, 2006, Catanese, plaintiff, plaintiff’s husband, and defendant met and agreed that certain real property located in Chatsworth would be sold and the net proceeds divided equally between plaintiff and Metsos. Steve Weiss of NAI Capital was to be the listing agent and to prepare a listing agreement. Nothing was to proceed with respect to the sale of the property without the mutual consent of Metsos and plaintiff.

On April 25, 2006, defendant spoke with Weiss and advised him that he was to be included in all communications regarding the listing and sale of the property. On May 3, 2006, defendant had not heard from Weiss. He called Weiss and, apparently, left a message. In a responding voice mail message, Weiss “indicated” that he had prepared a listing agreement and had sent the listing agreement to plaintiff along with a proposal from a potential buyer for the property. Weiss stated that plaintiff had “specifically instructed” him not to send the listing agreement and the proposal to defendant.

Later that day, defendant Wolf left a voice mail message for Weiss demanding the listing agreement and proposal, expressing his dissatisfaction with not having been sent these documents, and stating, “I believe you are obviously engaged in a conspiracy to defraud my client with Sophia Rohde and I plan on taking appropriate action.” In his declaration in support of his anti-SLAPP motion, defendant stated, “I know that, had my client and I continued to be excluded from communications concerning the listing and sale of the Chatsworth Property, an action would have been filed to protect my client’s interests.”

Plaintiff and her husband filed an action alleging various causes of action against Metsos. Plaintiff filed a separate action against defendant, alleging that defendant’s voice mail messages to Weiss defamed plaintiff and constituted slander per se. Defendant filed his anti-SLAPP motion to strike plaintiff’s complaint in her slander per se action. The trial court denied the motion. Defendant appealed, and the Court of Appeal reversed.

The court observed that “[t]he Legislature enacted Code of Civil Procedure section 425.16—known as the anti-SLAPP statute—to provide a procedural remedy to dispose of lawsuits that are brought to chill the valid exercise of constitutional rights.” In considering the application of the anti-SLAPP statute, courts engage in a two-step process. “ ‘First, the court decides whether the defendant has made a threshold showing that the challenged cause of action is one arising from protected activity. . . . If the court finds such a showing has been made, it then determines whether the plaintiff has demonstrated a probability of prevailing on the claim.’ ”

After pointing out that, “Recently, the Supreme Court stated that ‘[a] prelitigation communication is privileged only when it relates to litigation that is contemplated in good faith and under serious consideration’ [Citations.] (Action Apartment Assocation, Inc. v. City of Santa Monica (2007) 41 Cal.4th 1232.),” the court first found that defendant’s voicemail messages to Weiss were statements made in connection with an asset that was the subject of the dispute in which both plaintiff and defendant threatened litigation. “In short, the spectre of litigation loomed over all communications between the parties at that time. Thus, the messages concerning the subject of the dispute and threatening appropriate action in that context had to be in anticipation of litigation ‘contemplated in good faith and under serious consideration.’ (Action Apartment Association, Inc. v. City of Santa Monica, supra, 41 Cal.4th at pp. 1251-1252.) Accordingly, defendant’s communications in issue satisfied his burden under the first step in applying the anti-SLAPP statute by establishing that his conduct was protected activity under that statute.”

Addressing the “probability of prevailing element” of an anti-SLAPP motion, the court observed that the litigation privilege in section 47 applies to “any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have some connection or logical relation to the action. [Citations.]” (Silberg v. Anderson (1990) 50 Cal.3d 205, 212.) Prelitigation statements are protected under section 47 when they are made in connection with a proposed litigation that is “contemplated in good faith and under serious consideration.”

As discussed above, whether defendant’s voicemail messages to Weiss are privileged under section 47 appears to be determined under the test applicable to whether the statements are protected activity under section 425.16. . . . Because we have held that the statements were a protected activity under the anti-SLAPP statute, they are also privileged under section 47 as statements made in anticipation of litigation “contemplated in good faith and under serious consideration.” . . . That privilege provides a substantive defense to plaintiff’s slander per se action. . . . Plaintiff cannot meet her burden under the second step in applying the anti-SLAPP statute of demonstrating a probability of prevailing—i.e., “ ‘a prima facie showing’ ”—in her slander per se action. . . . Accordingly, the trial court erred in denying defendant’s anti-SLAPP motion.

----Andrea Lynn Rice

November 9th Newsletter

LIABILITY UPDATE
November 9, 2007

In Frontier Oil Corporation v. RLI Insurance Company 2007 Daily Journal D.A.R 12031, the Second Appellate District of the California Court of Appeal held that notwithstanding the application of the governmental interest analysis to other choice-of-law issues, Civil Code section 1646, the choice-of-law rule determines the law governing the interpretation of a contract.

Underwriters Indemnity Company, RLI Insurance Company’s (RLI) predecessor in interest, issued a commercial general liability insurance policy to Wainoco Oil Corporation, Frontier Oil Corporation’s (Frontier) predecessor in interest, in January 1988. Wainoco and Underwriters Indemnity Company entered into the insurance contract in Texas.

Exclusion f of the policy provided for an “absolute” pollution exclusion. The policy included an endorsement entitled “Oil and Gas Lease Operators’ Pollution Liability Coverage.” The policy also included three additional endorsements relating specifically to oil and gas operations in Beverly Hills, California. One added the City of Beverly Hills as an additional insured (“with respect to claims arising out of the following project: Oil and Gas Operations at 9865 Olympic Blvd., City of Beverly Hill[s], CA”); the second adds the Department of Transportation of the City of Los Angeles as an additional insured; and the third was a “Waiver of Transfer Rights of Recovery Against Others” made out in favor of the City of Beverly Hills with respect to claims arising from the same project. Finally, an endorsement for certain “Texas Changes” apparently conformed this policy issued in Texas with Texas law with respect to three specific areas, “none of which is relevant to the issues raised in this appeal: (1) the ‘notice prejudice’ rule, (2) policy cancellation, and (3) policy renewal. That endorsement also states that the insured may complain to the Texas State Board of Insurance if any dispute concerning the premium or a claim is not resolved.”

Numerous plaintiffs filed complaints against Frontier, Wainoco, and other oil and gas industry defendants between July 2003 to May 2005. The plaintiffs alleged that the defendants’ oil and gas operations at the Beverly Hills site caused releases of toxic chemicals into the environment resulting in personal injuries and deaths. RLI ultimately denied coverage and a defense to Frontier and Wainoco. Frontier and Wainoco then sued RLI and other insurers in February 2004, alleging counts for (1) declaratory relief, (2) breach of contract, and (3) breach of the implied covenant of good faith and fair dealing, all relating to the insurers’ refusal to defend the underlying actions where there is a pending state court action in which the matters in controversy might be fully resolved. Frontier and Wainoco later resolved the present action with respect to all of the insurer defendants except RLI.

RLI successfully moved for summary judgment against Frontier in November 2005, arguing that it had no duty to defend Frontier in the underlying actions. The trial court concluded that Civil Code section 1646 determined whether the law of California or Texas governed the dispute. Noting the “Texas Changes” endorsement, the court stated, “The insurance policy as a whole shows the intent of the parties at the time the insurance contract was made was that Texas law would apply to any disputes arising out of the contract.” Frontier appealed, and the Court of Appeal reversed.

The court characterized the question of whether RLI had a duty to defend under the policy as presenting two principal issues. The first was whether the policy included a duty to defend pollution claims, a question of contract interpretation. The second was whether the underlying personal injury actions trigger the duty to defend. Each of these questions presented a choice-of-law issue as to whether the law of California or another state governs. Each choice-of-law issue in turn presented the threshold question of which choice-of-law rule properly applied.

We first will decide that Civil Code section 1646 is the choice-of-law rule that determines the law governing the interpretation of the policy. We then will apply section 1646, conclude that California law governs, and interpret the policy under California law. Such interpretation will require us to conclude that the policy includes a duty to defend pollution claims. Next, we will consider the choice of law with respect to whether the underlying actions trigger the duty to defend. We will hold that California law governs under either section 1646 or the governmental interest analysis. Applying California law, we will conclude that RLI has a duty to defend Frontier and Wainoco in the underlying actions.

The court observed that Civil Code section 1646, by its express terms, prescribes a choice-of-law rule concerning the interpretation of contracts. It states that a contract is to be interpreted according to the law and usage of the place where it is to be performed, but only if the contract “indicate[s] a place of performance,” and is to be interpreted according to the law and usage of the place where it was made if the contract “does not indicate a place of performance.”

Under the governmental interest analysis, a court first determines whether the applicable rules of law of the potentially concerned jurisdictions are the same or different. If the applicable rules of law are identical, the court may apply California law. If the applicable rules of law differ materially, the court proceeds to an examination of the interests of each jurisdiction in having its own law applied to the particular dispute. “If each jurisdiction has an interest in applying its own law to the issue, there is a ‘true conflict’ and the court must proceed to the third step. In the third step, known as the comparative impairment analysis, the court determines which jurisdiction has a greater interest in the application of its own law to the issue or, conversely, which jurisdiction’s interest would be more significantly impaired if its law were not applied. The court must apply the law of the jurisdiction whose interest would be more significantly impaired if its law were not applied.”

After reviewing both state and federal authorities on the question, the court was “. . . unable to conclude that California has ‘judicially abrogated’ the express legislative mandate of Civil Code section 1646 relating to the interpretation of contracts. Instead, we hold that the choice-of-law rule in Civil Code section 1646 determines the law governing the interpretation of a contract, notwithstanding the application of the governmental interest analysis to other choice-of-law issues. The California Supreme Court has never applied the governmental interest analysis to determine the law governing the interpretation of a contract and has never stated or suggested that section 1646 does not determine the law governing the interpretation of a contract.”

The liability insurance policy at issue in this case includes both indemnity and defense obligations. . . . [¶] The policy provides general liability coverage and specifically refers to claims arising from oil and gas operations at Drill-Site # 1 in Beverly Hills, California. Two policy endorsements name the City of Beverly Hills and the Department of Transportation of the City of Los Angeles as additional insureds “with respect to claims arising out of . . . [¶] Oil or Gas Operations” in the City of Beverly Hills, California. In another endorsement, RLI waives its right of recovery against the City of Beverly Hills for certain payments made under the policy with respect to the same specified claims. These three endorsements clearly demonstrate that the parties intended the policy to provide coverage for the insureds’ oil and gas operations in Beverly Hills. Accordingly, we conclude that the parties anticipated that a suit arising from those operations in Beverly Hills could be prosecuted in California and that RLI would be obligated to provide a defense in California if the claims were potentially covered under the policy.

----Andrea Lynn Rice

November 2nd Newsletter

In McGee v. Tucoemas Federal Credit Union 2007 Daily Journal D.A.R 11846, the Fifth Appellate District of the California Court of Appeal held that a federally chartered credit union is subject to punitive damages.

Kimberly McGee (McGee) was employed by the Tucoemas Federal Credit Union (Credit Union) as the Vice President of Lending. In May 2003 McGee was diagnosed with breast cancer. McGee took a leave of absence for surgery and chemotherapy. Due to her relatively young age, 43, McGee’s oncologist, Dr. Hsu, prescribed an aggressive course of chemotherapy. Credit Union required McGee to return to work within four months, by September 15. McGee was told that if she needed any more time beyond that to recuperate, she would be fired.

McGee’s last chemotherapy treatment was scheduled for September 8. Because the treatments made McGee tired and nauseous, she requested an accommodation to permit working part of the time at home. From past experience, McGee knew that with the use of her computer, fax machine, and telephone, most of her job duties could be accomplished from her home for a short period of time. However, defendants refused this request outright and told McGee that if she did not return to work within one week, i.e., by September 15, she would be demoted to branch manager at an 11 percent pay decrease.

When McGee explained to Dr. Hsu that she would be fired if she did not return to work, he prepared a full release for her. McGee reported to work on September 15. Even though McGee complied with defendants’ demand, she was demoted to a branch manager position. At trial, Linda Reese, the Credit Union’s chief executive officer, admitted that this action was taken because McGee asked for a temporary accommodation. Due to the demotion, McGee had reduced work hours. Based on the reduced hours, defendants cancelled McGee’s medical insurance and cut her salary in half. McGee was extremely upset about the loss of medical coverage. The anticipated cost of her upcoming radiation treatments alone was over $60,000.

McGee filed the underlying complaint alleging causes of action under the Fair Employment and Housing Act for retaliation, failure to engage in good-faith interactive process, failure to provide a reasonable accommodation, and disability discrimination. The jury ruled in favor of McGee and awarded $2,041,558 in compensatory damages, with a set off of $51,173, for a total of $1,990,385. The jury further found that the Credit Union and Reese engaged in the conduct with malice, oppression or fraud and awarded punitive damages of $1,200,000 against the Credit Union and $7,000 against Reese. Defendants filed various posttrial motions including for a new trial due to excessive damages. The trial court conditionally granted this new trial motion unless McGee accepted a reduction of the compensatory damages by $750,000. McGee accepted the reduction. The trial court refused to remit any portion of the punitive damages. Defendants appealed the award of punitive damages, and the Court of Appeal affirmed.

The court observed that the United States government is immune from civil penalties absent an express and unequivocal waiver of that immunity. (Missouri Pac. R.R. Co. v. Ault (1921) 256 U.S. 554, 563-564.) However, Congress has waived the sovereign immunity of certain federal government agencies and instrumentalities from the time of their inception by including a ‘sue and be sued’ clause in the enabling legislation. (Loeffler v. Frank (1988) 486 U.S. 549, 554.)” For purposes of this opinion, the court assumed that the Credit Union is a federal instrumentality. “However, federal instrumentality status does not in and of itself provide the Credit Union with immunity from punitive damages.” Rather, as a federal entity that Congress has decreed can sue or be sued (12 U.S.C. § 1757(2)), a federal credit union is presumed to have fully waived immunity unless it can clearly show that it is immune under the following three-part test: “(1) certain types of suits are not consistent with the statutory or constitutional scheme; (2) an implied restriction of the general authority is necessary to avoid grave interference with the performance of a governmental function; or (3) for other reasons it was plainly the purpose of Congress to use the ‘sue-and-be-sued’ clause in a narrow sense.”

In asserting their immunity, defendants relied on a line of cases that began with Matter of Sparkman (9th Cir.1983) 703 F.2d 1097. There, a two-judge majority held that, as a legislatively declared instrumentality of the United States, a production credit association was not subject to liability for punitive damages absent an express waiver of such immunity. The court found the continued validity of Sparkman to be questionable on several grounds. First, when Matter of Sparkman, supra, was decided in 1983, the government managed production credit associations. “Production credit associations were not privately owned, organized and operated. The government had a proprietary interest. . . . In contrast, although the structure of a federal credit union and the duties of its various corporate parts are highly regulated by federal statute, a federal credit union is member owned and operated, i.e., privately owned, not government owned. . . . Accordingly, the relevance of Matter of Sparkman to federal credit unions is extremely limited.”

More importantly, however, the Sparkman analysis is inconsistent with subsequent United States Supreme Court authority. In Sparkman, the Ninth Circuit concluded that a federal instrumentality subject to a “ ‘sue and be sued’ ” clause retains its immunity from punitive damages unless Congress explicitly authorizes liability for such damages. . . . However, the Supreme Court set forth a contrary analytical framework in FDIC v. Meyer [(1994)] 510 U.S. 471. There, the court explained that “sue-and-be-sued” clauses cannot be limited by implication unless there has been a clear showing of one of three narrow exceptions. “Absent such a showing, agencies ‘authorized to “sue and be sued” are presumed to have fully waived immunity.’ ” . . . Consequently, in accordance with Supreme Court authority, we must start from the premise that the Credit Union waived immunity from punitive damages.

Noting that “sue and be sued” has been defined by the Supreme Court as including a waiver of “the natural and appropriate incidents of legal proceedings,” defendants argued it should not apply to punitive damages because such damages are not an ordinary incident of suit. “However, although not commonly imposed, punitive damages are authorized by statute as an incident of suit, i.e., they are natural and appropriate in certain cases. (Civ. Code, § 3294.) Further, liability for punitive damages is consistent with the presumption that the liability of a government instrumentality launched into the commercial world is the same as that of any other business. . . . Therefore, as with other incidents of suit, immunity from punitive damages is presumed to be waived by a ‘sue and be sued’ clause.”

Further, punitive damage awards have judicial limits and will be reversed if excessive. The nature of the defendant’s acts, the amount of compensatory damages awarded and the wealth of the defendant must all be considered. (Devlin v. Kearny Mesa AMC/Jeep/Renault, Inc. (1984) 155 Cal.App.3d 381, 389.) The poorer the wrongdoing defendant, the smaller the punitive damages award will be. (Id. at p. 390.) Accordingly, a punitive damage award does not inevitably lead to financial ruin.

----Andrea Lynn Rice

October 26th Newsletter

In E-Fab, Inc. v. Accountants, Inc. Services 2007 Daily Journal D.A.R 11850, the Sixth Appellate District of the California Court of Appeal stated:

At issue in this appeal is the accrual date of the plaintiff’s causes of action against the defendant for negligence, negligent misrepresentation, and breach of contract. The plaintiff was the victim of embezzlement by an employee, whom the defendant had recruited and placed with the plaintiff. The trial court concluded that the plaintiff should have discovered the embezzlement sooner, and it therefore sustained the defendant’s demurrer, brought on statute of limitations grounds. The plaintiff brought this appeal from the ensuing judgment. Applying the delayed discovery rule to the plaintiff’s claims of independent wrongdoing by defendant, we conclude that the trial court erred in finding the plaintiff’s claims barred as a matter of law. We therefore reverse the judgment.

Plaintiff E-Fab, Inc. designs and manufactures precision components and tools. In 1996, plaintiff needed “a new bookkeeper to manage its financial affairs including accounts receivable and accounts payable.” Plaintiff alleged that it contacted defendant Accountants, Inc. Services “to obtain a temporary accountant who was qualified to work for plaintiff in such a position.” Defendant agreed to provide “temporary or permanent accountants to meet plaintiff’s accounting needs. . . .” Defendant represented that the candidates “had been personally interviewed,” that “their background, qualifications, accomplishments, employment references, academic credentials had been screened, confirmed and verified,” and that “the temporary accountants had been recruited by [defendant] and were employed, supervised and managed by [defendant].” Relying on those representations by defendant, “plaintiff hired defendant Vickie Hunt as a temporary accountant and then as a permanent accountant/bookkeeper.” As it turned out, Hunt had prior criminal convictions for theft and for welfare fraud, she had been incarcerated, and she had falsified her academic credentials, but defendant had failed to discover any of those problems in its screening process.

Plaintiff further alleged that from 1996 to 2003, while employed by plaintiff, Hunt embezzled approximately $1 million. Hunt successfully avoided detection “by making multiple small withdrawals, in irregular amounts, to different payees,” by destroying records, including parts of bank statements, and “by providing the management of [plaintiff] with erroneous financial information, both oral and written, as to the status of the bank accounts,” as well as assurances that the information provided was accurate. As a result, “plaintiff had no reason to believe” that the embezzlement “was occurring.”

According to plaintiff, Hunt’s embezzlement scheme came to light in November 2003, when a prospective “new partner” was investigating plaintiff’s finances. After obtaining copies of the missing documents from the bank the evidence of Vickie Hunt’s embezzlement was first uncovered.” Law enforcement was notified in December 2003. A police investigation and an audit of plaintiff’s finances disclosed “the nature and extent” of Hunt’s embezzlement.

Plaintiff filed its initial complaint in August 2005, naming Hunt, defendant, and others. Three causes of action were asserted against defendant: the second cause of action, for negligence; the third cause of action, for negligent misrepresentation; and the fourth cause of action, for breach of implied in fact contract. The trial court sustained the demurrer to the second, third, and fourth causes of action on statute of limitations grounds without leave to amend. In July 2006, the court entered a judgment of dismissal in favor of defendant. This appeal by plaintiff followed.

The question before the court was: “Considering the facts alleged on the face of the complaint, together with judicially noticed matters, are plaintiff’s claims against defendant time-barred as a matter of law?” In assessing whether plaintiff’s claims against defendant are time-barred, two basic questions drove the court: (a) What statutes of limitations govern the plaintiff’s claims? (b) When did the plaintiff’s causes of action accrue?

The court first found that no matter whether a two-year, three-year or four-year statute of limitations applied was irrelevant to the present matter. The court turned to the question of accrual. If the discovery rule did not apply, the two-, three- and four-year statute of limitations barred plaintiff’s claims. If the discovery rule did apply, then it was timely filed under a two-year statute of limitations. “The court’s analysis of the accrual of plaintiff’s claims against defendant proceeded in two steps. First, we discuss the separate accrual trigger for defendant’s independent wrong. Next, we assess plaintiff’s second amended complaint to determine whether it meets the requisite pleading standards to survive demurrer.”

As noted above, a plaintiff invoking “the discovery rule must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence. The burden is on the plaintiff to show diligence, and conclusory allegations will not withstand demurrer.” (McKelvey v. Boeing North American, Inc. (1999) 74 Cal.App.4th 151, 160; Fox v. Ethicon, Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 815.) “We consider each of those two requirements in turn.”

The first prong requires plaintiffs to allege “facts showing the time and surrounding circumstances of the discovery of the cause of action upon which they rely.” (Bennett v. Hibernia Bank (1956) 47 Cal.2d 540, 563.) “Here, plaintiff alleges that it ‘did not become aware of, nor did it have any reason to suspect, that Vickie Hunt had prior convictions for theft and welfare fraud and that her academic credentials had not been verified until after her embezzlement became known in November 2003 when Plaintiff was first informed of Vickie Hunt’s criminal record by the police. It was at that time that Plaintiff first became aware that Vickie Hunt had not been “screened” by [defendant] and that [defendant’s] representations as to her background were false.’. . . [¶] [T]he pleading here specifically describes both the time and the circumstances of plaintiff’s discovery of its claim against defendant: ‘in November 2003 when Plaintiff was first informed of Vickie Hunt’s criminal record by the police.’ Plaintiff’s allegations show that it ‘actually learned something [it] did not know before.’ . . . Those allegations thus satisfy the first prong of the discovery rule’s pleading requirements.”

As to the second pleading requirement, inability to have made an earlier discovery, plaintiff alleged that it had “no reason to suspect that [defendant] did not screen plaintiff and failed to discover she had prior convictions for theft and welfare fraud, or that her academic credentials were misrepresented, or that she was embezzling money as Vickie Hunt appeared to be a competent and honest employee.” Plaintiff also alleged that it relied on defendant’s “expertise and experience in determining the qualifications and credentials of its accountants . . .” The court found this averment to meet the pleading requirements of the discovery rule because, as alleged, both plaintiff’s injury and its cause were imperceptible.

In sum, we conclude, the pleading requirements for the delayed discovery rule are met here. In this case, it does not “clearly and affirmatively appear on the face of the complaint that the action is barred by the statute of limitations” and “the demurrer should have been overruled on this ground.” (Geneva Towers Ltd. Partnership v. City and County of San Francisco [2003] 29 Cal.4th [769] at p. 782, fn. omitted.)

----Andrea Lynn Rice

Octobert 19th Newsletter

In Castaneda v. Olsher 2007 Daily Journal D.A.R 11551, the California Supreme Court held that landlords, including mobilehome park owners, ordinarily have no duty to reject prospective tenants they believe, or have reason to believe, are gang members. “To recognize such a duty would tend to encourage arbitrary housing discrimination and would place landlords in the untenable situation of facing potential liability whichever choice they make about a prospective tenant.”

Defendants George Olsher, Paule Olsher and P & G Enterprises (collectively Olsher) own a mobilehome park in which plaintiff Ernest Castaneda lived. Plaintiff was shot and injured while he was a bystander to a confrontation between members of the Northside Centro and Westside Centro gangs. A former El Centro police officer who had specialized in studying and controlling local criminal gangs identified Paul Levario, a resident of the mobilehome park in space 23, as a member of the Northside El Centro gang. According to the police report and an eyewitness, a fellow Northsider who was visiting Levario, Manuel Viloria, fired the shot that injured plaintiff.

Plaintiff sued Olsher, contending that Olsher had breached a duty not to rent to known gang members or to evict them when they harass other tenants. The superior court granted a defense motion for nonsuit after presentation of plaintiff’s case; the Court of Appeal reversed, but the California Supreme Court reinstated the judgment.

The Supreme Court first examined the asserted duty to refuse to rent housing to members of street gangs; and second, the asserted duty to evict gang member tenants. “The first duty, we conclude, cannot be imposed except under circumstances where gang violence is extraordinarily foreseeable. The second, we conclude, exists where violence involving existing gang member tenants is highly foreseeable, but we also conclude the facts of this case do not create that level of foreseeability. . . .”

Plaintiff emphasized the threat that violent street gangs and associated illicit drug dealing pose to the safety of peaceful Californians and argued the extent of this danger warrants imposing a duty on landlords not to rent to gang members. “We agree the threat is of the most serious dimensions and state policy urgently seeks its alleviation. The Legislature has said as much, and the Official Reports are replete with examples of the problem. . . . Street gang activity can often subject residents of an apartment building or mobilehome park to unacceptable levels of fear and risk. But we are not persuaded that imposing a duty on landlords to withhold rental units from those they believe to be gang members is a fair or workable solution to this problem, or one consistent with our state’s public policy as a whole. Absent circumstances showing extraordinary foreseeability, we decline to recognize such a duty.”

As defendants note, “Gang members do not . . . announce their gang affiliations on housing applications.” If landlords regularly face liability for injuries gang members cause on the premises, they will tend to deny rental to anyone who might be a gang member or, even more broadly, to any family one of whose members might be in a gang. The result in many cases would be arbitrary discrimination on the basis of race, ethnicity, family composition, dress and appearance, or reputation. All of these are, in at least some circumstances, illegal and against public policy and could themselves subject the landlord to liability. . . . Landlords would thus risk liability whichever choice they make, and families whose ethnicity, teenage children, or mode of dress or personal appearance could, to some, suggest a gang association would face an additional obstacle to finding housing.

Plaintiff next contended that having rented to the Levarios, Olsher was obliged to evict them once they began to harass and annoy other residents of the park. “This asserted duty requires a different analysis of burden and foreseeability than above. A landlord ordinarily has more opportunity to judge the behavior of an existing tenant than of a rental applicant. In assessing the danger an existing tenant poses, the landlord can rely on his or her own observations or those of a property manager and, where the circumstances make these reliable, on complaints of the other tenants. The risk that landlords will feel compelled to make decisions on discriminatory bases, creating social costs as well as potential legal liability, is thus lessened. . . . On the other hand, undertaking eviction of a tenant cannot be considered a minimal burden. The expense of evicting a tenant is not necessarily trivial, and eviction typically results in the unit sitting vacant for some period. In some municipalities—and, more to the present point, under the Mobilehome Residency Law—the landlord must provide, and may have to prove, cause for the eviction. Finally, undertaking eviction of a hostile tenant, especially one involved in a violent street gang, could subject the landlord or property manager to retaliatory harassment or violence. Not surprisingly in light of the burden involved, courts in this and other states have recognized a tort duty to evict a vicious or dangerous tenant only in cases where the tenant’s behavior made violence toward neighbors or others on the premises highly foreseeable.”

The Court then looked to the circumstances of this case to see if Olsher was on notice of facts making a gang shooting involving Levario highly foreseeable. “In assessing whether the facts show ‘heightened foreseeability’ of third party crimes, our precedents have focused on whether there were prior similar incidents from which the property owner could have predicted the third party crime would likely occur, though we have recognized the possibility that ‘other indications of a reasonably foreseeable risk of violent criminal assaults’ could play the same role. . . . Evidence of two shooting incidents related to the mobilehome park was presented. In the first, nothing about the shooter was known—not identity, motive or even location; the only connection to the park was that the bullet hit a mobilehome located there. . . . But as no occupant of the mobilehome on space 23 was involved, the incident did little to establish that gun violence by those occupants was a likely occurrence. To establish a duty to evict the Levarios, plaintiff must show that violence by them or their guests was highly foreseeable.”

. . . The heightened foreseeability that would justify imposing a duty to evict the Levarios must be found, if anywhere, in their behavior as tenants, as reported to Olsher or his [manager], Rogers. The evidence in this regard was that another park resident, Monica Preciado-Langford, had complained to Rogers that occupants of the mobilehome on space 23 or their guests had harassed her and her children by causing a pit bull to growl at them and that a person or persons she had been told lived at space 23 or 24, or both, had broken windows on her car. There was also evidence that four or five men at the mobilehome on space 23 whistled and hooted at plaintiff’s sister, making her somewhat fearful, and that these incidents were reported to Rogers. Even coupled with Rogers’s belief that the occupants of the mobilehome on space 23 were gang members, the possibility of gun violence established by this evidence does not rise to a level of heightened foreseeability necessary to impose a duty to evict. No one had reported that the Levarios or their guests had used, displayed or possessed a gun at the mobilehome park.

----Andrea Lynn Rice

October 12th Newsletter

In Siebel v. Mittlesteadt 2007 Daily Journal D.A.R 10802, the Supreme Court of the State of California stated:

Here we consider what constitutes a favorable termination of a lawsuit as a predicate for a subsequent malicious prosecution action. We hold that, in this context, a postjudgment settlement constitutes a favorable termination when the malicious prosecution plaintiff received a favorable judgment in the underlying action, and settled without giving up any portion of the judgment in his favor.

Initially, Debra Christoffers sued her employer, Siebel Systems, Inc. (SSI) and the company's chief executive officer, Thomas M. Siebel. Christoffers alleged eight causes of action against Siebel individually. The first six were based on various assertions of gender discrimination and wrongful termination, and were disposed of by demurrer, summary adjudication, or voluntary dismissal before trial. It is these six causes of action that Siebel later relied upon to bring his malicious prosecution suit. Christoffers went to trial on the two remaining fraud allegations against Siebel individually, and on her allegations against SSI for fraud, failure to pay compensation and wrongful termination to avoid those payments.

Christoffers failed to prove fraud or wrongful termination. The jury specifically found that SSI had fired Christoffers because it honestly believed that her job performance was deficient, that neither Siebel nor SSI had made a promise it had not intended to keep, and that neither defendant had concealed a material fact. The jury did find that SSI had failed to pay Christoffers substantial commissions. Accordingly, it awarded her $233,662.25 in damages and prejudgment interest. As the prevailing party on her unpaid-compensation claim against SSI, Christoffers was awarded costs and attorney fees attributable to that portion of the action. (Labor Code, § 218.5.) Because Christoffers had failed to recover from Siebel personally, he was granted his litigation costs.

All parties appealed, but later agreed to settle the case. SSI agreed to pay Christoffers approximately 86 percent of the damages and costs she had been awarded. Christoffers agreed to pay Siebel's court-awarded litigation costs. Siebel, SSI, and their attorneys released Christoffers, but not her attorneys, Buell and Mittlesteadt (collectively, defendants.) The agreement specifically provided that it did not modify “the final termination of the Action entered in favor of Siebel for purposes of pursuing claims against Buell or Mittlesteadt, or otherwise prevent Siebel from pursuing any claims against Buell or Mittlesteadt” based on the underlying judgment. On October 5, 1999, pursuant to the settlement agreement, the parties voluntarily dismissed their appeals.

In July 2000, Siebel, acting as an individual, filed this lawsuit against Buell and Mittlesteadt for malicious prosecution. Defendants moved for summary judgment, urging: (1) Siebel could not prove malicious prosecution because there had been no favorable termination; (2) public policy required dismissal because defendants would not be able to defend the lawsuit without violating the attorney-client privilege; and (3) Siebel could not demonstrate that defendants lacked probable cause for prosecuting the underlying action. The trial court granted defendants' motion on the first ground, did not reach the remaining grounds, and entered judgment for defendants. The Court of Appeal reversed, concluding that Siebel had obtained a favorable termination, and the Supreme Court affirmed the decision of the Court of Appeal.

To establish a cause of action for malicious prosecution, a plaintiff must demonstrate that the prior action (1) was initiated by or at the direction of the defendant and legally terminated in the plaintiff's favor, (2) was brought without probable cause, and (3) was initiated with malice. (Casa Herrera, Inc. v. Beydoun (2004) 32 Cal.4th 336, 341 (Casa Herrera).)

Here, the Court of Appeal held that Siebel obtained a favorable termination because the settling parties did not stipulate to a new judgment but agreed instead to dismiss their appeals and allow the existing judgment to become final. “ ‘The theory underlying the requirement of favorable termination is that it tends to indicate the innocence of the accused, and coupled with the other elements of lack of probable cause and malice, establishes the tort [of malicious prosecution].’ [Citation.] Thus, ‘[i]t is hornbook law that the plaintiff in a malicious prosecution action must plead and prove that the prior judicial proceeding of which he complains terminated in his favor.’ [Citation.]” (Casa Herrera, supra, 32 Cal.4th at p. 341.)

To determine whether a party has received a favorable termination, “we consider ‘ “the judgment as a whole in the prior action. . . .” [Citation.]’ (Casa Herrera, supra, 32 Cal.4th at p. 341.) Victory following a trial on the merits is not required. Rather, ‘ “the termination must reflect the merits of the action and the plaintiff's innocence of the misconduct alleged in the lawsuit.” [Citation.]’ ”

Defendants' primary contention was that the Court of Appeal failed to apply what they term the “settlement rule” set forth in Ferreira v. Gray, Cary, Ware & Freidenrich (2001) 87 Cal.App.4th 409 (Ferreira). “Defendants' reliance on Ferreira is misplaced.” In Ferreira, “[t]he parties settled after entry of judgment. Terms of the subsequent settlement provided that Ferreira prevailed on certain claims and was awarded damages, but that he would accept $1 from each of the three opposing parties in satisfaction of the judgment. In exchange, Rushing and her family members agreed they would not appeal. An amended judgment reflecting the terms of the settlement was entered. Ferreira then sued Gray Cary for malicious prosecution.”

The Supreme Court observed that in this matter, the Court of Appeal had “distinguished Ferreira because, procedurally, the parties in that case agreed to a new disposition and an amended judgment. Ultimately that amended judgment, not the jury verdict, ended the litigation. Conversely, Siebel and Christoffers accepted different rights and obligations between themselves, but did not stipulate to a new judgment. The agreement to abandon their appeals allowed the existing judgment to become final.”

Defendants challenged the attempt to distinguish Ferreira. They urged Ferreira was not based on whether the original judgment was left intact, but focused on whether “both sides [gave] up something of value to resolve the matter.” Defendants asserted “that both sides here relinquished something valuable to end the litigation. They compromised certain awards to avoid the costs and uncertainty of their appeals.” The Court rejected this assertion, concluding that the Court of Appeal’s analysis was correct and that adopting defendants' position would foreclose a malicious prosecution action whenever a case is resolved by agreement.

Such a conclusion would run counter to the policy favoring negotiated dispositions. A blanket rule could also bar legitimate malicious prosecution actions, allowing unscrupulous parties and/or their attorneys to hide behind its shield. “The action for malicious prosecution is a recognition of the right of an individual to be free from unjustifiable litigation. . . . [¶] The purpose of the action is to compensate a wronged individual for damage to his reputation and to reimburse him for the expense of defending against the unwarranted action.” [Citation.] (Cowles v. Carter (1981) 115 Cal.App.3d 350, 354.)

----Andrea Lynn Rice

October 5th Newsletter

In Rose v. Hudson 2007 Daily Journal D.A.R 11213, the Third Appellate District of the California Court of Appeal held that the Supreme Court’s rulings regarding the statute of limitations in criminal malpractice actions apply retroactively.

In Wiley v. County of San Diego (1998) 19 Cal.4th 532 (Wiley), the California Supreme Court held that when a former criminal defendant sues his or her attorney for legal malpractice (“criminal malpractice”), the former client’s “actual innocence [of the underlying criminal charge] is a necessary element of the plaintiff’s cause of action.” In Coscia v. McKenna & Cuneo (2001) 25 Cal.4th 1194 (Coscia), the California Supreme Court reaffirmed Wiley, supra, and then held that the client’s innocence must be shown by postconviction exoneration in the form of a final judicial disposition of the criminal case. Coscia also reaffirmed prior case law holding that the limitations period begins to run, subject to tolling, on the date the attorney committed an act or omission amounting to professional negligence–which would necessarily occur during the attorney’s representation of the client.

Rose’s complaint, filed on September 15, 2005, alleged a single cause of action for legal malpractice in Hudson’s legal representation of Rose in a criminal case wherein Rose was convicted in November 1995. The conviction was vacated in October 2004. Hudson demurred to the complaint on the ground the complaint (filed almost 10 years after the criminal conviction) was time-barred by both the one-year and four-year alternative limitations periods of section 340.6. Hudson argued the actual injury element of malpractice occurred when Rose was convicted in November 1995, and that matters of which the court could take judicial notice demonstrated that Rose was indisputably aware of the alleged malpractice no later than November 1996, when he filed an appellate brief claiming ineffective assistance of counsel on multiple grounds. “Even factoring in the maximum two-year tolling for incarceration (§ 352.1), and even assuming the four-year limitations period applied, the complaint should have been filed no later than November 2001, and the September 2005 filing was too late. Hudson argued a malpractice cause of action accrues upon the date of conviction, and pursuant to Coscia, supra, 25 Cal.4th 1194, the statute of limitations is not tolled while the criminal defendant seeks postconviction relief.”

The trial court sustained the demurrer without leave to amend, citing section 340.6 and Coscia, supra, 25 Cal.4th 1194. Rose appealed from the ensuing judgment of dismissal, and the Court of Appeal affirmed.

The elements of a legal malpractice action arising from a criminal proceeding are (1) proof of actual innocence; (2) the attorney’s duty to use such skill, prudence, and diligence as members of the profession commonly possess and exercise; (3) breach of that duty; (4) a proximate causal connection between the breach and the resulting injury; and (5) actual loss or damage resulting from the lawyer’s negligence. “[P]ublic policy considerations require that only an innocent person wrongly convicted be deemed to have suffered a legally compensable harm. Unless a person convicted of a criminal offense is successful in obtaining postconviction relief, [public policy] preclude[s] recovery in a legal malpractice action.”

Rose argued that Coscia, supra, adversely affected his right to file his legal malpractice action by changing both the elements of the cause of action and the limitations period. “Therefore, argues Rose, due process and sound public policy dictate that Coscia’s ‘new rule’ be applied prospectively and that Rose be allowed a ‘reasonable time’ to satisfy the limitations period. Rose contends this ‘reasonable time’ should run from the timely pursuit of the first newly-created postconviction remedies available to him after Coscia, including remedies based on new scientific and technological advances. . . . As we shall explain, Rose’s argument is without merit.”

The court observed that Coscia considered the effect of the requirement of exoneration by postconviction relief upon the application of the relevant statute of limitations for legal malpractice actions arising from criminal proceedings. Coscia observed that some jurisdictions have held that the limitations period does not commence until the plaintiff has obtained postconviction relief, because the cause of action does not accrue for limitations purposes until that time. Other jurisdictions have adopted a “two-track approach.” They reject as mere “legal fiction” the rule that a wrongly convicted criminal defendant suffers no cognizable harm, and the malpractice claim does not accrue, until he or she has obtained appellate relief. Coscia chose the two-track approach because the jurisdictions that rely on the “legal fiction” “are inconsistent with [the California Supreme Court’s] previous decisions addressing the subject of accrual and actual injury under . . . section 340.6, subdivision (a), including Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison [(1998)] 18 Cal.4th 739. This statute provides that the limitations period begins to run, subject to tolling, on the date the attorney committed an act or omission amounting to professional negligence. . . .”

Coscia concluded by finding that a plaintiff must file a malpractice claim within the one-year or four-year limitations period set forth in section 340.6, subdivision (a). “Although such an action is subject to demurrer or summary judgment while a plaintiff’s conviction remains intact, the court should stay the malpractice action during the period in which such a plaintiff timely and diligently pursues postconviction remedies. . . . By this means, courts can ensure that the plaintiff’s claim will not be barred prematurely by the statute of limitations. This approach at the same time will protect the interest of defendants in attorney malpractice actions in receiving timely notice and avoiding stale claims.” Coscia remanded to allow the client to amend the complaint to allege actual innocence and stated the trial court should stay proceedings in the malpractice case as necessary to permit the client timely pursuit of postconviction remedies. (Id. at p. 1211.)

Addressing the matter before it in light of Coscia, the court observed that Rose’s 2005 malpractice complaint was untimely for the following reasons: “The actual injury element was met no later than November 1995, when Rose was convicted. Even assuming for the sake of argument that it could not be said he knew or should have known of Hudson’s allegedly deficient performance at the time of conviction, Rose clearly knew he was claiming attorney negligence no later than November 1996, when he filed an appellate brief in the criminal case arguing ineffective assistance counsel, including an argument about the serology evidence. The appellate brief was filed by a different defense attorney, indicating Hudson no longer represented Rose in the criminal matter. Thus, the one year limitations period of section 340.6 began no later than November 1996. Factoring in the two year tolling due to Rose’s incarceration, his complaint had to be filed by November 1999, and the 2005 complaint was too late. Even assuming for the sake of argument that the four year period of section 340.6 applied, the complaint had to have been filed by 2002 (1996 plus four years plus two years due to incarceration); the 2005 complaint was still too late.”

Insofar as Rose argues Coscia should not be “retroactively” applied to him, the argument fails. . . . Here, it was up to the California Supreme Court to decide whether to make Coscia prospective only. It did not do so.

----Andrea Lynn Rice

September 28th Newsletter

In City of Santa Barbara v. Superior Court 2007 Daily Journal D.A.R 10807, the Supreme Court of the State of California held that a release of liability relating to recreational activities generally is not effective as to gross negligence.

The City of Santa Barbara (the City) has provided a camp for children with developmental disabilities—Adventure Camp. Katie Janeway, who suffered from cerebral palsy, epilepsy, and other similar developmental disabilities, participated in Adventure Camp in 1999, 2000, 2001, and 2002. In 2002, the application form for Adventure Camp included a release of all claims against the City and its employees from liability, including liability based upon negligence, arising from camp activities. Katie’s mother, Maureen Janeway, signed the release.

Based upon the information provided by Maureen Janeway and Katie’s history of seizures, the City took special precautions during the Adventure Camp swimming activities in 2002. The City assigned Veronica Malong to act as a “counselor,” to keep Katie under close observation during the camp’s swimming sessions. Katie participated in the first swimming day at the 2002 Adventure Camp without incident. On the second swimming day she drowned.

Katie’s parents, Terral and Maureen Janeway, filed a wrongful death action alleging the accident was caused by the negligence of the City and Malong. Relying upon the release, defendants moved unsuccessfully for summary judgment and summary adjudication. Defendants then sought relief in the Court of Appeal, filing a petition for writ of mandate. (Code Civ. Proc., § 473c, subd. (m)(1).) The appellate court denied the petition. The Supreme Court granted review and affirmed the denial.

The Court begin by defining the terms that underlie the issue presented. “Ordinary negligence”—an unintentional tort—consists of a failure to exercise the degree of care in a given situation that a reasonable person under similar circumstances would employ to protect others from harm, while “gross negligence” long has been defined in California and other jurisdictions as either a “want of even scant care” or “an extreme departure from the ordinary standard of conduct.” (Eastburn v. Regional Fire Protection Authority (2003) 31 Cal.4th 1175, 1185-1186.)

The Court observed that the “traditional skepticism” concerning agreements designed to release liability for future torts long has been expressed in Civil Code section 1668, which provides: “All contracts which have for their object, directly or indirectly, to exempt any one from responsibility for his [or her] own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.” In Tunkl v. Regents of University of California (1963) 60 Cal.2d 92 (Tunkl), Justice Tobriner’s unanimous opinion for the court noted that past decisions had differed concerning the reach of that statute, but that those decisions agreed in one significant respect: they consistently “held that [an agreement’s] exculpatory provision may stand only if it does not involve [and impair] ‘the public interest.’ ”

The Court in this case acknowledged that no published California case has upheld, or voided, an agreement purporting to release liability for future gross negligence. The Court therefore considered the law of other jurisdictions and affirmed that the vast majority of decisions state or hold that such agreements generally are void on the ground that public policy precludes enforcement of a release that would shelter aggravated misconduct.

The Court pointed out that it did not address in Tunkl whether an agreement purporting to release liability for future gross negligence could be enforced; “we considered only the circumstances in which a release of liability for the type of negligence at issue in that case—future ordinary negligence—might be unenforceable. . . . Certainly, nothing in Tunkl is inconsistent with the public-policy-based majority rule described above. Nor can Tunkl reasonably be read to stand for the proposition that, assuming Tunkl’s public interest factors do not preclude enforcement of an agreement releasing liability for future ordinary negligence, this same agreement also should, or even may, be construed and enforced to release liability for future gross negligence.”

For the reasons discussed above—that is, adherence to the “public policy to discourage,” or at least not facilitate, “aggravated wrongs” . . . , we conclude that public policy generally precludes enforcement of an agreement that would remove an obligation to adhere to even a minimal standard of care. Applying that general rule here, we hold that an agreement purporting to release liability for future gross negligence committed against a developmentally disabled child who participates in a recreational camp designed for the needs of such children violates public policy and is unenforceable.

----Andrea Lynn Rice